What is Exploitation? Who Exploits Whom?

0:00I will say a little bit about democracy and monarchy in the course of my talk, too, but the subject is exploitation, or slightly differently formulated, who exploits who, and how. And we start out with Marx's theory of exploitation to show what is right and what is wrong about that theory and then offer an alternative view on exploitation. You are basically familiar with the Marxian theory, Marx tells us that mankind goes through various stages, necessarily so slavery, then feudalism, then capitalism and then socialism and he claims that three of these stages are characterized by the existence of exploitation and Exploitation disappears in socialism.

1:03As far as the first two stages are concerned, that is slavery, we do not have to argue whether Marx's description is correct, that's probably incorrect also as a description of the course of history. But nonetheless, it is certainly correct to say that slavery is a system where exploitation The second stage is feudalism and there he argues that serfs that are tied to the soil and cannot run away from the Lord who oversees them, that that is characterized by exploitation also.

1:53Again, classical liberals agree with Marx as far as these two stages are concerned. Not again as far as descriptions of history are concerned but with respect to the characterization that these stages are characterized by exploitation. Now comes the stage of capitalism and Marx argues that despite the fact that laborers The laborers are pre-laborers. Namely, they can work or not work for some employer. Capitalism is also characterized by exploitation. Now, what is his argument for the existence of exploitation under a system where laborers can or decide not to work for somebody else? His argument Ludwig is correct as far as it goes. He points out the following thing. Let's assume we have a worker who works in an Apple workshop or so, and his payment is also in the form of apples. So he produces, let's say, 100 apples per week, and his wage payment consists only of 80 Apples that he receives. And then Marx points out this difference, 80 apples he receives as wage payment and 100 apples he produces, this difference of 20 apples is a surplus

3:29value that the capitalist exploits, extracts from the labor. Now it is correct, the observation that the wage earner is paid less than the value of the product that he produces is certainly a correct observation. The question is whether this constitutes exploitation or not. And the answer is it does not constitute exploitation for the following reason. We have to ask to be the question, why did the laborer agree to such a deal? And the answer is the laborer agreed to this deal despite the fact that he knows I can also get 100 apples paid provided that I am the owner of the apple orchard.

4:27I have planted the trees and then if I plant the trees and am the owner of the apple orchard Then, of course, my remuneration would be the full 100 apples that will be produced in the course of a week. So why didn't he do this? Why didn't he insist I get 100? The answer is he would have had to wait longer to get 100. Namely, it would have taken longer to build the apple orchard in order to get the 100 apples. Instead, he doesn't have to wait that long. In order to get quicker to my result, to my wages, I only accept 80 and sacrifice 20.

5:15This is a phenomenon of time preference. Present goods, well, goods in the immediate future are more valuable than future goods, goods in the far distance. So what the labor demonstrates is simply the preference of 80 apples in the immediate present over 100 apples in the distant future that he could have received if he had become a capitalist owner of an apple orchard and so forth himself. So because of that, there is no exploitation whatsoever. Now, I want to present an alternative theory of exploitation, the libertarian theory or the liberal theory of exploitation, as I indicated, as far as slavery and serfdom is concerned they agree, but they say capitalism is not characterized by exploitation, the surplus Last value is a result of time preference, preferring present goods over future goods.

6:29But libertarians still think that in systems that we refer to as capitalism, there does exist exploitation also, except not exploitation by employers of employees, but exploitation by the state and the agents of the state. These are the people who live outside of the state, who are not members of the state apparatus. In order to explain this, let me first explain The difference between productive activities and unproductive activities.

7:21Productive activities are all those activities that benefit at least one individual without making anyone else worse off as a result of this activity. Productive activities are activities that benefit one individual at least at the expense of someone else. Now a description of what activities are productive activities and what activities are unproductive activities. The first form of productive activities is what we call original appropriation, the activity that Locke spoke about, of homesteading something.

8:13A person for the very first time takes into possession something that was previously unowned by anyone. Why does he do this? Because he thinks by appropriating something that was nobody's property before, that was unknown, I am better off. Does he take anything away from other individuals by doing this? Does he do this at the expense of someone else? He answers, no, he doesn't do that at the expense of someone else. Everyone else had the possibility of appropriating these resources too. They didn't do it. They demonstrated through their actions that they did not attach any value to this object that was appropriated by me for the first time.

9:03I did not take anything away from them. Everything else is still available to them just as before. So one person is better off. No one else is made worse off because nothing is taken away from anyone else. The second form of productive activity is now I use my originally appropriated resources and produce something with the help of these things, with my labor and mix my labor with originally appropriated things. If I do not physically damage the production process, the property of someone else, then I am made better off because people only produce because they think that whatever they produce This is more valuable than the input that goes into the production process.

