Mises Memo

News from the Ludwig von Mises Institute • Fall 2003

The Roots of Federal Debt
The issue of government debt and deficits lay dormant throughout the high-revenue
1990s. But widi recession and

new mega-spending programs that
break all records.

the fog begins to fall. Right now, for example, we observe the com ing together of three trends that
would seem to contradict each

How could all this be hap pening at the same time? Has the
government learned how to create something out of nothing? Hardly. The leakage is visible in the federal deficit, which is estimated to exceed the $600 billion mark, and
the federal debt, which now stands
at $6.7 trillion. And then there's

exploding government spending, the issue has become enormously important again. Sadly, just about everyone is missing the central point, which is not that we need budget reform so much as drastic
monetary reform.

Federal finance is a shell game of such complexity and trickery
that it makes state-level finance, to

First, many Americans are receiving refunds on their taxes as well as unexpected rebates for money already paid into die fed eral system. Second, government revenue has actually fallen for nearly three years in a row, due
not to tax cuts but to lower eco

the problem of unfunded liabilities in die system itself, which exceed
$44 trillion.

Of course diese numbers, as

say nothing of family finance, appear simple by comparison. At the state level, the government takes money from its citizens through taxes. The taxes can be on land, goods, sendee, or income. The government spends the money it takes in. If die money comes up short, the government tries to issue bonds and get people to buy diem. Or it raises taxes. If it can't do that, it cuts die budget or seeks a federal subsidy. There are no other options.
State governments fleece tax payers at ever}' turn, of course, but at least it is hard to disguise. The
states embarked on massive new

nomic growth. Third, govern ment spending is soaring, with defense and nondefense spending increases breaking all postwar records. Meanwhile, Congress and the President are instituting

staggering as they arc, are too large to really comprehend. It is not even possible to comprehend the sheer size of the daily increase
in the national debt: $1.72 billion.

The very meaning of these num bers boggles the mind.

Federal Government Debt


$6,000 •.
$5,000 ••


spending in die 1990s before die revenue dried up. States are now struggling to raise new revenue through bond sales and taxes, while avoiding necessary cuts. When you move from die state to the federal level of government,



T-l-T-T-I-r-T-1— *T-T-r-i— N N


Your finances are not the first


concern of its primary clients, the large banks and the government,

Federal Receipts and Outlays, 1941-2003

that established the central bank.

It is short-term thinking at work.
In the institution of die central


bank, the government has the ulti mate tool to permit its profligacy
to continue without check and


without regard to the future. If the Fed, the sponsor of die ultimate check-kiting scheme, is so dangerous for society, why doesn't somebody do something about it? For years Congressman Ron Paul of Texas, distinguished counselor that enjoys the monopoly privilege
to create out of diin air all the

The following question is basic but hardly ever asked: given that this debt cannot be paid, and
nobodv reallv believes it can be,

to the Mises Institute, has worked

to restore the gold standard,
because it would mean the aboli

how is it that the federal govern
ment can continue to borrow so

much even as taxes are marginally cut and spending expands at a record pace in the midst of a lack luster economy? If individuals or corpora tions—or state governments, for
that matter—were this much in

money it wants to create. Fed gov ernor Ben Bernanke is right that the Fed is capable of bailing out even the worst debt crisis by merely creating unlimited supplies
of dollars. Mises wrote about this

tion of central banking and the
instituting of sound monev that

would keep government in check and stabilize economic growth
and inflation. But he is unusual: a statesman who understands die issue and

as early as 1912, and he saw the
grave costs for society.
What are those costs? An

cares enough about America's future to push a program diat
would benefit everyone but the

debt, they would see the value of
their existing debt on the market downgraded. They would no longer be creditworthy. They would default and be bankrupt. The profligacy would come to an

inflated money supply distorts the structure of production and leads
to serious investment miscalcula

banking/government elite. What about everyone else? They either
lack the economic education to

tions. It drives down the value of the dollar on the international

How is it diat the federal gov
ernment is able to accumulate all this debt and still market its notes all over the world? The answer to

die riddle is understood by the
Austrian School: the Fed, the

exchange. It provokes a decline in the purchasing power of each indi vidual unit, thereby gutting savings and discouraging thrift. It redis tributes wealth from the produc tive to the government-connected. As die recent experience of Zim babwe shows, inflation can literally turn a society and culture upside

understand it or just have no real incentive to do the right thing.

