The Bailout, Libertarian Principles and Solutions

0:00Alright, we are back on American Vigilance Coast to Coast with Walter Block, senior fellow at the Mises Institute. Professor Block, thank you for calling. My pleasure. It is a pleasure to have you on. We do appreciate you taking the time. We know you're a busy guy and I have to say just first and foremost, big fan of your work over there at the Mises Institute, some of the seminars and classes that you give. I just think you resonate this idea so clearly that I think our listeners are going to benefit greatly from having you on for an hour to talk about these ideas in a way that is just so concise and easy to understand. Well, I hope I've looked up to that.

0:46You've been kind. Well, you know, one thing we just want to say, the point of the show is, I mean, I know we could probably talk, we could probably talk to you for hours and hours and get into of Money, The Theory of Money and State, The Theory of Money and Credit

1:26You're right. The Congress tutors are economically illiterate, except for Ron Paul, but that's one out of 535, so I think your assessment is a good generalization. I might give Bill Salley, I might give Bill Salley from Idaho, it might be 534. Well, there might be two or three others, but Ron Paul is my main man in the Congress. You got it, man, and he's pretty much my main man across the board there. We need more like him in the Congress, obviously, and I think that's why a lot of us are so active now, is because this Ron Paul message, these libertarian ideas have to gain some traction and we have to have more people in the Congress to see some of these policy shifts that we need to see happen and some of the changes that we need to get back on the right track.

2:22I agree entirely, it's very foolish to bail out companies, there's a thing called moral hazard. If you bail out people who make mistakes, you encourage future mistakes, and further mistakes. So you just get more of the same, people will now take more risks.

2:52when they lend money, and they'll say, hey, I'm pretty big, the government will bail me out, I might as well take these risks that are unwarranted based on the economics of it. So that's not a good plan. It's penny wise and town foolish, or it's a very short run thing, and not even that, because I don't think it's going to help even in the short run. But in the long run, it's certainly going to hurt as people make foolish decisions in the future. Professor Block, I don't know if there's a volume on your phone. Is there any way we could get your volume up just a little more? Is this any better now? Just a little more if you can. I ramped it up to the highest level.

3:37That's the best I can do. Then it will definitely work. I'll get closer to the speaker. Well, I got my PhD in economics at Columbia University and am now a professor at Loyola University, New Orleans. By the way, if there are any students who want to get a good college degree, come on down here. We need students because we lost quite a few with Katrina, and all of my colleagues in the economics department are all, as am I, Austrian economists and libertarians.

4:27So if you're of that persuasion, you'll be among friends here. So Professor Block, would you mind if I got a government-backed loan to go to Loyola? Well, you know, it's interesting. That question is a very complex question. What is the proper relationship of the libertarian and the government? Is it one where the libertarian refuses all government subsidies and a lot of times people go to public school and they're called hypocrites, libertarians are called hypocrites because you know you're against public school and yet you're going to a public school and what's The Theory of Money and Credit I think that's an incorrect view that libertarians can't take subsidies from government. Have Have you read Atlas Shrugged by Ayn Rand by any chance?

6:26Oh yes, I read that when I was, I don't know, 22 years old, and I've read it every 10 years since then. So I must have read it five or six times, because I'm 67 now.

7:26Oh yes, that book along with Economics of One Lesson by Henry Houser were the two books that converted me to libertarianism. In any case, there's this character Ragnar Danischkohl, the sort of a minor character, the pirate, and he goes around not stealing from government because you can't steal from a thief, you can only liberate from a thief, and if you look upon government as a thief, I think you get the libertarian view. And I do! And I do! So if Ragnar Danichkov is justified in liberating at the point of a gun ill-gotten gains of government and returning it to people like Hank Reardon, the heroes, we're certainly entitled to maybe not use a gun and not take stuff away from them against their will, but if they offer us free library services, I don't see any reason why we can't.

8:19The libertarian view that I espouse on this is that It's wrong to give anything to government, because government is a band of thieves and criminals, so you don't want to support them. It would be wrong to donate money to government, but there's nothing wrong with taking stuff from them, whether legal or illegal. I mean, obviously I'm not advocating doing illegal things, because they can put you in jail and they've got more guns than you, but on a moral basis, you know, if you liberate a library book or something, uh... I liberate a library book! I love it, man! You're not violating any libertarian code. Again, I don't advocate this, but I'm just analyzing it. So if you can do that, then you can certainly do legal things, like go to a public school, or you know, use U.S. currency, even though it's falling apart.

