RE: [lpsf-discuss] RE: A quick Mises and Rothbard redux

Discussion
1

Aw come on Brian. We might not all agree with Phil (as I do). But we
certainly appreciate his passion, good humor and his contribution to our
LPSF culture. Personally I think those who think peddling religion
"doesn't help the Libertarian cause" are misguided. There's no empirical
test for the existence of the Deity either but that doesn't make the
arguments for or against any more convincing or less interesting. A "big
tent" LPSF seems good for the Libertarian cause if you ask me.

Did anyone other than Phil and I read Adam Hamilton, of the Zeal
Intelligence newsletter, who reports some real news for you all. "The
S&P 500 went from 108 in the late 1960s to 107 in the early 1980s, for a
small 1% loss. That is bad enough, to not earn any money over more than
a decade, but if you look at the same slice of time in the
inflation-adjusted data, investors actually lost nearly two-thirds of
their purchasing power over this same period!" More from Mr.
Hamilton..."Over the past half century from the absolute best-case
moments in time to buy and sell for the long term, fully 7/8th of the
gains investors (in the S&P and NYSE) could have reaped are illusory.
These are wiped out by rising inflation decreasing purchasing power.
Thus inflation wiped out half of the best possible annual gains in the
last half century or nearly 7/8th of the final compounded return."

I'm very happy I bought gold to preserve the value of my savings. It's
done quite well for me over the last two years even though it's
technically not an investment. For investments, I suggest starting a
business.

Best regards,

Michael Denny

2

Mike:

I'm pretty sure I could give you some data, inflation-adjusted, that
shows the S&P gave a positive return over any 25 year period in the
last 80 years. The late 60s to the early 80s is only 12 to 15 years
or so. Not nearly enough time to draw any conclusions, especially
with a sample of one. I don't believe Hamilton's claim that inflation
wiped out nearly 7/8th of the final compounded return. I would have
to see the data to which he's referring. If you have a softcopy of
the article would you send it on?

Although I disagree with you and Phil about the gold standard, I do
think the discussion brings up a lot of interesting points that I had
not considered previously.

There's no question to me that holding a quantity of gold is far
superior to holding cash, but as far as an "investment", to me, gold's
expected real return is zero or maybe even less than zero (due to the
special case of gold's very low and perhaps even negative correlation
of returns with other investments, I grant that even with a negative
expected real return, it could make sense to have it in your
portfolio).

By the way, I agree with you that the best investment of all is
starting a business. I personally believe the principle-agent problem
inherent in corporate governance of publicly traded companies is much
larger than most people realize.

-Derek

3

An interesting question.

$1 in 1970 is worth $5 today in terms of comparable goods you can buy.
[source: inflation calculator at http://stats.bls.gov/]
So would it be correct to say inflation should account for at least 4/5ths of the "return" on any investment made over that period?

-- Steve

4

Btw, inflation would effect the price of gold in the same way.

As a side note:

Gold in 1970 was $35/once today it's about $445/once.
[source: http://www.kitco.com/charts/historicalgold.html]
So $1 in gold in 1970 would get you $12 today.

In comparison, $1 invested in the S&P 500 in 1970 would get you $53 dollars today.
[source: http://finance.yahoo.com/]
So the value of gold basically hasn't changed in terms of the goods you can buy with a given amount.

This isn't to say gold isn't a good investment should the currencies collapse, just that it might not be a good one otherwise.

-- Steve

5

My mistake - it's done ~2x in those terms. (while the S&P has done ~10x).

-- Steve

6

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7

Mike Denny wrote:

Aw come on Brian. We might not all agree with Phil (as I do). But we

certainly appreciate his passion, good humor and his contribution to our
LPSF culture. Personally I think those who think peddling religion "doesn't
help the Libertarian cause" are misguided. There's no empirical test for the
existence of the Deity either but that doesn't make the arguments for or
against any more convincing or less interesting. A "big tent" LPSF seems
good for the Libertarian cause if you ask me. <MD

Even though I disagree with them, I definitely want theists and gold bug
Austrians in the Libertarian tent. I just worry that gold buggery will
scare mainstream liberty-lovers away from our tent if it is seen as the
tent's conventional wisdom, so I'm often willing to correct it when I see it
go by. Nevertheless, I'm about as big-tent as a Libertarian can get -- I
even want to rewrite the pledge so as to include anyone who agrees with our
direction if not necessarily our destination:
http://blog.360.yahoo.com/knowinghumans?p=171.

