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Jan. 14, 2010 - Freedomain Radio - Stefan Molyneux
16:34
1555 The Myth of the Free Market - Money, Interest and Power!

A podcast to send to those who think the free market produced all the recent economic catastrophes.

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Hi everybody, it's Stefan Molyneux from Free Domain Radio.
I hope you're doing very well. I hope that you had a very Merry Christmas and a Happy New Year and a Happy New Decade to you.
I have decided to start this decade by attempting to blow away some of the clouds of unclarity that surround a very, very central issue when it comes to talking about a free, prosperous, virtuous and happy society.
See if the following has ever happened to you.
So, some disaster occurs.
The banks go bankrupt, the derivatives market goes bust, the real estate market goes bust, or something like that.
Executives are overpaid, whatever that means.
When these kinds of disasters occur in the economy, every piece of socialist rabble in the universe says, aha!
You see, the free market doesn't work.
We need more control, more regulation, more this, more that.
And every free marketer in the world says, no, no, no, no, no, no.
You see, that's not the free market.
That's the result of government regulation.
And you have to go into all this research and just nobody believes you.
And this is a real problem when it comes to having coherent disagreements.
I mean, disagreements are great, but let's at least have coherent disagreements.
about what a free market actually is.
Let's lay down the foundation so that we can understand it moving forward and have productive disagreements, which means a disagreement that leads to wisdom and knowledge.
A free market is actually very simple.
A free market is very simple.
And don't worry about thinking about it in terms of economics.
Think about it in terms of dating.
What does a free market in dating mean?
Well, it means no kidnapping.
It means no chloroforming and throwing in the back of a van.
It means no dropping down a well and requesting a date in order to be pulled out.
It means no assaults, no rape, no killing, whatever.
We understand that a free market in dating simply means that you can You know, how you doin'?
You can try to be as attractive as you want, but you can't use force to get what you want in terms of dating or sex or whatever.
What does the free market look like in terms of marriage?
Well, it means that the government can't force you to marry, that your family can't force you to marry, that your boyfriend can't force you to marry, that you can get down on one knees, you can cross your fingers and hope for the best, as I did, and got the best, but you can try any number of things in order to achieve your goals, but you can't use force.
What does it mean to have a free market in terms of finding a job?
Well, it means that no Gestapo thug in jackboots can come up, put a gun to your neck and say, you must work as a dishwasher or a CEO. It simply means that you're free to pursue job opportunities wherever they arise.
You can create your own jobs if none are available to your liking.
So that's what a free market, and you can think of this in many, many different areas.
What does it mean to say there's a free market in newspapers?
Well, it means that nobody's going to force you to buy a newspaper or not buy a newspaper.
What does it mean to have a free market on the internet?
It means you can start a blog and try and attract attention from people, but you can't force people to come and read your blog and throw them in jail if they don't.
So we all understand what a free market is.
It is voluntary interactions.
Without the use of force.
Property rights. Property rights in terms of if you make something or earn it, then it's yours.
Fundamentally, we understand that property rights derive from the right of self-ownership or the reality of self-ownership.
We know that it's right because the woman owns her body and controls access to it and so on.
Self-ownership leads to property rights.
Property rights and voluntary interactions are the basis of a free market.
That's all a free market is.
It's no different in the realm of economics than it is in the realm of dating or school or newspapers or education or careers or anything like that.
It is simply the free exchange of value, subjectively defined, of course.
It's the free exchange of value without force.
That's all a free market really is.
Now, why is it that these annoying free market people are continually telling you that what we live in now is not a free market?
Well, fundamentally, my argument, my strong argument, is that it is for two basic reasons.
There are two things that are fundamentally missing from modern economics.
That means we don't even live close to a free market.
We live in a kind of corporate, fascistic, centrally planned, largely centrally controlled form of economics, economic disorganization.
And these are not things that people generally know about or understand.
It's just so much part of our economic culture that we don't even really think about it.
And I'm not going to take the stateless society perspective or the agorist perspective or the voluntarist perspective or even the libertarian perspective.
Let's just say, for the sake of argument, we need a government to protect property rights and respond to crimes against property or person, fraud or whatever, right?
So, let's just say that.