9:09So I think you can go to public school, and you know, I sort of have a little vested interest in it because right now I'm teaching at a private school. It's a Jesuit school, Loyola University, New Orleans, I taught at public schools in my day, and I make no apology for it. Sometimes you can use the argument, well, we paid taxes for this, so we might as well get back what they took from us. But suppose you came from Mars, and you never paid one penny in taxes. You would still be justified in taking stuff from government, because government is a thief. When you take stuff from a thief, it's not like taking from the rightful owner. Indeed, if you want to return it to the rightful owner, the first thing you have to do is take it away from the thief.

9:54So it can hardly be unjustified to take things from thieves, and if you look upon government as a thief, and I do since it's a compulsory institution, well then I think it's justified to take stuff from government. So that would be the long roundabout answer to that question that you raised. You mentioned at Loyola University that all of the economics professors there are Austrian economists and I would like to hit on that as well, but really I want to ask you, how would you define libertarianism? For those who haven't heard of libertarianism and the concepts, how would you define that and maybe you can squeak Austrian economics in there?

10:40Well, okay, sure. Libertarianism is the view that it's wrong, impermissible, bad, to initiate violence against people. There are two and only two ways in which we can deal with each other. One is the voluntary way and the other is the coercive way. Suppose I see you're wearing a nice pair of shoes. There are two ways I can get those shoes. One, I can get your permission. I can offer you a hundred bucks, or I can say I'll be your best friend forever if you give me the shoes, or, you know, something like that. And in any way like that, where I gain your permission, I say, you know, I'll trade you my bicycle for your shoes, or I'll give you a hundred bucks, or I'll make promises to you.

11:25In other words, that is the civilized way of dealing with each other, and that's permissible, and that's what it turns is that all acts should be limited to that. The other way I can get your shoes is to come up to you with a gun and say, unless you give me your shoes, I'm going to blast you. And then you take off your shoes and you give them to me, and that is coercion, and that's untybalized, and that's bad. So, libertarianism is the view that's based on the non-aggression axiom. It says that all actions, all interactions between people should be non-aggressive. You can be assertive, but you can't steal or rob or threaten people with violence. Now, that's one side of the coin of libertarianism, the non-aggression axiom. The other side of the coin is property rights, because if I take your shoes at the point of a gun, have I stolen your shoes?

12:14Well, it depends. If they're your shoes, then I have, but suppose you stole those shoes from me yesterday and now I'm just re-possessing those shoes, I have a right to come up to you with a gun and say, unless you give me those shoes, I'm going to blast you, because I'm just returning stolen property. So we have to have a theory as to whether they're your shoes in justice or not, and for libertarians there are two ways to establish property rights. This sort of goes back to the Lockean lost body and Hoppean view of mixing your labor with land and your natural resources. Then you get to own them, and then Robert Nozick has this principle of any legitimate title transfer,

13:22People, if you tell them this, they say, well, yeah, of course. I'm a libertarian. I don't rob people. When I get a pair of shoes or a sandwich, I don't rob the store. I go in and I give them money or trade them for something. Most people are like that, except when they get in the ballot box. Then all of a sudden they're voting for people who are saying, well, you know, if you vote for me, I'm going to take these money from these people and give those money to other people. I'm going to do it at the force of a gun, because if you don't believe that, try not paying your taxes. Taxes are coercive. So, the libertarian view is acceptable to most people, except when they have this lacuna, or this, I don't know, blind spot.

14:07When it comes to government, all bets are off. They somehow think, well, it's democracy. and, you know, if it's democracy, well, then we can take your shoes if we have a better use for it or we can use eminent domain to take your property rights away. But the proof that this is wrong is suppose, here's a scenario I like to tell to explain this. Suppose three robbers break into your house and are about to take your TV set and you argue with them because they're philosophical robbers and they're willing to dialogue with you

15:12It's the government gang, the U.S. gang, but all of a sudden, Barack Obama or John McCain are saying, well, we'll take these zillions of dollars from these people and here's what we'll do, we'll give healthcare and this and that, but that's coercive and just because a lot of people vote for it doesn't make it right. Look, Hitler came to power through a democratic process, so if democracy were a justification for action, Hitler would have been a great guy. Well, that's an interesting way to look at it. I'm sorry I keep saying that, but I guess I never really thought about that way. And this is why we had you on. We do appreciate it. And again, because people need to understand that there's an alternative way to look at these things.

16:04And you'd probably agree that if you turn on CNN and MSNBC, you're not going to hear these things, unfortunately. Well, when Ron Paul was on TV, he heard it. But he was on too little and too late and very rarely, and now not at all. But you're quite right. The average guy on CNBC or Fox or ABC or whatever, this would sound like coming from Mars or something, or Venus. Dr. Block, as far as this last few weeks is concerned, let's talk the free market. I'm an advocate that if we just let the free market ride out, things would be a lot better in the in the long run, but you know, a lot of people don't understand that, you know, I think they really have this Roosevelt-type thinking.