9:58One person is better off was anything taken away from anybody else and the answer is no. Everybody owns precisely the same goods that they owned before. Their supply of goods is exactly the same as before. One person is made better off because something more valuable was brought about as a result And the third productive activity is the voluntary exchange. A voluntary exchange of property only takes place if both individuals, both exchange partners expect to be better off. The goods go from the hands of those who value them less into the hands of those who value them more.

10:44The two individuals are made better off, but as a result of the trade between the two individuals, everybody else in the world has exactly the same possessions as they had before. No one is made worse off, two individuals gain. So those are the productive ways of earning a living, making yourself better off. What are the unproductive ways? You can recall unproductive activities are those activities where one individual benefits, but at the expense of damaging someone else. If I take away from someone an object that he has originally appropriated against his will, then of course I am better off.

11:34But the person who has originally appropriated this object is made worse off. So this is an unproductive activity. If I take away what somebody else has produced, then of course I, who takes it away, am better off, but the producer of the product is made worse off. And of course every coercive exchange, in contrast to voluntary exchanges, is also characterized by the fact that one person is made better off and the other person is made worse off. So unproductive activities then are the expropriation of original appropriators, the expropriation of producers, it can be the full expropriation or it can be the partial expropriation, and Any type of coercive exchange.

12:38What is the general effect of exploitation defined like this? That is, exploitation as unproductive activities. The general effect is, the more exploitation there is, the more expropriation of original When we look now at what type of people engage in unproductive activities, in exploitative activities that reduce the level of productive activities, then we can distinguish between There have been two classes of individuals. On the one hand, of course, plain criminals who hit other people on the head, rob them, rape them, and so forth, that is under no dispute.

13:39Practically everybody agrees that these people engage in exploitative activities, in unproductive activities, and thereby exploit others. The second group is the group that makes up the state apparatus. Now people will object that there is a tremendous difference between playing criminals, stealing goods from others, from others and governments or states taking goods from other individuals in the form of taxes for instance, and there are other forms as well that I come to a little bit later.

14:25But the first one is of course the form of taxes. Now there is of course some truth in the statement that there is a difference between criminals and States, but the difference is actually one that makes states look even worse than plain criminals. Let me just give you an example that was first presented by Lysander Stuner, an American libertarian in the 19th century, who told the following story, imagine that you are When you are traveling along the road and somebody jumps from behind the bushes and stops you and says your money or your life and then you hand him your money and what does the criminal then do?

15:21The criminal then disappears. He runs away to the woodworks and as far as you are concerned, you are happy that he does this. and you have the possibility of preparing yourself the next time for attacks such as this and possibly defending you the next time. Now imagine the same scenario, you drive along and somebody comes and stops you and demands your money and once he is done stealing your money, then he does not disappear into the woodworks but he says next week we will see each other again or next month or next year and so forth when the next income declaration has to occur and so forth.

16:21So he is not doing what you would like him to do, disappear, but he becomes an institutionalized robber. Who would you prefer to meet on the road? Someone that you can defend yourself against in the future or someone that you know you will come again and again and again. This is indeed an important difference between a state on the one hand and a plain criminal on the other hand, but it is certainly not a difference that lets a state look particularly good. The second point I want to make is, people frequently then argue, but you have to recognize As I said, a state is not, one state is not like any other state, states are different.

17:19And of course we can admit that also, just as there are bad robbers and good robbers, so there can also be comparatively good states and comparatively bad states. Again, an example. A friend of mine went to an ATM machine, and once he had his money out, somebody standing behind him with a knife and asked him to hand over his 300 euros that he had received out of the ATM machine. And my friend then started to argue with him, so he gave him the $300 and said that it was late at night, I had planned to go out and have a few beers afterwards and now there's no possibility that I can get any beer and the mugger then agreed to give him $20 or 20 euros back of his own money.

18:24Now my friend was of course very happy in this situation. I guess I would have been happy also. This is a good state. It can also happen of course that you start negotiating in this way and instead of giving you a small proportion of your money, of your own money, that he will kick your teeth out or do something even worse to you. This is obviously a not so good state. That might be the difference between, let's say, something like the United States or Great Britain or Germany, the good states, so to speak, that give part of the money back to you, and something like the former Soviet Union or East Germany, Okay, now to the question, how do these institutions like states come into existence?

19:36How can people get away with institutionalized robbery? Well, in one way, the answer is, well, why are there states? In some sense, the answer is very easy, and people have given very complicated explanations why states come into existence, but fundamentally the answer is very easy. It is very interesting, very lucrative, very nice if you can live at other people's expense. It is not difficult to imagine that there might be people out there who would love to institutionalize, to engage in institutionalized robbery of other people and live off them.

20:33You could ask the same question, why is there slavery? Again, people have given very complicated explanations for why it's their slavery. The answer is, if I'm the slave master and you are the slave, there's a very simple explanation. Nice for me to be the slave master and you are the slave. I live on your expense. But how can they get away with this? Not because, this is the standard line, not because states are necessary in order to create peace. Quite to the contrary, as I will explain in a second, states actually are institutions that create conflicts and then present themselves as a solution to a problem that they themselves have created in the first place.