I don't want to get into the anarchist debate here, but let's just say we got a small government to protect property and to respond to threats of violence or actions of violence.
What is the government specifically not doing?
In those areas that it's doing now that violate every conceivable principle, the most essential and elemental principles of a free market.
Well, number one.
In a free market, the government does not control or monopolize currency.
In a free market, the government does not Monopolize or control currency.
I know, it's a mind-blowing thing.
How could it not control?
Well, historically, at least in the United States, this wasn't the case.
You had competing currencies and the currencies arose out of banks issuing checks and all those kinds of good things.
It took quite some work for the government to take over the printing and control of currency in the United States, as it was the case around the world.
But when you think about it, there's no conceivable reason why the government must, or even should, control currency.
Because currency is nothing magical about money.
There's nothing magical about a dollar bill, or a gold coin, or a silver coin, or anything like that.
It's just a medium of exchange.
It is A good, right?
If you buy a car with a gold brick, there's no fundamental difference between the car and a gold brick when it comes to what they are.
They're both commodities. They're both things that are useful to you.
The car to get around and the gold brick to buy stuff.
They're both just commodities that you have that you use for a variety of things.
Money is a medium of exchange, for sure, but so is the Internet, right?
The government doesn't have to run every aspect of the Internet, though the Internet is a medium of exchange of value, we assume, otherwise there's no reason to go on it.
Money is just like the internet.
Money is like the roads.
It's like the rail system.
It is simply a medium of transportation and exchange of goods.
And for the government to monopolize it is the most fundamental violation of a free market.
Because clearly, to invent a currency is not to defraud people.
Now, to invent a counterfeit currency is, but that's a whole different...
It's like saying that to sell a stolen car is to participate in a theft, even if unknowingly.
But it's not the same to sell a stolen car as it is to sell Just a regular car.
And so the creation of currency, the competition of various currencies, is fundamental to a free market.
And there's no conceivable way in which if I come up with Steph Bucks, my own personal currency, and want people to adopt it, I'm clearly not initiating violence.
against anyone and assuming I'm not initiating fraud against anyone, it's perfectly morally fine and acceptable that I come up with my own currency and you come up with your own currency and may the best currencier win.
So the fact that the government controls and monopolizes currency is the most fundamental violation of property because you're forcing everybody else to use this ridiculous fiat paper money currency You are using violence to prevent people from competing in a legitimate sphere of economic activity, which is the creation of just another good and service called a medium of exchange.
Money. Money is just a good and a service like everything else.
There's no reason to have Any specific exclusion for it in any particular society.
Of course, why governments want to control money is obvious, because they get to steal from everyone by printing money, by typing whatever they want into their own bank accounts.
If you could type whatever you want into your own bank account and have everybody else foot the bill, wouldn't you be happy?
Although technically you're footing the bill as well, but to a much smaller degree than what you're gaining.
So that's really, really, really important.
So anywhere where you see a government monopoly over currency, you know that massive theft is occurring, right?
Because the government's just going to print money and it's going to cause inflation, which is going to erode the savings of people, which is going to lessen the incentive to have savings, which is going to lessen the accumulation of capital and thus slow down and destroy economic growth, which we can see happening now in the long run.
There's a reason why, since the creation of the Federal Reserve in the United States in 1913, the US dollar has lost over 95% of its value, because people just keep typing whatever they want into their own bank accounts, and everybody else loses that proportion of value thereby.
And inflation is a crippling and destructive, it's a crushing tax, particularly on the poor, because by eroding the value of everybody's dollar, It hurts the poor most of all because the poor have the greatest proportion of fixed expenses, right? How much does a billionaire pay for his house relative to a guy on the poverty line paying for his apartment?
So where inflation hits your fixed expenses, it hits the poor worst of all and it is the most disgustingly regressive tax that can be imagined and it is the most fundamental violation of a free market.
So that's number one. Number two, It's just a service.
It's like a car. It's like the internet.
It's like a shirt. It's like anything else that you find valuable.
Money is just a medium of exchange, like language.
So, like everything, it has a price.
If something has value, then generally it has a price, if it has economic value.
And what is the price of money?
Well, the price of money is interest rates, and interest rates reflect the fact that we are mortal, and therefore we prefer things sooner rather than later, because later means We're dead and don't really get to enjoy them.
