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Which country today comes closest to the capitalist model?

PK Siddharth, former IPS officer who left FTI after initially joining it for a short while (because he found he did not really want liberty in India but better ways of implementing the existing socialist model), has kindly asked me a few questions by email.

I'd like to note that as a matter of practice I do not respond individually to emails that discuss policy or economics issues. Always a public response.

The communication so far with PK is provided below, and my final response is at the end. 

Once again may I request everyone (including PK) – please DO NOT write to me by email/ on Facebook messenger seeking a comment on a policy matter. Please use my blog to publicly raise the issue. Or be prepared that I could, if I so wish, make the whole matter public, as I'm doing in this case. Alternatively, I might just switch off – not because I'm impolite but because I expect my time and health to be respected. By writing publicly on policy matters I hope to educate 100s of people. Email can only educate one at a time. 

PK Siddharth
Dear Sanjeev,
Since I still follow your blog, which is not at all an Occasional Blog, but a almost a daily bulletin, I keep getting in my mail box your wrings on the blog, I find your writings to be bevy incisive whether one agrees with them on not. I by now know that you have better understanding of capitalism than a professor of economics or political science.
But you commitment to the cause of capitalism now prompts me to ask a few very basics questions: Which are the countries that you think are the models of classical libderalism and capitalism. Sid we ever have any? And which are the countries that you consider models of socialism? And, what today India is, a capitalist country or a socialist country?
My response
Thanks, PK.
I have clarified repeatedly that there no nation that has followed all the foundational principles of liberty. However, if you go into the history of USA, you'll find that Jefferson came closest to establishing a nation founded on the principles of liberty. That was not to last, and for the past 100 years USA has had significant socialist influence. It is only saved by its Constitution from becoming a third world nation.
India is clearly a socialist country today, if you take the preponderence of its policies into account. By no means is it a free nation. That has also been empirically demonstrated repeatedly by numerous studies.
My further response
May I add, I do not take any one-on-one questions since this info – of use to others also – gets lost in emails. 
Please do ensure that you comment on the blog. That way more people will get educated at the same time.
PK Siddharth (again by email)
Pl do let me know the present countries that are closest to the capitalist model of your dreams. Are classical liberalism and capitalism logical corollaries?
My response to PK (and to others who might be interested)
Dear PK, in BFN I have articulated an example of the model of liberty for India. I don't dream. It is just my preferred option based on current knowledge. It is something to be discussed and debated upon by the Freedom Team. I am ONE person out of a billion and don't have any desire to impose my "dreams" on anyone. 
Now, as to which of the present countries comes closest to being a free society. Well, based on data, experience, and anectodal information, I'd rate Australia as close to the most free nation on earth today. Freedom is under considerable threat here, but it is still more free than USA, more free than UK, and definitely more free than ANY non-British European nation. I'd still rate Australia only 7 or a max of 8 out of a possible 10 on freedom. If you read my presentation here, you'll realise why (btw, I'm giving my third talk on this topic – to a restricted audience in Melbourne – on 15 November.) 
In many ways, thought, it is pointless asking this question when India is not even 2 out of a possible 10 on liberty. BFN is replete with 10s of examples to show how liberty is trampled in India every day. The simple reality, as I've already shown through a quotation from Mises yesterday (I do hope people are READING what I'm writing, for I can't possibly keep repeating everything again and again and again!) is that:
"The philosophers, sociologists, and economists of the eighteenth and the early part of the nineteenth century formulated a political program that served as a guide to social policy first in England and the United States, then on the European continent, and finally in the other parts of the inhabited world as well. Nowhere was this program ever completely carried out. Even in England, which has been called the homeland of liberalism and the model liberal country, the proponents of liberal policies never succeeded in winning all their demands. In the rest of the world only parts of the liberal program were adopted, while others, no less important, were either rejected from the very first or discarded after a short time. Only with some exaggeration can one say that the world once lived through a liberal era. Liberalism was never permitted to come to full fruition."
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Congratulations, Libya! A great achievement for mankind

I've been very disappointed at India's response to the momentous events in Libya. As a country that claims to stand for democracy, its behaviour has been a serious let down for the people of Libya. I trust that Libyans will forgive the present Indian government for it doesn't speak for the people of India – at least on such matters.

