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Aug. 8, 2006 - Freedomain Radio - Stefan Molyneux

31:58

361 Stabbing the Wallet - Economic Growth and Violence

Less decapitation = more capital!

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Time	Text
	Good morning, everybody.
	Hope you're doing well. It's Steph.
	It is August.
	Early August, for sure.
	It's definitely a Tuesday, and it's right after the long weekend.
	Let's actually, since we're not in motion yet, let's see if we can actually figure out the date.
	I don't know why I have this obsession with saying the date.
	Let's just assume that it's useful in some manner.
	But we are talking about the 8th of August, 2020.
	And 6, 8.33 in the morning, on my way to work.
	So, we are going to have a chat, with your very kind permission, about economics this morning.
	And an idea that I'm absolutely sure is not mine, but that I have not read anywhere.
	And I will sort of talk about it in general.
	I think that it could be one of the most important topics in economics, but I could also be wrong about that.
	But just before we do that, I did spend yesterday finally biting the bullet...
	To figure out how to do free domain radio videos.
	And that was kind of frustrating, as this stuff tends to be when you're starting to get it going.
	So I'm using a fairly old Logitech webcam that I bought to chat with Christina about a couple of years ago.
	And I thought I would give it a shot.
	I know that it doesn't have the best picture in the world, but internet video with bandwidth costs...
	better.
	So it records in AVI.
	I did a 22-minute podcast on the weekend in video, and I also did a short five-minute introduction to Free Domain Radio, and I also did a short introduction to the website or to the idea which and I also did a short introduction to the website or to the idea which I was thinking of putting on the main page in Flash as I And it was kind of fun.
	It's very interesting to see yourself.
	And I'm sure, you know, for those of you who've been listening for a while, it might be kind of interesting to see the big flapping forehead at work.
	So it might be worth giving it a shot.
	I couldn't figure out how to get the...
	This sort of solar flare, f-stop glare coming off the forehead, so I used a baseball cap for the first bit, and then I figured it out, and so I didn't use a baseball cap for the last bit.
	And so, if you see the cap, don't think, as some people on the board did, that it's because I have a problem with being bald.
	We love the bald. The bald is great, but I just...
	The bald is not so great when you look like a solar eclipse.
	Anyway, so...
	Have a look at those. I've uploaded them to Google Video and submitted them for approval, and we're just going to have to wait until we can get those.
	The long one is 21 minutes, turns out to be 100 megabytes.
	Now, of course, that's rather extreme, so I am going to have a problem with putting that one as part of my 500 gigs a month bandwidth with the regular podcast, so I'm going to have to have those not as part of the XML feed, But coming from YouTube or from Google Video or some other such delivery mechanism.
	But they have a maximum of 10 minutes.
	So succinctness will have to be the order of the day.
	But that's what I worked on yesterday.
	And if anybody knows a good way to generically compress AVI files, that would be great.
	I'm running at about...
	It's about 20 megs...
	21 or 22 megs for...
	Sorry, it's 21 megs for about 5 minutes of video, which seems rather excessive.
	And, of course, it's going to completely preclude my other option, which is to have video podcasts where I set the webcam up on my dashboard and you can see me rambling while I drive, which would simply be for the novelty factor.
	I don't think it would add a huge amount to the value of the podcast, but I think it could be quite a fun novelty.
	And if you're like me...
	You sort of like the making of videos if you like songs so maybe you could see the studio in motion here and that would be sort of fun for you.
	It certainly would be fun for me to see me doing a podcast so Anyway, we're going to video, baby, and I'm looking at a couple of software packages which I'll use some donation money for, which makes it a little bit more professional looking, so that what I would like to do is do the way I used to do emails of the week and board updates, and I haven't done emails of the week for a while because, of course, we have the board updates.
	But I thought it might be fun to do emails of the week in sort of a news video format.
	But the time hole that is free to main radio continues to lower beneath me like a Florida sinkhole.
	Anyway, so back to economics.
	One of the major mysteries around economics that I've never seen satisfactorily explained in a way that...
