Social Consensus, Money and Private Property

Jeffrey Wernick

While Republicans and Democrats call each other names, I think what they are both successfully demonstrating is a high degree of economic illiteracy. Our current economic model seems to be a crony, corporatist model operating within a heavily regulated framework where just about none of the regulations are derived from a market test and but as a result of decisions made by administrative bodies not really subject to political market competition either. So-called experts. Just ask them and they will confirm their expertise. And with poor incentive alignment since they essentially do not bear the costs of their mistakes. And there is broad consensus among both Republicans and Democrats to this framework. If I like a minimum wage of $8/hour. I must be a capitalist. But if you want to raise it to $20/hour, you are obviously a socialist. This is just stupid. A free-market capitalist does not interfere with the decisions regarding economic agents operating in their own free will and lets unfettered prices help inform for allocative efficiency. Or maybe these are capitalists who see market failures everywhere and anywhere. Omnipresent. And that every single rule, regulation, tax code, etc is written to precisely and microscopically correct market failures and if not for their definition of market failures, there would be no regulation nor nonneutral tax.

I see little evidence that Democrats are socialists. And it is such a shame that we, as a nation, have had such a poor conversation regarding our economic paradigm. And that the anger and frustration so many have expressed through the ballot box has not produced anything but false narratives and slander and libel. From a moral perspective. Not a legal one.

Before continuing, I will reveal my bias. I maybe can describe myself as an anarchist, anarcho-capitalist or minarchist. I believe in less government than most libertarians I have met. And there are still things I am undecided upon.

I would hope self-described capitalists at least to be economically literate before falsely labeling Democrats as socialists. The statement they are capitalists I believe to be a lie. And that most Democrats are socialists I also believe to be a lie.

Let’s start with money. Neither support competition for legal tender. They all basically support a monopoly regarding the issuance of money. And that is delegated to unelected “experts” and granted monopoly power. Competition and contestability are not allowed. There is no free market in money.

Money is transmitted through banks. Is there free entry into banking? No. Who sets the rules for institutions set up to accept deposits? The market or the state? It is clearly the state. Who determines capital adequacy? The market or the state? The state. Who determines the number of deposits subject to insurance? The state. Who determines the price of that insurance? The state. And as we witnessed during the Great Recession and previous crises, the state intervenes and abrogates agreements previously entered into voluntarily by the parties involved. And we have state bailouts. Maybe we should all have been converted into bank holding companies and given access to the discount window just as Wall Street was granted access as well as other privileged institutions. The same ones lecturing you regarding the consequences of your defaults were shielded from the consequences of their defaults. The fact that most paid back, ex-post, is a poor argument. That might have been true of everyone else if they got the same terms and conditions. So do fall for their lies.

If they thought they could get better terms in the market. They would have engaged in market transactions. But only the privileged few. The crony class. Were allowed entry.

Now onto the rules on how financial institutions, especially banks allocate capital. Does the free market determine whether there is sufficient capital supporting the balance sheet? Of course not.

There is administrative pricing by organizations like the BIS or other so-called experts. Who seem to never learn from one crisis to next. There is a clear subsidy provided to lending to government and for housing. Through the capital guidelines, the state directs the allocation of capital.

I would like to find the person who would assert that if the government removed itself from banking completely and from its monopoly on money. That the market structure of banking would look identical. That capital would be allocated identically. Clearly the state’s control of money and entry into finance and the rules for accessing capital, either through loans or equity, are heavily impacted by government institutions, mostly by unelected “experts” who have little accountability to markets and limited to no competition.

Both parties are pretty much in agreement with respect to this framework. And it does not seem that this is free-market capitalism. They are state-sponsored markets where much pricing or allocation decisions are made by non-market actors. And where losses have been SOCIALIZED with the consent of both parties.

As I continue. I want to make clear. I am not advocating any policy. People can make legitimate claims to the efficacy of the various policies. I want to avoid that debate for the purpose of this essay.

Next onto private property. Everyone agrees upon taxing it. Everyone agrees upon zoning rules. So the use of the property is not determined by private actors for its highest and best use. Its use is limited by the state. And zoning can have a material impact on property values. So while I own a property, the use of that property is subject to a social consensus and not the sole discretion of the private owner of the property. And its tax can also be dependent upon its use. That does not seem like free-market capitalism. It seems most decisions are made by political markets which impact allocation decisions made by markets. Therefore pricing is not pure free-market pricing.

Additionally, we have non-neutral taxes that subsidize or punish. Made by the state. We have regulations that subsidize or punish. Made by the state. Significantly impacting product and goods markets and their inputs to their respective production functions. A sort of industrial policy. Rewarding behavior that is considered good within political markets and penalizing or disincentivizing behavior deemed bad within political markets.

We also do not have a free market with respect to the goods and services we buy. It seems origin and identity are relevant to access and availability. We seemingly have free-market advocates wanting to restrict consumer choice because of where it was made or who it was made by. And it also seems those loudest yelling at Democrats as socialists seem to be the same ones who want to limit free markets.

We have significant bipartisan consensus regarding social insurance. There are many government programs to help those we as a society, in need of support. Formed by social consensus. A free market would rely exclusively upon philanthropy. Not taxation and distribution through state actors. It is the government that decides who needs what and how to distribute. A political process. Not a free market process. And accepted by both parties.

Both parties accept social insurance. Both parties accept trade restrictions. Both parties accept the tax system for distribution purposes. Both parties accept the government monopoly over money. Both parties accept the government determining what are the rules and entities people can use to either raise capital or debt and deposit or loan. So almost all financial intermediation occurs through institutions heavily regulated and, on the most part, heavily subsidized. Both parties support Medicare. Unemployment insurance. Social security. Land-use regulation. Licensing of “professionals.” Accreditation of institutions of education.

Neither party endorses free-market capitalism.

Neither party wants to explicitly expropriate private property without compensation. It is Trump who wants a broader application of eminent domain. So he is a bigger threat to the protection of your property from a state actor.

I urge these lies to stop. Our debate is not a debate of capitalists versus socialists. It is about a social consensus regarding the role government, as already accepted by both parties, in responding to the growth of inequality and declining expectations regarding future prosperity.

Democrats are, by and large, not socialists. Republicans are not capitalists. Both parties embrace cronyism. And, as a nation, we are struggling to form a social consensus where so much wealth has been accreted through non-market decisions. The Central Bank subsidy goes to an exclusive club. Who now accrue value no longer mainly do it through innovation and productivity advances, but financial engineering and a low cost of capital subsidized by the Fed. Once you accept the principle of dishonest money. I do not believe you can honestly claim to be a capitalist.

Jeffrey Wernick is an independent private investor and an early bitcoin investor with extensive experiences in sharing economy, Bitcoin and Blockchain technology, digital payment systems, etc.

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