17:02What do you think, let's just say, let's be theoretical here, let's explain the free market and what, in this specific situation, if we let the free market work, where do you think we'd be? I mean, I know that's theoretical, but... That's okay, that's a very good question and I'm happy to answer that. Nowadays, a lot of people are saying, well, the reason we're in such dire straits, the reason we have such great problems, we have too much free enterprise, we have too much deregulation and too much, it's like we have laissez-faire capitalism going on now, nothing could be further from the truth. There are two main causes of the present financial meltdown, and let me go over each of them. The first one is pretty easy to understand, so I'll start with that one.

17:48And the second one is a little bit more difficult, but since we're doing Economics 101, we might as well tackle that one too. Well the first one is this thing called the Community Reinvestment Act, CRA, and what happened was the Boston SED, whenever I say SED or government you're supposed to boob, I'm just kidding. We're going to put the boos in in the post-edit, but I get you, I'm with you though. What happened was the Boston Fed did a study of the Boston real estate market and they found out that there were certain ethnic groups that were not getting loans. Banks would redline their areas, the inner city, and they wouldn't give loans. The reason the banks did this was because the banks were asking a person who wanted to borrow money to buy a house Do you have collateral? What's your record of repayment of past loans? Do you have a job? Do you have a fixed address?

18:55Things like that. Namely, are you likely to retain? And certain people had more of these credentials to get money for mortgages than other people. And the other people, usually black people, didn't get as many loans proportionally as white people. And the Fed said that this was unfair, and Congress went along with this, and they said we can't have banks red lines whole neighborhoods and refuse to lend money for houses in those neighborhoods because they're afraid that they won't be retained. So under the CRA, the Community Reinvestment Act, the government landed on the bank and said, Look, this is unfair, this is racist, you can't do that.

19:40There was this wonderful Eddie Murphy skit, I don't know if you've seen it, it was several years ago on Saturday Night Live where Eddie put on whiteface and acted like he was a white man And there was this wonderful scene in the bank where Eddie, the white man, Eddie Murphy, who was a black actor, a comedian, goes into this bank where there's a black banker, and Eddie says he wants a loan, and the guy says, okay, you know, what's your credit rating, and do you have a job, and things like that? And Eddie doesn't have any of that. And then a white guy comes along and says, the black banker's boss, and he takes Eddie into his office. And he says, you know, you need money? Oh, here it is! You know, you don't have to show any credentials or any fixed address or anything. It was just very funny. It was a lot funnier when Eddie Murphy does it than when I tell it. But this is what the Congress was imposing on bankers. And if they didn't do it, they would

20:41be subject to all sorts of penalties. So as a result, a lot of loans were made to people, not just black people, but everyone who were unlikely to pay. And people were encouraged to buy a house bigger than you thought you could buy and more expensive than you thought because the view five, ten years ago was that real estate prices always rise. So if you buy a house that you really can't afford on this variable mortgage and interest rates were low, and I'll get to that interest rates when I talk about the second cause of the meltdown now. So people were induced, enticed into buying more expensive houses than they really could afford, because if the price went up, if the value of the house went up, Then it would be easy to pay the mortgage because you could always borrow more on the increase in the value of the house.

21:35So like if you bought a house for $200,000 and it went up to $500,000, well, you'd have a hard time paying the $200,000, it's a lot easier if you have $300,000 more equity in it. Nothing like slavery, huh? Well, slavery and theft, that's what you had, it was really fraud perpetrated on these people. So then what happened is that banks and other financial intermediaries brought these mortgages and permitted other debt on top of them and then all of a sudden these people weren't paying their mortgages and you had a lot of banks, Lehman Brothers and others, Bear Stearns, that were having trouble because they were making bad loans and bad paper.

22:21So that's one of the causes of the crisis, that a lot of banks got caught with their pants down around their ankles with these bad loans that were not performing because people just couldn't afford to pay. And when interest rates went up, you know, then the mortgages catapulted and then they certainly couldn't pay. Okay, that's the first cause of the financial meltdown. And that's the easy one to understand, namely you give loans, you give mortgages to people People who were unworthy of them and you pyramid paper on top of that and it's no wonder that you got bad paper and bankruptcy is the inevitable result of that and that's healthy. People who make such stupid, well, it's hard to blame them because the government forced them into it but that's another problem.