21:30Again, a small story might be useful in order to illustrate this point. Let's say we have a group of people who want to start an extortion racket. They go to the store owners and tell the store owners, You need protection. I know life is dangerous in this world and I'm here to protect you. And then the store owner might say, I feel quite safe, nothing much has happened and if something happens I'm prepared to defend myself. And the people disappear. The next day the store owner comes When he comes to his store and sees that all his windows are smashed, the store is vandalized and so forth.

22:33And a few hours later, the same people reappear on the scene and ask the store owner the same question, Do you need protection? And now the store owner gradually begins to get the idea what is going on. And he says, oh I see the point, yes of course I am willing to pay you something so that you will give me protection, meaning that you will not smash my windows and vandalize is my store tomorrow. Now what would we expect this protection racket that has begun its work like this to do in order to stay in business? They must offer something of value to the the person that they protect and who pays taxes to them.

23:39What do they offer them in return? Now obviously in every territory there can be only one institutionalized protection racket. You cannot have competition in the field of protection rackets. If there would be dozens of protection rackets operating in the same territory, there's simply and so forth. So every protection racket has, of course, an immediate interest to be a monopolist protection racket in a particular area. And this implies, of course, that the protection racket will protect the store owner from other potential protection rackets, from other plain criminals that come along.

24:29They do deliver indeed some sort of service, but we can also see that they have an incentive of course not to be too good in combating crime committed by other individuals. As a matter of fact, their interest would be, there should be a stable level of criminal activities going on because only if there is a stable level of criminality going on, Do the people have the feeling we do need this protection racket in order to keep this menace in check? So there is some sort of service delivered on the part of the protection racket.

25:21The second thing, all states emerge somehow like this and go now by and large to the same sequence of steps. Obviously, the next thing that the protection racket must do is they must also not only They must not only monopolize violence, they must monopolize also judgeships, they must monopolize the judicial system. Imagine in this protected area there are still different judges operating, then it would become It has become very quickly apparent that what the protection racket does will be condemned by various judges, by various arbitrators as something that is illegitimate.

26:23So what you must do is eliminate all possible alternative judges in your territory. All judges must become part of the protection racket itself and then of course they will find that whatever the protection racket does, whenever they collect their taxes and so forth, that that is perfectly legitimate, is only the just compensation for the wonderful protection that they receive from this institution and so forth. So, monopolization of the judicial system is the next step.

27:10The next step is to monopolize traffic and communication systems. You see, the protection rackets, the agents of the protection rackets who come and want want to collect their money, still must move on roads and paths that are owned by other people. They must get the entrance to the premises where they begin their looting activities. In order to make sure, however, that they can enter every house, every premise without Without any difficulty whatsoever it is necessary that streets which initially were privately owned must become public property, must become the property owned and controlled by the protection racket itself.

28:14Then the employees, the agents of the protection racket can enter any premise without any difficulty whatsoever. Next point in order to gain legitimacy for the protection racket is to monopolize the educational system. Initially of course education was nothing that was in the hands of the state, that was What the state needs, however, is the correct training of the people.

29:09We emphasize how important a favorable public opinion is. The protection racket consists only of a relatively small number of people and those people who are exploited by them are the huge majority of people. How can you for a long period of time oppress a large majority even though you yourself are only a small minority? And the answer to this has been given hundreds of years ago by David Yu, many people before, Etienne de la Boitie, only by opinion, that is, only if you get some sort of cooperation on the part of the exploited so that they do not resist the attempts to continuously rob you and exploit you.

30:16And how can you create this favorable public opinion? That is, how can you get the idea across that somehow what the protection racket does is necessary and beneficial to you? And the answer is by education. You must monopolize the schooling, first elementary schooling, then of course also university Education, all institutions must be at least licensed, so that the right doctrines are instilled in the people, doctrines such as, you all know this, without the state there would be only chaos, nobody would be able to produce anything the state is necessary in order to create peace among mankind, the Hobbesian scenario and only if he has a state who does the war against everyone else come to an end.

31:29Martin Luther in Germany was a major figure in persuading the rulers how important it was to also have full control over the educational system, to nationalize, to socialize, so to with the Educational Institutions, and he used the argument just as the state needs to train its soldiers with physical training, so everybody needs good mental training in order to become obedient citizens.

32:19It is easy in a way for the state to accomplish this takeover of the educational system because intellectuals, the teachers in these institutions are people who have a very precarious existence. The demand for educational services is very unstable. And what the state can do, of course, is offer intellectuals safe employment. And in return for the safe employment that intellectuals get, they then deliver the goods, namely the appropriate propaganda, how important the state is.