Did anyone other than Phil and I read Adam Hamilton, of the Zeal

Intelligence newsletter, who reports some real news for you all. "Over the
past half century from the absolute best-case moments in time to buy and
sell for the long term, fully 7/8th of the gains investors (in the S&P and
NYSE) could have reaped are illusory. These are wiped out by rising
inflation decreasing purchasing power. Thus inflation wiped out half of the
best possible annual gains in the last half century or nearly 7/8th of the
final compounded return." <MD

That just means (as Steve Dekorte pointed out) that nominal
dollar-denominated returns are a lot higher than real returns, which is what
you would expect over a long period with even moderate dollar inflation.
Such a misleading statistic tells us nothing about how real returns in
equities compare to real returns in other investment vehicles. Markets have
long known how to discount for expected dollar inflation, and such
discounting applies the same way for all investments offering
dollar-denominated returns.

Derek Jensen wrote:

I'm pretty sure I could give you some data, inflation-adjusted, that

shows the S&P gave a positive return over any 25 year period in the last 80
years. <DK

I already posted such data here on July 25, and re-posted it on August 6. I
wrote:

To understand the historical returns to equities since 1871 without
cherry-picking, see http://www.vakkur.com/financial/spx_real_rtns_1871.htm.
There has never been a 30-year period with negative real returns, and more
than 90% of 20-year periods have had positive real returns.

Brian Holtz
Yahoo! Inc.
2004 Libertarian candidate for Congress, CA14 (Silicon Valley)
http://marketliberal.org/>
blog: http://knowinghumans.net/>
book: http://humanknowledge.net/>

8

Brian,

  I'm an even bigger-tent Libertarian -- I want to rewrite the pledge so as to include anyone who agrees with our desire for significant changes to the status quo, if not necessarily with our direction or our destination!

  OK, maybe that's not such a great idea. But maybe watering down our principles to accommodate people who aren't libertarians, but only want a bit less government than there is now, isn't such a hot idea either.

  We can still work in concert with those folks as fellow travelers without them being in the party, or if they do join the party, without re-scripting the party to conform to their less-libertarian beliefs.

Yours in liberty,
        <<< Starchild >>>

"I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue!"
-Late Libertarian Party leader Karl Hess (writing for Senator Barry Goldwater).

On Monday, September 5, 2005, at 07:26 PM, Brian Holtz wrote (in part):

9

Brian,

  I'm an even bigger-tent Libertarian -- I want to rewrite the pledge so as to include anyone who agrees with our desire for significant changes to the status quo, if not necessarily with our direction or our destination!

  OK, maybe that's not such a great idea. But maybe watering down our principles to accommodate people who aren't libertarians, but only want a bit less government than there is now, isn't such a hot idea either.

  We can still work in concert with those folks as fellow travelers without them being in the party, or if they do join the party, without re-scripting the party to conform to their less-libertarian beliefs.

Yours in liberty,
        <<< Starchild >>>

"I would remind you that extremism in the defense of liberty is no vice! And let me remind you also that moderation in the pursuit of justice is no virtue!"
-Late Libertarian Party leader Karl Hess (writing for Senator Barry Goldwater).

On Monday, September 5, 2005, at 07:26 PM, Brian Holtz wrote (in part):

10

Derek,

Yes, I gave that some thought to that and did those calculations before I made my post. But I don't see how that changes the fact that 4/5ths of the *value in goods* that you can buy with that $53 has been lost to inflation.

-- Steve

11

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12

Of course if yyou start your own business in California be careful.
Make sure anyone you hire has never sued or threatened to sue anybody
before. I don't know if you are allowed to ask that. Never fire
anybody if you can help it. Have a good truste d lawyer and a lawyer
to watch your lawyer. Hide any success asmuch as possibke. Shield all
assets as much as possible, and remove as much sd resonable to a
country less hostile to success.

