Mises Memo News from the Ludwig von Mises Institute
new mega-spending programs that
The Roots of Federal Debt
The issue of government debt
and deficits lay dormant
throughout the high-revenue
1990s. But widi recession and
exploding government spending,
the issue has become enormously
important again. Sadly, just about
everyone is missing the central
point, which is not that we need
budget reform so much as drastic
monetary reform.
Federal finance is a shell game
of such complexity and trickery
that it makes state-level finance, to
say nothing of family finance,
appear simple by comparison. At
the state level, the government
takes money from its citizens
through taxes. The taxes can be on
land, goods, sendee, or income.
The government spends the
money it takes in. If die money
comes up short, the government
tries to issue bonds and get people
to buy diem. Or it raises taxes. If
it can't do that, it cuts die budget
or seeks a federal subsidy. There
are no other options.
State governments fleece tax
payers at ever}' turn, of course, but
at least it is hard to disguise. The
states embarked on massive new
spending in die 1990s before die
revenue dried up. States are now
struggling to raise new revenue
through bond sales and taxes,
while avoiding necessary cuts.
When you move from die state
to the federal level of government,
• Fall 2003
the fog begins to fall. Right now,
for example, we observe the com
ing together of three trends that
would seem to contradict each
other.
First, many Americans are
receiving refunds on their taxes as
well as unexpected rebates for
money already paid into die fed
eral system. Second, government
revenue has actually fallen for
nearly three years in a row, due
not to tax cuts but to lower eco
nomic growth. Third, govern
ment spending is soaring, with
defense and nondefense spending
increases breaking all postwar
records. Meanwhile, Congress
and the President are instituting
Federal Government Debt
$7,000
g $6,000 •.
o
$5,000 ••
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-a $1,000--
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T-l-T-T-I-r-T-1—
break all records.
How could all this be hap
pening at the same time? Has the
government learned how to create
something out of nothing? Hardly.
The leakage is visible in the federal
deficit, which is estimated to
exceed the $600 billion mark, and
the federal debt, which now stands
at $6.7 trillion. And then there's
the problem of unfunded liabilities
in die system itself, which exceed
$44 trillion.
Of course diese numbers, as
staggering as they arc, are too
large to really comprehend. It is
not even possible to comprehend
the sheer size of the daily increase
in the national debt: $1.72 billion.
The very meaning of these num
bers boggles the mind.
*- T-T-r-i— N N
 2500
2000
Federal Receipts and Outlays, 1941-2003
1500
1000
500
The following question is
basic but hardly ever asked: given
that this debt cannot be paid, and
nobodv reallv believes it can be,
how is it that the federal govern
ment can continue to borrow so
much even as taxes are marginally
cut and spending expands at a
record pace in the midst of a lack
luster economy?
If individuals or corpora
tions—or state governments, for
that matter—were this much in
debt, they would see the value of
their existing debt on the market
downgraded. They would no
longer be creditworthy. They
would default and be bankrupt.
The profligacy would come to an
end.
How is it diat the federal gov
ernment is able to accumulate all
this debt and still market its notes
all over the world? The answer to
die riddle is understood by the
Austrian School: the Fed, the
agency of the federal government
The Mises Memo is published quarterly
by the Ludwig von Mises Institute. Vol
ume 9, No. 3. Copyright © 2003 by the
Ludwig von Mises Institute, 518 West
Magnolia Ave., Auburn, Alabama 36832-
4528; 334-321-2100; fax 334-321-2119;
info@mises.org; www.mises.org.
that enjoys the monopoly privilege
to create out of diin air all the
money it wants to create. Fed gov
ernor Ben Bernanke is right that
the Fed is capable of bailing out
even the worst debt crisis by
merely creating unlimited supplies
of dollars. Mises wrote about this
as early as 1912, and he saw the
grave costs for society.
What are those costs?
inflated money supply distorts the
structure of production and leads
to serious investment miscalcula
tions. It drives down the value of
the dollar on the international
exchange. It provokes a decline in
the purchasing power of each indi
vidual unit, thereby gutting savings
and discouraging thrift. It redis
tributes wealth from the produc
tive to the government-connected.
As die recent experience of Zim
babwe shows, inflation can literally
turn a society and culture upside
down.
Even the Fed would regret the
consequences of such actions.
Why, then, does it continually
promise to drive interest rates
down to zero if need be? Why do
its spokesmen never tire of empha
sizing that the whole banking sys
tem is insulated from failure?
News from tiii-: Ludwig von Mises Institute
Your finances are not the first
concern of its primary clients, the
large banks and the government,
that established the central bank.
It is short-term thinking at work.
In the institution of die central
bank, the government has the ulti
mate tool to permit its profligacy
to continue without check and
without regard to the future.
If the Fed, the sponsor of die
ultimate check-kiting scheme, is so
dangerous for society, why doesn't
somebody do something about it?
For years Congressman Ron Paul
of Texas, distinguished counselor
to the Mises Institute, has worked
to restore the gold standard,
because it would mean the aboli
tion of central banking and the
instituting of sound monev that
would keep government in check
and stabilize economic growth
and inflation.
But he is unusual: a statesman
who understands die issue and
cares enough about America's
future to push a program diat
An
would benefit everyone but the
banking/government elite. What
about everyone else? They either
lack the economic education to
understand it or just have no real
incentive to do the right thing.
Faij. 2003