On 22 August 2011 I congratulated Libya. This time, the formal celebrations have begun (youtube video below).

This is a great achievement for mankind, almost as great as the fall of the Berlin wall. A major step forward for liberty across the world.

I hope the people of Libya will move towards genuine democracy and liberty. Shun the Islamic fanatics in your midst – for they are worse than Gaddafi. Don't forget the experience of Iran. Don't forget the Taliban in Afghanistan.

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The doctrine of liberalism #2 The GREAT inferiority complex of the socialists

Continuing from here, below are some excellent extracts from Von Mises's Liberalism about the SERIOUS MENTAL DISEASE including delusions that our socialist friends suffer. I hadn't looked at the issue from this angle, but I begin to see that von Mises is actually right. 

When you fail in life, you run either to God or to socialism. What Marx said about religion (that it is the opium of the people), is actually FAR MORE true about Marxism (and socialism more generally). Socialism stops people from acquiring self-knowledge and thus shields them from knowledge about their own weaknesses of character. 

In general, those who advocate socialism have good reasons to worry about their place in life, not being willing to put in the effort to work hard to succeed, not having resilience to try again, and always pointing fingers at OTHERS for their own failure. This DEEP sense of inferiority haunts them throughout their life. 

That also compels them to collectivist (group) solutions (of course, socialism itself is nothing but a "group" solution). There, in the middle of crowds, they lose their sense of impotence, at least temporarily. 

But listen to Mises. He explains all this wonderfully well. Surely this extract qualifies for the liberty primer.

Many of those who attack capitalism know very well that their situation under any other economic system will be less favorable. Nevertheless, with full knowledge of this fact, they advocate a reform, e.g., socialism, because they hope that the rich, whom they envy, will also suffer under it. Time and again one hears socialists say that even material want will be easier to bear in a socialist society because people will realize that no one is better off than his neighbor.
What is involved in this case is a serious disease of the nervous system, a neurosis
Scarcely one person in a million succeeds in fulfilling his life’s ambition. The upshot of one’s labors, even if one is favored by fortune, remains far inferior to what the wistful daydreams of youth allowed one to hope for. Plans and desires are shattered on a thousand obstacles, and one’s powers prove too weak to achieve the goals on which one has set one’s heart. The failure of his hopes, the frustration of his schemes, his own inadequacy in the face of the tasks that he has set himself-these constitute every man’s most deeply painful experience, They are, indeed, the common lot of man.
There are two ways in which man can react to this experience. One way is indicated by the practical wisdom of Goethe:
Dost thou fancy that I should hate life,
Should flee to the wilderness,
Because not all my budding dreams have blossomed?
his Prometheus cries. And Faust recognizes at the “highest moment” that “the last word of wisdom” is:
No man deserves his freedom or his life Who does not daily win them anew.
Such a will and such a spirit cannot be vanquished by any earthly misfortune. He who accepts life for what it is and never allows himself to be overwhelmed by it does not need to seek refuge for his crushed self-confidence in the solace of a “saving lie.” If the longed-for success is not forthcoming, if the vicissitudes of fate destroy in the twinkling of an eye what had to be painstakingly built up by years of hard work, then he simply multiplies his exertions. He can look disaster in the eye without despairing.
The neurotic cannot endure life in its real form. To render it bearable he takes refuge in a delusion.
It by no means suffices to seek to talk the patient out of his delusion by conclusive demonstrations of its absurdity. In order to recuperate, the patient himself must overcome it.
He must learn to understand why he does not want to face the truth and why he takes refuge in delusions.
Marxism, when it is obliged to leave the field of pompous dialectical rhetoric and the derision and defamation of its opponents and to make a few meager remarks pertinent to the issue, never has anything different to advance from what Fourier, the “utopian,” had to offer. Marxism is unable to construct a picture of a socialist society without making two assumptions already made by Fourier that contradict all experience and all reason.
On the one hand, it assumes that the “material substratum” of production; hence the faith of Marxism in a “practically limitless increase in production.” On the other hand, it assumes that in a socialist community work will change from “a burden into a pleasure”—indeed, that it will become “the primary necessity of life.” 
In the life of the neurotic the “saving lie” has a double function. It not only consoles him for past failure, but holds out the prospect of future success.
The consolation consists in the belief that one’s inability to attain the lofty goals to which one has aspired is not to be ascribed to one’s own inadequacy, but to the defectiveness of the social order.
The malcontent expects from the overthrow of the latter the success that the existing system has withheld from him.
The neurotic clings to his “saving lie,” and when he must make the choice of renouncing either it or logic, he prefers to sacrifice logicFor life would be unbearable for him without the consolation that he finds in the idea of socialism. It tells him that not he himself, but the world, is at fault for having caused his failure; and this conviction raises his depressed self-confidence and liberates him from a tormenting feeling of inferiority.
For modern man, socialism has become an elixir against earthly adversity. 
This being the character of the socialist dream, it is understandable that every one of the partisans of socialism expects from it precisely what has so far been denied to him. Socialist authors promise not only wealth for all, but also happiness in love for everybody, the full physical and spiritual development of each individual, the unfolding of great artistic and scientific talents in all men, etc. Only recently Trotsky stated in one of his writings that in the socialist society “the average human type will rise to the heights of an Aristotle, a Goethe, or a Marx. And above this ridge new peaks will rise.”[1] The socialist paradise will be the kingdom of perfection, populated by completely happy supermen. All socialist literature is full of such nonsense. But it is just this nonsense that wins it the most supporters.
One cannot send every [socialist]  for psychoanalytic treatment; the number of those afflicted with it is far too great. No other remedy is possible in this case than the treatment of the illness by the patient himself. Through self-knowledge he must learn to endure his lot in life without looking for a scapegoat on which he can lay all the blame.

