Speculation, Human Action and Financial Markets

Speculation, Human Action and Financial Markets

By Duncan Whitmore

Within the past two weeks, retail investors congregating on the social media site Reddit bid up the stock of ailing company GameStop at the expense of large Wall Street hedge funds, all of whom had significant financial stakes reliant upon the price of the stock falling rather than rising. Several of these hedge funds were thrown into serious financial difficulty as a result of the price rocketing from around $20 a share to a high of nearly $400 in the space of only a few weeks. At the time of writing, the day traders have apparently turned their attention to the manipulated silver market, which is also starting to see significant gains. Fed up with a rigged casino market in which all of the spoils go to large Wall Street banks and financial firms, the amateurs appeared to have beaten the latter at their own game – at least, that is, in terms of having forced them to reveal the corrupt nature of the system if not in monetary profit.

This latest round in the battle of the populists vs the elitists is part of the ongoing collapse and rejection of inflationary state corporatism (the Western form of socialism that was birthed by World War One) and political globalism. Every blow that is dealt to this odious, oligarchic system – such as by Brexit and Trump – is one to be welcomed. However, whereas outright socialism (such as that practised in the former Soviet Union) entails direct state ownership over the means of production, the corporatist system operates through capitalistic facades such as nominally private businesses, free trade and exchange, stock markets, and so on. As a result, the socialised elements of our economic system have, for too long, been able to get away with offloading the blame for the problems they cause onto “capitalism” or “too much freedom” instead of the root cause which is state privilege and state interference with genuine private property rights. Indeed, that was exactly what happened after the housing market crash in 2008, with the whole fiasco being blamed on “greedy”, private bankers instead of the state induced, inflationary financial system. The long run result of our failure to identify the state as the true source of the problems has been that state failure has been rewarded with state growth.

Unfortunately, therefore, it is not enough for libertarians to simply cheer on the demise of the current, rotten system. In addition, we have to ensure that the proper enemy is identified and outed as state force and fraud, not the capitalistic institutions through which they operate. We must keep an eye not only on the current crop of elites, but also the circling vultures of popular, hard left politicians such as Bernie Sanders, Elizabeth Warren and Alexandria Ocasio-Cortez, who will be poised to blame everything indiscriminately on “capitalism” before advocating for total economic socialism as the answer.1 It would be a complete disaster if we were to allow one form of tyranny to be succeeded by another. Indeed, even the so-called “Great Reset” – which, far from being any kind of “revolution” or “renewal”, is actually a repackaging and rebranding of the present system in a far more potent form – is being sold as a reset of capitalism, the latter of which has supposedly failed us. Continue reading

What Libertarianism Is…

…and What it Must Do

 By Duncan Whitmore

Anyone who has taken the time to study in depth the wealth of scholarly literature of Austro-libertarianism cannot help but be enthralled by the intellectual treasures provided by our school of thought. Not only have we uncovered a body of knowledge which – especially in comparison to mainstream social science – is rigorous, scientific, coherent and interdisciplinary, but, as the true successors of classical liberalism, we have an inspiring vision of the future that can sweep away war, conflict, strife and poverty while propelling the human race to unheard of heights of peace and prosperity. Indeed, for many of us Austro-libertarianism has been the most joyous and rewarding discovery of our lives, providing a sheltered harbour in a world which would otherwise leave us adrift in a sea of chaos.

Unfortunately, we are forced to admit that the intellectual accomplishments of Austro-libertarians are disproportionate to our achievements in effecting real world change which, by comparison, are almost miniscule. Although most forms of direct socialism have been discredited by the disaster that was the Soviet Union, we are today living in a world of unprecedented state power which the majority of the population, buoyed by a sense of control instilled by their occasional visits to the ballot box, views as entirely legitimate. It is bad enough that the modern nation state has accreted to itself power and functions that ancient kings and emperors could only dream of; but we are confronted also by a pervasive attitude that any difficulty, problem, error, injustice or whatever that life may choose to throw at us – including our own personal foibles and failings – is always the state’s responsibility to solve. The problems of paper money, the welfare state, boom and bust, public “education”, crippling regulation, disastrous overseas wars and all of the other ills bred by the state are not going to be vanquished when the majority of the public regards this institution as the magic carpet that will whisk us all away to the land of milk and honey. Continue reading