J "***
^ \
\
Fro;;; te/fc; Summer Fellows Andrei Kreptul, Anlero Atilla, Art Garden, Bob Murpin/, and Daniel McCarthy
We live under what Paul Gott
fried calls the managerial state—
which is to say a seemingly perma
nent bureaucratic government
subject to little effective demo
cratic control, that attempts to
plan every aspect of society
though it has no real stake in the
outcome of its failures. In this
respect the modern state is very
different from its medieval prede
cessor in which the king took per
sona] responsibility for the out
come of his decisions.
Under today's system of gov
ernment, there are few mecha
nisms in place that operate as an
What a wonderful group of
effective check on public looting.
The framers of the constitution
didn't imagine institutions such as
the central bank, the income tax,
and a permanent bureaucratic
class, nor did they imagine the
explosive growth of the welfare-
warfare state that these institu
tions would underwrite and
entrench in public life.
One check on power does
remain, and it is the one that has
been most effective from time
immemorial: public opinion. In
light of the impending bankruptcy
of the federal government at our
expense, we might demand to
know: where is the outrage? At
some point, when it becomes clear
that the present level of profligacy
cannot continue, and we lace the
Fall 2003 News from tiik Ludwig vox Mises Institute
11]
^
X
consequences as a society, people
are going to demand answers.
Ideally, the system would be
fixed before a crisis that results in a
complete financial meltdown.
Given what we know about Wash
ington today, however, the crisis
will not be stopped but will result
in upheavals of a kind and degree
that cannot be known in advance.
There arc ways around it, of
course: put an end to the reckless
ness and the institutions like the
Fed that make it possible. •
Summer Students
student fellows we had this
year at the Miscs Institute. They
have universally reported an
extremely valuable experience of
research and learning. They came
from universities around the coun
try and the world, mostly graduate
students but also some outstand
ing undergraduates. They pre
sented papers and benefited from
critiques from our in-house faculty
and visiting scholars. The research
topics covered a huge range: sci
entific method, monetary policy,
international trade, war history,
secession, business cycle theory,
antitrust, property rights theory,
interest rates, financial markets,
and many other areas.
A common comment from
the students was how much thev
m.
\
*J
appreciated having access to such
a great library and being permitted
the freedom to research and write
around colleagues who know and
understand the Austrian/libertar
ian tradition. •
Prosperity, War.
and Depression
One look at the debt, the con
tinuing economic bog, and
the government's response shows
that we could be in for very tough
times ahead. The government's
lust for war and welfare guarantees
continued exorbitant spending.
The Fed will be called on more
and more to be the final purchaser
of treasury debt. Will there be a
soft landing and a restoration of
sanity? If not, how bad could the
calamity be? Will it be a Japanese-
style stagnation or will it all end in
one great crisis, such as a massive
run on the dollar?
Dealing with dicse topics and
more is the Mises Institute's Sup
porters Summit (October 24—25,
2003, in Auburn): "Prosperity,
War, and Depression." Speakers
will unmask wrongheaded theo
ries of the business cycle that dom
inate the business press and the
academic journals. They will take
on the central planners who think
that Big Government is precisely
what a recession needs most. They
will address the problem of
deficits, spending, warmongering,
trade interventions, SEC regula
tions, lawsuit mania, and all the
other factors that are forestalling
recovery.

