Friday, August 28, 2009 47 Comments

A rare public appearance

I'll be making a short presentation at Patri Friedman's seasteading conference, September 28-30 in San Francisco. Slides and video will be posted.

UR readers will learn little new from my talk, "Reactionary Imperialism for the 21st Century." But there are many other interesting speakers on the agenda - take a look. Plus, you get to see me work out my rabble-rousing beerhall style, in a Subcommander Marcos mask.

Thursday, August 27, 2009 19 Comments

Kennedy

1. Kennedy

Kennedy! The last brother
Plunges, orca-sleek
To the black sea - elected
To heaven, straight out
Of the Senate. Well:
All glory is a wonder,
All greatness is glorious,
All mighty things are great.
Any passing duke
Commands black cloth -
Whatever we recall
Of the man inside his suit.
And fan and hater agree:
Kennedy is not Kennedy.
Kennedy is the show:
Writer and producer,
Best boy and grip,
Each millionth polyp
Within the great reef,
That armored creature -
The family machine,
Our political design
In perfect Florentine.
Canst thou draw out
Leviathan, with a hook?
Or his tongue, with a line
That thou lettest down?
Think not of Cromwell's end;
Hope not to hang the dead,
Not actor nor his show.
All mighty things are great.
And greatness seldom slain,
And death is no disaster;
Any decent whale-tick
Finds its subsequent whale.
Behemoth lives. Lay thy hand,
Recall the battle, do no more.


II. Cromwell

Beside, amongst the polyps -
Things are not so great.
Your Richard is not your Oliver.
Crudely, the production
Has lost its lead. There
Are no more Kennedys,
There will be none. The work
Of course goes on: each
President now is Kennedy,
As Kennedy that man
With cigarette holder;
And behind him a million
Eager innocent larvae,
All swimming to the stale.
This soap long since found
Its formula. It cannot change.
Nor has it any shortage
Of shark for its remoras.
But - but, the magic?
Alas, progressives, for
You too greatness passes.
Science has not perfected
The permanent Kennedy.
Lucifer gets old and dies;
His ring is hacked in half,
For Abaddon and Dis;
Ground in time to paint
On flocks of gilded imps.
Your future, polyps: gibbering.
Puerile, impotent gibbering,
Infinitely predictable,
Boring as a wooden board.
The magic does not return.
Youth is a one-time thing,
Ages age like men. Deal.


III. Chernenko

So greatness passing,
This Kennedy world,
Safer from all enemy
Than ever before, is losing
Mere colors in its ink.
Think of Brazil! Glory
Of a new forest city,
A capital in pure concrete,
Ordered and progressive,
Both free and free of rats.
What is it now? Slum,
Ruled by ferocious thieves.
I exaggerate. Slightly.
Polyps, your grandfathers
Were kings; your fathers
Spanned the sea; you spin
Soft rock in the cellar
Of a continent. Less fun.
Where are the postcards,
Machine, of that new world
You made of the Third?
What was it meant to be,
And what did it become?
Or at home? Polyps,
Where is Detroit? Is it
Somewhere in your reef?
Could we maybe get it back?
The future was won. Yet
Weirdly, it turned gray,
Emitting serious stench.
Reed begat Chernenko,
Croly produced Pelosi,
Alinsky made Hillary.
The pattern here is sure.
Our dreamers, plumed,
Coached in rich cars
Of past prey, sleep,
Stretched thin by power,
On power's goose bed,
Dream in monochrome
Or not at all. The herd,
Below, shuffles and wilts;
Few but the worst still breed.
Observe our Kennedy world!
Not immortal, but far too near.
Still tomorrow exists,
O gardeners of weeds -
Somehow, where or when.
Its message is as follows:
Thank you for your efforts.
They were nobly conceived,
For the most part honest,
And not without some style.
Today, we film in color.
Our gardens are in order,
Our roses bud, our children
Learn. You need not approve.

Thursday, August 20, 2009 74 Comments

From Cromer to Romer and back again: colonialism for the 21st century

My niggaz:

In a rare interaction between the muscarinic megalomania of Mencius Moldbug and that masterpiece of mendacity that is your authorized reality, one Paul Romer has emitted - after, we are told, years of grueling and solitary thought - this TED talk.

If you don't have 18 minutes to wish you hadn't wasted, you can read Patri Friedman's pithy analysis. Or you can take my word for it: what we're looking at here is UR Lite - very lite.

So who is this nigga, Romer? In Wikipedia, his flacks write:
Paul Romer is an economist and Senior Fellow at Stanford University's Center for International Development and the Stanford Institute for Economic Policy Research... Romer was named one of America's 25 most influential people by Time Magazine in 1997... He has been awarded the Horst Claus Recktenwald Prize in Economics in Nuremberg, Germany... Romer is the son of former Colorado Governor Roy Romer.
Said flacks have also created what Richard North calls a clog, called Charter Cities. Take just a brief look at the latter. Note the top-shelf graphic design - typical of the finest, most expensive flacks. (If strangely framinated - perhaps it's always 1997 in Professor Romer's office.) Similarly, if you do have 18 useless minutes, watch the TED talk. Marvel both at the production values, and at the adoration with which Davos Man laps up this "radical idea." This, truly, is reality.

But 1997 was a long time ago. Professor Romer is hungry. So are his flacks. Has he been reading UR? It's possible, but I doubt it very much. It's also possible that some replicating fragment of moldbuggery oozed into his ear through the random sewers of the Internet. Mutating along the way, as we'll see, into harmless Unitarian banality.

But the simplest explanation of the coincidence is always that, since reality is everywhere, anyone is free to notice any aspect of it at any time. Truth is discovered, error invented. Fiction spreads locally, like a virus. Reality is universally available - to those who can handle it.

So the most plausible interpretation is that Professor Romer discovered "charter cities" all by himself. The idea is in the domain of mere common sense, a set of thoughts which are sensible even if no one thinks them. City-states exist and have always existed. It is no feat of imagination, "radical" or otherwise, to project them into the 21st century.

As I said in my own proposal, the devil is in the details. And Professor Romer's details are nothing like mine. My city-states are sovereign joint-stock corporations. Note that no such thing exists, or ever has - hence the neologism, "patch." Whereas there's already an English word meaning "charter city." It's... but we skip ahead.

So why - my niggaz - am I so cross with Professor Romer? Because he is indeed a plagiarist. His "radical idea" is not in any way, shape or form his own. By presenting it as such, he has consciously and maliciously breached the most sacred rules of Western scholarship. He should be fired, and have to find new work as a pimp.

No, it's not my work that our pedigreed charlatan has stolen. But I am no less entitled to make the arrest. Who else will? All the victims of this intellectual Verres are dead. They can hardly prosecute pro se. Do they cry out less for justice? This game of ripping off the past, while hardly Professor Romer's invention, is almost up. When it ends, there will be consequences.

Philosophical plagiarism, the appropriation without attribution of others' ideas, takes two forms: the intentional, and the unintentional. The first arises from malice; the second from ignorance. But since we cannot know the writer's mind or search his Web history, there is no sense in discriminating between these offences. It is simply his responsibility to know. Professor Romer is no longer on the bunny slope.

Again: it is not I whose work this charlatan has stolen. I am just some nigga with a blog. Rather, our dear professor's victim is an entire field of Western learning, including both praxis and scholarship. That in the 20th century this branch was terminated, and has no present-day students or significant practitioners, does not in the slightest excuse Professor Romer from understanding, attributing and thanking the scholars whose work he borrows and/or parodies. He has a library card, after all.

Moreover, since far from thanking and describing said field, he explicitly names and condemns it, ignorance cannot possibly be his excuse. I wonder what is. Here, at 10:45 for the impatient, is this self-incriminating condemnation. Note the odd, guilty way in which the professor races past this delicate and lethal point.
In a sense Britain, through its actions in Hong Kong, did more to reduce world poverty than all the aid programs that we've undertaken in the last century. So - if we allow for these kinds of partnerships to replicate this again - we can get those kinds of benefits scaled throughout the world.

In some cases this will involve a delegation of responsibility - a delegation of control - from one country to another to take over certain kinds of administrative responsibilities.

Now, when I say that - some of you are starting to think - well - is this just bringing back colonialism?

It's not. But it's important to recognize that the kind of emotions that come up when we start to think about these things can get in the way - can make us pull back - can shut down our interest in trying to explore new ideas.

Why is this not like colonialism? The thing that was bad about colonialism, and the thing that is residually bad in some of our aid programs, is that it involved elements of coercion and condescension. This model is all about choices - both for leaders and for the people who will live in these new places. And choice is the antidote to coercion and condescension.
What a faggot! What Professor Romer is proposing is exactly colonialism. What's worse - he says that like it's a bad thing. In one breath, he steals the idea and slanders its real authors. Unbelievable.

The English word for "charter city" is colony. As La Wik puts it:
A 'colony' is a territory which is mostly ruled by another state or can be run independently. A colony differs from a puppet state or satellite state in that a colony has no independent international representation, and the top-level administration of a colony is under direct control of the metropolitan state.
The Jedi mind trick is revealed. Professor Romer is digging up ancient chestnuts from the graveyard of history, repainting them slightly, and selling them to Davos Man as his own work. Nice job if you can get it. Would you trust this man with your daughter?

The fundamental observation of colonialism is that non-European societies thrive under normal European administration, at least in comparison to their condition under native rule. This observation was obvious during the colonial period. Since, it has only grown more so - at least, to those who can handle the truth.

If this observation is "condescending," so is Professor Romer's proposal. If it is invalid, so is Professor Romer's proposal. If it is neither, Professor Romer's 18 minutes should be invested in introducing, explaining, and defending the original observers - not on passing it off as his own "radical idea."

The most casual inspection of history reveals the observation's truth. By any comparison with colonial government, precolonial regimes provided extremely poor service. Spend a little time with the Ashanti or the Mahrattas. So have postcolonial regimes. Rent a room at the Grande Hotel Beira sometime. If you remain trapped in your outdated, 20th-century thinking and prefer statistics to intuition and narrative, the observation is still so obvious that it is impossible for me to imagine any set of governance metrics which could conceal it.

Moreover, Professor Romer's other distinctions are obviously without substance. The claim that there is any serious distinction between a "colony" and a "charter city" founded on "uninhabited land" is preposterous. Many great colonial cities, such as Bombay, Calcutta, and Singapore, were founded on uninhabited land. So in general were the original colonies of the antique era - the Phocaeans didn't conquer Marseilles, they created it.

And so was Hong Kong, a Crown Colony of the British Empire. Which, built on uninhabited land, by some miracle survived almost intact into the 21st century. It is not that the fluke of history which preserved this living fossil "reduced world poverty." It's that the destruction of all the world's other Hong Kongs - ie, "decolonialization" - created "world poverty" as we know it.

More precisely, decolonialization created the Third World. The project of Professor Romer's own intellectual and political establishment, the American and Americanized "scientific" experts in growth and development. What we need here is not a "radical idea." It is a simple apology. Alas, hell will freeze over before.

As for "coercion," of course charter cities govern by coercion. All governments do. The subjects of Professor Romer's colonies may arrive by consent. But it is not consent which prevents the Haitians of Guantanamo City from all getting together one day with their axes and clubs, and converting their blonde proconsuls into Canadian bacon. It is General Dyer or Governor Eyre. Whose names may mean nothing to Professor Romer - but we can let them stand for the principle by which every government retains its position: force. Ie, "coercion."

So let's look a little more closely at this alleged monster. "Colonialism" was a great epoch of history that lumps together a remarkable constellation of governments - from Leopold's Congo at the worst, to Cromer's Egypt at the best. But picking the worst is easy; picking the best is hard. There were a lot of Egypts and not a lot of Leopolds.

But fine. We'll start with the worst. Or after it, anyway. Our case study in colonialism: the Belgian Congo, aka Zaire. There is no defending the Congo Free State - but 1960 minus 1908 is quite some time. Observe the sinuosity with which this propagandist redacts an inconvenient half-century:
Government as a system of organized theft goes back to King Leopold II, who made a fortune [in the Congo] equal to well over $1.1 billion in today's money, chiefly in rubber and ivory. Then for fifty-two years this was a Belgian colony, run less rapaciously, but still mainly for the purpose—as with colonies almost everywhere—of extracting wealth for the mother country and its corporations. The grand tradition was continued by Mobutu Sese Seko...
In other words: skip from Leopold to Mobutu as fast as possible, noting only that the Congo under Belgian administration was... gasp... profitable. Sacre bleu! Another of those nitroglycerines, nurse - I think my heart just skipped a whole bar. Profitable government! Why, it's practically a second Holocaust.

And what did this astonishing crime against humanity involve? Let us consult our favorite source - the New York Times. From 1991:
Nearly a century ago, when the first Europeans ventured into Zaire's vast interior, Kikwit was a small village whose people and institutions existed in a quiet, self-contained world wholly uninterrupted by the frenetic rhythms of modernity.