23:06Right, I think we do have to, there has to be some responsibility there. We talked about this in the first hour, I mean, to some degree, I mean, they sign the line but it's a tough one, you're right, and for another time. Well, you know, the point is that if the government forces you to do these stupid things, it's unclear as to whose fault it is. It's not very clear. The bankers shouldn't have done it, but then the government shouldn't have forced them to do it. And they did threaten them with all sorts of penalties if they didn't make loans to minority groups. Okay, that's the first one, and that's pretty much philosophically easy to understand. You This one has to do with our friend Alan Greenspan.

24:09Talking about Ayn Rand and Atlas Shrug and all, Alan Greenspan, when he was in his thirties and forties, wrote several very, very good papers for the Ayn Rand newsletter, the Objectivist newsletter, where he was saying how great gold is and government should have its dollar based on gold and anyone who's against gold is a socialist or a commie or something. I'm putting words into his mouth, but that's roughly what he said, that gold is great and gold is wonderful, and fiat, fractional reserve banking is very bad and then all of a sudden he becomes head of the Fed for many years he was head of the Fed, in the 80s and the 90s and you'd think that you know, he would sort of end the Fed, but no, he sort of turned his coat he turned his back on the philosophy of Ayn Rand and free enterprise and he was the head of the Fed, and he artificially lowered interest rates Now, here is the complex thing where you have to get into economics 101.

25:06When you lower interest rates artificially, what you do is you encourage investments in areas of the economy that wouldn't be viable but for the low interest rates. See, the low interest rates are a signal that people are saving more, but they're really not saving. It's the government that's artificially indicating that they're saving, and when the government Lowest Interest Rates, Alan Greenspan and now Brent Bernanke, when they artificially lower interest rates, the investment community invests in areas of the economy that are not sustainable, long-run investments such as real estate, among other things, not only real estate but, I don't know, farming and mining and heavy stuff that won't come to market for years and years and years. We're not talking about retail, you know, McDonald's or something, we're talking about very, very long-run investments like real estate, because houses last for decades or hundreds of years even.

26:06So that's the second source of the real estate debacle, where real estate and stocks in heavy industry are now falling apart, the stock market is plummeting and real estate prices are falling. Because of Alan Greenspan and his Fed policies which lowered interest rates artificially and and Encouraged Entrepreneurs in Committing Mistaken Investments The Austrian theory, which I'm now giving you, is a misallocation theory of the business cycle. This is in sharp contrast to the Keynesian view, which says, well, it's lack of aggregate demand or lack of spending or something like that, and we can spend our way out of the depression, which doesn't work and didn't work.

26:51It didn't work in the 1930s and it won't work now. These are the two twin causes of the present financial meltdown, the lending of money to people who weren't worthy of the mortgages and this artificial lowering of interest rates which misallocated investments. What should be done? Well, let me take a breath now and let you guys say something now that I've given this answer. I guess the next thing to talk about is what should be done now. You pretty much asked yourself the right question. I guess, I mean, that would be the question we'd ask is, what do we do now that we're in this? And I would just ask it, my way to ask it and for our listeners would be, don't we need some sort of regulation though?

27:40I mean, can the free market of its own volition handle all these things? There needs to be some type of regulation and what do we do now? No, I think we don't need any regulation. The reason we got into the mess is because we didn't follow laissez-faire capitalism and the way out of it now is to follow laissez-faire capitalism, not to follow government regulation which got us into the problem and won't solve it. See, the problem is that there are investments in real estate that the prices of them have to come down because they're overpriced. So what does the government do? Instead of allowing the market to lower the prices of things that should be lowered, it tries to prop them up. The Capital Bank of the European Union cut them up for bad short-selling, which is a way of lowering prices.

28:25They did the same thing in the depression. Only there it was with wages. And they bail out industries or firms that should be allowed to go belly up, like Detroit now or the Big Three. Ford, Chrysler, GM are all in very, very big trouble The automakers cause a heavy industry, there's been over-investment there, and they're very tied up with unions in a way that Toyota and Honda and other automakers are not. The ones that are in the South. In the North you have the Rust Belt with heavy unionism. So what Roosevelt and Hoover did, you see Hoover has this reputation of being laissez-faire, but he was not.

29:10Like Roosevelt, a big government activist, Hoover, Roosevelt and now George Bush are all, I guess, socialists because they're very into government regulation. What they try to do then is pop up wages and that created unemployment. And then they had this smooth holly tariff, which was a horror, which screwed up international trade. Well, now they're doing similar things. They're not allowing short sales, which are ways of allowing prices to fall. The real estate prices. They're trying to prop up the stock market and not allowing stock market prices to fall. What government did is it artificially boosted these things and the market is trying to get to the right price, which is a lower price, and the government bailout is a way of stopping these, how shall I say it, beneficial recessions.