[1] Leon Trotsky, Literature and Revolution, trans. by R. Strunsky (London, 1925), p. 256.

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The IMPOSSIBILITY of central banking

The reason why we prefer an independent central bank to a politicised one is because we assume that it will ensure orderly growth of money supply without political interference.

But after observing the actions of Alan Greenspan I've realised that the concept of an independent central bank is a simply one more myth. It is a myth because the personal preferences of the central banker get in the way, even assuming the central banker is shielded from political interference. 

Alan Greenspan had a personal preference for greater house ownership in America. That preference distorted what should have otherwise have been purely technical decisions.

Of course, even such technical management of money is a myth because the relevant knowledge is simply not available to the central bank.

Even if it were, the "model" the central bank would need to use does not and cannot exist, particularly with an open economy with fluctuating exchange rates, and lagged data. The central bank simply can't get it "right". 

The idea of central banking is therefore impossible.

A classic example of this impossibility is the Australian situation today.

Had there been a multiplicity of well-regulated note issuing banks in Australia, its multiple currencies would all have had different exchange rates, each based on local circumstance, automatically self-adjusting. This would have eliminated the "two-speed" economy which is caused, today, almost entirely by the single, uniform dollar that operates across Australia, and the inevitably ham-handed interest rate polices of the central bank.

Over the past few years I've come to the view that central banking is untenable, as untenable as the concept of socialist central planning.

Here are a few short and punchy extracts from today's blog post by Kart Schuler to clarify this further. 

Central planning need not extend to every economic activity. It is enough for the government to control key institutions. Centrally planned economies have monobank systems, in which commercial banking is a government monopoly, whereas in more market-oriented economies, commercial banking is competitive.

Even if a monetary system has competitive commercial banking, it remains true that central banking injects substantial elements of central planning.

The whole point of central banking in the form in which it has existed since about World War I is to monopolize the monetary base; consciously use the monopoly to affect conditions throughout the economy; do so through a centralized, government institution; and prevent challenges to the monopoly that might end its power. None of these elements are present in a free banking system.

The monetary system Hayek discussed Denationalisation of Money was one of competing, bank-issued fiat currencies, but Hayek was also aware of the existence of competitive banking systems based on gold. Much earlier in his career he supervised Vera Smith’s dissertation, The Rationale of Central Banking, which discussed some historical episodes fitting that description. Hayek, like his teacher Ludwig von Mises, had an extraordinarily wide range of intellectual interests, of which monetary theory was only one. They did much, but left much still to be done by successors who were willing to focus on monetary theory alone.

That helps explain why the building blocks of the idea that central banking is a form of central planning are present in Mises and Hayek, but not until Lawrence H. White and George Selgin in the 1980s did Austrian economists use the building blocks to construct a detailed argument.


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