	What makes fundamental sense is the rise of the Industrial Revolution and the reasons for the generation of wealth versus the non-generation of wealth that occurs in different societies and so on.
	And lots of people say, well, it was a co-joining of factors, like it was just sort of a random thing.
	And like you had a An exhaustion of the finances of the state at the same time as you had the spread of Roman law, and you also had the fragmentation of Christianity, and you had the invention of certain machinery,
	And you put all of that into a frappe blender, and you push the button, and lo and behold, from this strange co-joining of factors, this alignment of productive planets, you end up with the Industrial Revolution.
	And that's never seemed like a very satisfactory explanation to me.
	And it also smacks as elementally frustrating as well, and it also smacks of an apology for the existing state of wretched poverty that most of mankind still lives in.
	Sort of along the lines of, well, you guys have to wait for your own planets to align, and then you will start to get freedom and economic productivity.
	And I'm sort of working with a different idea that's more sort of elemental, and sort of basic, and reproducible, in terms of how to bring about an Industrial Revolution, and why.
	So the how and the why.
	But the how is really simple.
	The how is simply stop shooting people.
	That would seem to me to be the best approach, is simply to stop.
	If you want wealth to occur within your country or your geographical region, or if you're interested in having wealth occur in a particular geographical region, that would do something for you, and of course it would do something for all of us.
	Not just out of compassion for our fellow man, but also because people who are poor and ignorant tend to do crazy, scary things and to be susceptible to even more manipulation than we in the West are susceptible to.
	We just had a post from a reader who is overseas in Casablanca, a listener, We're good to go.
	This is where we live, right?
	I mean, he's in the worst conjunction or the worst intersection of brutal powers because he's in the grip of a theocracy, and a theocracy is combined with foreign policy from the West.
	So where those two meet, those are usually the two most brutal aspects of state and religious power, theocracy plus foreign policy.
	So he's in a real tinderbox.
	And so we kind of want wealth to be generated to allow people to pay For their own school so that they don't end up being put into these mind-destroying state and religious propaganda mills and going through the identity grinder that is modern education either in a theological or state-based situation.
	So, the first thing, like if you want your store to run well, you shouldn't be shooting your employees and your customers.
	That would sort of be, you know, I don't know if they cover that in Business 101, but it should seem fairly important that if you open a store, then shooting customers who displease you or employees who displease you...
	Would sort of be bad in terms of getting your business to be a major flourishing economic concern.
	And it does seem to me rather basic and rather obvious that human beings are not different in any epistemological or metaphysical sense or moral sense.
	They're not different in a large group than they are in a small community or in a family.
	So, for instance, if your teenager does something to displease you, it would seem that most of us would have a moral problem with shooting your teenager or throwing him into the basement and letting men rape him.
	I mean, that would seem to be a fairly bad approach to ethics.
	If you are interested in reducing theft, and even if you are in the Saudi Arabian world, And you believe that cutting off the hand of the thief is a really great thing to do.
	And I did have one person on the board who posted not that it was a great thing to do, but that it was obviously effective, that crime was minimal, that you could leave your wallet out, and so on.
	And this is just part of the whole blindness that we have to the actions of the state, which we've been trained to be blind to, although it's blindingly obvious once you see it.
	That if theft should result in the cutting off of one's hand, then all of the tax collectors and the Saudi princes and the bureaucrats and the teachers and the public servants and the garbage collectors and so on, all of those who either steal or are paid through stolen money, should have their hands cut off.
	All of the policemen, all of the military, all of the foreign ministers, just about everyone.
	And this would probably be at least half, if not more than half of the population should then have their hands cut off.
	And that doesn't seem to occur.
	So it's rather hard for me to look at that situation and say, yeah, they're really justly punishing theft there.
	And boy, you can really have your property be secure in Saudi Arabia, right?
	You could if there were no taxation.
	But there is, of course.
	So that's just something that's hard for us to see.
	It would seem to me that since, you know, stabbing or shooting your son if he displeases you or stabbing or shooting or throwing into rape rooms your employees or customers, if you run a business, would be pretty bad.