33:16I come back to intellectuals a little bit later again. The next step that all states went through brings a huge advance in the degree of exploitation that comes with the monopolization of money and banking. This had basically two sources of income nowadays. One is taxation and the other one is printing up money. That is engaging in the same activity that a counterfeiter engages in. You can create money out of thin air basically. It costs almost nothing to print it, so to speak. And And then you can turn around and buy yourself some real assets with it.

34:26Imagine you would have this power, you would be, and you realize that every state has reached this power. We have not a single state where it is not the case that they have a bank, a central bank, that has a monopoly of issuing money. Nobody else can print money except they can do it. Everybody else is a criminal who does it. Imagine I would make you the sole printer of British towns. Nobody else can do it. What would you do? And the answer is of course you will start printing immediately. It costs you nothing. You can turn around, buy yourself a Mercedes and all the rest of it.

35:13But only then you will also realize that you have far more friends than you ever imagined who also come to you and say, look, you seem to have some magic wand, Mercedes for me would be nice too, or BMW would need a bigger house than the one that I'm living in right now, so please help me. The central banks in every western country are the biggest employers, for instance, of economists. Universities, but central banks employ even more economists than any other institution. These economists, of course, now are used as propagandists in order to explain to you how useful this activity of the state is to be able to print money out of nothing.

36:12And of course they have a very selfish reason, imagine they would not explain this, then they would be out of the job very quickly. So it is easy to see why they would cooperate in a scheme such as this. Let me digress for a moment and briefly address the question, does the current financial crisis indicate a failure of capitalism or is it not a failure of the state again? Now look at it this way, when you ask normal people how banks can give loans, most people It's like you can only extend a loan to somebody if you have previously somebody who has saved up the money.

37:09Somebody must save it and then these saved funds can be given to somebody else. No risky loans can be given away like this. You will be very careful to whom you loan the money because you need the savings in order to do it. And deposit banks, if you have deposit accounts, deposit accounts most people think are accounts where you put your money in the bank and you remain the owner of the money that you put in the bank. That's what a deposit account is. If you have a savings account, then you know, of course, I have saved, I cannot immediately get it back. This will be loaned out. Because it is loaned out, I will earn interest on it. Now, you can, however, as a banker, be tempted to do this.

38:07This, you can be tempted to simply issue tickets, if you deposit money in the bank, you get a deposit ticket and these deposit tickets people accept in exchange if they have absolutely no doubt that they can be redeemed into the real thing sitting in the bank. What banks can do is they can issue fake tickets or they can loan out, so to speak, the deposits that you made, so that people think, I own my deposit that I have in my deposit bank and at the same time the money is actually loaned out and the bank earns interest.

38:59You realize what the danger is in this situation if the owner of the deposit would come and If a person does not want to get his money back and the money is loaned out and has not been returned, then the bank is bankrupt. It cannot work. Now, as long as you have competing private banks that do this sort of stuff, that engage in fractional reserve banking, that is to say, they do not have as much money in the bank as they say that they do, They cannot even buzzy mitrises, it is a very dangerous thing to do, because any note, any fake note, any uncovered note that comes into the hands of someone who banks with a different bank, will deposit this note in his bank, and then the process of course is called adverse clearing, that is his bank will then go to the bank that issued these fake notes, ask for redemption, and the bank will have a liquidity crisis. So under a system of so-called free banking, we have no central

40:09bank, we have competing banks, but they engage in fractional reserve banking. It is very difficult to do this. So all bankers basically lobbied to institute a central bank which would allow them to engage in coordinated inflation, in coordinated expansion of the money supply. This central bank, I mentioned that all states have this, this central bank is then the only one that can bail out the banks that get into liquidity crisis. But only because you know there is a central bank in existence, will banks then expand riskier and riskier and riskier loans because they know if the crisis comes, that is, if the depositors appear want to have their money back, the money is not there, it is loaned out, will not be paid back by those people who have received the loans because bad loans have been given.

41:17There is always a central bank that bails me out. So the crisis that we have right now is precisely caused by the existence of a central bank and even more strictly speaking by the existence of something like fractional reserve banking. We use a slightly different approach to explain what the problem with fractional reserve banking is. The fractional reserve banking allows, so to speak, the practice of printing up more property titles than there is property. Look, you can have a car and you don't take possession of the car.

42:04So you have a title to a car, but the car is somehow standing in the car lot. The owner of the car lot can rent out this car, even though you are the owner of the car, and collects fees for renting out the car. If I come, however, and want to take possession of my car to which I have a title, then the car is not there. More titles to property are brought into existence than property exists. In no other area, except in the field of money, is this considered to be a legitimate practice. In the field of warehousing, corn or wheat or whatever, this type of practice is considered to be illegal.