30:05You see, the way the Austrians look at it is that the recession or the depression is a cleansing of the previous misallocation of resources, and when government does not allow the cleansing, well, then the body economic struggles on and is hit for years and years. Kenneth, if you take all regulation out of the equation, and you're hearing this a lot from the mainstream media right now when they're talking about it's greed that caused this. An unregulated system, now these greedy capitalists are going to take advantage of all the other people and we're hearing that. We can talk about it on a theoretical level but that's really what they're trying to blame.

30:55Isn't there something to be said about greed? How would you look at it from a libertarian perspective? I'm with, what is his name, Gordon Gekko, I think, who had this wonderful speech in that movie, where he said greed is good. See, this idea of greed is really silly, because people don't suddenly get greedy. They're always greedy, and everyone's greedy. Not just businessmen, but so is Obama and McCain. They might not be so greedy for money as power, but people are greedy in the sense that they want more. Everyone is always 100% greedy, if you interpret it that way. I mean, even Mother Teresa was greedy for helping the poor. She wanted stuff. Greed is just a way of saying, I want stuff.

31:42This goes very much against Adam Smith's invisible hand. So let me talk a little bit about Adam Smith's invisible hand. Adam Smith, in some ways, wasn't that great a libertarian. He was certainly no Austrian, but on the invisible hand, he was very good. What the Invisible Hand says is that people are led by a self-righteous, self-righteous,

32:27They have a selfish interest in promoting their own welfare, and in so doing, they are led by an invisible hand, the animal smith thought it was God's hand, to do that which is in the public good. Let me give you a very simple example. Suppose right now we decide we're too fat, and what we've got to do is cut out the cake and the ice cream and the chocolate, and start eating celery and carrots. Okay, so what happens? Well, we stop buying chocolate, we stop buying ice cream, we stop buying cake as much, and the prices of those things go down, and we start buying carrots and celery and lettuce and things like that, and the prices there go up. So what do farmers do when they're faced with falling prices of sugar and rising prices of cucumbers? Well, They start producing sugar and chocolate and ice cream, and they start producing cucumbers and celery and lettuce.

33:28Why do they do that? Well, they do it out of greed, if you want, or they do it out of a keen appreciation of their own self-interest. It's not out of benevolence that the butcher and the baker and the candlestick maker give us their product. It's out of a keen appreciation for their self-interest. So notice what they're doing out of greed. Since profits are falling in chocolate and rising in celery, they're slowing down their rate of production of chocolate and increasing their rate of production of cucumbers and celery. They're doing it out of greed. Namely, they're doing that which is in the public interest. Now, we're defining public interest as moving from chocolate to celery in this case. It could be the other way around. It doesn't matter. It's just an example. So, Walter, when you get shot, it kind of changes your perspective on things.

34:42Well, no, this was long before he got shot. When he was governor of California, the budgets rose and he was very good in free market rhetoric, but his actions as governor and president were not really that free enterprise. But the point is, the magic of the market is the idea that people are led out of a lure of profits to do that which is in the public good. If we want a cure for cancer, let's say that's a crisis, cancer is killing too Well, there will be vast profits to be earned in the cancer cure, and a lot of entrepreneurs will go into cancer cure research in order to take advantage of the higher profits to be earned there, namely, they'll be promoting greed. So what the magic of the marketplace is, is that the market turns the base metal of greed, if you will, into public service.

35:36If we have a real problem, we want to mobilize all human dimensions or all human capacities towards solving it. Benevolence, you know, we all have benevolence, but benevolence is in short supply and you never have as much of benevolence as you want. Let me give you another example. I'm in New Orleans and we had Katrina three years ago in 2005, and what happened then, right after Katrina hit us, well actually it wasn't Katrina, Katrina didn't do much harm, it was the fact that the Army Corps of Engineers screwed up the levees, but that's a whole other issue we don't have to get into.

36:21What happened was that the prices of flashlight batteries and candles and orange juice and water and milk and things like that just jumped through the roof. And what that would have done had it been allowed to, they called it gouging and they had laws against it, is it would have increased the motives of people from Tennessee and Montana to bring those items that were now in short supply in New Orleans to, without those Lises and prices, the only motivation for those people was breakfast. And as I say, you can only count on benevolence in emergencies, but ordinarily, it's hard to count on benevolence. So, if you allow the market, then what you have in addition to benevolence is you have the lure of profits or greed.

