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jueves, marzo 17, 2011

Protectionism and Broken Windows Fallacy

Frédéric Bastiat, the greatest economist of all times, proved the fallacy of broken window. He proved that the unnecessary destruction of goods is always a loss for all society. He said: the destruction is not profitable. In this way he has proved that the assertion “the destruction is a source of prosperity” is false. If society loses a good, this must be restored. To restore a destroyed good isn't a source of wealth, but it is simply equivalent to loss other goods for restoring a destroyed good. A logical result derived from this proof is that the restrictions of trade are as destructive as the destruction of goods. Using the words of Bastiat: "...how absurd it is to see a profit in destruction...it is equally absurd to see a profit in trade restriction, which is, after all, nothing more nor less than partial destruction".

The kind of algebraic proof provided for Bastiat to demonstrate that the restriction of trade is as a broken windows fallacy, was more or less as follows: "Two products, A and B, have in France a normal value of 50 and 40. Let us postulate that A is worth only 40 in Belgium. On this hypothesis, if France adopts the protectionist system, it will get possession of A and B by diverting from the whole of its efforts a quantity equal to 90, for it will be forced to produce A directly. Under a system of free trade, this sum of efforts, equal to 90, will suffice for: (1) the production of B, which it will deliver to Belgium in exchange for A; (2) the production of another B for itself; (3) the production of C.".

And Bastiat continues: "It is this portion of available labor applied to the production of C in the second case, that is, creating new wealth equal to 10, without thereby depriving France of either A or B, that causes all the difficulty. In place of A, put iron; in place of B, wine, silk, Parisian products; in place of C, any form of wealth that is lacking—you will always find that protectionist policies impair the national welfare.".

Protectionism is a road to communism, it is a primal stage of communism. Protectionism enables a clear violation of liberty and properties rights of individuals, it is a legislative instrument used to violate the superior right that have all individuals to work and to consume all what is obtained with theirs labour, it is an instrument to use the collective force of the law to protect some privileged violators who abuse and exploit other individuals. But at the end, the fundamentals of protectionism are a fallacy, fallacy that is understood as Protectionism and Broken Windows Fallacy...
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domingo, marzo 13, 2011

A Competitive Money

For me a sequence of recurrent world economic crisis comes from a harmful but generalized fiat monetary system impost along the world. A sequence of unobservable evil facts are all results derived from arbitrary use of money. Unfortunately government, and its powerful crony men, always have used the fiat money system to finance their business, augment their wealth, and defraud people. Unfortunately, along of the least 150 years around the world, the economic history of the humanity has been contaminated by this kind of carcinogenic disease: Fiat Money.

I think that Fiat Money is economically inconsistent because it has no economic goods as last support. In the end, anybody guarantees that a certain amount of some economic good can be obtained in exchange for one unit of fiat money. Fiat money isn't supported in an economic good. Eventually, and recurrently along the economic history, will be revealed that fiat money is not an economic good. At those times become crisis. Why?. Because if we want force a not economic good to be economic one, we realize that such good has no value. So, at those times, the artificial value of fiat money eventually evaporates.

A true money consist of, naturally, economic goods which has superfluity and universal interchangeability . So, papers, coins, -and other devices-, which are used as mean of payment or store of value or account unit, should be supported by such kind of economic goods. Then, I think that a natural money system could be a system supported by a basket (set) of economic goods which are both produced and demanded competitively and which keep the properties of superfluity and universal interchangeability. So, these goods would be produced to satisfy the usual human needs, to generate superfluity, and to be universally accepted as a mean to support a representative monetary system. This set of economic goods could be variable -not static.

This system should emerge spontaneously, without violence, without compulsion and coercion. No fundamental economic institution works -as a continuous source of prosperity- when imposed violently. I'm sure that a robust competitive monetary system never would emerge by compulsion and coercion. Compulsion and coercion could be used to protect a competitive monetary system from a race of thieves as those who impose, violently, the fiat monetary system. In this way we'd help to preserve A Competitive Money.
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