43:00In the practice, in the field of banking of money, it is considered to be a legal activity. So this, this explains also why they are exploited, so to speak, outside of the state apparatus. The big bankers themselves are in cahoots with the state, are standing behind the institution of the central bank because they realize this allows them a coordinated inflation which which enriches them brings about the danger of bank runs, but they know that the bank runs, at least under paper money standard, can be mastered, so to speak, by printing up the unlimited liquidity once a crisis breaks out.

43:53Now, I want to say a few words about the difference between monarchical states and democratic states. So all states are exploitative, but democratic states are even more exploitative than monarchical, classical monarchical states are, for several reasons. One reason is, as long as you have just one king being in charge of this protection racket, so to speak, everybody knows he is the king, we are his subjects, I cannot become king, and I resist of course every attempt on the part of the king to increase his level of exploitation.

45:03There is resistance against it because, you know, he is different. I cannot become him. On the other hand, under a democracy, everybody can now become so to speak, King. Everybody can become Prime Minister. There is open entry into this position of being the head of state. So you still might not like the fact that you are exploited, that you are taxed to the hilt, but you realize I might actually be on the receiving end instead of being always the one who pays and that consoles you to a certain extent over the fact that you have to do something that you might not like to do because you might also benefit from.

46:00The second, so resistance is higher under monarchy against increased exploitation and lower under democratic conditions. The second difference, important difference is once you have democracy in place, one man, one vote, the demands for income redistribution will become far greater than they were under monarchical conditions. There are two little stories that indicate this. Imagine, for instance, we would have a world democracy.

46:46One man, one vote, one woman, one vote on a worldwide scale. We have a world state. Then what you can predict is we will get some sort of Indian-Chinese coalition government simply by virtue of the number of people. What will this democratically elected government do in order to be re-elected? They will, of course, decide that a massive income redistribution from the Western world to the developing world is necessary. After all, they have almost nothing and we have plenty of stuff, so a huge income redistribution will be set in motion. Precisely the same thing has taken place within all individual states in the course of the 19th century as the franchise was gradually expanded.

47:37Initially the franchise was restricted to property owners, actually to major property owners, and the age restrictions were quite high. Because people had an idea of what would happen if everybody can vote. This is precisely what happened in England, what happened in Germany, what happened in the United States and so forth. That is, classical liberal parties which were initially at the beginning of up to the mid-nineteenth The dominant political force became increasingly less important and socialist parties or social democratic parties became more important and even the problem of the classical liberal parties gradually changed to social liberal parties as more and more people were allowed to participate in the voting.

48:45Another important difference that I should point out is that under democratic regimes the rulers become more short-sighted. They are interested more in short-term exploitation as compared to monarchical regimes. for the following reasons. Imagine the king considers the country, so to speak, as his private property, whereas a democratic politician is a temporary caretaker of the country, and that has profound different, profound implications as far as his behavior is concerned.

49:34Imagine in one situation I would make you the owner of a house. That is to say you can sell the house in the market and realize what price you would get for the house. You can determine who inherits your house and so forth. And in the other case you have an identical house. I say you are for four years the caretaker of this house. You can take advantage of this house. But you cannot pass it on to future generations, nor can you sell it in the market. It is public property. You are just care-taking. Would your behavior be different? And the answer is yes, of course it will be. The owner, whatever he does with the house, will always be interested in what will be the repercussions of what I do right now with the house as far as the capital value of the house is concerned.

50:31What would be the consequences for the price that I can get if I were to sell the house in the market? He will not want to engage in capital consumption, so to speak. He wants to preserve the value of the house because he can capture the value in the form of a higher price, or he can pass it on as an intact piece of Property of the Next Generation. But if you for four years are in charge of the house, you don't own it, what is your interest then? Then your interest is you want to maximize your current income at the expense of capital value. It doesn't matter whether the value of the house falls dramatically in the market because after all you cannot sell it in the market, it isn't yours, but you can increase of course your current income.

51:23Look, I could put 20 people in the house as renters and collect more rent from them, with the consequence that maybe after a year or two the house is in ruins. On the other hand, if I just take one nice married couple and rent the house out to them, Then my rental income will be significantly lower, but the capital value will remain intact. The owner behaves like this, the caretaker behaves like I have to exploit what I am taking care of in as fast a time as possible because who knows what will happen in the future.

52:14In addition, democracy has the effect of bringing the worst people to the top. Look, a king becomes king by accident of course. Because it is an accident that makes him the king, does not exclude or does not make it It is impossible that this guy might be an evil person, many things for evil people. After all, we are talking here about two evil systems, two exploitative systems. So yes, of course, kings can be bad guys, but if they are bad guys, what typically happens to them is the dynasty becomes worried that if this guy misbehaves like he does, And if he does, they might lose all the power and they will surround them with people who control the maniacs to a certain extent.