Globalisation – the Baby and the Bathwater

Globalisation – the Baby and the Bathwater

By Duncan Whitmore

If the liberal-left was hoping that the recent state visit to the UK by Donald Trump would provide the perfect opportunity to (once again) castigate him for his supposed “racism”, “misogyny”, and a fervour for “nationalism” that apparently puts him on par with Hitler, they have probably been left disappointed. In fact, the visit seems to have come off rather well for the 45th President. Sadiq Khan, London’s leftist mayor, succeeded only in burying himself in a Twitter spat that began before Air Force One even touched down on the tarmac. The anti-Trump protests in Parliament Square – at which, for want of imagination, the Trump “baby blimp” was re-deployed (and subsequently burst by a Trump sympathiser) – failed to attract the anticipated attendance. Instead, news reports of Trump being received warmly by the Queen, behaving graciously and courteously at the state banquet, and delivering a positive and optimistic joint press conference with the Prime Minister about the future of the US-UK relationship, have most likely lent him an air of statesmanship that he has previously lacked. Even the BBC was forced to concede that the trip has, somehow, “normalised” Trump, and that, rather than banishing the orange-faced “fascist” from our shores forever, we should probably recognise that he is “here to say and [so we] had better get used to him”. Continue reading

Misesian Man: Neither a Rock, nor an Island (or why Traditionalists should learn Austrian Economics)

“I am a rock, I am an island” bellows Paul Simon. This man is apparently the man of economics according to some traditionalists– deracinated and purely rational with absolutely no animality whatsoever.  An interesting cultural critic and theologian Alastair Roberts essentially argued he’d learnt lots of economics but then read anthropology which severely undermined economic doctrine. Whilst this criticism is to some extent justified with respect to the utility maximising, mathematicised man of neo-classicism, it is not justified regarding the Austrian school. There is no ex nihilo creation of an idealised economic man in the Austrian school to explain the world but rather it works from visceral features of reality to discover underlying truths.

Let’s take a paradigmatic economic question which vexed the classical economist, “Why is water so cheap and diamonds so expensive when water is essential but diamonds are mostly decorative?” Well, the jeweller has to pay for the uncut diamonds and his overheads. The mining firm has to pay their miners and buy their digging equipment. So far so good, but who are you ultimately paying to create the equipment in the first place? It must be the labourer who initially transformed nature (land in economic terms) into a tool (a capital good), for example sharpening a stone into an axe head. This reasoning begat the Labour Theory of Value – that the market price of a product is determined by how much labour has been expended into the creation of the product. The problem is, why would anyone want to create diamonds in the first place? Either the miners themselves wanted them or they knew someone else they could sell them to. Therefore it is the demand for the product which ultimately determines costs since entrepreneurs will bid for factors of production based upon their expected future revenues.

Demand, broadly speaking, relates to being willing and also able to purchase a product at a range of prices – essentially it is a trade of one piece of property for another, but whose property?  Today you have corporations who at least de jure own property, however this does not imply that these institutions demand as a complex grouping since only an individual possesses a will. When we say De Beers are investing in a new diamond mine, it is a short hand for saying the board of directors authorised this spending and the board of directors’ decision is made up of individual votes based ultimately on an individual will. In a literal sense you can only ever think for yourself.[i]

To return to the diamond water paradox, diamonds have a higher market price than water, not simply as a direct result of water’s physical properties but because the sum total of individuals’ demand is higher than that of water. Yet this still seems bizarre since most people are not stupid – why die in a diamond encrusted coffin when you can drink and live? The error here is that individuals do not choose between water or diamonds in general but rather discrete units thereof. When an individual acquires his first bottle of water he will put this means to his most highly valued end, so in most cases it will be drinking it to survive. At least in England, the superabundance of water means that whoever sells it will have achieved many of their most highly valued ends which can be realised by water so the value to him of his 1000th unit of water is rather insignificant, therefore he will accept a small price for it. In contrast, the owners of diamonds have so few that they only obtain a few of their most highly valued ends, so the price they are willing to exchange the marginal unit of diamonds for is significantly higher than that of the marginal unit of water. Thus the answer to the diamond water paradox,  and the essence of economic analysis, is marginal analysis and subjective valuation realised in concrete choice – the logic of human action. Since man has to choose between any ends or means at all implies a scarcity of resources and/or time and the choice itself demonstrates preference – the marginal unit of diamonds is worth more to the subject than the marginal unit of water. Further, considering he needs to use an instrumental means[ii], toiling in the field to earn an income to purchase diamonds, implies some form of disutility. All this is to say work can be hard work.