The village gradually disappeared as a social and cultural force as Belgium, Zaire's colonial ruler, exploited the region's mineral and agricultural wealth, transforming Kikwit into a provincial trading center. A paved highway was built to speed diesel trucks hauling cassava and corn to other regions.

While the Belgians were often consummately patronizing to their African subjects, they installed an efficient colonial administration. In time, they introduced health care, water projects, education, telephones and power lines, helping to turn this once isolated village into one of the most affluent and best-tended cities in the core of equatorial Africa.

Today, the legacy of Kikwit's colonial past is swiftly disappearing.

"Civilization is coming to an end here," said Rene Kinsweke, manager of Siefac, a chain of food stores, as he spoke of how Kikwit has become a dispiriting tableau of chaos and catastrophe. "We're back where we started. We're going back into the bush."

It is difficult to exaggerate the dizzying pace of decay in this city of nearly 400,000 people. Six months ago, the Siefac food conglomerate consisted of 21 stores in Bandundu Province. Today, a single store is left, and it is to close as soon as its remaining stock is sold, Mr. Kinsweke said.

The main road to Kikwit is now rutted and crumbled, and for most of the year the city can be reached from Kinshasa, Zaire's capital, only by a four-wheel-drive vehicle. In 1960, when Zaire gained independence, a visitor could drive the 300 miles in six hours. Today the same drive takes at least 10 hours.

Elsewhere in town, squatters have moved into homes that once belonged to the Belgian colonials. Entire families now camp on sidewalks, in parks and even in cemeteries. Streets and backyards are littered with indescribable filth, and toward the edges of the city the roads crumble into dirty sand and then disappear altogether. Rats and flies are breeding as never before, adding to critical sanitation and hygiene problems.

It is at night, though, that Kikwit's seemingly inexorable roll toward ruin is felt the strongest. The sky of this sprawling city is lit with exactly two street lights, one for each of the city's remaining nightclubs. Aside from private generators, there is no electricity; nor is there running water. The postal, telex and telephone offices have been on strike for months, and no one seems able to recall when the regional radio station made its last broadcast.
Since 1991, of course, the Congo has made a dramatic turnaround. Not! But at least no one is "consummately patronizing" the Congolese, or "exploiting" their "mineral and agricultural wealth." At least, no one white. As for the "frenetic modernity," perhaps the next Ebola epidemic will get Kikwit back to that "quiet, self-contained world." More cake, Mrs. Antoinette?

And how do the Congolese themselves feel about this victory of social justice? That infamous hotbed of reactionary imperialism, Time magazine, tells us:
Come Back, Colonialism, All Is Forgiven

Le Blanc and I are into our 500th kilometer on the river when he turns my view of modern African history on its head. "We should just give it all back to the whites," the riverboat captain says. "Even if you go 1,000 kilometers down this river, you won't see a single sign of development. When the whites left, we didn't just stay where we were. We went backwards."
Of course, we learn "Le Blanc" is actually... part-white. So maybe he's just another exploiter:
Le Blanc earns his keep sailing the tributaries of the Congo River. He's 40 years old, and his real name is Malu-Ebonga Charles — he got his nickname, and his green eyes and dark honey skin, from a German grandfather who married a Congolese woman in what was then the Belgian Congo. If his unconventional genealogy gave him a unique view of the Congo's colonial past, it is his job on the river, piloting three dugouts lashed together with twine and mounted with outboards, that has informed his opinion of the Democratic Republic of Congo's present. "The river is the artery of Congo's economy," he says. "When the Belgians and the Portuguese were here, there were farms and plantations — cashews, peanuts, rubber, palm oil. There was industry and factories employing 3,000 people, 5,000 people. But since independence, no Congolese has succeeded. The plantations are abandoned." Using a French expression literally translated as "on the ground," he adds: "Everything is par terre."

It's true that our journey through 643 kilometers of rainforest to where the Maringa River joins the Congo at Mbandaka, has been an exploration of decline. An abandoned tugboat here; there, a beached paddle steamer stripped of its metal sides to a rusted skeleton; several abandoned palm oil factories, their roofs caved in, their walls disappearing into the engulfing forest, their giant storage tanks empty and rusted out. The palms now grow wild and untended on the riverbanks and in the villages we pass, the people dress in rags, hawk smoked blackfish and bushmeat, and besiege us with requests for salt or soap. There are no schools here, no clinics, no electricity, no roads. It can take a year for basic necessities ordered from the capital, Kinshasa, nearly 2,000 kilometers downstream, to make it here — if they make it at all. At one point we pass a cargo barge that has taken three months to travel the same distance we will cover in two days. We stop in the hope of buying some gasoline, but all we get from the vessel are rats.

Even amid the morbid decay, it comes as a shock to hear Le Blanc mourn colonialism. The venal, racist scramble by Europeans to possess Africa and exploit its resources found its fullest expression in the Congo. In the late 19th century, Belgium's King Leopold made a personal fiefdom of the central African territory as large as all of Western Europe. From it, he extracted a fortune in ivory, rubber, coffee, cocoa, palm oil and minerals such as gold and diamonds. Unruly laborers working in conditions of de facto slavery had their hands chopped off; the cruelty of Belgian rule was premised on the idea that Congo and its peoples were a resource to be exploited as efficiently as possible. Leopold's absentee brutality set the tone for those that followed him in ruling the Congo — successive Belgian governments and even the independent government of Mobutu Sese Seko, who ruled from 1965 to 1997 and who, in a crowded field, still sets the standard for repression and corruption among African despots.
Observe the Jedi mind tricks again, as our journalist skips straight from Leopold to Mobutu. Obviously, nothing interesting could have happened in the Congo between 1908 and 1960.

Or could it? We set our time machine for 1955, and see...
In the Belgian Congo last week massed tom-tom drummers practiced a welcome tattoo. Prosperous Negro shopkeepers climbed up wooden ladders and draped the Congolese flag (a golden star on a blue field) from lampposts and triumphal arches set up along Boulevard Albert I, the spanking concrete highway that bisects the capital city of Leopoldville. In far-off mission churches, encircled by the rain forest that stretches through Belgian territory from the Atlantic to the Mountains of the Moon, choirs of Bantu children rehearsed the Te Deum. African regiments drilled, jazz bands blared in the bush, and on the great brown river that drains the middle of the continent Negro captains tooted the raucous steam whistles on their swiftly gliding paddle boats.

The toots and Te Deums were all in preparation for the arrival this week of the slim, spectacled young man who is King of the Belgians and, as such, the sovereign lord of 14 million Congolese. It will be his first state visit to his African Empire.

The Congo is King Baudouin's richest, widest realm. It is eighty times the size of the mother country, and half again as populous. Booming Congo exports provide the dollars and pounds that make the Belgian franc one of the world's hardest currencies. Belgians drink Congo coffee, wear shirts made of Congo cotton, wash them with soap made from Congo palm kernels. Without the mighty Congo, little Belgium might go broke; with it, a nation of 9,000,000 still counts as a world empire.

To novelist Joseph Conrad, the Congo River was "an immense snake uncoiled" curving through "joyless sunshine into the heart of darkness." There was plenty of darkness in the Congo during the 19th-century "scramble for Africa," when Baudoin's great-granduncle, Leopold II, staked out his monarchical claim to the uncharted Congo Free State. Leopold's rubber gatherers tortured, maimed and slaughtered until at the turn of the century, the conscience of the Western world forced Brussels to call a halt.

Today, all has changed. Nowhere in Africa is the Bantu so well fed and housed, so productive and so content as he is in the Belgian Congo.

In little more than a generation of intense economic effort, the Belgians have injected 20 centuries of Western mechanical progress into a Stone Age wilderness. The results are staggering: in forests, where 50 years ago there were no roads because the wheel was unknown, no schools because there was no alphabet, no peace because there was neither the will nor the means to enforce it, the sons of cannibals now mine the raw materials of the Atomic Age.

Belgian brains and Bantu muscle have thrust back the forest and checked the dread diseases (yaws, sleeping sickness, malaria) which sapped the Bantu's strength. In some areas, the Congo's infant-mortality rate is down to 60 per 1,000—better than Italy's figure. More than 1,000,000 children attend primary and secondary schools—40% of the school-age population (compared with less than 10% in the French empire).

The Belgians taught the Bantu to run bulldozers, looms and furnaces, to rivet ships, drive taxis and trucks. Girls with grotesque tribal markings etched into their ebony foreheads sell in shops, teach in schools, nurse in hospitals. Already thousands of natives in the Congo's bustling cities earn $100-$150 a month —more than most workers in Europe, and small fortunes by African standards. They buy sewing machines, phonographs and bicycles in such profusion that Sears, Roebuck has recently put out a special Congo catalogue.

The Belgians compare the Congo with the state of Texas, though in fact the Congo is bigger and far richer in its natural resources. The Congo's gross national product has tripled since 1939. Money is plentiful. Belgian investors take more than $50 million a year in dividends alone. Once the Congo depended exclusively on mining and farming; today it manufactures ships, shoes, cigarettes, chemicals, explosives and photographic film. With its immense reserves of hydroelectric power (a fifth of the world's total), the Belgians expect the Congo to become "the processing plant for all Africa."

The Congo boom makes its cities grow like well-nourished bamboo shoots. In six years the Negro population of Elisabethville has jumped from 40,000 to 120,000, Costermansville from 7,000 to 25,000, Stanleyville from 25,000 to 48,000. But the pride of the Congo is Leopoldville (pop. 370,000), a bustling, modern metropolis that is spreading along the south bank of Stanley Pool (see map).

Leo, as the Belgians call it, has tripled its population in the past six years. Its 20,000 whites live apart in a suburb that seems far too big for them. There are broad, empty boulevards and a scattering of modern skyscrapers, but the buildings seem isolated amid the mango palms and yellow-flowered cassia trees where the red-tailed parrots roost. Many streets are unpaved and unlighted; in heavy rain they turn to quagmires. Leo's whites are mostly officials or highly trained business executives—managers, engineers, sales agents. They are a hardworking, hard-drinking crew, and they have plenty of money to spend on oysters, Scottish salmon and French wine, served in Leo's nightclubs. The Belgians drive American cars, particularly Buicks, and wear colorful combinations of sun helmet, khaki shirt, pink shorts, bright green woolen socks and beige suede shoes. "They have two kinds of conversation," gibes an English-born resident of Leo. "One is an offer, the other a counter-offer."

Adjoining "white Leo" is the teeming "native town," known to the Negroes as Le Beige. Without its 350,000 Africans, Leopoldville would crumble in the tropical sun. Each morning, thousands of Negroes bicycle into downtown Leo to work in the shipyards and offices. Evenings, they stream homeward to the jumble of shacks, tenements, modern homes and tastefully built hospitals that make up "black Leo." In the darkness, millions of candles glow under the mango trees where Negro market women do a roaring trade in bread, beer and dried fish, green-and-brown-striped caterpillars (a delicacy when fried in deep fat) and blackened lumps of elephant meat...
And the source? Time magazine. We have always been at war with Eastasia.

The various colonial regimes were by no means perfect. But to assert that their average quality of government service was anything but far better than either their predecessors, or their successors, is a political distortion of history which I have no trouble at all in comparing to Holocaust denial. Far more people were murdered in decolonization and postcolonial violence than in the Holocaust. Moreover, only a few fringe nutcases deny the Holocaust - whereas anticolonialism is a core tenet of everyone's college education. Oops.

Even the idea of government by international coalition, which has worked out so well in Afghanistan, is not even slightly new. It is recognized instantly as the original design for decolonization, created by Davos Man's grandfathers in San Francisco: UN trusteeships. Perhaps Professor Romer could go back to his map of the world at night, and find all the UN trusteeships. Multinational colonialism is a contradiction in terms.

Basically, wanting to confiscate the British, French, Dutch, Belgian and Portuguese empires, but not wanting to be too obvious about it, and retaining the shred of sanity required to see that "independence" would produce tremendous bloodshed and vast suffering, the original plan of the New Deal internationalists was to transfer the colonies of America's defeated allies to apparatchiks of the new world government. Ie - them. More jobs for us!

But the UN never quite became functional, and that wind of change blew faster every year. So they shrugged their shoulders and went with plan B: tremendous bloodshed and vast suffering. Decolonialization. And sixty years later, some asshole in thousand-dollar glasses is standing on a million-dollar stage, reminding the world's good and great what a great idea that was. Except, well, that it wasn't...

So Professor Romer is like a mainstream Holocaust denier. A phenomenon that might well exist, had Hitler won the war. Hitler didn't win the war, but his enemies did. And the destruction of European government in the non-European world was a core point of their program for "a moral way of international living." Well, it sounded nice in 1942.

But I want to get back to my original point - the scholarly malfeasance of Professor Romer. UR is not in the atrocity-mongering business. History is a nasty affair. Someone always has to win the war, and that someone will have a skeleton or two in their closets. It's far more interesting to look in the winners' closets than the losers'. But after a while, you've seen enough skeletons.