agency of the federal government

The Mises Memo is published quarterly

Even the Fed would regret the consequences of such actions. Why, then, does it continually

by the Ludwig von Mises Institute. Vol
ume 9, No. 3. Copyright © 2003 by the Ludwig von Mises Institute, 518 West

promise to drive interest rates
down to zero if need be? Why do

Magnolia Ave., Auburn, Alabama 368324528; 334-321-2100; fax 334-321-2119;

info@mises.org; www.mises.org.

its spokesmen never tire of empha sizing that the whole banking sys
tem is insulated from failure?

News from tiii-: Ludwig von Mises Institute

Faij. 2003

^ L


^ \



Fro;;; te/fc; Summer Fellows Andrei Kreptul, Anlero Atilla, Art Garden, Bob Murpin/, and Daniel McCarthy

We live under what Paul Gott

fried calls the managerial state— which is to say a seemingly perma nent bureaucratic government subject to little effective demo cratic control, that attempts to plan every aspect of society though it has no real stake in the
outcome of its failures. In this

consequences as a society, people are going to demand answers. Ideally, the system would be
fixed before a crisis that results in a

appreciated having access to such a great library and being permitted
the freedom to research and write

around colleagues who know and
understand the Austrian/libertar
ian tradition. •




Given what we know about Wash

ington today, however, the crisis will not be stopped but will result in upheavals of a kind and degree
that cannot be known in advance.

Prosperity, War.
and Depression

respect the modern state is very different from its medieval prede cessor in which the king took per

There arc ways around it, of course: put an end to the reckless
ness and the institutions like the

One look at the debt, the con

sona] responsibility for the out
come of his decisions.

Fed that make it possible. •
Summer Students

Under today's system of gov
ernment, there are few mecha

nisms in place that operate as an effective check on public looting.
The framers of the constitution

tinuing economic bog, and the government's response shows that we could be in for very tough times ahead. The government's lust for war and welfare guarantees continued exorbitant spending.
The Fed will be called on more

What a wonderful group of
student fellows we had this

and more to be the final purchaser

didn't imagine institutions such as
the central bank, the income tax,

and a permanent bureaucratic class, nor did they imagine the explosive growth of the welfarewarfare state that these institu tions would underwrite and

year at the Miscs Institute. They have universally reported an extremely valuable experience of research and learning. They came
from universities around the coun

of treasury debt. Will there be a
soft landing and a restoration of
sanity? If not, how bad could the

try and the world, mostly graduate
students but also some outstand

calamity be? Will it be a Japanesestyle stagnation or will it all end in one great crisis, such as a massive
run on the dollar?

entrench in public life.
One check on power does
remain, and it is the one that has
been most effective from time

ing undergraduates. They pre sented papers and benefited from critiques from our in-house faculty and visiting scholars. The research
topics covered a huge range: sci entific method, monetary policy, international trade, war history,

immemorial: public opinion. In

light of the impending bankruptcy of the federal government at our
expense, we might demand to know: where is the outrage? At some point, when it becomes clear that the present level of profligacy
cannot continue, and we lace the

secession, business cycle theory, antitrust, property rights theory,
interest rates, financial markets,

and many other areas.
A common comment from

the students was how much thev

Dealing with dicse topics and more is the Mises Institute's Sup porters Summit (October 24—25, 2003, in Auburn): "Prosperity, War, and Depression." Speakers will unmask wrongheaded theo ries of the business cycle that dom inate the business press and the academic journals. They will take on the central planners who think that Big Government is precisely what a recession needs most. They will address the problem of

Fall 2003

News from tiik Ludwig vox Mises Institute

deficits, spending, warmongering, trade interventions, SEC regula
tions, lawsuit mania, and all the

other factors that are forestalling
recovery. Mises Institute scholars will

give you an inside look into the latest issues and arguments that are driving the current debate, and
show how die Austrian School of

economics is working to advance a logical, liberty-minded response. Come to support our work, and

learn from experts in economics, history, philosophy, and law. We will also present the 2003 Gary G.
Schlarbaum Prize for Lifetime Achievement in Libcrtv to Con

gressman Ron Paul of Texas.