	And in the latter case, it would be pretty bad for economic growth, right, if everyone had the right...
	To do that. So if you went into a store, and if you did something wrong, and there were big books of rules in the stores, but you never really understood them all, but if you did something wrong, they got to shoot you without any repercussions,
	and your family also had to pay for your burial, It's the old thing they used to do in the Chinese Communist Empire, the one that Shirley MacLaine lavished so much praise on in the 1970s, that they would shoot you and send the bill for the bullet to your family to pay.
	Just a nice little additional sadistic twist to a slaveringly evil and murderous regime.
	But... That would be a disincentive, let's say, to economic growth, that if you displeased a store owner based on some subjective interpretation of dozens of books of rules that you would get shot or thrown into rape rooms for 20 years or 10 years, that would be a fair disincentive to economic growth.
	And the other thing that would be a pretty strong disincentive to economic growth would be that if, after navigating this perilous and treacherous In order to get a particular good that you wanted, that you would leave the store and have to give 60, 70, 80% of that good to somebody at the point of a gun.
	That would seem to be a pretty strong disincentive of economic growth.
	The only thing that you would do, the only way that you would ever go and do something like that, navigate the violence of the storekeepers and then have it all preyed upon you as you left, The only reason that you would do that is that that would only be preferable to being dead directly.
	So if you're dying of starvation or thirst, you will probably gulp down your terror and end up going into a store to get bread and water and even give it up to the thieves on the sidewalk.
	But that's about it.
	You're not going to do that for an iPod.
	I'm sorry to be overusing the iPod thing, but it just sort of comes to mind.
	But you're not going to do that for a consumer good.
	You're not going to do that for a pack of gum.
	You will do that for subsistence, but not anything else.
	So, violence really brings economic growth to a standstill.
	It doesn't kill economics completely, because to kill economics, to kill any kind of allocation of resources...
	It can only result from everyone being dead.
	Allocation of resources is bread to mouth and water to mouth as well.
	That is, to me, the basic of economic disincentive is when the risk of doing business is getting killed or thrown into rape rooms, both for, and we were just talking about it from the customer standpoint, but this is also, of course, the case with those who want to start businesses.
	if you go to India, it will take you years to get a license to open up a business, which you can get in about 20 minutes in Singapore.
	And that is really quite fascinating when you think about it, that to get involved in business, you have to wait for years to get a license.
	There's no bankruptcy or a little bankruptcy in India, so if you end up running into trouble, you can end up with like three or four generations paying off the debt, and they may never be free.
	Basically, you've sold all of your future progeny into a kind of slavery, and the taxes on business are enormously high, and the bribery requires pretty significant contacts.
	So basically, if you don't navigate this maze, then you get arrested, thrown into the rape rooms.
	If you resist, you get shot.
	And the jails in India, I think, would be preferable to get shot rather than to be sent to a jail in Calcutta, say, or Mumbai or New Delhi or wherever.
	So this is the reality of economic growth, that when any kind of transaction becomes incredibly dangerous, You say the transaction costs become exorbitantly high, then the only time that you will perform those transactions will be when you are going to die if you don't, right? I mean, then it's just like, okay, well, the plane's going down.
	If I stay on board, I'm going to crash, so I'll jump, right?
	People don't jump from a plane any more than they jump from high office buildings unless the alternative is certain death.
	So that is the basis to me, or the basics of economic growth.
	Now, I think that you can find the catalyst for the Industrial Revolution not by putting the cart before the horse and by saying, well, these things were invented, and this gave impetus to the Industrial Revolution.
	The real question, of course, is not what happened after these things were invented, but why were they invented in the first place?
	Why was it that in the late 18th and early 19th century there was such an enormous rise of investment in capital goods?
	Capital goods are those which you do not sell directly to the consumer.
	Those are consumer goods or whatever you want to call them.
	And it's not the money that you pay the guy to sweep the floor.
	That's sort of in your expense or maintenance budget.