To understand the depth of this violation of academic integrity, let's try a thought-experiment. In our thought-experiment, Professor Romer's intellectual victims come to life and confront him. Properly executed, this zombie cagefight metes out the full punishment of history, which has no patience at all with ignorance or mendacity.

By sheer will, diligent research and/or pharmaceutical animation, compel the inside of your forehead to display a similar slick video in which Professor Romer does not speak alone - but must share the stage with one of the dead men whom he has simultaneously insulted and robbed, exhumed and reanimated by prodigious doses of formaldehyde, caffeine and Wikipedia.

There are many candidates for the position of opponent. But the obvious winner is Evelyn Baring, first Lord Cromer - if nothing else, for the rhyme alone.

To be fair, we'll give Professor Romer his own few days to prepare, by reading Lord Cromer's works - or at least, Modern Egypt (vol. 1, vol. 2), and Ancient and Modern Imperialism (which he will have to buy from the thieves at Kessinger). He can probably afford to skip, say, Paraphrases and Translations From the Greek.

You see, our two contestants, Romer and Cromer, have some things in common. Both are men of genuine importance in the real world, and both can at least pretend to scholarship. Lord Cromer would have no trouble in adjusting his attitude to fit either Davos or the Stanford faculty lounge, assuming no one minded the reek of formaldehyde and the awful, staring eyesockets. How would Professor Romer adjust to Lord Cromer's world? Just as well, I suspect.

But the grand presence of such an old, noble corpse may just be too much. So let's adjust the experiment and fill a whole panel with fresher meat. I nominate Philip Larkin and Evelyn Waugh. Against Cromer, Larkin and Waugh, I doubt Professor Romer will last the full 18. If the fight isn't stopped, I won't be surprised if he feels morally compelled to hang himself with his own tie.

Let's ring the bell and see where this goes. The last to die is the last to speak:

Lord CROMER:
First, I'd like to apologize for our young, excitable promoter, Mr. Moldbug. His heart may be in the right place, but his tongue could use some soap.

I myself have no hard feelings, Professor Romer. I find it admirable that, considering the dark ages of the mind in which you live, you have come to the difficult realization that non-Europeans can benefit from the blessing of European government, a thought which I'm not surprised to see has become forbidden in your time.

It's even more impressive that you have come to this realization despite an apparent ignorance of both modern history and human biology. I hope that you will continue to learn and grow in your work. Surely your position is such that you have nothing to fear from speaking the truth as you see it, or seeking it wherever you might find it.

It may surprise you to know that even we struggled with this same taboo, which was perhaps my most difficult problem in governing Egypt. As I wrote:
British policy in Egypt since the year 1882 may be said to constitute a prolonged and, so far, only partially successful effort to escape from the punishment due to original sin. The ancient adage that truth is a fellow citizen of the gods is as valid in politics as in morals. British statesmen were continually harassed by a Nemesis in the shape of the magna vis veritatis, which was for ever striving to shatter the rickety political edifice constructed at the time of the occupation on no surer foundations than those of diplomatic opportunism. At every turn of the political wheel fact clashed with theory.
In plain English, to make Egypt a success in the political climate of the Gladstone era, we had to combine the pretence of native government with the reality of British government. We had to rule as if we had annexed Egypt, like India - but we could not annex Egypt, like India. We thus assumed the additional burden of thespianism, having to rule while acting the part of advisors. It worked, but for the last time.

Despite the optimism expressed in my memoirs, I cannot be surprised that this dishonesty eventually surfaced and Nemesis triumphed, destroying British Egypt and returning it to the expected tyranny of the Arab ruling caste. Which promptly got down to the important work of ethnic cleansing, pervasive corruption and incompetence, and international aggression. At least some of the buildings remain, and the Copts have not yet been expelled en masse. However, it strikes me as likely that the successor to the Mubarak dynasty will be revolutionary Islam. Egypt has not yet seen her nadir, I fear.

The failure of this advisory role is easily seen in the American or "postcolonial" era. Egypt worked because we ruled, while pretending to advise. But this was a sham, and the sham revealed itself. In Vietnam or in Afghanistan today, or anywhere in the postcolonial world, Americans (and their British and European poodles, now thoroughly housebroken and re-educated) practice no such mendacity. Natives truly rule; Westerners truly advise. And give, give, give.

The results are apparent to all, or should be. Frankly, a return to true native rule, without patronizing advice or insidious dependency, would be healthier. A painful step no doubt, but I feel for your understanding or mine to make any real headway in the world, it may be a necessary start.

I'd like to close with a pair of passages from Modern Egypt, which highlight the difficulty we experienced in converting Egypt from Oriental despotism to one of the most promising and prosperous regions of the world, a place so pleasant that bohemians like Lawrence Durrell moved there just to live - as though it was Prague. Alas, it is no longer Prague.

You may have it easier with your "uninhabited land," but I suspect not. Non-Europeans are not Europeans; to govern them, you must rule them; to rule them, you must know them. Take a small lesson from my experience:
When it is remembered that, in addition to the difficulties arising from the causes to which allusion is made in this chapter, the country had, for at least a century previous to 1882, been governed under a system which exhibited the extremes of savage cruelty and barbarity; that the impulse towards civilisation first imparted, and not unintelligently imparted by the rough men of genius who founded the Khedivial dynasty, was continued on principles, which may almost be characterised as insane, by the incapable Said, and the spendthrift Ismail; that under their auspices all that was least creditable to European civilisation was attracted to Egypt, on whose carcase swarms of needy adventurers preyed at will; that, as a consequence of these proceedings, the very name of European stank in the nostrils of the Egyptian population; that whatever European ideas had taken root in the country had been imported from France; that the French Government and French public opinion were at the outset bitterly opposed to the action of England in Egypt; that, through the medium of an unscrupulous press, Englishmen were vilified and their actions systematically misrepresented; that, under the pressure of Europe and the European creditors of Egypt, a variety of complicated institutions had been created which were in advance of the requirements and state of civilisation of the country; that the Treasury was well- nigh bankrupt; that the army had been disbanded; that no law-courts worthy of the name existed; that the Englishman's own countrymen, who, according to their custom, judged mainly by results, expected that at the touch of his administrative wand all abuses would forthwith disappear; that the fellah expected immediate relief from taxation and oppression; that the Levantine contractor expected to dip his itching palm into the till of the British Treasury ; that the English man's position was undefined, and that he was unable to satisfy all these expectations at once ; that, having just quelled a rebellion in Egypt, he was confronted with a still more formidable rebellion in the Soudan; and, lastly, that before he had seriously begun the work of reform, he was constantly pressed by Frenchmen, and by some of his own countrymen, to declare his conviction that the work was accomplished, —when all these points are remembered, the difficulty of the task which England undertook may be appreciated in its true light. But the task was ennobled by its difficulty. It was one worthy of the past history, the might, the resources, and the sterling national qualities of the Anglo-Saxon race. I shall presently endeavour to show how it was accomplished.
Care to know how it was accomplished, Professor Romer? Read my book. But here is what I had to deal with:
The duty of a diplomatic agent in a foreign country is to carry out to the best of his ability the policy of the Government which he serves. My main difficulty in Egypt was that the British Government never had any definite policy which was capable of execution; they were, indeed, at one time constantly striving to square the circle, that is to say, they were endeavouring to carry out two policies which were irreconcilable, namely, the policy of reform, and the counter-policy of evacuation. The British Government are not to be blamed on this account. The circumstances were of a nature to preclude the possibility of adopting a clear-cut line of action, which would have enabled the means to be on all occasions logically adapted to the end.

I never received any general instructions for my guidance during the time I held the post of British Consul-General in Egypt, and I never asked for any such instructions, for I knew that it was useless for me to do so. My course of action was decided according to the merits of each case with which I had to deal. Sometimes I spurred the unwilling Egyptian along the path of reform. At other times, I curbed the impatience of the British reformer. Sometimes I had to explain to the old-world Mohammedan, the Mohammedan of the Sheriat, the elementary differences between the principles of government in vogue in the seventh and in the nineteenth centuries. At other times, I had to explain to the young Gallicised Egyptian that the principles of an ultra-Republican Government were not applicable in their entirety to the existing phase of Egyptian society, and that, when we speak of the rights of man, some distinction has necessarily to be made in practice between a European spouting nonsense through the medium of a fifth-rate newspaper in his own country, and man in the person of a ragged Egyptian fellah, possessed of a sole garment, and who is unable to read a newspaper in any language whatsoever. I had to support the reformer sufficiently to prevent him from being discouraged, and sufficiently also to enable him to carry into execution all that was essential in his reforming policy. I had to check the reformer when he wished to push his reforms so far as to shake the whole political fabric' in his endeavour to overcome the tiresome and, to his eyes, often trumpery obstacles in his path, and thus lay bare to the world that measures which were dictated in the true interests of Egypt were opposed by many who had, by accident or by the political cant of the day, been elevated to the position of being the putative representatives of Egyptian public opinion. I had to support the supremacy of the Sultan and, at the same time, to oppose any practical Turkish interference in the administration, which necessarily connoted a relapse into barbarism. I had at one time to do nothing inconsistent with a speedy return to Egyptian self- government, or, at all events, a return to government by the hybrid coterie of Cairo, which flaunts before the world as the personification of Egyptian autonomy; whilst, at the same time, I was well aware that, for a long time to come, European guidance will be essential if the administration is to be conducted on sound principles. I had at times to retire into my diplomatic shell, and to pose as one amongst many representatives of foreign Powers. At other times, I had to step forward as the representative of the Sovereign whose soldiers held Egypt in their grip. At one time, I had to defend Egypt against European aggression, and, not un-frequently, I had in the early days of the occupation to defend the British position against foreign attack. I had to keep in touch with the well-intentioned, generally reasonable, but occasionally ill-informed public opinion of England, when I knew that the praise or blame of the British Parliament and press was a very faulty standard by which to judge the wisdom or unwisdom of my acts. I had to maintain British authority and, at the same time, to hide as much as possible the fact that I was maintaining it. I had a military force at my disposal, which I could not use save in the face of some grave emergency. I had to work through British agents over whom I possessed no control, save that based on personal authority and moral suasion. I had to avoid any step which might involve the creation of European difficulties by reason of local troubles. I had to keep the Egyptian question simmering, and to avoid any action which might tend to force on its premature consideration, and I had to do this at one time when all, and at another time when some of the most important Powers were more or less opposed to British policy. Lastly, the most heterogeneous petty questions were continually coming before me. If a young British officer was cheated at cards, I had to get him out of his difficulties. If a slave girl wanted to marry, I had to bring moral pressure on her master or mistress to give their consent. If a Jewish sect wished for official recognition from the Egyptian Government, I was expected to obtain it, and to explain to an Egyptian Minister all I knew of the difference between Ashkenazian and Sephardic practices. If the inhabitants of some remote village in Upper Egypt were discontented with their Sheikh, they appealed to me. I have had to write telegrams and despatches about the most miscellaneous subjects — about the dismissal of the Khedive's English coachman, about preserving the lives of Irish informers from the Clan-na-Gael conspirators, and about the tenets of the Abyssinian Church in respect to the Procession of the Holy Ghost. I have been asked to interfere in order to get a German missionary, who had been guilty of embezzlement, out of prison; in order to get a place for the French and Italian Catholics to bury their dead; in order to get a dead Mohammedan of great sanctity exhumed; in order to prevent a female member of the Khedivial family from striking her husband over the mouth with a slipper; and in order to arrange a marriage between two other members of the same family whom hard-hearted relatives kept apart. I have had to take one English maniac in my own carriage to a Lunatic Asylum; I have caused another to be turned out of the English church; and I have been informed that a third and remarkably muscular madman was on his way to my house, girt with a towel round his loins, and bearing a poker in his hands with the intention of using that implement on my head. I have been asked by an Egyptian fellah to find out the whereabouts of his wife who had eloped; and by a German professor to send him at once six live electric shad-fish, from the Nile. To sum up the situation in a few words, I had not, indeed, to govern Egypt, but to assist in the government of the country without the appearance of doing so and without any legitimate authority over the agents with whom I had to deal.
Now all this is forgotten. If I exist at all for you, Professor Romer, it is as a villain - a foil by which you demonstrate how righteous you are, by not being me. Can I take umbrage at this? By no means, for it is the work of every public man. My own professional dishonesty was no less, and for the same good end.

Still, my worry is that you fall between stools. You dissemble far too much for your words to have the real ring of truth, exotic now and almost unheard - magna vis veritatis. But in this real world, the world of lies, your idea is just as advertised - radical. Yours is an age made by radical ideas, but it is no longer an age of radical ideas. If your idea is possible, it is every bit the boon you claim. But is it? Really? And if not, what is the point of your work?
Mr. WAUGH:
Thank you, Lord Cromer. Unfortunately, I have none of your patience. I too may be a grown man named "Evelyn," but I am of a later generation. I saw the Third World and its causes. Professor Romer will find no sympathy from me.