As for gold, I assert that trust in the Fed, in central magement of
the economy, and in Keynes is a delusion. Alredy proven wrong by the
great depression, the stagflation of the seventies,and the entire
economic history of the world. Natural gashas soarred in price, so has
oil, copper and almost every other commodity. The lower middle classs
and poor will struggle mightily this winter. This is the classic
result of a twenty year liquidity driven finacial boom that directed
investments incorrectly into the hot fasionable areas, such as 90
percent dark undersea cable, new swimming pools mansions and porches
for silicon execs valley execs who sold in time, Mc Mansions
formillions on the real estate escalator, and lots of empty commercial
real estate in San Francisco. Where didn't the money go, wxplortion
for new gas fields, pipes for fields, treatment for gas fields, tire
factories for mining truck tires, development of new mines, new oil
refineries especially in the us. Lets talk more about oil refineries.
The artifically high dollar elevated for sictry years bny it's reserve
status under bretton woods was one rteason no refineries were built.
the lack if fasion in old economy is another reason. And the third is
the out of contril kegal system. why build a refinery here and get
sued for just thinking about using a politically incorect word or
looking at as employee in a certain way, or not hiring a prospective
employee. or....
Another problem with oil and natural gas is the epidemic of dishonest
bok keeping, cauded in part by the moral rot cauded by the absence of
any standards, brought on by the absence of standard money. this is
Tandian religion, and it certainly seems to be rendian science as the
prediction of moral decay from monetary decay certainly has come true,
and the ability to predict is the definition of a valid scientific
thery, until it fails to prdict events or observations. So the oil and
gas companies fudged the books like everybody else. Now the gas and
oil are fetting scarce. So I agree with you, this is not a geological
problem, this is the natural result of malinvestment writ large,
combined with depreciating money. If we have a cold winter, ther is
going to be a lot Pay the heating bill and gas for the car or the
mortgage, which will it be. What a mess. And I am not suppposed to
talk about gold and austrian economics to the lefties. Well how the
hades am I supposed to ecplain 4 dollar a gallon gas and four hundred
dollar heating bills for a well insulated bungalow in Webster Groves.
This isn't market failure. This isn't geological inevitabilityFor
natural gas this isn't even China and India. This is the result of the
utter failure of the keybesian fiat finacial system to allocate
capital to an essential industry for twenty freaking uears while the
reling class got paper rich. This analysis is not from anything
specific that I read but from my own head when I was asked by a house
guest why natural gas is so high after I asked ny x to put on a sweter
and turn down the heat. Oh BTV my guest is aretired Anesthesia
professor helping Renata srudy for her boards. He is Egyptian ,
exrremely accompliched mith phds Mds, professorships in edinbourough
Hawaii, Houston and LA. He is wxtreely mellow and a pleasure to be
with . Wverything is gantastic, or verry goot or very very goot. My
wireless network is called"Ashcroft is Listening". tenata didn't know
who Ashcroft was, she has other interests. But Dr. rashad does. He
said he knew because he had an egyptian friend who was a Pchychiatrist
in Indianapolis. He decided to grow a beard. The neighbors told the
Feds that this Eygyptian neighbor grew a beard. They threw him in jail
for 6 months as a uspected terroist. He insisted he was a christian,
but they did not listen. Finally they were conviced and let him go. I
was fit to be tied when I heard the story. But Dr. Rashad just smiled.
He said his friend learned a very good lesson. I asked himn what the
lesson was. " He leaarned never to forget to shave in the morning." lol.