Students and faculty of the 2003Mises University

Among the speakers: Sean Corrigan, Roger Garrison, Mor gan Reynolds, Joseph Salerno,
Peter Klein, Ron Paul, Burt

state of the economy as well as
freedom and its future. •

knowledge of the Austrian contri
bution and teach it in their class

Blumert, Jeffrey Tucker, Walter Block, Joseph Stromberg, David
Gordon, Thomas Di Lorenzo, Mark Thornton, Hans-Hermann
The Mises University

The interest in the economics of the Austrian School both here

T h e 18th annual Mises Univer

Hoppe, John V Denson, Ralph Raico, Jorg Guido Hiilsmann, and Llewellyn H. Rockwell, Jr. This will not only be an educa
tional conference but an exciting;

and fun one as well, as arc all our

sity was the largest ever. With a high-powered faculty and a schedule offering an integrated understanding of economic sci ence, this year once again proved why this program has achieved
such international renown. After

annual Supporters Summits. Held
at the Mises Institute with its

and abroad is expanding at a dra matic rate. Sadly, we had to turn deserving students away, more this year than ever before. That's why the Mises Institute has taken a big step for 2004. We will be holding two separate Mises Universities, one at the beginning of the sum
mer (June 6-12) and one at the

remarkable libraries and grounds,
this is an occasion to hear what the

all these years of holding this pro gram, thanks to the benefactors of the Mises Institute, more working
economists than ever before have

Austrians are saying about the

end (August 1-7). This way we can double the number of people who can come through our programs.

From left: Summer Fellows Devlin Cooper, Jan Havel, Jeffrey Cleveland, Jeremy Livingston, and Marcus Verhaugh

News from tiik l.umvir. von Misks Instititk

Fall 2003

its applications. As Salerno points out, Rothbard makes huge advances over his predecessors, for

example, on monopoly riieory and the theory of production. It also
contains critiques of contemporary neoclassical and Keynesian theories and a critical analysis of state inter

When our first reprint came
out in a student edition, it became

a huge seller once again, taking on a significance that can only be compared with Mises's own Human Action. And yet this edi
tion lacked something extremely

important: the last section of the book, which only appeared later
But die expansion will require
additional financial commitments

under the title Power and Market.

(The original publisher took it out
on the recommendation of a reader who was not an economist

and footnotes (Rothbard's fabu lous footnotes!) at the bottom of

each page (no more turning to the
back). The care riiat was taken in

on the part of the Mises Institute. It is worth it, given the proven effectiveness of this program. We welcome your support for this teaching program, which does so much to make up for the failures of academia to expose students to
the economics of freedom. •

but rather a Gold War military


putting this 1,400+ page edition together, along with the quality of the paper, binding, and printing,
will insure that this edition imme

The Rothbard Moment

How important is Murray
Rothbard's Man, Economy,

and State in the history of ideas? In an essay appearing in the Quar terlyJournal ofAustrian Economics, Joseph Salerno wrote: ""The
revival of Austrian economics as a

We are very pleased to announce the publication ofMan, Economy, and State with Power and Market in its first fully unified edi tion, available in early 2004. It is exactly as Rothbard originally intended it. Our edition is entirely new, with an introduction by Joseph Strombcrg that uses new
material from the Rothbard

diately becomes definitive. Man, Economy, and State has special value for the student of
economics because it takes on the

apparatus of theory that is still being taught in classrooms today and provides a point-bv-point
Austrian alternative. Anvonc who
reads this book cover to cover—as

archives at the Institute, a magnif icent index for scholarly purposes,

the prose invites you to do—as a graduate student, an undergradu
ate, or an interested adult, will be

living scientific movement can be dated from the publication of Rothbard's Man, Economy, and
State in 1962." He calls it "a con tribution to Austrian economics

profoundly affected by its argu ments, which are both rigorous and inspiring. Power and Market alone is so powerful a case for the free market as to leave no escape hatch for any government inter

and to pure economics in general
that ranks as one of the most bril

liant performances in die history of economic thought."
The book, written in scintillat