He needs to face up to the fact that his school is the problem, not the solution. He needs to apologize for and thoroughly repudiate anticolonialism and democratic evangelism. Until he does so, his "radical ideas" are no more than that staple of the Warsaw Pact - "socialism with a human face." In the end it was clear that Russian Communism needed to be discarded, not reformed. I predict the same fate for its first cousin, American progressivism.

In the preface to the 1962 edition of Black Mischief (1932), I wrote:
Thirty years ago it seemed an anachronism that any part of Africa should be independent of European administration. History has not followed what then seemed its natural course.
Professor Romer, if you wish to change the course of history, or rather set it back on course, a wink and a nod will not suffice. The wheel is too much for a mere shoulder. You need the lever of truth - the whole truth - or it will roll right over you. It will probably roll over you anyway, but at least you could try.

Even ascribing the success of colonialism to that mystical factor, European administration, is soft-pedaling reality. What worked is not the mystique of having white men in government, for there is nothing unique about either the white man or his presence in the halls of power. Indeed the Third World governments were all the creation of white men - white men like you, development experts. Whatever the cause of "world poverty" may be, it is surely not a shortage of development experts.

Rather, what worked was European rule. The Third World is a world crying out to be ruled. It demands not "good rules," but good rulers. The myth of rules without rulers is another of your American phlogistons, which keeps almost indefinitely in a complacent temperate clime but melts at once in the tropics.

Since colonialism is so out of fashion, since there are no Cromers anymore, this effect is seen most strongly in native autocrats - a Lee Kuan Yew, a Paul Kagame, an Alberto Fujimori. All three of these men saved a country from anarchy and destruction, and none is even slightly Canadian. If there was anything in your underwear, you might consider praising them.

I wrote of this in Robbery Under Law (1939), which in my humble opinion is not only the first work to describe the coming Third World, but also the best. Read it. Here is my eulogy for Porfirio Diaz:
For thirty-five years Diaz maintained his personal government. He set an example, unique among Mexican rulers, in the integrity of his personal life. He was a faithful husband; he left his country rich, himself poor. He opened up the country with roads and railways, bringing law and wealth to practically unexplored districts. Above all he kept the country's sovereignty intact - at a time when statesmen were openly claiming that the natural boundary of the United States was the isthmus of Panama. He was only able to do this by maintaining the equilibrium of foreign investment; by getting the English and French to fight his commercial war with the United States. He saved his country from absorption at the very modest price of the dividends that went to European stockholders.

[...] At the end of Diaz' reign, when his powers were weakened, he began to concern himself with the problem of a successor and for the moment toyed with the idea (as Kemal did, with disastrous results for those who took him seriously) of a constitutional opposition. Mexicans of the time, who had grown up under him, an knew the boredom and inevitable abuses that grow in an autocracy, who had never known the bad days of Juarez, wished to see their country conforming still more closely to the contemporary fashion; they had seen general elections at Stonyhurst and knew them to be lively and bonhomous occasions. So party politics were introduced with pleasant expectations of candidates competing with benevolent projects and a party loyalty finding expression in coloured rosettes and rotten eggs. The result has been twenty-five years of graft, bloodshed and bankruptcy.
Make it a hundred.

Professor Romer, here is a question for you: suppose your good Mr. Castro says yes, and you get your Guantanamo City up and running, with its Haitian population and Canadian proconsuls. It is, of course, a smashing success, with investment galore.

And then, in ten years, a mob of Haitians gathers in the beautifully landscaped central square, wearing coloured rosettes and throwing rotten eggs, all chanting a single demand: democracy for Guanatanamo City. The Canadians, all in a tizzy, call you. It's the middle of the night in Palo Alto. You pick up the phone. "What should we say?" the Canadians ask. "Yes, or no?"

If they say yes - what, in ten years, will be the difference between Guantanamo and Haiti? If they say no - what do they say next? You'll notice that you have no answer to this question. Hell has little pity for those who decide to forget history.

Perhaps the reason you have so much trouble imagining this scenario is that your own country has been so successful in suppressing actual political democracy, in favor of the administrative caste of which you are a member. To you, the proposition that "politics" should affect the formulation or execution of "public policy" is no less than heresy - like Velveeta on a communion wafer.

Thus, you reinvent colonialism by simply teleporting this managerial state from Canada, where democracy has been effectively suppressed, to Cuba, where democracy has been effectively suppressed. But the subjects of your new state are not Canadians, or even Cubans. The job has not been done.

If you want to suppress their lust for power, a lust which grows in the heart of every man, you can do so. All it takes is a bit of gear and the will to use it. As Wellington said: pour la canaille, la mitraille. But then, my dear professor, you are really reinventing colonialism - not just pretending to do so, for an audience as ignorant, hypocritical and naive as yourself.
Mr. LARKIN:
Gentlemen, I find this conversation remarkably amusing, but I fear I have little to add to it. However, I should probably at least repeat the poem which I suspect got me summoned here. From 1969:
Homage to a Government

Next year we are to bring the soldiers home
For lack of money, and it is all right.
Places they guarded or kept orderly,
Must guard themselves, and keep themselves orderly.
We want the money for ourselves at home
Instead of working. And this is all right.
It's hard to say who wanted it to happen,
But now it's been decided nobody minds.
The places are a long way off, not here,
Which is all right, and from what we hear
The soldiers there only made trouble happen.
Next year we shall be easier in our minds.
Next year we shall be living in a country
That brought its soldiers home for lack of money.
The statues will be standing in the same
Tree-muffled squares, and look nearly the same.
Our children will not know it's a different country.
All we can hope to leave them now is money.
What an optimist I was! To think that decolonialization would save money! We British, simple souls, never ran our Empire for profit. But postcolonies are more expensive than colony ever was. Black Ireland needs so much more than pumpkins.

We had an Empire on which the sun never set; we exchanged it, as Muggeridge said, for a Commonwealth on which it never rises. We were colonists; we are colonized. Our children - the few we have - have neither money, nor hope, nor country.

Thank you, America! Enoch was right. Good evening, gentlemen; you'll have to excuse me. I felt better when I was dead.
I'm afraid our zombies may have exhausted the 18 minutes all by themselves. But fortunately, Professor Romer is alive, and thus entitled to the dignity of composing his own response. If he hasn't already hanged himself with his tie, that is.

Now, what we've seen here is a set of moral and historical arguments against Professor Romer. It should be clear that as a scholar, which is what he claims to be, he has no leg to stand on.

But the professor is not, of course, a scholar. There are no scholars in our day - or few, at least. Not all that glitters is gold; not all that does not, is not.

Organized scholarship in the United States died in 1933, when the Brains Trust was established and the academy put on the Ring, accepting a responsibility for the direction of government which it has never relinquished and never will. Power is a jealous master; like heroin, it demands a complete commitment.

Professor Romer is not a student of history; he is, despite his embarrassing and disingenuous demurral, an architect of public policy. Thus - as Lord Cromer points out - when we evaluate him as a scholar, we subject him to a test he will never pass. He is a bureaucrat, not a scholar, and we should judge him as such.

When we judge "Charter Cities" as a bureaucratic proposal, we must judge it by bureaucratic standards. And we can. The proposal fails not because it is morally obtuse or academically dishonest, though it is both; it fails because it will never be tried, and if it is won't work.

Why is the Third World a kleptocracy, rather than a capitalist utopia? Let's take Cuba, renowned worldwide for the purity of its revolutionary ideology. In their promotion of European and Canadian tourism, the Castros have proven canny, avaricious and unromantic businessmen, fine evidence that they were always just thugs and never believed in the whole caper to begin with. Even without Professor Romer, it's quite clear that the Chinese model is extremely profitable and effective. Cuba doesn't need Guantanamo, and it doesn't need Canadians - it has no shortage of competent administrators. It could set up a special economic zone anywhere. Why doesn't it?

The answer is that the existence of any such entity would constitute an immediate political threat to their regime. Why does socialism abhor private corporations? Because a corporation is a power structure which is not subject to official authority. In a Communist propaganda state, dependent on the continuous mass adulation of its subjects, no such independence is tolerable.

In more kleptocratic regimes, such as are found in Africa, the problem is even simpler and cruder: everyone in government steals. Anyone in government who does not steal is a threat, because his hands are clean while everyone else's are dirty. He might go to the Americans, and they might make him President. And any enterprise which cannot be stolen from is a threat, because every other enterprise will demand the same privilege.

If Professor Romer expects these types of regimes to cede him a tract of uninhabited land, he is dreaming. All Third World nations are saturated with anticolonialist religion, which will trivially recognize his proposal for exactly what it is, and provides the best possible basis for directing political violence against it. That's how the Third World got to be the Third World, after all. Look at what happened when the Koreans tried to rent a farm - a mere farm, if a big one - from Madagascar. Fortunately, so far only about 100 people have been killed.

A genuine autocrat, who had completely abolished politics, might be able to pull it off. Of course, a genuine autocrat could just hire Western administrators himself. (More sacrilege!) Indeed, as Waugh points out, a genuine autocrat can generally maintain a decent level of order with natives alone, or he is not much of an autocrat. It does not take a lot of good people to rule a country, and almost every country has a gene pool capable of producing them. Papua New Guinea may be an exception, for example, but Haiti is certainly not. The problem is not natives; the problem is the combination of natives and democracy.

Dubai is an excellent case in point, because the Dubai miracle seems to be fraying a bit. The problem is that Dubai is not a perfect autocracy; it is not Sheikh Mohammed's private country. He sits at the top of a tribal power structure, which cannot be overly abused. To maintain their position, the sheikhs have to hand out free sinecures - jobs public and private - to the Emirati population, which is world-renowned for its abhorrence of actual work.

The result is that Emirati bureaucrats, especially in security positions, find it relatively easy to abuse the Western guests who actually make Dubai profitable, or at least apparently profitable. (With so many real-estate loans, it's hard to know.) The entire country is afflicted with this giant deadweight of native parasites, who can easily become sadistic as well as expensive.

Thus, the idea of "charter cities" or special economic zones as a cure for bad government in the Third World is inherently a bad one, because bad governments will not tolerate these entities. Good governments will follow reasonable rules, conducive to business, already - as both China and Dubai do.

Abstractly, a much more reasonable place to put a "charter city" is on First World territory. The US, for instance, has no shortage of uninhabited land. Build a new Guantanamo somewhere in the middle of Montana - call it Montanamo. Residency in Montanamo does not imply residency in the US, and Montanamo has a huge fence around it to make this point clear. Fly in the Haitian helots, bus in the Canadian proconsuls, and you've got your city going.

Of course, this will never happen either. Even First World government dislikes competition, because even First World governments these days have more than a little Third World nature. The First World is the past; the Third World is the future. Hello, California.

But let's suppose it did. In this case, good government would still be unlikely to emerge and persist - because we have neglected the entire reason that the Third World came to be.

Third World countries are "independent," but they are not in any sense independent. The word "independent," as you may notice, consists of two parts, "in" and "dependent." "In" means "not." "Dependent" means "dependent."

As we all know, the typical Third World regime is heavily dependent on "aid." But more subtly, it is also dependent on the military protection of the "international community," against both internal and external threats. (A while ago, I noticed that the phrase "international community" could be profitably replaced, in all contexts, by "State Department," without any change in meaning.) The latter is a much more serious form of dependency.

Under classical international law, diplomatic recognition was a de facto judgment; a regime was recognized as a government if it appeared to be in stable control of its country. Under its American replacement, modern "international law," diplomatic recognition is an attribution of legitimacy - to put it baldly, the decision that a regime is an acceptable American client. Through this mechanism alone, the "international community" can provide extremely effective protection to any "allied" regime, simply by making it clear that any replacement will not be recognized - and is thus unprotected against any contender which is acceptable to Foggy Bottom.

Thus the relationship of genuine independence, as practiced in all previous centuries, is extremely foreign to modern international relations. Countries genuinely independent of America are those few which can enforce their sovereignty by military means: China, Russia, perhaps Iran and Venezuela. But even the last two would cave quickly, I suspect, if treated like Rhodesia or South Africa. This leaves us with: China, Russia. Effectively, there are three true, sovereign nations in the world: China, Russia, and the "international community."

What this tells us is that whatever decolonialization is about, it is not about the actual political independence of the client country. No such independence exists. For any normal Third World country, Foggy Bottom has all the tools it needs to impose a level of administrative control just as close as any authority Cromer exercised over Egypt. The leaders of these countries do not take all their orders from the American Embassy - but they could easily be made to, at America's sole discretion.

A so-called country in this state is not a true sovereign. It is at best a protectorate. And that old bugaboo - colony - remains perfectly appropriate.

So why, if the State Department could already rule the Third World or most of it, doesn't it? Doesn't this conflict with the principle that all bureaucracies tend to expand their own power?