Mises Institute scholars will

give you an inside look into the
latest issues and arguments that
are driving the current debate, and
show how die Austrian School of
economics is working to advance a
logical, liberty-minded response.
Come to support our work, and
learn from experts in economics,
history, philosophy, and law. We
will also present the 2003 Gary G.
Schlarbaum Prize for Lifetime
Achievement in Libcrtv to Con
gressman Ron Paul of Texas.
Students and faculty of the 2003Mises University
Among the speakers: Sean
Corrigan, Roger Garrison, Mor
gan Reynolds, Joseph Salerno, state of the economy as well as knowledge of the Austrian contri
Peter Klein, Ron Paul, Burt freedom and its future. • bution and teach it in their class
Blumert, Jeffrey Tucker, Walter rooms.
Block, Joseph Stromberg, David
The interest in the economics
Gordon, Thomas Di Lorenzo, The Mises University
of the Austrian School both here
Mark Thornton, Hans-Hermann T h e 18th annual Mises Univer
and abroad is expanding at a dra
Hoppe, John V Denson, Ralph sity was the largest ever. With matic rate. Sadly, we had to turn
Raico, Jorg Guido Hiilsmann, and a high-powered faculty and a deserving students away, more this
Llewellyn H. Rockwell, Jr. schedule offering an integrated year than ever before. That's why
This will not only be an educa understanding of economic sci the Mises Institute has taken a big
tional conference but an exciting; ence, this year once again proved step for 2004. We will be holding
and fun one as well, as arc all our why this program has achieved two separate Mises Universities,
annual Supporters Summits. Held such international renown. After one at the beginning of the sum
at the Mises Institute with its all these years of holding this pro mer (June 6-12) and one at the
remarkable libraries and grounds, gram, thanks to the benefactors of end (August 1-7). This way we can
this is an occasion to hear what the the Mises Institute, more working double the number of people who
Austrians are saying about the economists than ever before have can come through our programs.

From left: Summer Fellows Devlin Cooper, Jan Havel, Jeffrey Cleveland, Jeremy Livingston, and Marcus Verhaugh

News from tiik l.umvir. von Misks Instititk Fall 2003

 its applications. As Salerno points
out, Rothbard makes huge
advances over his predecessors, for
example, on monopoly riieory and
the theory of production. It also
contains critiques of contemporary
neoclassical and Keynesian theories
and a critical analysis of state inter
ventions.

When our first reprint came

But die expansion will require
additional financial commitments
on the part of the Mises Institute.
It is worth it, given the proven
effectiveness of this program. We
welcome your support for this
teaching program, which does so
much to make up for the failures
of academia to expose students to
the economics of freedom. •
The Rothbard Moment
How important is Murray
Rothbard's Man, Economy,
and State in the history of ideas?
In an essay appearing in the Quar
terlyJournal ofAustrian Economics,
Joseph Salerno wrote: ""The
revival of Austrian economics as a
living scientific movement can be
dated from the publication of
Rothbard's Man, Economy, and
State in 1962." He calls it "a con
tribution to Austrian economics
and to pure economics in general
that ranks as one of the most bril
liant performances in die history
of economic thought."
The book, written in scintillat
ing prose, deduces the entire cor
pus of economictheory step by step
from its theoretical foundations to
out in a student edition, it became
a huge seller once again, taking on
a significance that can only be
compared with Mises's own
Human Action. And yet this edi
tion lacked something extremely
important: the last section of the
book, which only appeared later
under the title Power and Market.
(The original publisher took it out
on the recommendation of a
reader who was not an economist
but rather a Gold War military
activist.)
We are very pleased to
announce the publication ofMan,
Economy, and State with Power and
Market in its first fully unified edi
tion, available in early 2004. It is
exactly as Rothbard originally
intended it. Our edition is entirely
new, with an introduction by
Joseph Strombcrg that uses new
material from the Rothbard
archives at the Institute, a magnif
icent index for scholarly purposes,
and footnotes (Rothbard's fabu
lous footnotes!) at the bottom of
each page (no more turning to the
back). The care riiat was taken in
putting this 1,400+ page edition
together, along with the quality of
the paper, binding, and printing,
will insure that this edition imme
diately becomes definitive.
Man, Economy, and State has
special value for the student of
economics because it takes on the
apparatus of theory that is still
being taught in classrooms today
and provides a point-bv-point
Austrian alternative. Anvonc who
reads this book cover to cover—as
the prose invites you to do—as a
graduate student, an undergradu
ate, or an interested adult, will be
profoundly affected by its argu
ments, which are both rigorous
and inspiring. Power and Market
alone is so powerful a case for the
free market as to leave no escape
hatch for any government inter
vention.
It is a shame that the authentic
edition of the classic diat Roth
bard wrote fully 40 years ago is
only now coming into print. And
yet the good news is that at last
this remarkable work on the his
tory of ideas, the book that makes