	The capital budget is the money that you put into upgrading your machinery so that you can produce more widgets.
	So one of the things that occurred was that you had wool, and wool was sort of woven to some degree by hand, and then you got people invested in looms to be able to weave wool, and this of course occurred with cotton as well.
	More automatically, and this is what gave rise to people like Luddites, which is still a term used for those who are anti-industrial.
	They sort of stomped on and burnt down all of these automated machineries because they felt that they were putting them out of business as sort of hand-weavers and so on.
	But the real question is not, well, what happened after these looms were invented, or the steam engine was invented, or the internal combustion engine was invented.
	The real question is why did people invent them?
	Did we trip over some capitalist gene and suddenly there was a whole series of generations of entrepreneurs who just had the magical ability to come up with these things that people couldn't come up with before?
	Well, of course not. Of course not.
	Human beings genetically haven't altered in hundreds of thousands of years in any fundamental way.
	There's no real mystery to it.
	The basic reason why capital goods were invested in was that for the first time in history...
	People actually had an ability to keep the proceeds of their investments.
	You could say the free market, but we'll just talk about capitalism.
	The two terms are almost the same in my book, but we'll just talk about capitalism.
	You can't have economic progress without the accumulation of capital, of deferred income or deferred spending, Sorry, not deferred income, of deferred spending or deferred gratification, which accumulates so that you can invest it in order to reap greater rewards later on.
	So if you are a kid and you want to have a gorge fest and you want to have a gorge fest on five candy bars and you have an allowance of a buck a week and candy bars are a buck, then you obviously have to defer eating candy for candy bars for five weeks in order to be able to have your gorge fest.
	That's basically you, by not eating the candy bar every week, you have accumulated five bucks worth of deferred gratification or deferred candy eating, which you can then apply all at once.
	So you've stored up some capital.
	And then you invest it all at once.
	Now, that's sort of not a great example, but if you run a paper route and you end up not spending your money and then you end up being able to pay someone to sublet out your paper route or you invest that money in bus fare so that you can go and get some more customers,
	which you can then rent out, then basically what you've done is through your deferred income, you have gained the ability through investment Not in machinery, but in customers in this case.
	Again, if I'm going to use a kid metaphor, there's not a lot of kid capitalists out there, but there are some.
	Then by deferring your gratification, you can invest in services and in customers, and then you get a greater income down the road.
	Now, if you're in a situation, though, where everything over a dollar is taxed, in other words, if you accumulate more than a dollar, it gets taken away from you by force, or you get shot or thrown into rape rooms if you resist, then of course you're not going to defer gratification.
	There's simply no possibility whatsoever that you're going to defer gratification If, through deferring gratification, you end up losing what you could have otherwise had.
	So, if you want to save up for five candy bars, and then when you walk into the store, some tax agent says, oh, you have five bucks.
	Well, as a kid, you're not allowed to have any more than one dollar, so I'm going to take these four bucks away.
	Well, all that you see in your mind's eye is four candy bars spiraling off into nothing, and five weeks of self-deprivation proving to be a complete falsity.
	Well, four of those weeks, for sure.
	You've got to With a dollar left, you can have a candy bar.
	But, you know, as a kid, if you're young enough, you're going to feel tears, rage, injustice, and all that kind of stuff.
	And for sure, you're not going to defer your gratification again.
	It just gets ripped away from you.
	It gets stolen from you.
	And that's particularly frustrating to a human being.
	So, if you get to keep the proceeds of the investment that results from your deferred gratification, and if it's not just you, but other people as well, because the one thing that's true about capitalism is that if you're the only person who gets to defer gratification,
	then it doesn't really help, because you then will get to buy more of the pitiful products, the gruel and water that is produced in a non-capitalist economy, But why would you want more gruel, really, if you can only eat one meal a day?
	But if nobody else gets to achieve the profits from the investment that results from deferred gratification, then you are an economy of one, right?
	So nobody's going to invest in a restaurant for you to go and eat at and spend your extra money because you're the only person who profits from deferred gratification.
	So it has to be a universal phenomenon.