Actually, the present state of the "international community" is a perfect reflection of bureaucratic imperatives. Bureaucracies tend to maximize their impact. They are often quite shy about expanding their authority, especially if it is formal authority - because once you take authority over something, you have essentially taken responsibility for it. Bureaucracies are not fond of responsibility. Who wants to be responsible for the Third World?

Perhaps the dirtiest secret of decolonialization is that bureaucracies prefer the postcolonial model to the colonial model, "advice" and "aid" to actual rule, because the postcolonial model generates more jobs. Vastly more Westerners are involved in failing to run the Third World, than ran thee same countries successfully when they were colonies.

For example, to run Egypt - a country of 10 million people, then - Cromer had about 1000 British civil servants. If you count all the Western diplomats, development experts, NGOistas, and the like, for whom the present parlous state of Egypt provides employment, how many do you get? A lot more than 1 per 10,000 Egyptians, I suspect. How many Westerners are employed in bandaging and rebandaging the permanent ulcer of Africa? Um, a lot.

The Third World, as a government program, is just another permanent money hole on the balance sheet of the developed world. Just as with any business they operate, governments - Western governments - have turned their colonies into operations whose goal is to employ as many civil servants as possible. Any type of efficiency or success is a menace to these programs, not a boon.

Good government is always small government, and small government does not scale as a jobs program. If you have one Canadian Cromer running Guantanamo City like a startup, there is no room for everyone's students to go to Toronto and get jobs. You probably don't need more than a hundred Canadians to rule Guantanamo City. Colonial regimes are simply too good - they achieved remarkable and unprecedented bureaucrat-to-subject ratios.

Whereas if the Canadians say "yes" to the Guantanamo People's Party, allows elections, and thus replaces the professional Canadian administrators with illiterate Haitian demagogues, they create a jobs boom in the Guantanamo-advising business. For every administrative position that disappears, ten will be created in aid and development assistance. It may not be in the interest of Canada, or Guantanamo City, to bring about this change - indeed, it isn't. But it is surely in the interest of whatever Canadian agency is running Guantanamo City.

Thus the practical problem with "charter cities" is that no one wants them: not the host regime, not the international regime. For both, they simply work too well. Colonialism had to die not because it didn't work, but because it worked too well.

Moreover, the democratic political tradition of the Western world, which is fundamentally hostile to any effective authority, is the perfect platform for any attack on colonialism - by any name. Again, this is how colonialism died in the first place. As John Seeley wrote in the bible of the late British Empire, The Expansion of England:
What is unprecedented in the relation of England to India is the attempt to rule, not merely by experts, but by a system founded on public opinion, a population not merely distant, but wholly alien, wholly unlike in ways of thinking, to the sovereign public. Public opinion is necessarily guided by a few large, plain, simple ideas. When the great interests of the country are plain, and the great maxims of its government unmistakable, it may be able to judge securely even in questions of vast magnitude. But public opinion is liable to be bewildered when it is called on to enter into subtleties, draw nice distinctions, apply one set of principles here and another set there. Such bewilderment our Indian Empire produces. It is so different in kind both from England itself and from the Colonial Empire that it requires wholly different principles of policy. And therefore public opinion does not know what to make of it, but looks with blank indignation and despair upon a Government which seems utterly un-English, which is bureaucratic and in the hands of a ruling race, which rests mainly on military force, which raises its revenue, not in the European fashion, but by monopolies of salt and opium, and by taking the place of a universal landlord, and in a hundred other ways departs from the traditions of England.

And it may be asked, For what end? As I have remarked, the connection itself is not directly profitable to England.
Which was exactly the problem. Once Parliament decided that John Company was no more and India must be run for more ethereal reasons than mere profit, the fate of India as a colony was sealed. Once profitable government becomes charitable government, Third World status is only a matter of time. Like private companies, all countries disintegrate into bloated mush when run continuously at a loss.

Thus, colonialism cannot be restored by any mere subterfuge of rebranding. Its death was part of the slow decline of Western government, in which all institutions become larger and weaker. The postcolonial Third World state is a colony - in the sense of its political, military and/or economic dependency. It is just a very bad colony. It is bound no less closely to the West. All that has changed is that it is run as inefficiently as possible, which may cause some heartburn for its burgeoning army of Western managers - but certainly does not produce any hardship for them. The worse the business, the more managers it needs.

But we must remember colonialism, because colonial governments provided some of the highest-quality government in history. And, as Seeley points out, they worked on completely different principles than the democratic regimes from which they sprang. Froude once said that if Ireland could be made a Crown Colony, it would outshine England herself. He didn't say what would happen if England was made a Crown Colony - but perhaps he was thinking it. Yes, my niggaz, there are lessons here.

Thursday, August 13, 2009 73 Comments

UR is on vacation

At an undisclosed East Coast location with intermittent connectivity and a lot of tiger mosquitoes. Normal service will return next week.

I did, however, manage a somewhat irascible contribution to this GNXP thread, posted by a young and surely well-intentioned Dr. Pangloss with a spreadsheet. Topics include the democratic crime epidemic, Chinese statistical poetry, and the etiology of male homosexuality. Toward the end, these themes merge into a single savage crescendo of penetrative numerical degradation. Not recommended for those under 18.

I also experimented a little with baiting the "senior public-health scientists and practitioners" (the plural seems questionable) and hardcore progressive propagandist(s) at Effect Measure. Note the difference in tone. If you want to seriously unsettle these people, you have to attack from above. They don't expect that. Appeal directly to their conscience. They have one, generally. You will never see it - but that doesn't mean it's too tiny and withered to hurt.

Unfortunately, after a couple of exchanges I set the hook too hard, as a fisherman would say, and ended up in the moderation basket. I fear "Revere" does not have quite Professor Burke's grasp of netiquette. Then again, this sort of thing is standard operating procedure in the world of policy science. It's not easy being an anaerobic bacterium in this strange new age of oxygen.

So I saved my last comment, and here it is. Not a substitute for a real UR post, I realize, but:
Dear Revere,

I hate to break this to you, but post-WWII American academia is in practice an agency of USG, because it (a) is funded by USG, and (b) drives USG policy. (Especially in fields such as yours, which exist largely for the purpose of telling USG what to do.)

Just as Milloy is beholden to the corporations who fund and/or funded him. Just as Michaels is beholden to the tort lawyers who fund and/or funded him. Who pays the piper, as you correctly assert, calls the tune. But those who live in glass houses, etc.

I notice, for instance, that Milloy appears to have no interest whatsoever in debunking corporate "junk science." I also notice that you appear to have no interest whatsoever in debunking the work of tort lawyers, environmental activists, and/or fellow professors. Do these people never, ever, err? If so, please show me where.

Here's an analogy that may help you understand my perspective. Perhaps you remember a country called the Soviet Union. Now, when you hear that Soviet science proved X or Y or Z, what do you think? You think: X or Y or Z might be true, or it might not. To know, you'd have to look into it.

Even if X or Y or Z was written in the Great Soviet Encylopedia. Even if it was endorsed by a unanimous vote of the Soviet Academy of Sciences. Even if Chairman Brezhnev himself declared it to be an ineluctable consequence of dialectical materialism. You say: I'd have to look into it.

And why is this? Because you don't trust the process by which the Soviet system generated scientific results - despite the many excellent scientists who worked within it. And nor do I. We share (if I may assume) the belief that Soviet science could discover and amplify truth, and also discover and amplify error. Thus: "trust, but verify."

Now, if we compare (a) the organizational structure of post-WWII Western science, to (b) the organizational structure of pre-WWII Western science, to (c) the structure of Soviet science, we see that (a) looks a lot more like (c) than like (b).

Namely: it is centrally funded and centrally planned, even when conducted in "private" universities. Consensus can be produced by a few bureaucrats - excuse me, public servants - who choose to fund the believers and defund the deniers. Moreover, since these public servants (eg, at NSF or NIH) are scientists themselves, it is terribly easy for one faction to exclude another. There is no effective independent supervision. There is certainly no way to shut down an entire field that has become pseudoscientific.

Whereas before WWII and Vannevar Bush, consensus actually meant something, because the (much smaller) funding of science was decentralized and independent, and most important depended far less on the results of that work. To retain their status and funding, scientists had to convince critical, intelligent, and independent nonscientists. They had far less incentive to exaggerate the public-policy importance of their work. Whereas nowadays, even in my own field (computer science) the typical grant application is richly marbled with preposterous claims of public importance. Everyone does it, so everyone has to.

Thus a reasonable person would expect the type of scientific malfeasance so frequently seen in the Soviet system to emerge in the West. And when he sees it - for instance, in the likes of a Michael Mann or a Phil Jones, both of whom fail the most basic tests of scientific integrity and should be driving taxis for a living - but have been embraced and protected by their peers, rather than disowned - he has no reason to be surprised.

Yet (b) trades on the reputation of (a), and in large part retains it. For now. Would you like Western science to retain this reputation, which took centuries to earn? If so, I encourage you to behave as if (a), not (c), remained the real reality. In other words: try harder to convince the genuinely unconvinced. As any tort lawyer would tell you, insults and browbeating are not the way to the jury's heart. Nor are appeals to personal confidence and/or official authority.

So: sure, David Michaels is a friend and colleague of yours. Michael Mann and Phil Jones may not be, but they are on the same side as you. Thus their opponents are thought-criminals or "deniers," who in a just world would probably be prosecuted. Science, at least the old science, science (a), is not a matter of collegiality, team play, or argument ad authoritatem - it is a matter of truth. Nullius in verba.

Have you looked into these matters yourself? If so, you have every reason to defend your friends and colleagues, and you can do so using facts and argument, rather than Vyshinskyesque curses - "pimp," etc. If not, may I respectfully recommend that you be more careful when lending your own credibility to your friends. You may be a friend of Michaels and an enemy of Milloy. I am neither, and nor is most of the world. Your time is not well served by preaching to the choir.

For instance: if you've seen Milloy denying that cigarette smoking causes cancer etc, point me to it. As far as I'm aware, what he denies is that "secondhand smoke" is a serious health concern - a considerably more dubious result. (Perhaps you could share your position on "thirdhand smoke.") Again, you score no points by misrepresenting the position of your opponents.

And no, I am not a libertarian. I'm a fan of Mill's pal Carlyle. If you're uncertain as to what Carlyle thought, you can refresh your memory here. It's about as far from libertarian as you get. The proper term is reactionary, though I'll also answer to paleoconservative.

None of which matters. What matters is that you use terms you don't understand as pejoratives. No one who had any significant exposure to right-wing thought would call a mainstream National Review conservative like Milloy "far right." "Far right" means either a paleoconservative or reactionary, like me, or an actual neofascist. (It is also incorrectly applied to libertarians, who don't consider themselves right-wing at all.) When was the last time you read anything by anyone in any of these categories? Quite some time ago if ever, I suspect, since you seem unable to distinguish them.

You'll notice that I address you as a progressive, rather than a "far leftist," even though I have no idea who is to the left of you. (Who is? Are these people?) This is because I know, understand and respect the progressive movement.

(Indeed, my father's parents, CPUSA members into the '70s, always described themselves as "progressives." But I'm not sure today's young progressives understand the origin of the euphemism. In fact, given my preference for the likes of Metternich, I'm quite happy to agree with Earl Browder's claim that "Communism is 20th-century Americanism." Therein lies the whole of the problem.)

I have read your posts on BPA. What I'm looking for is not a prosecution, but a rebuttal. A rebuttal implies that you have read, engaged with, respect and understand those who disagree with you. Again, Mill:
In the case of any person whose judgment is really deserving of confidence, how has it become so? Because he has kept his mind open to criticism of his opinions and conduct. Because it has been his practice to listen to all that can be said against him, to profit by as much of it as was just, and to expound to himself and upon occasion to others, the fallacy of what was fallacious. Because he has felt that the only way in which a human being can make some approach to knowing the whole of a subject is by hearing what can be said about it by persons of every variety of opinion and by studying all modes in which in can be looked at by every character of mind. No wise man ever acquired his wisdom in any mode but this; nor is it in the nature of the human intellect to become wise in any other manner.
If you do disagree with this, I wish you'd say so. Mill himself is no plaster saint - he was wrong, for instance, in his great argument with Carlyle. I cite him because on this point I find him convincing, not to argue ad authoritatem.
Yeah, I know, that last Carlyle link is a little much. I got carried away.

Again, it takes a long, slow trail of M&Ms to bring an apparatchik face-to-face with his atrophied conscience. Don't expect it to overcome him, either, like Darth Vader at the end. But they are human - they bleed inside, but bleed they do.

Thursday, August 6, 2009 91 Comments

UR's crash course in sound economics

Today we're going to achieve a basic understanding of economics in one UR post. No previous knowledge of the subject is assumed.

UR can deliver this remarkable savings in both time and tuition because, and only because, our "economics" is an entirely different product from the standard academic sausage. We've considered changing the word - but this feels hokey. It also conceals our feeling that (a) for most customers, UR's "economics" is a more than satisfying replacement for 20th-century industrial numerology; and (b) our version is far closer to the original artisanal craft.