It is a shame that the authentic edition of the classic diat Roth

ing prose, deduces the entire cor pus of economictheory step by step
from its theoretical foundations to

bard wrote fully 40 years ago is only now coming into print. And yet the good news is that at last
this remarkable work on the his

tory of ideas, the book that makes

Fall 2003

News i-rom the l.nnvic, von Mises Institute

From left: Summer Fellows Mason Drake, MatusPetrik, Paul Cwik, Perhlenrik Hansen, and Peter Anderson

such a technically competent, sys tematic, and sweeping case for the economics of liberty, will at last appear and be available in early
2004. •

private police to protect the places we shop.
These are all commercial func

see in the hands of friends, family,
and students.
It is a collection based on our

What Defense?

T the government reveal that the
bulk of it is artificial, based in large part on government spending for purposes of "defense." Now, even if you believe that military spend ing makes us more secure, it is pre posterous to think that it adds to prosperity. Like all government transfers of wealth, money siphoned off the private sector in
order to build missiles and bombs

he latest GDP figures from

tions. Unlike government, free enterprise actually works. There is a profit and loss test. You can shop around to get the most for your dollar. Imagine if the only locks were issued by the government. Or if government were responsible for all insurance coverage. Yet somehow we put up with taxation to hind a national-security appara
tus that consumes half a trillion

oldest form of mass communica

tion: public speaking. These speeches introduce ideas at greater length, and apply them to the cur rent moment in a way that holds people's attention. The prose is
more immediate and more rhetor

ical in the classical sense, since

speeches seek to persuade and

dollars a year, stirs up trouble around the globe, and makes us
vulnerable to terrorism.

The book begins witii eco nomics, and explains why Austrian
economics matters, how the Fed

This new book, guaranteed to
cause a commotion, includes 11

only makes us poorer.
But does it even make us more

chapters by top scholars on all aspects of defense. Indeed, it rep
resents the most ambitious

eral Reserve brings on the business cycle, why we need private prop erty and free enterprise, the unrec ognized glories of the capitalist

secure? Not according to the con tributors to our spectacular new volume edited by Hans-Hermann

Hoppe: The Myth of National Defense (Mises Institute 2003).
The book shows that the national-

attempt ever to extend the idea of free enterprise to the area called "public goods." It will be available by year's end. •
Speaking of Liberty

security state is like the welfare
state: expensive, unworkable, and

Speaking of Liberty

Lew Rockwell has done what

Might private enterprise do a
better job than the government? In some ways, it already does. We use private security services. We arm ourselves to protect our fami lies. We insure our property and
lives. We lock our homes, cars, and

many people have urged him to do for years. He's written a
book, or, rather, the book has writ

ten itself. The book is called Speak ing ofLiberty, and already the Con
servative Book Club has made it a
selection. It struck the editor as the

places of business. We depend on

kind of book people will want to
News FROM the Ludwig von Mises Institute
Fall 2003

economy, and why the gold stan dard is still the best monetary sys tem. There are other topics from taxation (also blown as organized
wealth destruction) to the state
takeover of medical care.
It deals with war: the

die process of preparing those for distribution next year.
Also, we held our first summer

reading session of Man, Economy, and State for graduate students.

The facultv loved teaching from a book that had such a huge impact
on their lives. The students were

founders' views, free trade and

international conflict, the problem of sanctions, and how war grows the government and reduces lib erty. The subjects of imperialism, war propaganda, war and infla tion, congress and the presidency, war powers and the constitution,
all are covered.

so pleased to be reading from a book that is so obviously superior to anything they would ever be assigned to read in graduate school. Every one of die attendees
left: with detailed technical knowl

Robert Higgs

Next is the subject of Mises
and his work. Here was a man of School and the freedom move

edge that allows them to go toeto-toe with any economist from another school of thought.
As one student wrote us: "The

enormous personal courage, a model who stood against every form of statism and paid a dear price for doing so. Later in the
book, Lew addresses other

ment blast into public view. It's no
wonder that Ron Paul said that if
he could he "would enter this

professors' lectures had real depth and scholarship. Rothbard's work
was not just summarized, but

thinkers, including Henry Hazlitt, Hans Sennholz, EA. Hayek, and, of course, the great Murray Rothbard.