37:12Do you see the point? There's nothing wrong with markets and self-interest because it leads you to do that which is in the interest of people who are needy. Exactly. Well, Dr. Block, this is a pretty straightforward question, but we know you advocate less government, but for all those people who are just, I mean, you have to have Well, I think that every service that government does, every service that government has ever done, has been done better by the capitalist system of profit and loss. Well, both. Can I jump in real quick? Would you advocate or do you advocate no government or less restricted government?

38:04Well, both. I think government is best which governs least and government is best of all that governs not at all. This is where I edit in the applause. Let's take some examples. One of my favorites is highways and roads. I'm just coming out with a book on that. A lot of people say, if you didn't have government roads, how would we get around? You'd have all sorts of problems. Well, do you know how many people Douglas Goldstein, CFP®, Financial Planner & Investment Advisor

39:14in Iraq in the six or so years that we've been there, four or five thousand, something like that. How many people died in 9-11? I think it was only three thousand? Yeah, three thousand something. Maybe a little bit more than three thousand, but that was just, you know, a national shock, three thousand, and I think fifteen hundred people died in New Orleans from Katrina-related things. Well, this is forty thousand people year in, year And this is government roads. Now, people say, well, it's drunken driving and speeding, but no, it's not really that. It's the fact that the government can't stop the speeding and the drunken driving. And if you had private enterprise, you'd have competition. Look, suppose government had pizza parlors. Just suppose. The problem with that is that if they made bad pizza, they wouldn't go broke any more than the post office goes broke.

40:37And I'll tell you the truth, Professor Block, nobody wants a pizza with government cheese This phenomena works not only with pedestrian items like shoelaces, paper cups, pens, pencils and paper, but with very important things like health care, roads, etc.

41:35Safety. Let's take safety for a moment. Where would you want to meet me? In Disneyland tonight? Or maybe in New York City Central Park? Or New Orleans Audubon Park? Well, you know, the point is that if a murder or a rape takes place in Disneyland, they're going to lose money. So they act so as to prevent that. I mean, you know, they have cameras all over the place, and they have ducks and mice packing heed. If you act obstreperously, they'll It's very safe in Disneyland because if something bad happens in Disneyland, they're going to lose a lot of money. Whereas suppose some rape occurs on the public streets. Who loses money? Who's in a position to stop it? The police? The mayor? No.

42:21We pay the police through taxes, we pay the mayor through taxes, whether or not the city is safe. One of the reasons that the market is much more efficient than government is because you are just reading out process. So for those people who think that you need government to do all these things, they are in error. As long as the government stays out and doesn't prop up the ineffective businesses.

43:21In the Soviet Union, they had lousy pizza, they had Coca-Cola, everything was crappy there because it was all done by government, so the bad guys couldn't exit. Whereas in the free enterprise system, you have this weeding out of the bad producers. Now look, it's not a perfect system. There are always newcomers and some of them aren't any better than they should be and it takes time to weed these people out. But it's a slow, well not so slow sometimes, but it's an inexorable process of eliminating bad producers. That's one of the advantages of the marketplace that the government just doesn't have.

44:09You know what I'd always say, and this is very simplistic, this is almost first grade, I'd say the best example of the free market at work is eBay, ebay.com, you know, the rating system. I'll tell you what, every time I go to eBay, when I'm going to buy something, if something's really cheap and I see somebody who has just a ton of bad ratings, I'm not going to buy from them. Absolutely. eBay is a very good example of capitalism in action, but you don't need eBay, you don't need something so esoteric. Just look at, you know, ice cream or pickles or something like that, stuff that we just sort of take for granted, or socks or, you know, stuff like that, that, you know, they say the fish is not aware of the water that it floats around in, and we're not really aware of underwear or combs or, you know, boots or something like that because we take it for granted.

45:01Well, you take it for granted in this country because we have free enterprise, but there There are countries in the world where you can't take that for granted

46:05You could just take a couple of minutes to mention that the ends are the same and it's worth noting that we all want to build a society that's better for everybody and there's no such thing as a perfect society and I think some still have the illusion that we can create this perfect society but for those who know it's not perfect, we're all working for the same ends. We want the best quality for the most people. Well, before I answer your question, I'm a professor. I'm never supposed to answer the questions directly. Let me just get to something that we sort of dropped, and that's the Mises Institute. I'm also a senior fellow at the Mises Institute, in addition to being a professor of Loyola. And I highly recommend the Mises Institute to your listeners. You can just Google them and go to their web, and they've got all sorts of the lewrockwell.com, which has got commentary.