13

Not mentioned is that the sand p is periodically readjusted andthe
losers removed and replaced by winners. There is friction in getting
out of the losers and getting into the winners for the s and p funds.
I aAlso don't some or most of the funds have some king of mangement
fee. also gold has been monipulated by central bank dishoarding,
favored gold mine company hedging with protections from the banks, and
rampant naked short selling on the comex. Gata has the scoop. I don't
buy the one dollar to five since 1970, I fugure one to ten has been my
experience. And besides 35 dollar gold was a political number and
completely underwater and about to fail in 1970. This chart shows 5x
m3 growth since ninteeen eighty.

http://research.stlouisfed.org/fred2/series/WM3NS/28/Max

and inflation in some domestic items like mediciine and tuition are
may be greater and some where offshoring to the huddled masses may be
less. But if the huddled masses ever start losing the dollar
religion,watch out.

http://research.stlouisfed.org/fred2/series/WM3NS/28/Max

or....
http://tinyurl.com/c9ypb

and other related items. As for small biz, I invested in
Sharrfenburger chocolate at the start as R and I were friends with
robbert Steinberg who gounded it. Unfortunately I sold most of my
shares when I was panick hiding assets during my lawsuit. Stupid.
Anyway I still has some left and made ten times my nominal money in
eight years. Not too shabby. I am putting the proceeds into physical
silver or gold and they will have to put me in Gitmo and attach
battery clips to my masculinity before they will take it like
Roosevelt did in 1933. No that was act that woll live in infamy.

As for the thoght of appearing a freak as a goldbug, We better come up
with a good explaination to the shivering this winter, cuz they are
alredy primed for anger by NOLA. The polit lies of the keynsian
socialists and the neo con commies wont pay the gas bill. Only Mises
has a rational explaination nad a clear path to eventually end the
pain. Otherwise we sink in anger recrimination and blame. the
aftermath of katrine is a waeup call to Libertarians that we have to
get busy getting the word out while there is still time for civil
discussion.

14

Phil,

  That story of your guest Dr. Rashad's friend is absolutely outrageous if it happened as he reports. I know that there have been a lot of civil and human rights abuses in the U.S. in the "War on Terror," but six months in jail for growing a beard has got to be worse than 99% of the stuff going on. Can you get details of the man's name and so forth, so we can track this case down and help publicize it, if it can be verified? A brief Internet search for keywords like "Indianapolis," "psychiatrist," "Egyptian," "terror," "beard" and "jail" did not appear to turn up any relevant results.

Yours in liberty,
        <<< Starchild >>>

15

Starchild wrote:

I'm an even bigger-tent Libertarian -- I want to rewrite the pledge so

as to include anyone who agrees with our desire for significant changes to
the status quo, if not necessarily with our direction or our destination!
OK, maybe that's not such a great idea. <SC

Right. When hitch-hiking, you don't get into a vehicle that's pointed in the
wrong direction.

But maybe watering down our principles to accommodate people who aren't

libertarians, but only want a bit less government than there is now, isn't
such a hot idea either. <SC

This proposal is about getting more horses under harness, and doesn't
necessarily involve changing the destination one iota. As it happens, I
think that the party has already watered down its libertarianism with
anarchism and AmericaFirstItarianism, but that's a separate debate.

We can still work in concert with those folks as fellow travelers

without them being in the party, <SC

If someone wants more liberty and less government on every issue, the only
possible reason to exclude him is if you value your badge of ideological
purity/nonconformity more than you value your political effectiveness. Since
a rational self-interested person would not work in the LP only for the
political influence that the party is achieving, I don't deny that there is
any value to personal identification with the LP's principles. But it's
pretty clear that the LP is too much an insular self-congratulatory society
for mutual ideological auditing than it is an effective force for political
change.

or if they do join the party, without re-scripting the party to conform

to their less-libertarian beliefs. <SC

The idea is that they would pledge to never try to make the party advocate
less liberty and more government than the status quo on any issue. For
example, I work within the party to change the platform toward
liberty-maximizing minarchism and away from coercion-abstaining anarchism.
If America ever achieved my libertopian minarchist ideal and started moving
beyond it toward full anarchism, the revised pledge would then require me to
quit trying to cure the LP of its anarchist delusions. HURT ME with the
problem of protecting a libertopian minarchy in America from the anarchists
of the LP!

Which helps the cause of liberty more: me splitting from the LP now because
of my differences over the final stages of a hypothetical libertarian
revolution, or me and all other liberty-lovers working together in the LP
and each dropping out only when America enjoys the amount of liberty he
personally desires? "Fellow traveling" is not a recipe for political
effectiveness. If it were, the Democrats and Republicans would fracture into
a dozen different groups each.