entire book in the Congressional Record" and Paul Craig Roberts said that "omnipotent government has rarely faced as fierce an intel lectual opponent." •
A Summer oe Seminars

Finally, the book explains gov
ernment as the main violator of

the seven deadly sins, what an
American classical liberal of the

The seminars held by the Mises Institute during the summer
attracted members, students, and

engaged, criticized, and extended. This was a true graduate seminar. The feeling was not that we were piously reading holy writ, but that we were being brought into a liv ing research program with plenty of opportunities for all of us to extend the Rothbardian paradigm, refine it, and apply it." •
The Mises Blog

founding era really believed, the vast gulf that separates the current tax-eating political elite from the taxpayers, and why we should be hopeful about the prospects for human liberty, thanks to the role

faculty from around the world. There were the two week-long programs with historians Robert

Did you ever watch the news
and think: how would the

that ideas play in shaping history
The book is united by a set of fixed principles: the corruption of politics, the universality and immutability of the ideas of free dom, the centrality of sound money and free enterprise, die moral imperative of peace and trade, the importance of hope and tenacity in the struggle for liberty, and the need for everyone to join the intellectual fight.
This book will sell, and could

Higgs and Ralph Raico, which spanned the history of liberty from the ancient world to the present times. What a pleasure it was for
those who attended to benefit

Austrian economists respond? Thanks to the blog (short for web log), there is now a way to find out. Austrians post their responses to all the important economic news, whether it is a new regula
tion or die announcement of new

from such wide learning. The ses
sions were all recorded. We are in

government data that is being


^^^ Mises Economics

be the book diat helps the Austrian
Fall 2000


News from the Ludwio von Mises Institute

wrongly interpreted. The Mises Economics Blog has proven to be enormously popular, widi links all
over the web and a constant

that the Austrian theory has received since Hayek taught there

in the 1930s. Garrison provides a full report on the event in the Fall
2003 issue of the Austrian Econom

stream of visitors through the day and night. The blog also gives us a nice place to post news on new essays, monographs, journals, and books being posted on the Mises site—of which there are new ones every day. The site wages an ongoing war against interventionists of all stripes (even when they call them selves libertarian). We are working
on an online edition ofMan, Econ

ies Newsletter, or online at http:// www.mises.org/journals/aen/aen 23_3_l.pdf. •
Requiesgat in Pace

We mourn the passing of two
Charter Members: William R.

omy, and State, and some unavail able classics from the history of
the Austrian School. As the sheer

Toby Baxendale andRoger Garrison at No. 10 Downing Street

Jackson, Sr., entrepreneur and philanthropist of Pittsburgh, Penn sylvania, and former chairman of the Pittsburgh-DesMoines Corpo ration, and Charles Toops, II of
Corrales, New Mexico, former

size of our traffic confirms (we are
the most trafficked think tank in

proprietor of Midwest Art and charge has been Roger Garrison, who was the Hayek Visiting Fel
low at the London School of Eco Coin whose brick at the Institute

the world today), Mises.org is an
invaluable resource. •

Garrison a t LSE

During the 1990s economic boom, it was difficult to get anyone interested in the Austrian theory of the business cycle. After
all, hadn't the boom-and-bust

nomics in a program co-sponsored by the Mises Institute. His lecture scries and public speech were enormous hits, and
led to a visit with the economists

at 10 Downing Street. One might say that it is the most exposure

reads "God bless Ludwig von Mises." We are also grateful for the generosity and example of the late Albert F. Myers of Northville, Michigan; A.J. Singletary of Blakely, Georgia; Scott S. Valen tine of Friendship, Maryland; and Norman E. Wright, M.D., of Amarillo, Texas. May they all rest in peace. •

cycle been conquered? Of course it
all came to an end, and led to a

resurgence of interest. Leading the

We mourn the passing, and will always be inspired by the dedication to liberty, ofour benefactors. May they rest

in peace, and may we always strive to be worthy of them.
William R. Jackson, Sr. Charles Toops, II Albert F. Myers A.]. Singletary
Scott S. Valentine

•Norman'E. Wright, M.D,
FA. Hayek

News from the Ludwig von Mises Institute

Fall 2003