53:16And if even that doesn't help, they might even determine one of their own family to kill the guy off. On the other hand, because he comes to power by accident of birth, he can also be a nice man. The generous guy who just might exploit a little bit, but by and large leaves people alone. We have also examples of this. Now compare this to democratic conditions. Competition is not always good. Competition is always good when it comes to the production of goods.

54:02Then, if we are dealing with the production of goods, then competition has a result of increasing the quality of products and lowering the cost of production. But competition is not good when it comes to the production of bads. There is those things that states produce, we can recall. States live off taxes and off counterfeiting activities. Those are not goods. So we don't want to have competition in that area. When it comes to the production of bats, monopoly is good. When it comes to the production Competition of Bads, Monopoly is good and competition is bad.

54:58You would not want to have competition who is the person who is the best in beating up other people, or competition who is best, the best commandante of some concentration camp. There you would want to have inefficient people, as inefficient as they can possibly be. Democracy is of course competition in the production of bands. Who rises to the top? Smart people who are good at demagoguery, who promises everything under the sun, knowing full well that there's no way that they can possibly keep their promises. Imagine you would be a politician who would say, I will not take any money from the rich and give it to the poor.

55:46I will not engage in any income redistribution. Can anyone who just has a campaign with these slogans ever hope to become elected to any high office? And the answer that is absolutely unsinkable. That might be something that can happen in a small village. But because of that, people like Rousseau who were defenders of democracy, of course, saw all this of democracy only in very small units where everyone knows everyone else and is afraid, is ashamed that they vote themselves the property of others. But in a society with millions and millions of people where nobody knows from whom you steal, of course, all moral inhibitions disappear and people are willing to vote themselves the property of everybody else who they think is better off than they themselves.

56:43So on a democracy you have almost a guarantee that only evil characters will ever rise to the top. And in addition, the likelihood that those evil characters will be killed off like kings were killed off when they turned out to be evil people is relatively low because people always hope, Oh, it will be just the next election, into the next election, then finally the good guy will come to power, my guy will come to power instead of the bad guy that is currently running the business. Okay, now what can we do about all this? What we can do about all this is that people have to develop some, what we can call, clear class consciousness. We know that Marx of course had this idea of people have to have a class consciousness as well. His idea was of course the workers have to feel we are the exploited and the capitalists are the exploiters and then by uniting in their common consciousness, the class consciousness, you could shake off

58:13The Yoke of the Exploitors. What we need is, we need also some clear class consciousness. There do exist exploiters and exploiters. It has nothing to do with capitalists and workers, it has to do with state agents and state agents are also sometimes people who operate outside of the realm of the state apparatus. is called the banks in particular, and on the other hand people who are the exploiters. How can we just make that visible to people who belongs to one group and who belongs to the other group?

59:01By a simple thought experiment, at least that is useful to come to this class consciousness. The salt experiment is, imagine for a second that taxes would be eliminated. What would then happen? Would everybody's income go up from after-tax income to before-tax income, that is from net income to gross income? And the answer is, no, of course not. Some people's income would then go up from net income to gross income, from after-tax income to before-tax income.

59:47Other people's income would go down from after-tax income to zero or to close to zero. Obviously, we currently do something with the taxes. We pay huge amounts of people out of taxes. Teachers do not pay taxes. Teachers are paid out of taxes. University professors do not pay taxes. They are paid out of taxes. There is a fiction. The fiction is they get an income statement that looks like everybody else's.

1:00:33because people are interested in equality before the law. They also get the pay slip that says before tax income, tax meat minus taxes and then after tax income. But their entire net income that they receive is of course paid out of taxes in this sense. They do not pay taxes at all. Now, who are these people? The entire state sector, all public employees, all teachers, all professors, all members of parliament, all welfare recipients, of course, and so forth. This, it is important to realize this because that helps you understand certain phenomena that otherwise make no sense.

1:01:29You think, why is not everybody against taxes? After all, aren't taxes forced contributions that you must make? But we realize, of course, that there are large numbers in the population who are in favor of raising taxes. University professors are almost always in favor of raising taxes. School teachers are almost always in favor of raising taxes. Of course, they present themselves as benevolent people who feel with the people. They say, I must pay taxes too. But I'm still in favor of raising the taxes because I'm a social person.

1:02:19Worse, there are other people who are greedy individuals and do not want to pay their taxes. Once you realize that they don't pay taxes at all, and their advocacy of higher taxes means only they advocate that they should get higher salaries, Salaries, and you realize what sort of fraud is going on there. So once we have developed a clear-cut class consciousness, there are people who rip other people off, and you must realize who these people are and who is being ripped off. Then there might be a chance that The State can be rolled back. As long as this class consciousness does not exist in the minds of people, clearly, there is absolutely no hope and the power of the State will continue to rise.