Brian Holtz
Yahoo! Inc.
2004 Libertarian candidate for Congress, CA14 (Silicon Valley)
http://marketliberal.org/>
blog: http://knowinghumans.net/>
book: http://humanknowledge.net

16

Derek,

I understand what you're getting at, and while I agree that those are the salient points for the typical investor to consider, they don't completely answer the question at hand. First, I'd like to again emphasize how the burden of inflation is overwhelming with one more example:

Suppose the government printed no new money (federal reserve checks, etc) since 1970 to the present and the inflation rate was zero (I'd actually expect deflation, but let's ignore that for now).

Now let's say our $1 invested in the 1970 S&P was now up to $X when we sold it today.

Tomorrow, all of a sudden, the government prints and distributes 5x as much money and all dollars quickly become worth 1/5 of their value. 4/5th of X has just been taken away - regardless of the size of X.

Now, I understand that the situation is more complicated than that. In fact, for some securities, much of the real value of the company may not be effected by currency inflation.

Example 1: Imagine a security that was, say, a holding company for some resource whose real value did not change over the 35 years. The price of it's shares would then (in an efficient system) match inflation exactly and no value would be lost to inflation, regardless of the rate of inflation. It's real value would not change.

Example 2: Imagine a security for a company whose only assets were kept in cash. It's real value would go down as inflation went up.

Example 3: Imagine a security for a company that was an investment firm that put all it's money in 35 year bets that inflation would rise. It's real value would go up as inflation went up.

For simplicity, I've chosen extreme examples, but it's clear that real companies will cover this spectrum. So our question of the interaction of real value of securities with inflation is a complex one that depends both on the interaction of the underlying value of the company with the currency markets and (although my examples don't cover this) where new capital is entering the markets and the complex connections of the company to those sources.

As a last point, even if you disagree with the above, I'm guessing you'll agree that without government and bank induced inflation, we should expect deflation due to technology decreasing the cost of production (ex: a loaf of bread takes less labor to produce). So the *real* rate of inflation who have to account for the expected deflation as well - which I actually suspect is quite significant.

For example, due to the increased industrialization of agriculture and food processing I suspect it costs something like 1/10th (just a guess) the labor to produce a loaf of bread today than it did in 1930, yet it costs ~20x as much cash. So the true reduction in value due to inflation would be 20/(1/10) = 200x.

-- Steve

17

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18

"It seems to me that you (and the other gold-standard advocates with
whom I talk) define inflation as any increase in the monetary base,
even if it does not lead to an increase in overall price levels. "

Darn right, thats what I believe. Creating money occurs through the
banking system and therfore rewards the players associated with the
banking system. The lack of deflation punishes every consumer,
discourages thrift, and uultimately leads to finacial instability as
most money creation is debt creation. If people had a greater
propensity to save even in a mattress, interest rates would naturally
be lower, capital cheaper, and more likely to be more intelligently
directed as the investment capital would belong to those who had
actually saved it and not those who had created it out of thin air by
the fraud of fractional reserve banking or the fraud of central bank
money creation. It isn't hard to imagine how much better off the
folks in NO would have been had they been in the habit of saving and
could have relies on the mechanisms of the private enterprise for
shelter food and water in an emergency. I hate to use the NOLA ac hut
just couldn't help myself among frinds. Four dollar gas and 11 dollar
natural gas are also syptoms of the misallocation of resources fromm
the paper boom of the lat twenty years. Had the capital markets been
using real svings from real savers who held the capital market
participants accountable, with less rewards for wild speculative
bubble participants, I suspect most of the problems our economy faces
now and will face would never have occured. It's gonna be a very cold
winter for some. Lets see, will I put gas in my car, het my house, or
pay the mortgage. My kid has acold and I don't want the pipes to
burst. who is Joe six pack gonna get angry at, and what is the stupid
leberal neo commie government gonna do about it. And to think we
coulda had never ending declining prices if only the supreme court had
upheld the constitution in 1933 or 13 or 71.