Fall 2003 News i-rom the l.nnvic, von Mises Institute

 From left: Summer Fellows Mason Drake, MatusPetrik, Paul Cwik, Perhlenrik Hansen, and Peter Anderson
such a technically competent, sys
tematic, and sweeping case for the
economics of liberty, will at last
appear and be available in early
2004. •
What Defense?
he latest GDP figures from
T the government reveal that the
bulk of it is artificial, based in large
part on government spending for
purposes of "defense." Now, even
if you believe that military spend
ing makes us more secure, it is pre
posterous to think that it adds to
prosperity. Like all government
transfers of wealth, money
siphoned off the private sector in
order to build missiles and bombs
only makes us poorer.
But does it even make us more
secure? Not according to the con
tributors to our spectacular new
volume edited by Hans-Hermann
Hoppe: The Myth of National
Defense (Mises Institute 2003).
The book shows that the national-
security state is like the welfare
state: expensive, unworkable, and
intrusive.
Might private enterprise do a
better job than the government?
In some ways, it already does. We
use private security services. We
arm ourselves to protect our fami
lies. We insure our property and
lives. We lock our homes, cars, and
places of business. We depend on
private police to protect the places see in the hands of friends, family,
we shop. and students.
These are all commercial func It is a collection based on our
tions. Unlike government, free oldest form of mass communica
enterprise actually works. There is tion: public speaking. These
a profit and loss test. You can shop speeches introduce ideas at greater
around to get the most for your length, and apply them to the cur
dollar. Imagine if the only locks rent moment in a way that holds
were issued by the government.
Or if government were responsible
people's attention. The prose is
more immediate and more rhetor
for all insurance coverage. Yet ical in the classical sense, since
somehow we put up with taxation speeches seek to persuade and
to hind a national-security appara motivate.
tus that consumes half a trillion The book begins witii eco
dollars a year, stirs up trouble nomics, and explains why Austrian
around the globe, and makes us economics matters, how the Fed
vulnerable to terrorism. eral Reserve brings on the business
This new book, guaranteed to cycle, why we need private prop
cause a commotion, includes 11 erty and free enterprise, the unrec
chapters by top scholars on all ognized glories of the capitalist
aspects of defense. Indeed, it rep
resents the most ambitious
attempt ever to extend the idea of
free enterprise to the area called
"public goods." It will be available Speaking
by year's end. •
of Liberty
Speaking of Liberty
Lew Rockwell has done what
many people have urged him
to do for years. He's written a
book, or, rather, the book has writ
ten itself. The book is called Speak
ing ofLiberty, and already the Con
servative Book Club has made it a
selection. It struck the editor as the
kind of book people will want to
News FROM the Ludwig von Mises Institute Fall 2003
economy, and why the gold stan
dard is still the best monetary sys
tem. There are other topics from
taxation (also blown as organized
wealth destruction) to the state
takeover of medical care.
It deals with war: the
founders' views, free trade and
international conflict, the problem
of sanctions, and how war grows
the government and reduces lib
erty. The subjects of imperialism,
war propaganda, war and infla
tion, congress and the presidency,
war powers and the constitution,
all are covered.
Next is the subject of Mises
and his work. Here was a man of
enormous personal courage, a
model who stood against every
form of statism and paid a dear
price for doing so. Later in the
book, Lew addresses other
thinkers, including Henry Hazlitt,
Hans Sennholz, EA. Hayek, and,
of course, the great Murray Roth-
bard.
Finally, the book explains gov
ernment as the main violator of
the seven deadly sins, what an
American classical liberal of the
founding era really believed, the
vast gulf that separates the current
tax-eating political elite from the
taxpayers, and why we should be
hopeful about the prospects for
human liberty, thanks to the role
that ideas play in shaping history
The book is united by a set of
fixed principles: the corruption of
politics, the universality and
immutability of the ideas of free
dom, the centrality of sound
money and free enterprise, die
moral imperative of peace and
trade, the importance of hope and
tenacity in the struggle for liberty,
and the need for everyone to join
the intellectual fight.
This book will sell, and could
be the book diat helps the Austrian
