Is Ron Paul Crazy? Part V: The Conclusion

Ron Paul has been consistently called crazy by the establishment media and political parties for his attacks against Ben Bernanke and the Federal Reserve in general. The preceding series was an attempt to educate people on Ron Paul’s understanding of economics that comes from subjective-utility economics that has become associated with the Austrian School of Economics.

The question remains; is Ron Paul crazy?

Is Ron Paul Crazy? Part I

I certainly used to think so.

I admired him during the debates for the Republican nomination for President in the summer of 2007 because of his strong commitment to limited government, the Constitution, and bringing troops not out of just Iraq, but from all over the world. But then he would go on rants about returning to the gold standard and how Federal Reserve policy was going to lead to a financial disaster.

Let's start with an analysis of the gold standard.

Is Ron Paul Crazy? Part IV

After a nearly 15 month hiatus I am finally ready to conclude my series on Ron Paul. I felt the break was necessary so I could take the time to fully understand Austrian Business Cycle Theory.

Parts I - III dealt with the gold standard, fractional-reserve, and central banking. I will now conclude the analysis of Ron Paul's policies by laying out Austrian Business Cycle Theory. This is important as it is relevant to current affairs, more specifically, the recent rise in food and oil prices.

Austrian Business Cycle Theory tells us that any increase in credit money will lead to a boom that must be followed by a bust as the credit money is contracted, so long as the credit money is invested in capital goods. The increase in credit money, or inflation, leads to many investments during the boom that are later revealed to be malinvestments during the bust. The theory is clear; if we wish to avoid the bust, we must not allow the boom.

Are Tax Credits Subsidies?

Recently, Ron Paul published an article titled “How Should Government Treat Energy Producers?”

http://lewrockwell.com/paul/paul749.html

In discussing the tax code he makes the following claim (emphasis mine), "with tax credits and deductions, industries, business, and individuals simply get to keep more of the money they have earned." He uses this to justify his support for tax credits and that, “Removing tax credits is nothing more than a tax increase.” It should be noted that is the same position Murray Rothbard held in his essay “The Case Against the Flat Tax”.

http://mises.org/rothbard/flattax.pdf

I emphasized “they have earned” above because that is the crucial question. If a credit or deduction allows an individual (to use the terms “industries” and “business” is redundant as they are in fact made up of individuals) to retain his own income then this is indeed a good thing (from a libertarian point of view). It takes the form of Sam steals from Paul to give back to Paul. If, however, the credit or deduction is the income of someone else then this is a subsidy and a distribution of wealth that takes the form Sam steals from Paul to give to Peter.

Is Ron Paul Crazy? Part III

The Federal Reserve is a Central Bank. A Central Bank provides a government with its currency. Because of legal tender laws making it illegal for citizens of the US to use any other currency other than Federal Reserve Notes (USDs), the Federal Reserve is the sole producer of the nation's money supply. This is also known as a monopoly.

The Federal Reserve is made up of 12 regional banks. Directing the actions of these banks are what is known as the Board of Governors and the Federal Open Market Committee. Both of these are federal agencies. When a government agency has official control of a monopolized good (in this case money) that is socialism (or fascism, but that is a whole other topic!). Every country in the world has socialized money.

Is Ron Paul Crazy? Part II

In the previous post I focused my attention to an analysis of the gold standard and how gold came to be used as money. This post will focus on another of Ron Paul's "crazy" policy platforms; End the Fed. Discovering and understanding the nature of the Fed must begin with a discussion of inflation and fractional-reserve banking.

Despite what you hear on the news or read in the Wall St Journal, Economist, or NY Times, inflation is not an increase in the price level. Inflation is an increase in the money supply. While it is true that inflation tends to lead to an overall increase in prices, it does not necessarily have to be so. It is perfectly possible that the price level can decrease after an increase in the money supply.

While most people have heard of the term inflation, few have no idea whatsoever as to to what fractional-reserve banking is. By law, banks are only required to keep a certain percentage of their cash obligations on hand. For example, say the US requires that all banks must keep 25% of the cash on hand that it owes to owners of checking accounts. Now I go to my bank and deposit $1000. Because, by law, the bank only needs to keep 25% of this $1000, $750 (called bank credit) are available to be loaned out by the banker. While my check balance shows that I have $1000 in the bank in reality there is only $250.

Now this math may not seem to add up to most people. That's because it does not. You may also think that it sounds an awful lot like a pyramid, Ponzi, and now Madoff scheme. That's because it is.

Defining Evil

In order to not do evil it is necessary to first define what evil is.

I believe there are two categories of evil; fraud and violence. Fraud consists in deceptive acts such as cheating and lying. Violence involves the use of force to steal, murder, or injure someone's person or property. The threat of force, coercion, is also considered an act of violence and to be considered evil also.

Unfortunately in this world there are people that, for whatever reason, engage in antisocial acts of behavior and often resort to the various methods of evil listed above. Therefore men must inevitably resort to corresponding acts of violence to protect their person or property.

At this point it becomes necessary to separate acts of aggression versus act of defense. The acts above are commonly referred to as acts of aggression when initiated by an aggressor. Aggressive acts can never be justified if one is to commit oneself to doing no evil. Defending oneself from acts of aggression, however, is justified.

In future posts I will discuss whether or not governments are the most adequate method for defending against aggression (I obviously believe they are not) but for now I just wish to clarify my position on what constitutes evil and draw a distinction between aggression and defense.

I will also, using the definitions above, show how many people engage in evil without knowing it.

For a good read on libertarian legal philosophy with regards to aggression and property rights please read Murray Rothbard's essay on Law, Property Rights, and Air Pollution.