47:02on current events and they have books to sell and they have seminars all around the country and indeed all around the world. So I recommend highly that people google Mises.org or just

47:19M-I-S-E-S and you'll get it. Okay, sorry. I had to nip that in otherwise I would have What is your ideal structure to ensure the best to the most? Get government out of everything and just hands off, if not do away with. Is there anything that maybe we left out to provide that structure which would allow the most people to flourish? That's what we're all looking for. With all of the different ways to go about it, government intervention, Keynesian economics, communism, fascism, they all kind of have the same premise.

48:06They want to create a society that's better for the most people. And I think Libertarians would advocate no government in that process. Is there anything else that we're missing for that, to bring about that kind of change? Well, let me say this, that there are two kinds of libertarians. There are anarcho-libertarians and anarcho-libertarians such as myself, or libertarian anarchists who believe that the government should have no role whatsoever. But most libertarians are not anarchists, most libertarians are more like Ayn Rand, who believed in extremely limited government, and for her, for example, and she's emblematic of many of these libertarians, government has one purpose and only one purpose, and that is to protect people and their property against violence. And to this end, government has three legitimate functions. One is police, to keep local bad guys off of us. Two is armies, The Theory of Money and Credit

50:06Government is best which governs least. Government is like a fire. If it stays in the fireplace, that's good. But if it gets down into the living room and the bedroom and the kitchen and burns the house down, that's no good, and that's what's happening now. So government needs to be severely curtailed and limited to protecting persons and property and making sure there's no fraud or theft or things like that. I would say that if we moved to this classical liberal version of libertarianism, where government shrunk from its present 50% of the GDP or 45% of the GDP, and shrunk down to 5% or so, you wouldn't need a very big military if we didn't have adventures here, there, there, and yon.

50:53If we move in that direction, our lives would be much better, we'd be much happier, we'd be much richer, we'd be able to cure poverty much better. So that would be another libertarian vision. It's not one that I share fully, but I certainly am very sympathetic to it, especially compared to what we've done now. How would a privatized police force work and how would we keep that police force from becoming their own private force against the populace? One answer to how would the private police force work is you're pretty safe when you When you go to Mises, you're pretty safe when you go to Disneyland, and those are all private police.

51:49You have a lot of private police now that we don't get credit for. We somehow see public police more, but private police are there also. Now whether we go on to bandit police, suppose we had private police courts or courts-police firms. Now this is going to take a little bit of a complicated answer, but let me take two Two or three minutes is a very important question. Suppose you and I are having a dispute, and I sold you pigs, they weren't good, whatever it was, and you go to a private court, Danish police force, who's your mother, and you invite me to come there, and I say, what, your mother, she's biased, so I don't go there.

52:39If you go to my court, who is, let's say, an honest police court, police-court, each court would have a police department to sort of enforce its rulings, otherwise it would be silly to have a court, and I invite you to come to my court, and you refuse. Now, if both courts agree with one of us, it's case over because we've each, in going to a court, obligated ourselves to follow what the court says, and the court has got Let's say your mother and my court both agree that you're right. Well, then I'm in trouble if I don't pay you what both of them say that I owe. But now let's take a more difficult case. Suppose the courts disagree. Your mother says, my sonny boy, he's right. And my court decides that I'm right.

53:27Well, now what happens? Well, here's the theory. There are two kinds of courts. There are banded courts, courts that either have not anticipated this possibility, or courts that say, I don't care, I disagree, I'll fight. Those are the banded courts, and then there are legitimate courts, and what legitimate courts do is they anticipate, one, they anticipate that they might come out on the opposite side of a decision from another court, One, they anticipate it, and two, they act in a reasonable way, a civilized way, to resolve it, namely, what they say is luck. If I'm court A, and if I come up against court B with a different decision, I'm willing to go to court C, D, or E, and we'll flip a coin to see which one it is, and we'll go to that, and that'll be the Supreme Court, and each of the two courts will be bound by what the court C, the third court, says.

54:23Now, fighting is a lot more difficult and more expensive. You have to take combat pay to your workers, danger pay if you're going to be fighting all the time. You see, civilized courts will only fight with banded courts. Banded courts will fight with everyone. And since fighting is very expensive, we predict that there will be a weeding out of banded courts. And also, there is such a thing as legitimacy. Legitimacy is very important. It's why even bad governments survive. Even the Zimbabwean government is still a going concern. People, you know, they have to acquiesce. Even a dictator, if everyone hated a dictator, they'd be a rebellion.

55:09Even the dictator has to please the masses to some degree, at least convince the masses that rebellion is futile or any alternative would be worse. So if you get a bandit court, if you go to your mother and say, you know, protect me against everyone, your mother, I don't mean to pick on your mother, but she has no legitimacy as a court. And people will just ignore her. Look, even in the Godfather movies there was this wonderful case where the baker's daughter was raped and the baker wanted the rapist to be killed and the Godfather said, well, you know, the rapist didn't kill your daughter, he only raped her and, you know, I'm going to give him a beating that will practically triple him, which would be roughly the equivalent of a rape.