Here at UR, "economics" is not the study of how real economies work. It is the study of how economies should work - in other words, of how sound economies work. Sound economies, as we'll see, are also stable economies. All the King's mathematicians have had some trouble in reproducing this property.

Since there are no economies on the planet which are even remotely sound, nor is there any prospect of any such thing appearing, this discipline cannot conceivably be empirical, quantitative, or worst of all predictive. Its only tools are logic and sanity. Sound "economics" can only be natural philosophy, not "science." (A brand in any case increasingly overexposed - not least by its association with the King's mathematicians.)

Moreover, since healthy economies are healthy by definition, there is no practical reason to study them. No remedy is required for their ills, since they are not ill. Thus UR's "economics" is not only nonscientific, but nontherapeutic.

It does not even offer a path for transforming a pathological economy into a sound one. It prefers the old Irish directions: "don't start from here." If there is such a path, it is certainly neither gradual nor gentle. Since real governments are about as capable of following it as your grandmother of climbing K2, its existence is just as fantastic as our sound economy, and it is not even worth mentioning.

So why bother? Well, two reasons. One, sound economies are simple. Or at least, they operate on simple principles, which we can explain in one post.

Two, if you want to try to start to begin to consider understanding the giant bag of cancer, graft and rust that is a 20th-century economy, you may find it helpful to contemplate the imaginary sound economy inside it. Or not, of course. But at the end of the post, we will look at a few of the pathological ways to corrupt a sound economy. You may find them faintly familiar.

On to sound economics. Readers familiar with Austrian economics will find much to skim, especially at the start, but should also watch out for nontrivial differences in the origin of money and the structure of the loan market.

First: what is an economy? An economy is a network of conscious actors, who desire goods they can produce and exchange. All real human societies are thus economic. So are alien societies, if any exist, and if the aliens can think and plan. Virtual worlds which meet this definition are also economic, and display the expected patterns.

The desires of a conscious actor are unknowable by definition. We observe only the action. Moreover, the assumption of consciousness (which is rational by definition) tells us extremely little about these desires, especially when we start to order the desirability of goods. Which is more desirable: a one-carat diamond, or a six-pack of Fiji Water? Depends whether or not you are lost in the desert.

But rationality does give us one rule: that a good always has positive (if negligible) desirability. So it is always rational to prefer more goods to fewer goods. Eg, more money to less money.

This might be objected to in the case of your brother-in-law's rusted-out 1981 conversion van. But the problem is one of semantics: his need to junk the van (which, not unlike our real economy, only needs a transmission, a couple axles and a little Bondo) is a liability or obligation, not a good. If he had a voucher for free vehicle disposal, his ownership would again be a pure good - however negligible.

We can state the principle more precisely by observing that a conscious actor always prefers more powers and fewer duties. A power cannot have negative value, because one can always decline to use it; a duty cannot have positive value, because one can always do it anyway. The classic form of economic power is ownership of some good; the classic form of duty is a debt.

And this is about it for ol' "homo economicus." What rationality does not and cannot tell us is anything else - specifically, what we really want to know, which is whether any actor X should prefer good A to good B.

Again, only X can decide whether to prefer the diamond or the water. Moreover, if all actors ordered all goods identically by desirability, we would have no economy by definition - for we would have no exchanges.

And it gets worse. We cannot even know all of X's preferences - only those which are revealed. The only way for an objective observer to observe that X prefers A to B is if the observer actually sees X give A (or A, plus choices or minus duties) to some Y, in exchange for B (or B, minus choices or plus duties).

Does all this seem obvious? You'd think it would be. However, a considerable thrust of medieval pre-economic thought was the effort to determine just prices for goods, derived from objective factors. The urge to just-price theory is by no means extinct. We appeal to it, however vaguely, whenever we mention the "value" of a good, as if "value" were an objective quality such as mass or energy.

(Indeed the entire apparatus of price-index terminology, from "inflation" to "real" and "nominal" figures, "1980 dollars," and the like, is deeply if subtly rooted in the fallacy of objective value. All this doxology is shunned by the sound. Indeed, the wise man would rather drop the N-bomb than let "nominal interest rates" slip past his lips.)

It would be an overstatement to say that all fallacies in economics proceed from the error of attributing objective value. But it might not be much of one. Objective value is the luminiferous ether of economics. There is no such thing as value (objective desirability) - there is only price (exchange rate on a clearing market). For example: consider your house.

But what are these markets? Perhaps it's time to define them.

First we need to simplify our sound economy beyond physical reality, and assume that all goods are both perfectly fungible (each unit is identical, like a barrel of oil or a bushel of wheat - not like a house) and perfectly divisible (it makes sense to speak of 2/3 of a barrel of oil, but not of 2/3 of a Ford Explorer). Goods exhibiting these qualities are sometimes described as commodities - a confusing term, not consistently applied. In any real reality, most goods are not fungible commodities. However, once we understand the commodity-only problem, it is trivial to extend its principles to the ordinary sound economy.

For every pair of goods - say, oil or wheat - there is a market. This is some trading mechanism by which actors exchange oil for wheat and wheat for oil. For example, A may give B a barrel of oil, in exchange for six bushels of wheat. For this transaction, the oil/wheat exchange rate is one barrel to six bushels.

In revealed-preference terms, what this exchange tells us is that A preferred six bushels of wheat to a barrel of oil, and B preferred a barrel of oil to six bushels of wheat. Otherwise, they would not have made the trade.

But the interesting question is: why six? Why this exchange rate, not another exchange rate? For instance, we know that A would prefer seven bushels of wheat to a barrel of oil (because he must prefer seven bushels to six bushels, and he prefers six bushels to the barrel). We do not know if B would prefer a barrel of oil to seven bushels of wheat - but we don't know he doesn't. He certainly might. If he does, the same A and B could conduct the exchange at seven barrels to the bushel, and both walk away satisfied. Instead, they trade at six. Why?

The answer is that A and B get the oil-wheat exchange rate by participating in a market. Ideally, this market contains all players who wish to make this trade. The market clears when no trades are desirable to both sides - at the market exchange rate, no A and B can be found who want to exchange oil for wheat.

Of course, preferences and players are constantly changing, so the market never actually stops trading, and the exchange rate never stops moving. However, we can imagine the first day on which the market opens, with oil moguls on the left side of the floor and wheat barons on the right, all looking to establish an exchange rate.

This is the famous model of supply and demand. I dislike this terminology, because it implies some qualitative distinction between A and B - between trading wheat for oil, and oil for wheat. Of course it is arbitrary who is A and who is B, who gets to be the numerator and who has to be the denominator. But the terms are unavoidable. For this example, therefore, we'll speak of oil-wheat supply and wheat-oil demand.

The oil-wheat supply is the number of barrels of oil that will be exchanged for wheat at a given oil-wheat exchange rate. So, for instance, the oil moguls might be willing to provide only 15 million barrels of oil for five bushels a barrel - but for seven, you will pry 40 million out of their hands. This implies that 15 million barrels are held by moguls who would take five bushels or less, and 25 million are held by moguls who will take seven or less, but no less than five.

The wheat-oil demand is the number of bushels of wheat that will be exchanged for oil at a given oil-wheat exchange rate. So, for instance, the wheat barons might be willing to let 150 million bushels go for five bushels a barrel, but only 50 million bushels at seven bushels a barrel. Again, this implies that 100 million bushels are held by those who would give more than five bushels for a barrel, but not more than seven.

Our assumption of rationality tells us that more wheat is preferred to less wheat, and more oil to less oil - whether you are a mogul or a baron. Therefore, we know that the supply curve slopes up (more wheat per oil, more oil supplied), and the demand curve slopes down (more wheat per oil, less oil demanded).

And - in case it isn't obvious - we see that the market clears where the curves intersect. There is a single oil-wheat ratio at which, after a single set of trades, all barons and moguls are satisfied and no further exchanges will be made. (Except, of course, as actors and preferences change.)

Pretty much everyone understands "supply and demand" in this sense. However, the critical point is that the market reveals preferences only at the clearing rate. It can tell us, for instance, that the market clears at six bushels a barrel - at which point the moguls are collectively willing to trade 20 million barrels of oil for 120 million bushels of wheat, and the barons collectively willing to trade 120 million bushels of wheat for 20 million barrels of oil.

The market does not reveal the shape of either curve, except at the intersection of the two. It does not reveal how many barrels the moguls would release at five bushels a barrel, or four, or seven. It does not reveal how many barrels the barons would want at five, or four, or seven. This is one of the most important insights of 19th-century economics - now you know where this blog got its name.

Great. Now, we understand markets. So clearly, for every two commodities in our economy - oil and wheat, or silver and wheat, or wheat and corn, or oil and silver - there needs to be a market. Since obviously, anyone can want to trade anything for anything else.

Actually, this is not true. If we have n commodities, we don't need O(n^2) markets. We only need O(n) markets. Whew! What a relief. You'll note that in real life, there is no oil-wheat market - even though farmers drive tractors, and roughnecks eat bread.

Imagine a square matrix in which our n commodities are rows and columns. How much real information is there in this matrix? Obviously, the oil-oil exchange rate is always 1, and the oil-wheat and wheat-oil rates are the same thing. So half our boxes, plus n, become blank.

But this is by no means enough blanking. Because we note an interesting fact - if this entire marketplace clears, it cannot be possible to construct a cycle of exchanges through which one ends up with more wheat, or oil, or silver, or anything, than one started with. This is obviously a desirable trade, and yet in a cleared market there are no desirable trades.

So the matrix is quite degenerate. There are only n-1 meaningful values. For instance, if we know the exchange rate of oil to wheat, silver to wheat, and corn to wheat, we can trivially work out the exchange rate of corn to silver. Wheat, in this example, is our numéraire. In theory, any commodity can serve this role.

You might say: well, in that case, why wheat? Why not silver? Indeed silver seems, just intuitively, like a much better denominator than wheat. Of course the commodity generally used as numéraire is that generally known as "money," and of course silver has served many societies as "money." And an exchange rate for which "money" is the denominator is known, of course, as a price.

Note how far we have drifted from our medieval urge to objective value. Before this little indoctrination session, you might have said your house was worth $400,000. Now, you say that you feel confident in finding some party B who would exchange 400,000 dollars for your house - but much less confident in finding a B who would fork over, say, 450K.

This is, of course, a case of hypothetical and unrevealed preference, until you actually sell the freakin' house. Then, if you actually get 400, you may feel justified in describing this as its price. (But then it's no longer your house.) The word price is dangerous - you can feel it wanting to drop its denominator, and become a unitless objective value. But it is impossible to avoid. One can only exercise the utmost caution in its presence.

We could easily be satisfied in this definition of "money" - the standard denominator for transactions. But the scare quotes remain. Because this definition is quite unsatisfactory.

Again, the standard denominator of exchange is arbitrary - the numéraire could just as well be wheat as silver. But somehow, in reality, it is often silver, and almost never wheat. Why is this?

Indeed the numéraire is arbitrary, especially with modern electronic accounting. It is a cosmetic role. We could indeed all do our books in wheat. But the intuitive assumption - that whatever is the standard denominator for transactions, the numéraire, becomes "money" - is quite wrong. The causality goes the other way around. Money becomes the numéraire. There's something going on here, Mr. Jones.

The cosmetic role hides a much more important phenomenon: the anomalous demand for "money." Intuitively, the commodities historically used as "money," such as gold and silver, are not particularly useful to anyone. Yet they are highly sought after. Carl Menger, whose theories on the subject are almost but not quite right, put it like this:
There is a phenomenon which has from of old and in a peculiar degree attracted the attention of social philosophers and practical economists, the fact of certain commodities (these being in advanced civilizations coined pieces of gold and silver, together subsequently with documents representing those coins) becoming universally acceptable media of exchange. It is obvious even to the most ordinary intelligence, that a commodity should be given up by its owner in exchange for another more useful to him. But that every economic unit in a nation should be ready to exchange his goods for little metal disks apparently useless as such, or for documents representing the latter, is a procedure so opposed to the ordinary course of things, that we cannot well wonder if even a distinguished thinker like Savigny finds it downright 'mysterious.'
(Prof. Dr. Menger declined to comment on the still more advanced civilizations of the 20th century - which managed to dispense with even the metal disks. "Progress," he muttered, and slammed his portcullis on your correspondent's toe. Inside, someone cocked an arquebus.)

This anomaly provides our definition of "money." By UR's house definition, any commodity which experiences Menger's anomalous demand is "money." By this definition, if there is anomalous demand for silver, but none for wheat, silver is "money" and wheat is not. But we can still construct a marketplace in which silver is money, and wheat is the numéraire. It would certainly be weird - but it would work perfectly.

Of course one can define this big, vague word, "money," however one likes. If you define it as the numéraire, wheat is "money." But this would leave Menger's anomaly without a name.

First we must discard one plausible theory of the anomalous demand, which is that money's use as numéraire causes the anomaly (rather than vice versa). In our abstract marketplace, this hypothesis is easy to falsify.