	And then you get all the multiplicity of goods and services that are provided when people defer their gratification to invest in X, Y, and Z. This is a very common story for immigrants, right?
	That you're a Korean immigrant and you come over with nothing and you work as a cab driver and then you work as a waiter.
	And then you do whatever.
	But basically you are living in a one or two bedroom apartment with your wife and having a kid or two.
	And you're saving, saving, saving, right?
	Deferring gratification, deferring gratification.
	And then what you end up doing is you end up buying a convenience store, right?
	So your deferred gratification has now ended up with you at least being able to put a down payment on a convenience store.
	And then it's all paid off because then you get to work 70 hours a week for a little bit more money.
	So that's important.
	That kind of deferred gratification only occurs if the lowliest people also get to keep the profits that result from that deferred gratification.
	So, I mean, pretty much throughout history, the priests and the kings got to keep the results of their deferred gratification.
	It's just that because nobody else did, there was no other investment which produced goods and services that were worth buying.
	So it was sort of a, you know, hey, would you like another bowl of gruel, basically?
	I mean, there was a little bit more to it than that, but not a whole lot more.
	So, the root of the Industrial Revolution is simply the withdrawal of violence and the establishment of property rights.
	It's really that simple. As I wrote in a novel once, there are people who build factories, and there are people who build the conditions which make factories profitable.
	And so, the entrepreneur builds a factory.
	The philosopher, and I would hesitate to say the economist, although Adam Smith, of course, had a huge influence here, But his influence was temporary, and also was based on an argument from effect, not it's wrong to kill and rape, which is what eliminates the moral validity of the state.
	He wasn't so much for that.
	Listening to Mark Skousen's The History of Modern Economics, or The Making of Modern Economics, is a good book, it really is depressing, of course, The number of people who claim to be free market but have no problem with socialist redistribution.
	Or if they do, it's because it's less than optimal in terms of the accumulation of capital.
	Like, the accumulation of capital means anything.
	People don't defer gratification in order as their end goal or their end game to buy a convenience store.
	They defer their gratification in order to become happy.
	And so that becoming happy may have nothing to do with buying a convenience store.
	It may be that you give up on your vacations for five years or ten years so that you can take five months off your job and you can go and explore Europe with a backpack.
	I mean, maybe that's your big thing.
	And an economist would have no defense for that if he's around the accumulation of capital.
	He's only going to have, because you're basically accumulating capital and then just dissipating it.
	I mean, not in a bad way.
	I mean, all capital gets dissipated when we die anyway, at least for us.
	So it's not like that's a bad thing.
	It's just that an economist, or at least the economists of the 19th century mold, were all about, well, if it doesn't accumulate or add to capital, then it's bad, and so on.
	And that's why there was a big debate throughout history about two things, right?
	The first thing was usury, the lending of money for interest, which we've talked about before.
	And the second is the debate about savings, right?
	Well, if everyone saves, then no one's buying anything, and that's bad for the economy.
	But if nobody saves, then there's no capital accumulation, and so the economy never improves.
	So I guess, like a lot of people, they have trouble with individual preference and ambiguity of the effect of decisions.
	And of course, those who argue a lot about savings simply don't understand that the market takes care of it anyway.
	So if everybody's saving, then there's a hunger for capital.
	And there's an excess of capital, and there is a deficiency...
	Of spending. Does this cause capitalism to collapse?
	Well, of course not! Of course not.
	My God, I can't believe people debate this stuff.
	What'll happen is that the price of capital will go down, right?
	So you'll be able to get a million bucks at 1% interest over 20 years.
	And what that means is that, of course, the price of houses, the price of cars, all of those things which a lot of people borrow money in order to buy, goes down enormously because there is a deficiency of spending and there is an excess of capital accumulation.
	And so, excuse me, what will happen is people will then end up buying stuff, right?
	Because to buy has become cheaper, and to save, right, has become less valuable.
	Because if you stick all your money in the bank, and if somebody's lending out a million bucks at 1% interest, they're only going to be paying 0.00001% interest on your savings account.