19

Sorry Starchild, no can do. Dr. Richad is very happy to stay well
below the radar. It was probably not coolfor me to go this far in
discussing this. I imagine his friend just wants to stay below the
radar and live his life. This is how folks deal with tyranny. Most
just want to enjoy life and want to be left alone. If we made a public
case of this, could we be sure he wouldn't be further messed with. We
still have some kind oof security in our rights and confidence in the
system to protect us. But we are not from Eygypt. Pity. I will not
bother him with this.

20

Starchild wrote:

> I'm an even bigger-tent Libertarian -- I want to rewrite the pledge so as to include anyone who agrees with our desire for significant changes to the status quo, if not necessarily with our direction or our destination! OK, maybe that's not such a great idea. <SC

Right. When hitch-hiking, you don't get into a vehicle that's pointed in the wrong direction.

  A better analogy here is not Libertarians hitching a ride, but who's going to get into *our* car. Are we picking up people who are liable to run the LP car off the road when they reach their destination, or refuse to allow enough gas to be put into the tank to get us where we want to go? They should be welcome to hitch a ride and get off whenever they like, so long as they don't try to impede the car's reaching its ultimate destination or take down the sign in the window that says "Freedom or Bust!"

> But maybe watering down our principles to accommodate people who aren't libertarians, but only want a bit less government than there is now, isn't such a hot idea either. <SC

This proposal is about getting more horses under harness, and doesn't necessarily involve changing the destination one iota. As it happens, I think that the party has already watered down its libertarianism with anarchism and AmericaFirstItarianism, but that's a separate debate.

  Either the anarchists and other folks you disagree with are "extremists" (as you call them in your blog) or they are "watering down the libertarian message" (as you say here). I think the latter position would be pretty hard to defend, but that's your call. Regardless, you can't very well have it both ways. When have you ever heard of "watered-down extremism?" It's an oxymoron.

> We can still work in concert with those folks as fellow travelers without them being in the party, <SC

If someone wants more liberty and less government on every issue, the only possible reason to exclude him is if you value your badge of ideological purity/nonconformity more than you value your political effectiveness.

  Please show me someone who wants more liberty and less government on *every issue*, and yet is *not* a hardcore libertarian, because they only want to move a *little ways* toward freedom on each issue. Do such individuals exist at all, let alone in any significant numbers?

Since a rational self-interested person would not work in the LP only for the political influence that the party is achieving, I don't deny that there is any value to personal identification with the LP's principles. But it's pretty clear that the LP is too much an insular self-congratulatory society for mutual ideological auditing than it is an effective force for political change.

> or if they do join the party, without re-scripting the party to conform to their less-libertarian beliefs. <SC

The idea is that they would pledge to never try to make the party advocate less liberty and more government than the status quo on any issue.

  So if, five years from now, the U.S. government's "PATRIOT Act" has been expanded to be even worse than it is now, you would welcome someone as a full-fledged Libertarian who advocated *as their ideal* the "PATRIOT Act" as it existed in 2005?

For example, I work within the party to change the platform toward liberty-maximizing minarchism and away from coercion-abstaining anarchism. If America ever achieved my libertopian minarchist ideal and started moving beyond it toward full anarchism, the revised pledge would then require me to quit trying to cure the LP of its anarchist delusions. HURT ME with the problem of protecting a libertopian minarchy in America from the anarchists of the LP!

  As a general rule, I would recommend not using the term "libertopia." It makes it sound like libertarians are seeking something utopian and unrealistic.

Which helps the cause of liberty more: me splitting from the LP now because of my differences over the final stages of a hypothetical libertarian revolution, or me and all other liberty-lovers working together in the LP and each dropping out only when America enjoys the amount of liberty he personally desires? "Fellow traveling" is not a recipe for political effectiveness. If it were, the Democrats and Republicans would fracture into a dozen different groups each.

  There's nothing stopping anyone from dropping out of the LP or the libertarian movement when it has achieved the amount of liberty that he or she personally desires. But this does not require any revision of the party's pledge.

Yours in liberty,
        <<< Starchild >>>