If you wish to trade oil for corn in a wheat-priced market, you do indeed need to sell oil to buy wheat, and buy corn with that wheat. So you need wheat. However, your demand for wheat is entirely transient - it exists only for the time it takes your trade to execute. Thus the total stockpile of wheat required to lubricate a wheat-priced market is the maximum amount of wheat that concurrently executing trades will use in parallel. On an efficient electronic market, this number will be negligible. On a really efficient market, it will be zero.

Thus, the use of wheat pricing in a marketplace creates no significant demand for wheat in that marketplace. Thus, it cannot possibly be the cause of any such anomalous demand. Similarly, if there is anomalous demand for silver, we know it cannot result from the use of silver as a numéraire. Thus the causality can only run in the opposite direction. First, silver experiences anomalous demand; then, it becomes the standard denominator.

The actual cause of the anomalous demand is no big mystery. It is the natural desire of many actors to make exchanges across time.

Rather than exchanging present oil for present wheat, an actor may wish to exchange present oil for future wheat - for instance, if he has oil now and wants to make sure he has bread next year. (In some cases this demand can be satisfied by a commodity futures market, but this requires the actor to know exactly what good he wants for his oil, and when. Certainty about one's future demand schedule is certainly not an implication of rationality.)

Therefore, actors engage in a behavior for which the natural English word is "saving." But this word was abused to well past an inch of its life by the 20th-century economist. To be precise, therefore, I will call it "caching."

In caching, actor X exchanges A at time T1, for B at time T2, with two exchanges. At T1, he trades A for some caching medium M. He then stores M until T2. At T2, he trades M for B. Rocket science, this is not.

Key point: the demand is anomalous because X does not actually consume M. For instance, if M is silver, X does not make jewelry out of it, use it as a paperweight, pour it down Crassus' throat, etc. Therefore, ceteris paribus, use in caching increases demand for M. Hence the anomaly.

If T2 equals T1, caching degenerates into the transient transaction described above. Transient transactions do not create anomalous demand. Non-transient transactions do. At any time T, we can observe a stockpile Sm - yes, the "money supply" - of this marketplace. This is simply the sum of all M stored by caching actors. It clearly represents new demand for M - and the longer the caching period (T2 - T1) of a cache, the longer it contributes to Sm.

So, for instance, if you are paid in silver and live paycheck-to-paycheck, you make only a minimal contribution to Sm, because you never hold very much silver. The boss gives you a little leather bag of it on Friday; you blow it over the weekend on Colt 45, cheeba and Doritos; which run out by Thursday; and so on. You are conducting exchanges across time - but not much time. It is your boss's boss's boss, the fat Armenian, with the big barrel of thalers in his basement, who really makes money money.

Thus in the case of the anomalous demand, we see one stabbed corpse and one bloody knife. And thus we feel comfortable in calling any widely used caching medium money. Moreover, since cachers of silver are inclined to do their accounts in silver, it is not hard to see how silver becomes the standard denominator of transactions - the numéraire.

This does not tell us why silver is a good caching medium, and wheat is not. But it gives us the tools to at least ask the question.

We must ask it subjectively, of course. From the perspective of actor X, wishing to exchange A at T1 for B at T2, choosing some good to serve as M, what makes some Ma better than some other Mb? Does this depend on: the nature of A? The nature of B? Or the subjective desires of X?

Surprisingly, the answer is "none of the above." X's choice depends only on Ma, Mb, T1 and T2. It is objective; it depends on future information, but objective future information. If the exchange rate Ma/Mb at T2 will exceed the exchange rate Ma/Mb at T1, with any storage-cost differential factored in, Ma is a better caching medium than Mb. Otherwise, Mb is better. In either case, one medium beats the other for any A or B.

In plain English, if Ma is appreciating against Mb across T1-T2, Ma is a more desirable money than Mb. Otherwise, vice versa. Of course, this calculation must include the cost of securely storing Ma or Mb for T2-T1, which is prohibitive for many goods - salmon, for instance.

Of course, this requires X to know the future of two commodity prices (Ma and Mb). This is by no means a trivial feat of prophecy - highly profitable, indeed, if it can be done. But prophecy is in fact the least of X's problems. He has a worse problem. He is in the land of game theory.

The trouble is that X is just one actor in a world of many other actors. And because any widespread use of any Mx as money increases the demand to exchange any A for Mx, ceteris paribus, it will also increase the exchange rate between A and Mx. Moreover, if many actors use Ma for money but not Mb, the exchange rate Ma/Mb will increase.

But wait - this is the input to our calculation. Unfortunately, it also seems to be the output. The computation is self-referential. X is looking for a Nash equilibrium - he needs a strategy that works well for him, assuming everyone else is using the same strategy. Ie: game theory.

Fortunately, good mathematics never conflicts with good sense. So let us confine ourselves to the latter, and apply it to our silver example. Starting from an imaginary prehistoric point in which there is no money at all, suppose every X who produces anything - wheat, oil, salmon, frozen concentrated orange juice, any A - chooses to cache in silver, exchanging these products for silver.

Ceteris paribus, this new demand decreases the exchange rate from wheat to silver, oil to silver, and anything else to silver. Ie, it raises the price of silver in wheat, oil, and anything else - including other potential Mx, such as gold. Silver, previously a minor industrial metal of minimal utility - pace Menger - experiences a rush of anomalous monetary demand which greatly exceeds its previous industrial demand.

Thus, silver's price in wheat, silver's price in oil, etc, etc, all skyrocket. But most important to the cacher, silver's price in the alternative monetary good - gold - skyrockets as well. Thus if Ma is silver and Mb is gold, Ma/Mb skyrockets - since everyone is caching silver, and no one is caching gold. So, assuming that everyone is caching silver, everyone should cache silver. And this is our Nash equilibrium.

On the other hand, this logic is not metal-specific. It works exactly the same way for gold. If everyone is caching gold and no one is caching silver, everyone should cache gold and no one should cache silver.

And in the worst case for X, at T1 everyone is caching silver. Therefore, at T1, X trades his wheat for silver, buying silver at the stratospheric price created by all other silver cachers. Sadly, for reasons unknown, somewhere between T1 and T2, everyone decides to exchange their silver for gold. They shouldn't, but that doesn't mean they won't. Sadly, X is the last to hear of this trend.

When all the formerly cached monetary silver returns to the industrial silver market, we have the reverse of anomalous demand - anomalous supply. Thus, ceteris paribus, we would expect the price of silver in anything to be depressed below its normal equilibrium. Of course the price of silver in gold will suffer the worst, for gold is going up as silver is going down. So X buys high, sells low, and then has to buy high again. Yea, truly is he jobbed in every orifice.

So what M should you cache? Confused enough yet? Let's take a step back and try to profit from this confusion.

First, we see that at least one good must experience anomalous demand and become money, because the pattern of caching is a human universal.

Second, we see that the problem is path dependent. We have yet to establish the exact criteria that make a good M, but obviously multiple goods (silver and gold, in our example) can satisfy these criteria. Yet it is perfectly possible to construct an economy in which actors cache in silver but not gold, or in gold but not silver.

Third, we see that coexisting monies are unstable. A natural question is: given the uncertainty, why not cache in both gold and silver? Why doesn't everyone just diversify their portfolio, so to speak? This seems much more stable than picking one of the two. In fact, it is much less.

The problem is that anomalous demand is a positive feedback loop. Suppose both gold and silver are monetized. But they are separate goods, each with its own supply and demand, so the bimetallic ratio, Mg/Ms, cannot be fixed. And once it starts to drift in favor of either, cachers will recognize that drift and convert their caches to the money which is gaining. Causing it to gain even more - positive feedback. Eventually, one of these goods will be monetized and the other will lose its anomalous demand. After suffering from anomalous supply, of course, while industry works off the monetary stockpile.

(This actually happened, against silver and in favor of gold, in the late 19th century. Gold and silver had coexisted as money since classical times, largely because the world was an inefficient patchwork of gold countries and silver countries - China and India, for instance, were on silver. As trade became global and efficient under British hegemony, Britain being on the gold standard, silver could no longer compete and was effectively demonetized.)

No matter how many goods you try to diversify your anomalous demand across, in an efficient market this "Highlander effect" will leap up and bite you in the butt. Since X is seeking a Nash equilibrium, he must assume that if he is diversifying, others are following exactly the same strategy. Thus they are smearing their anomalous demand across a basket of goods, jacking up the price of each a little rather than one a lot. Nonetheless, what can be jacked up a little can also fall back a little - and will, as anomalous demand concentrates in a single good, with the first to buy that good profiting the most. "There can be only one."

And thus the problem is revealed as not a problem at all - under normal circumstances. Under normal circumstances, the good to cache is the good that everyone else is caching, ie, money. Under normal circumstances, no one sees the origin of money - money is already there. All the anomalous demand is concentrated into a single good. That good is money, and no grasp of game theory is required to tell what good it is. If a time machine transported you into any normal, sound economy, it would be immediately obvious.

Under normal circumstances, it is extremely imprudent to cache in any other good than the standard money of the economy - eg, to cache in gold, when the standard is silver. Why? Because if you are doing it, other people are probably doing it, too. You are probably not the first. Thus you are paying a monetary premium for your gold, and thus caches already exist. If more people buy in after you, if more anomalous demand appears, the premium will increase and you will profit. But if at any point this trend reverses, it has nowhere to go but down, and you will get jobbed as described above. You can only win if gold takes silver's head and emerges as the new monetary standard.

This pattern may seem familiar to you. There is actually a word in English for an abortive attempt to create stable anomalous demand. That word is "bubble." Anything - a metal, a baseball card, a worthless Internet stock - will keep going up if people keep buying in. Anomalous demand. Also referred to as the greater fool theory.

But there only has to be one good which experiences stable anomalous demand. That good is money. Money is the bubble that doesn't have to pop. Any good that tries to replicate this stability alongside the current monetary standard will either (a) replace that standard, or (b) pop. Probably the latter. If your Internet stock does not actually have a chance of becoming the new global currency, therefore, you are well advised to price it as if no anomalous demand existed - and avoid the greater fool theory.

Intuitively, you can think of a monetary system as a sort of battery. When actors cache in silver, they are charging the silver battery - pressurizing the bubble that doesn't have to pop. When they spend their caches, they are discharging the battery. Naturally, the exchange rate between wheat and silver is set by the collective desire to exchange silver for wheat - discharging the battery - and the collective desire to exchange wheat for silver - charging the battery.

This analogy breaks down in one important place: there are no units with which we can measure the "charge" of the battery. All we see is the set of exchange rates between other goods and silver. Each of these exchange rates has the same denominator - silver - and a different numerator - oil, wheat, etc. We can no more mix them in calculation than we can add furlongs to bushels. Broadly, we can see that silver must be money, because we observe Menger's anomaly - its desirability is completely out of whack with its utility. But there is no precise means by which we can quantify this anomaly.

In practice, however, we see that the anomalous demand for a standard monetary good is so great that the normal, industrial demand appears negligible. It can even be zero, although it cannot have always been zero - or no one would have cached the good in the first place, worthless objects being worthless, and it would not have become money. However, once the good is standardized as money, it is stable and can be as useless as it likes.

If we assume for purposes of argument that anomalous demand is the only demand for money, we observe an interesting phenomenon first noted by Hume. Since money is not used by those who cache it, a supernatural force which replaces every gram of silver with two grams - assuming said force rewrites all contracts which mention silver accordingly - will leave the economy exactly the same. Everyone who, yesterday, was willing to exchange a bushel of wheat for a gram of silver, will today demand two grams of silver. The charge in the battery is unchanged; its size is doubled and its density is halved.

But note that this assumes an identical distribution of the silver. If our supernatural force doubles the amount of silver in the world by quadrupling the caches of Americans, while leaving the caches of the unfortunate Europeans alone, we will see increases in the exchange rate of pickup trucks to silver, but not in the exchange rate of escargot to silver. As for goods that both desire, the Americans will get more and the Europeans less. This is known as the Cantillon effect. Our simplistic battery analogy has no room for it.

Likewise, our supernatural force can create a zillion tons of silver without affecting prices at all, if those zillion tons are placed in the custody of an actor who does not spend them (ie, whose demand for any good is zero at the present price). Again, our battery analogy has no room for this weird corner case. The lesson: use the battery analogy, but be aware of its limitations.

We are now in a position to understand the qualities of a stable monetary commodity. First and foremost, money must hold a charge - it must respond to anomalous demand with a stable increase in its price vector. It must not respond to anomalous demand by a mere increase in production.

Thus we see the difference between silver and wheat as monetary candidates. Wheat is a fungible and storable commodity - it has storage issues, but let us disregard these for a moment. It is not transportable, but electronic warehouse receipts can surmount this. The problem with wheat as money is that no amount of anomalous demand can increase its price above the cost of farming, which can generate an indefinite amount of wheat.