1:03:17Okay, with this I'll stop. Thank you very much. Gordon Brown in the recent crisis has talked about the need for a new Bretton Woods style global agreement. I was just wondering what you thought that had the potential to end up in terms of your analysis of... Very quick. You see that the Bretton Woods system was characterized by the fact that gold still played a minor role in the entire system, in so far as foreign central banks could redeem $35 into an ounce of gold. And the Bretton Woods system collapsed because The United States inflated continuously the U.S. dollar.

1:04:24These dollar amounts partially ended up in the hands of foreign central banks and then induced by economic advisor of Charles de Gauche, the French realized the Americans do not have enough gold in order to redeem their $35 prongs of gold, and a run set in on the American Central Bank. And then under Nixon, the American Central Bank basically declared bankruptcy, they said We will no longer redeem. You can keep the paper dollars, but the obligation that we assume under the Bretton Woods Agreement to redeem them 35 per ounce of gold is no longer kept. Now that made it possible that after 1971, worldwide inflation of course increased is even more than it had increased before, because before there was always this tie to gold.

1:05:43Since 1971, there is no tie to anything. So all countries can basically inflate as much as they want. What they still have to worry about is, however, if I inflate faster than some other country, then my currency will fall in the currency market against other currencies. And the way out of this problem is what the European Union tried to do, so to speak. The German market was always more stable than other currencies in Europe, not because of any virtue of the Germans, but because of the fact that there was twice hyperinflation in Germany. The public was a little bit more sensitive towards this type of issue. and the other European countries wanted to inflate faster, but always with the danger that their currency would be valued.

1:06:37So the idea was what we have to create is a central European bank that allows that the euro can inflate faster than the least inflating currency that existed previously, the German mark. The ultimate solution would be to create a world central bank, of course control some of the most devising United States, I guess, and then because this world currency, world paper currency can by definition not depreciate against any other currency, we would have inflation like we have never seen it before. So what Gordon Brown, whatever these people want to set up is not, as far as I can see, a return to some form of gold standard.

1:07:28Even Bretton Woods was already very diluted gold standard. It was already a long march in the direction of allowing more inflation as compared to genuine gold standards. So whatever they have in mind is not tying paper currencies to some sort of commodity but probably creating some still more central organizations that allow even more inflation to take place in the future. So I think he's probably exactly the opposite in mind from having sound money. He wants to have even less sound money because the entire plans that these Europeans have in the United States was calling big conferences and setting up a new system.

1:08:26My fear is that we'll be in a further step in the direction of creating the world paper . Money has to be taken completely out of the hands of government. The classical liberal position was not because we are in favor of gold or we love gold or whatever it is. The idea was it has to be a commodity that cannot be deliberately produced out of nothing. It It has to be something that is not in the hands of the state. That is the only guarantee to have sound money, money that does not lose purchasing power continuously.

1:09:12Given that the Bank of England before the Second World War was an independent private institution, and that it ran a central bank, a fractional reserve system, and that it wasn't any runs on the banking system since the late 19th century, is it not possible then to have and furthermore given that scenery is a minimal part of most states income that isn't a debauchery of the currency that occurs in the modern financial world.

1:10:03First of all, I'm not quite sure if that is a minor part, but look, the Bank of England also went off the gold standard in the 1930s, like all central banks did. Again, I'm not familiar with British banking history, but the United States went off the gold standard in 1933, and Britain immediately afterwards were about the same, 31, even before. So that indicates quite clearly that of course there were bank runs also, and in order to to avert these bank runs, they had to go off the gold standard domestically, and then after World War II, this small remnant of the gold standard was still kept in the Bretton Woods system.

1:11:07But central banks cannot come into existence such as banks that have a monopoly on the issue of money. What you can have is you can have competing banks each issuing, so to speak, their own notes, but backed by something. You would have to explain how it is possible that people would ever accept a piece of paper as payment in the first place. One of the great insights of Ludwig von Mises was to show that a paper money can never come into existence at all. Let's say I offer you a piece of paper, you would not even know what the purchasing power of it is.

1:11:58Pieces of paper were only accepted because initially pieces of paper were titles to something to a commodity. Only because of that did they gain acceptance. Once they are widely accepted paper news, then you can cut the tie between gold and paper and the paper can float on its own. But you can never introduce from the outset, so to speak, a pure paper currency backed by nothing except paper. So, in this sense, the Central Bank of England, the Central Bank of Germany, all of them are non-market institutions. They are institutions that are the result of the violent crime that was committed, the expropriation of the owners of the gold.

1:12:48I mean, Roosevelt, I know more about American banking history than I do British, But what Roosevelt did was simply saying, up until that time, Americans could do what central banks could do in 1971, that is, present $35 paperbacks, greenbacks, and receive an ounce of gold. And then when bank runs started setting in, then they said, okay, we keep all the gold, Even though the gold was deposited by private clients, and you can keep the money, and people who still had gold were forced under threat of several years of jail term to hand over all their gold to the central government.