56:00Even the Godfather had to be like a non-banded court otherwise he would have lost respect I think that this idea that the private police forces will fight each other is problematic. Let me answer this in another way. Right now, the relationship between China and Portugal is one of anarchy. Namely, there's no world government above both of them. The relation of Brazil and France is also one of anarchy. The relationship of, I don't know, Canada and Argentina is also one of anarchy. We have 250 or 300 different countries, all of whom are in a relationship of anarchy with each other. Now, if you're really afraid that these private police forces will coalesce and therefore you need a government to rule over them, what you're really saying is we need world government.

56:53Namely, my criticism of the Ayn Rand limited government libertarian view, even though I certainly favor it compared to what we have now, my criticism of it is that logically it leads into world government. And most people don't like world government because, look, you know, if things are bad here we can go to Canada. If things are bad in Canada, you can go to Australia. But if Hitler takes over the whole world, where do you run, the Mars, the Venus? You know, there's no place to run. So I think that the argument from ARCII or statism or anti-anarchy is highly problematic because it's logically equivalent to world government and most people would reject world government. Well, Dr. Block, we have a caller and we also have one more question I want you to answer.

57:39Hopefully we can get a brief answer, although I'd love a long answer. But we also want to take this caller and we're almost running out of time. And that caller asks, do you think that in the coming days or months or years that the idea of the Amero, you know, the currency, the Amero will actually be presented and what do you see that transition being like? Sorry, I don't understand the question. The Amero? You know, the North American currency? Oh, the U.S. currency. Oh, I predict the U.S. currency? There's been a lot of rumors about a North American currency, just like the Euro, but the Amero. Oh, I see the Amero. I didn't understand. I thought you were talking about bone marrow.

58:25I'll be very brief. What's going to happen if they monetize this $750 or $850 billion, we're going to have a lot of inflation. You know, Zimbabwe, here we come, or the 1923 German hyperinflation. I expect, look, the dollar has lost an awful lot of value, I think since 1913 when the Fed came in, the dollar has lost 95% of its value, and I think it's going to lose 95% of its value in a lot quicker time than 100 years, so that's my brief answer. All righty, we also, Dr. Block, we have a caller calling in to ask you a question. Caller, are you there? Hold on, I swear he was there. I apologize, gentlemen, I was a little bit slow on muting the other stream there for a moment.

59:12Dr. Block, thank you very much for coming on the air. It's a great opportunity to be able to ask a couple of questions and to get some of your more astute ideas. Do you subscribe to Rand's Theory of Conceptual Cognition and do you further agree that, in In that theory, the specificity of definition of concept, that is, to define your concepts properly, is the end result of proper logical deduction.

59:58Well, you know, your voice faded in and out. It was smart for me to understand everything. And I think if you just repeated, I wouldn't get it. But from what I got of your question, first of all, let me just say that I'm a big fan of Ayn Rand. She and Nathaniel Branden were the two people who converted me to libertarianism. I certainly think we should be careful in our definitions. I don't follow her philosophical work as much as I do her economics, so I'm not really a good person to answer your question with any greater specificity, and I apologize for that.

1:00:45We did have a couple of chat questions that had come through, and maybe going out this may be a great way to go out. Can you ask when the next edition of your book, Defending the Undefendable, when that next edition will be coming out? Well, I'm on sabbatical this year and I'm supposed to be working on it, and hopefully it'll come out in 2009 with a whole new cast of characters and a whole new cast of cartoons. By the first one, it's on sale at the Mises.org. You can buy the book. I think it's $13 or something like that. It's a wonderful book, if I say so myself.

1:01:43Do you think that Murray Rothbard would be optimistic about the prospects for liberty were he alive today? Well, Murray was an irrepressible optimist. Even Buckley, one of his enemies, called him the happy scholar. Murray's up there looking down on us somewhere and I think he's cackling away at our troubles, but I think in the long run things will get better in Murray's and my view. That's what we want to hear. We're an optimistic show and we always try to remain optimistic. And I'm optimistic that we're going to be able to get you on our show again because I think we have a lot more to go through. I want to get into libertarian analysis of law and reputation, libel, unions, minimum wage, things like that.

1:02:32I tell you, we could talk all night. Professor Walter Block, we're definitely honored you took the hour and we hope to speak with you again soon. Thanks for having me. I look forward to coming again.