In the battery analogy, wheat leaks. Suppose that the world is on a silver standard, when suddenly our supernatural force destroys all silver and removes the very element from the periodic table. The market must choose some new money. If some set of actors try to treat wheat as money and buy into a wheat bubble, they will not send the price of wheat to the moon as they build up their caches. Rather, they will generate an arbitrarily absurd stockpile of wheat. Meanwhile, those who bought gold instead will be sitting on their profits. The wheat bubble will pop, the wheat stockpile will be sold as food, the wheat cachers will get jobbed.

Compare this to a precious metal, such as gold or silver. These are monetary metals precisely because of their restricted supply. Mining precious metals is an exercise in diminishing returns - the more you extract, the more expensive it becomes to extract more.

If our present accursed monetary system were to vanish from the earth, the ideal monetary replacement would be gold rather than silver, simply because annual gold production (leakage) is only about 3% of the global monetary stockpile (which is large, because gold retains a nontrival monetary role.) This is very significant leakage, but it is much less than the leakage in silver - in which annual production is comparable to the global stockpile. Thus it is much harder to monetize silver, because early buyers will be diluted by a much larger wave of new supply.

Since we understand supply and demand, we can see that any new money produced satisfies and thus cancels our anomalous demand. Since we understand that the anomalous demand for money is self-dependent, we see why people take leakage so seriously. Indeed there is another name for monetary leakage - "counterfeiting." On a natural metal standard, mining of metal is the precise equivalent of counterfeiting.

Leakage is extremely dangerous not just because it effectively equates to mass confiscation, but also because it destabilizes the monetary standard itself. Assuming, as in Hume's example, that leakage is uniformly distributed (which it won't be), we would expect to see a natural upward drift in all prices as anomalous demand is diluted. Note that this includes prices of potential competing moneys - Mb to the present standard Ma. If silver leaks, wheat prices in silver will tend rise - but so will gold prices in silver. (Assuming that gold does not have its own issues.)

And when Mb/Ma is increasing, we know what this tells us. It tells us that gold is a better metal to cache than silver. If this trend can run to completion, replacing silver with gold as a monetary standard, it may well do so. And there is no reason it has to do so slowly. The result will be a monumental economic cataclysm in which wealth is redistributed from the aforementioned argentiferous Armenians to a new generation of aurophilic speculators - almost certainly Jewish. Few political systems can withstand such an event, good for the Jews though it is.

In an ideal monetary standard, the stockpile of money would be fixed, and there would be no mining or counterfeiting whatsoever - and thus no leakage. No natural good satisfies this criterion, but artificial commodities can be constructed - ie, "fiat currencies." Thus we see another counterintuitive truth: a fiat currency can in fact be a better money than gold or silver. Unfortunately, it also lends itself much more readily to pathological abuse. Paul Erdös became a world-class mathematician by taking speed; you or I would just become speedfreaks.

We now understand money. Which means we're almost done! All we need to understand is interest and the loan market.

Loans are extremely simple. A loan is a promise of future money. Specifically, it is the promise, written by some party Y, to pay some quantity Q at some future date D. The price of this loan is the price of future money in present money, modulo the probability that Y is a scumbag or loser and will default on the loan.

Default risk is easy to factor out of this equation, so let's just deal with it now. How does a market estimate the probability that a loan will default? This probability itself can be isolated and sold, via an instrument such as the (unjustly) notorious credit-default swap. Thus, the price of a risky loan is the price of a risk-free loan, minus the price of a risk-free CDS on said loan.

A CDS market is a case of a prediction market. How do prediction markets predict the future? Magic? No, supply and demand. If you think the price of a prediction instrument does not match its actual probability of payout, and you are right, you profit. If you are wrong, you lose. There is no magical law which requires the intersection of supply and demand to equal the actual probability - in fact, defining "actual probability" is itself an almost magical challenge.

Thus, the price of a prediction instrument is only as good as the collective intelligence of its participants. Successful prediction markets, such as Vegas for sports, are very hard to beat, because they have been active for a long time and experienced a Darwinian effect - gamblers who know their sports win and keep playing, gamblers who don't lose and drop out. Exactly the same effect is seen in any non-dysfunctional financial market.

Even without these exotic instruments, loans are easy to standardize by estimating default risk and constructing pools of diversified loans, thus putting the central limit theorem on your side. One loan with a 5% chance of default is a very scary thing to buy, but an equivalent share in a pool of 100 uncorrelated loans, each with the same chance of default, is much easier to handle. Of course, the probability must still be estimated, but this is a well-known profession - estimating the default probability of loans is (in a sound economy) the job of "banking." Like any job, it's not easy but it can be done.

With that said, let us analyze the loan market assuming zero default risk. Again, the price of a loan is the price of future money in present money. This is always less than 1 - eg, a 2011 gram of silver might cost 900 milligrams in 2010 silver.

But what does this mean? Why does this market exist? Let's look at the demand and supply sides separately.

Consider our cacher X again. Under what circumstances should X buy a loan? Answer: X should buy a loan if, and only if, he knows his T2 - the date at which he will spend his cache. If his T1 is 2010 and his T2 is 2011, he will have more silver in 2011 if he buys 2011 silver with his 2010 silver, rather than just caching his 2010 silver until it turns into 2011 silver.

But wait - is this leakage? Does the existence of a loan market decrease anomalous demand? Not at all. The silver cache has just been transferred - instead of X holding the silver, it is Y, the borrower. Neither anomalous demand nor the silver stockpile has changed in the slightest.

A more interesting question is why X should not buy a loan if he does not know his T2. He has a barrel of silver in the basement - he might want to spend it on something in 2010, or he might want to spend it on something in 2011. Suppose he just buys a 2011 loan, anyway? A loan is a negotiable instrument - anyone can resell it. If X decides that he wants to spend his cache in 2010, he can just sell the loan on the open market, get the money back, and spend it.

As it happens, we have already solved this problem. We solved it above in our discussion of anomalous demand. X, when he performs this unnatural act, is caching a good (the loan) which he may, or may not, use as money - buying and reselling, as above. If he turns out to actually want 2011 money, he has correctly anticipated his future desires and is not using the loan as money. Otherwise, his demand is anomalous. If he is the only one doing it, fine - his actions will have a minimal effect on the market. But he won't be.

Any societal pattern of such behavior will create exactly the same bubble phenomenon that we see in any failed attempt to create an alternative money. When the herd of Xs, who should simply be caching money, buy 2011 loans, they drive the price of 2011 loans up (lowering interest rates). When they sell 2011 loans - because they actually wanted 2010 money, not 2011 money - they drive the price of 2011 money back down. Therefore, unless they get into the bubble early and out early, they get jobbed. Just as in any bubble. Lesson: don't buy any good you don't intend to use, unless that good is money.

We also see that the longer the term of the loan, the lower the market demand for it. For any X, two one-year loans, strung back to back, is an adequate substitute for one two-year loan. But for an X whose T2 is in 2011, not 2012, only a one-year loan will suffice. Thus the longer the loan, the fewer buyers who can use it.

In real societies, however, demand for long-term loans is quite nontrivial. If you intend to retire 20 years from now, it is quite reasonable to buy a 20-year loan to fund your retirement. As we'll see in a moment, you will get a better interest rate than if you strung out 20 one-year loans in a row.

Now, let's consider the supply of loans. Who would sell a loan? There are many reasons to borrow, of course, but generally the borrower is involved in some productive endeavor. Your endeavor certainly has to be productive if you're getting 900 kilos of silver in 2010, and turning it into a metric ton in 2011.

On a precious-metal standard, the simplest form of productive enterprise is a mine. You spend your 900 kilos digging the hole; you pull a metric ton out of the hole. A business that earns its return through commerce, rather than monetary production, looks no different to the lender.

The important point about productive enterprise is that production always takes time. There is no possible enterprise that can turn 900 kilos of silver into a ton of silver in one second. This dictates the term of the loan.

And again we see that the supply of 2-year loans will exceed the supply of 1-year loans at any interest rate - because an enterprise that produces return after 1 year can sell a 2-year loan by selling one loan after another, whereas one that actually takes 2 years is quite ill-advised to sell a 1-year loan. (The result being the inverse of the bubble scenario described above.) If you ever see an Austrian economist talking about "more roundabout means of production," all he means is this.

When we combine these supply and demand functions, we learn something very important about the sound economy: that its yield curve (the market interest rate for every term) slopes upward.

Interest rates at longer terms are higher than those at lower terms, because loan prices are lower at longer terms; longer loan prices are lower because the demand is lower, and the supply is higher. No ceteris or paribus is necessary. If you see an inverted yield curve, you know that you are looking at a very, very sick loan market. Don't walk away - run away.

Which brings us to our final subject: pathological economics.

Barring bizarre and unforeseen real-world phenomena, such as a zillion-ton asteroid of silver landing in Brazil, a sound economy is stable. Supply is always equal to demand, bubbles do not exist in commodities or financial instruments, and the monetary standard suffers only negligible leakage from counterfeiting or mining.

Unfortunately, misgovernment is the fate of man. Misgoverned economies appear to be an especially eternal fate. In fact, there are almost no historical cases of a sound economy as described above. Someone is always screwing up something.

There are two basic patterns of economic misgovernment. One: the government fixes prices. Two: the government tampers with the monetary system. The former is heinous; the latter is diabolical.

Fortunately, just about everyone knows the effect of price-fixing: surplus or shortage. Somehow, the principle of supply and demand has actually become part of democratic folk wisdom, like multiplication tables, the names of the Greek gods, and pressing "1" to get your voicemail. We must be thankful for this mercy, which surely cannot last forever.

The simplest way to tamper with the monetary system, known since well before Jesus was a little boy, is to debase a metallic currency. The state simply forces its subjects to accept the debased currency at par with the old, good money - eg, to accept an alloy of silver and nickel in payment for debts in pure silver. Thus it creates leakage, without actually creating silver. It taps the battery.

In many cases, debasement is more convenient than taxation, to which it is obviously equivalent. Some remarkably effective governments have employed it. For instance, during the Seven Years' War, Frederick the Great (fighting for Prussia's life against a coalition of all the surrounding countries) debased the currency. Of course, he also restored it within a year after the war. That's because he was a king, not a professor. But I digress.

Far nastier is the practice of debasing the currency with loans. Thus, rather than being compelled to accept a silver-nickel alloy as silver, subjects are compelled to accept a promise of future silver (typically written by the government or its closer friends) as present silver. The output of this leakage is not silver, but lower interest rates. The practice is especially insidious because its blessings are visible to all borrowers, whereas the curse of monetary dilution is almost invisible.

Modern fiat currencies were not, like the optimal fixed-supply fiat currencies I would like to see, created all at once by actual fiat. They were created by incremental loan debasement. The 19th-century classical gold standard is quite misnamed, for instance - it was not actually a gold standard, but a pound standard. Behind the pound sterling was a certain amount of gold, and a certain amount of British national debt - denominated in gold. Not at all the same thing.

The pound, of course, was "convertible" into gold. Similarly, shares in Bernie Madoff's Ponzi scheme were convertible into dollars. Many people converted them into dollars, and felt convinced as a result that they were "worth" dollars. Of course they were simply shares in the underlying assets, and could be worth no more or no less.

Thus a pound was a share in a pool of gold, and a pool of British debt - the latter larger than the former. After WWI, the latter became grossly larger than the former; the pretence could no longer be sustained; and Britain "went off gold." In reality it had not been "on gold" since the 17th century. It had been running a hybrid currency - part gold and part fiat. The fiat quality arose from the fact that Britain's national debt, though denominated in gold, could not be paid in gold. Thus in gold terms these were simply bad loans, ie, worthless paper - ie, fiat.

Normally, in a bankruptcy, debt becomes equity, and so the old gold-denominated government debt morphed (without any formal process) into its modern state of government equity. And thus we see the modern fiat currency, a unit of which is essentially a share in the government. Without voting rights or dividends, alas, but a share nonetheless. Equity is the lowest tier of debt. If a note confers no rights, it is equity.

On an (open-ended) fiat currency the potential for pathological finance is almost unlimited. For instance, perhaps the most pernicious practice of fiat finance is the issuing of loan guarantees, which now in USD total in the tens of trillions. A loan guarantee is simply a camouflaged loan, disguised for the usual corrupt reasons. When the government guarantees A's loan to B, what is really happening is that A is lending to the government and the government is lending to B. Thus, for instance, when FDIC guarantees your loan to your bank (a "bank deposit"), you being A and the bank being B, you are lending to USG (whose payment is sure, because the loan is denominated in USG's own equity), and USG is lending to the bank. The latter is the corrupt transaction; the former is the disguise.

But we could go on in this vein forever. Again, the point to repeat: there is no simple or gradual way to unwind a pathological financial system. It must either collapse or be destroyed. On the other hand, there is no reason it can't survive forever, like a Cuban truck - stinking horribly, bellowing like a bear giving birth, and running no faster than fifteen miles an hour. All we can hope is that, however it turns out, it will be good for the Jews.