In the same way you can rent a car and you pay a price to have the exclusive use of that car for a certain amount of time, you can rent money and you pay to have the exclusive use of that money for a certain amount of time.
The price that you pay to rent money is called interest rates.
Interest rates are So fundamentally intrinsic to the productive operation of a free market that it's second only to currency and you can't overstate how important interest rates are to the correct functioning of a free market, to the productive functioning of a free market.
Because interest rates are a huge signal, right?
So if people are saving more, if they're putting more and more money in the bank, then interest rates are going to go down.
Because there's more money available to be loaned, wherever there's a greater supply of something, the price goes down.
So, if people are saving a lot of money, then businesses get the signal to expand, because it means that people are going to save and then they're going to spend later.
If people are spending a lot of money and not saving, then the price of money, because it's in scarce supply, is going to go up.
What that means is that businesses should not expand, should consolidate, should maybe even contract.
And this goes to many, many different levels, but It's a huge signal to where and how and in what manner economic resources within society should be allocated.
Should businesses expand or contract?
Should they hire? Should they lay off?
Should they maintain their current level of employment?
All of this is signaled in a fundamental way by interest rates.
Again, that's just one of many, many examples of the function of interest rates, but if there is not a free market competition about interest rates in the realm of interest rates, then there's nothing even remotely approaching a free market, right?
So of course in the United States the interest rates fundamentally are set by the Federal Reserve, is set by the central banks.
This is the case for almost all of the economies in the world.
If currency If interest rates are turned into a fascistic arm of state control, you do not have a free market.
You don't have a free market.
You don't have anything close to a free market.
You may have some vestiges.
Of a free market, but not for long, right?
Because when you socialize currency and interest rates, it's like decapitating some guy's head.
And okay, you know, a second after you decapitated his head, the heart is still beating, but that does not mean that he's a healthy guy.
And once you've socialized currency and interest rates, once you've turned those into another arm of state power, the central arms of state power, You may have some vestiges of a free market for a time or of trade, but it's continually decaying.
Now, of course, when the government takes control of currency, it has to take control of interest rates because the government is going to immediately start printing its own money, typing whatever it wants into its own bank account.
When the government does that, interest rates go up.
Why? Because the value of each dollar is being diluted, which means that the dollars that you pay back in the future are going to be worth a lot less than the dollars that you're borrowing now.
The interest rates have to rise to cover that.
So if your interest rate is 5% but the dollar is losing 10% of its value every year, your interest rate goes immediately to 15% to cover the 10% loss of value over the next year.
Like if you rent a car and you say, I'm going to repeatedly drive If I drive my car into a brick wall, this rented car into a brick wall, and then I'm going to return the dented and smoking ruin to you, clearly you're going to have to pay just a little bit more because you're lowering the value of the car while you're renting it, to say the least. So, interest rates will immediately go up when the government starts over printing money, which means that the government doesn't actually make that much.
So, the moment the government takes over the currency, it has to almost immediately take over interest rates so that it can print its own money and then put a cap on interest rates so that other people end up paying the bill down the road.
So, I can go into this in more detail if people should be interested by any chance.
But I really wanted to point this out.
Please send this video around to people who are confused about the free market.
The only thing you really can't do in a free market is kill and steal and obviously defraud.
Everything else is open season, right?
And so, I just really, really wanted to point that out, that the systems that we're looking at that are in place at the moment are largely fascistic.
With fascism and communism comes corporatism or corporatism.
This is always the case. As soon as the government gets control of the money supply and it gets control of the interest rates, Then it can bestow massive godlike economic favors upon certain companies or corporations who then fawn for its favor and pay for citizens to get elected who are going to favor the corporation's interests and the corporation trails after.
The state and its power are like sharks trail after a pirate boat forcing plump people to walk off planks.
And so I just hope that you understand that if you see this, and please send this around to people who are confused about this, when you're looking at all of the mess and ruin that is going on in the economy today, fundamentally, fundamentally, fundamentally look at two things.
The money supply and interest rates.
And if the government has got its nasty, deep, bevenomed little fangs deep into the jugular of either of these two entities, and inevitably both of them, then you are not looking at a free market.
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