Fall 2000 News from the Ludwio von Mises Institute
Robert Higgs
School and the freedom move
ment blast into public view. It's no
wonder that Ron Paul said that if
he could he "would enter this
entire book in the Congressional
Record" and Paul Craig Roberts
said that "omnipotent government
has rarely faced as fierce an intel
lectual opponent." •
A Summer oe Seminars
The seminars held by the Mises
Institute during the summer
attracted members, students, and
faculty from around the world.
There were the two week-long
programs with historians Robert
Higgs and Ralph Raico, which
spanned the history of liberty from
the ancient world to the present
times. What a pleasure it was for
those who attended to benefit
from such wide learning. The ses
sions were all recorded. We are in
http://www.mises.org/blog.asp
^^^ Mises Economics
Blog
die process of preparing those for
distribution next year.
Also, we held our first summer
reading session of Man, Economy,
and State for graduate students.
The facultv loved teaching from a
book that had such a huge impact
on their lives. The students were
so pleased to be reading from a
book that is so obviously superior
to anything they would ever be
assigned to read in graduate
school. Every one of die attendees
left: with detailed technical knowl
edge that allows them to go toe-
to-toe with any economist from
another school of thought.
As one student wrote us: "The
professors' lectures had real depth
and scholarship. Rothbard's work
was not just summarized, but
engaged, criticized, and extended.
This was a true graduate seminar.
The feeling was not that we were
piously reading holy writ, but that
we were being brought into a liv
ing research program with plenty
of opportunities for all of us to
extend the Rothbardian paradigm,
refine it, and apply it." •
The Mises Blog
Did you ever watch the news
and think: how would the
Austrian economists respond?
Thanks to the blog (short for web
log), there is now a way to find
out. Austrians post their responses
to all the important economic
news, whether it is a new regula
tion or die announcement of new
government data that is being
—
wrongly interpreted. The Mises
Economics Blog has proven to be
enormously popular, widi links all
over the web and a constant
stream of visitors through the day
and night.
The blog also gives us a nice
place to post news on new essays,
monographs, journals, and books
being posted on the Mises site—of
which there are new ones every
day. The site wages an ongoing
war against interventionists of all
stripes (even when they call them
selves libertarian). We are working
on an online edition ofMan, Econ
omy, and State, and some unavail
able classics from the history of
the Austrian School. As the sheer
size of our traffic confirms (we are
the most trafficked think tank in
the world today), Mises.org is an
invaluable resource. •
Garrison a t LSE
During the 1990s economic
boom, it was difficult to get
anyone interested in the Austrian
theory of the business cycle. After
all, hadn't the boom-and-bust
cycle been conquered? Of course it
all came to an end, and led to a
resurgence of interest. Leading the
Toby Baxendale andRoger Garrison
at No. 10 Downing Street
charge has been Roger Garrison,
who was the Hayek Visiting Fel
low at the London School of Eco
nomics in a program co-sponsored
by the Mises Institute.
His lecture scries and public
speech were enormous hits, and
led to a visit with the economists
at 10 Downing Street. One might
say that it is the most exposure
that the Austrian theory has
received since Hayek taught there
in the 1930s. Garrison provides a
full report on the event in the Fall
2003 issue of the Austrian Econom
ies Newsletter, or online at http://
www.mises.org/journals/aen/aen
23_3_l.pdf. •
Requiesgat in Pace
We mourn the passing of two
Charter Members: William R.
Jackson, Sr., entrepreneur and
philanthropist of Pittsburgh, Penn
sylvania, and former chairman of
the Pittsburgh-DesMoines Corpo
ration, and Charles Toops, II of
Corrales, New Mexico, former
proprietor of Midwest Art and
Coin whose brick at the Institute
reads "God bless Ludwig von
Mises." We are also grateful for
the generosity and example of the
late Albert F. Myers of Northville,
Michigan; A.J. Singletary of
Blakely, Georgia; Scott S. Valen
tine of Friendship, Maryland; and
Norman E. Wright, M.D., of
Amarillo, Texas. May they all rest
in peace. •

InMemoriam
We mourn the passing, and will always be inspired by the
dedication to liberty, ofour benefactors. May they rest
in peace, and may we always strive to be worthy of them.

William R. Jackson, Sr.

Charles Toops, II
Albert F. Myers
A.]. Singletary
Scott S. Valentine
•Norman'E. Wright, M.D,

FA. Hayek

News from the Ludwig von Mises Institute Fall 2003