1:13:42So central banks are not normal institutions, they are criminal institutions from the outset, No central bank has ever come into existence by normal means, without committing a violent act of expropriation.

1:14:01I've got one larger question, then one very brief question I'd like to ask the authors. The first question is, you seem to be assuming that capitalism was in some sense prior to the existence of the state and the government. Surely if you had a world order where the only thing that existed were capitalists, Then it would be simply inevitable that some kind of violence would come to pass that would actually render that completely impossible. But, property and law exist before states exist.

1:14:56States are not institutions that bring about the existence of property and law. So, how is the system going to be effectively completed without somebody having monopoly? Ok, look, in the international scenery we have no monopoly currently either, right? We do not have a world government. Nonetheless, it does not mean that the relationships between German businessmen and British businessmen are less peaceful than the relationship between two good British businessmen. Despite the fact that there's no monopolies. Look, in Germany we had until 1871 we had 39 states. And after 1871 we had just one.

1:15:44There were no more conflicts in Germany before 1871 than after. As a matter of fact, if you have a monopolist of law and order, Then you can predict that the price of law and the quality, the price of law will continuously rise and the quality of law will continuously fall. Imagine something like this. I tell you, in every case of conflict, whenever two people have a conflict, they must come to you to arbitrate who is right and wrong. That includes even conflicts that involve yourself. That is, if you have a conflict with me, then you decide who is right and who is wrong. If I have a conflict with him, you also decide who is right and who is wrong.

1:16:46But if you have a conflict with me, you also decide who is right and who is wrong. So what In that case, you will actually cause conflicts and then you decide them in your own favor. You will hit me on the head, then I complain about it, and then you say, I'm the judge. Of course, I was entirely justified, he looked at me in the wrong way, and that's the law that I laid down, and now he owes me such and such a sum of money in order for me to make this ridiculous judgment. This is how states work. If a policeman beats you up and you complain that the policeman beats you up, who decides who is right and wrong? The judge who is employed by the same organization as the policeman. So you must have, in this area in particular, you must have competition. Competition between arbitrators, judges, and so forth. Precisely because this This is one of the most important goods, law and order, justice, and to have monopolies

1:17:57there is just a sheer disaster, but again, that it does work, we can see we do not have a world government. Are there more conflicts between citizens in Austria and Germany who live in two adjacent villages? There might be only a kilometer between the people. Now there are more conflicts between people who live in one village in Germany and Austria than between citizens who live in two Austrian villages, neighbouring villages. And the answer is, I have never heard that there are more conflicts between them. But that proves that you do not need a monopolist process. We're slowly running out of time, so maybe just one or two more questions. I think one more question and that should be it.

1:18:45I've always had a very simplistic question, I'm sure you've had it many, many times. You say that there are many benefits that will come out of this, like pre-education and pre-health care, but a lot of people think that if the goods weren't provided by the government, First of all, they are not free, right? It has to be paid out of taxes. Somebody pays the taxes. It's not that he wasn't paying taxes, because they didn't have, they weren't high enough. Somebody who was disabled or somebody who was mentally ill and couldn't work and couldn't pay taxes. For that sort of stuff, you have societies that are not taxed out, wealthy societies, Education is nothing that came into existence only because states did it.

1:19:46Education existed prior to states taking over education. There existed medical doctors before the British health system was introduced. There are many countries where private doctors still are allowed to operate and that have far better health care systems than you have in Britain. You are famous for having one of the worst systems in the world. Everything that people want, for which there is a demand, will arise in the market. Let me emphasize this. Whatever is funded out of taxes will be far more expensive than the same thing would be if it would be provided by a market.

1:20:39If I built a private school, then I spent my own money on it and I will be frugal with my money. I'm very much concerned what will happen to my money and I'm concerned if I recoup the money that I invested. If I'm on the other hand a bureaucrat, I do not spend my own money. I spend other people's money on something. If you spend other people's money on something, you tend to be very generous. Then you think, the school should have this, the school should have that, wouldn't that be wonderful if there would be nicer carpets, better desks, more computers and all the rest of it.

1:21:28After all, it's not my money. So if you build a street, the same thing, if you build a private street, you will be very much concerned about the price of the product and the quality of the product. On the other hand, if you build a public street, you have this perversity in every European country. I'm sure that exists in Britain the same. You order companies to build the street that guarantee that only the highest possible wages will be paid, that the unions that say, you must pay your worker at least whatever, 20 pounds an hour, otherwise you will not get the contract to build the street. Imagine this idiocy. I built a house and then two people come and make me an offer. One says, OK, I built you the house here for 100,000 pounds. And somebody else says, OK, I will charge you 200,000 pounds, but I promise you that I pay my workers extra payment. Would you then build the house, the 200,000 pound house, only because you know, oh, but the workers were paid 50 pounds an

1:23:06I think we should stop now. I'm sorry. Let everyone join me in thanking Professor Hoppe very much.