	And so putting money in the bank doesn't do you any good relative to going out and buying something, buying a house for like a thousand bucks a month or whatever.
	So, capitalism totally takes care of that.
	So, to argue to people to say that saving is bad and spending is good, or vice versa, is completely ridiculous.
	If people are spending too much, then the price of the goods is going to go up for two reasons.
	One is that there's an over-demand, and the second is that the price of capital, given that there's a deficiency of savings, the price of capital is just going to increase.
	Which means that net improvements in productivity are going to be more expensive than they would be if capital was cheaper, right?
	So if you have to borrow a million bucks at 15% to improve your production line, then the goods that come off it are going to be more expensive than if you can borrow that same money at 5%.
	So the price of goods is going to go up, and also because there's a strong demand for capital, people are going to start to give you T-bills and GICs or whatever at 8% or 9%, so the price of goods has gone up, which means you have a disincentive to spend, and the price of putting money in the bank will also go up, which means you have a stronger incentive to save.
	I mean, the market handles all of these things.
	To me, it's rather remarkable that people have any debates about it.
	Of course, this is the big debate that Keynes had and won against Hayek, I think it was, But we'll talk about Keynes another time, that mad states love and fruit.
	But this kind of stuff, to me, is all very simple.
	If you want for people to be free and happy and economically productive and wealthy and so on, or at least have the possibility of all of that, then you just stop shooting them.
	It really is quite simple.
	You just stop shooting them, you stop throwing them into rape rooms, and you're going to get exactly that.
	There's no mystery to economic growth.
	It's just don't shoot people.
	And, you know, it's a good idea in general.
	Don't shoot innocent people who are just out there trying to do their thing and make a living and provide for their family and prosper as they see fit.
	You don't gun people like that down.
	You don't shoot someone for opening a store.
	You don't shoot someone for not paying you protection money.
	I mean, you can, but it's wrong, right?
	Because it's not a universal phenomenon and it's not something that I get to do, right?
	I mean, if I do it, I'm called the mafia, but if the government does it, Then they're called servants of the public good who do nothing but help and protect the innocent.
	But they get to tell all the kids their fairy tales for 14 years straight.
	So it's no huge shock, I think, that we are having a certain amount of difficulty breaking through that propaganda wall.
	But, you know, patience and chipping away.
	I mean, I'm not saying that we have all the time in the world.
	But patience and chipping away will help us with that.
	So I'd like to thank you for listening.
	Of course, I would also like to encourage you to take out your PayPal or your visa.
	You can donate to Freedom Aid Radio.
	Without requiring a PayPal account, just slap it on your Visa.
	We also take e-checks.
	One kind soul has actually mailed me a physical check, which after looking it up on the internet, I now remember what to do with it.
	And origami, of course.
	And I haven't received any donations for a couple of days.
	Not too troubling, of course.
	It was a long weekend. It's the summer, so everyone's out and about.
	But if you do hear this, remember...
	To throw a few crusts of bread my way.
	I would certainly appreciate it.
	And the board is great.
	We have a new board, as I've mentioned before.
	And this is just for people who are dipping around.
	Thanks so much to those two hardy souls who did do the upgrade for us and reshuffled some of the categories in a very productive way, I do think.
	I really appreciate that.
	And I'm still mulling over whether or not to continue on.
	With the reading of the God of Atheists, Podiobooks, P-O-D-I-O-B-O-O-K-S dot com, allows you to sell audiobooks and keep some of the proceeds, so that may be another way that I can generate some income.
	But unfortunately, it is a very, very time-consuming thing.
	To record an audiobook, you have to do a lot of color lining of the text so you don't accidentally put the wrong word in because, you know, you can have a two-line speech and only at the end it says so-and-so, right?
	So you don't want to put the wrong voice in and so on.
	So it's time-consuming and then you make errors and if you pause too much or say er, um, you know, or all the verbal tics that I have, it's very time-consuming.
	So I'm sort of mulling over between that and between the videos and all the other things that I can do to try and get the wood.

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