Misesian man is the man of reality. He is not an abstract utility maximiser who cares solely about the lowest possible price. He is a breathing, feeling and fallible man– on his death bed the multimillionaire could regret his goal to be rich since the related hundred hour work weeks caused him to miss his children growing up. Less problematically, man could choose the wrong means to achieve his end – attempting to sell bacon in Bradford to make his fortune. Such a man could well be irrational in the general sense but as long as the behaviour is purposeful, it is in fact rational in the relevant sense.

Further, explanatory value subjectivism (explaining behaviour in terms of the actor’s own values) does not necessarily imply normative value subjectivism – that ethics is mere subjective, content-less preference. This is a mistake made by some traditionalists when interacting with Austrian Economics although it is understandable in some cases given the ethical relativism of thinkers such as Mises himself and in particular some online Austrian keyboard warriors – on a similar note Austrian economics does not imply egoism, individualist anarchism or general libertarianism. The traditionalist political philosopher who is also an Austrian economist is a perfect coherent possibility. Mises and Rothbard do make some ethical claims in some of their economics works but this is the voice of the political philosopher, not the economist. To abandon Austrian economics because of some political statements would be deeply unwise. Whether there is objective value, or more precisely the good, the true and the beautiful in reality itself, is outside the scope of Austrian economics. That said, such a view is in fact more complementary than a hardcore relativist position. Within a purely relativistic position you don’t value diamonds because of certain objective qualities but rather diamonds have value simply because you choose them to have value – your values are purely arbitrary.[iii] On the other hand, an objective external reality which is sifted by the individual actor to then create his value scale is more consistent with Misesian man as he can have genuine reasons for his choices (This is of course consistent with a softer relativism too). Thus economics is consistent with other avenues of investigation such as history, anthropology and sociology to understand why the individual acts as he does – contingent factors regarding  geography, genetics, sex and the family matter for what the acting man chooses, it is just outside the scope of economics. Further, whilst economics studies individual action (methodological individualism) it does not necessarily preclude the existence of any social ontologies in other areas of study. Economics is perfectly consistent with families, nations and other institutions having a form beyond just the individuals who comprise them, all it will insist is that only individuals can act. Thus the complaint that economics causes you to see man as an atomised individual is simply a category mistake.

In conclusion, Austrian economics is a vital component of any social study of mankind. To neglect it in favour of sociology or anthropology is to think that since I have a bowl and soup I do not need a spoon to eat it. Economics isn’t above psychology, sociology and anthropology but an equal and necessary partner in social science. Therefore I implore everyone: learn basic Austrian economics and the scales will fall from your eyes.


[i] One could attempt to go behind the individual’s will by investigating biology, chemistry and ultimately physics. Such a view implies a grand form of determinism in which the base unit(s) of reality determine everything thereby making choice a mere illusion. This is clearly counter intuitive since we act everyday believing that our choices are genuinely our own.  More substantively, genuine choice (a choice which is caused by an individual human, where the human is more than just the chemicals that constitute his body) can only be denied by choosing to declare your opposition to it. Now it is conceivable that choice is an illusion and that you just happened to declare this at the right time in a debate on the subject. Probabilistically this seems highly unlikely and secondly, if choice was an illusion you couldn’t prove it: you would use your mind to follow appropriate methodology to prove this, only to simultaneously discover that you did not follow the correct rules of inference but were rather pushed along by the irresistible forces of fate; thus your belief in determinism was justified not by reason but fate which cannot justify anything. Thus we have the bedrock foundation upon which economics is built – human choice: the choice between a myriad of ends and also the choice between various means to achieve the end(s).

[ii] A means used only for the sake of achieving a goal. This is in contrast to a constitutive means which is one where the means is in a sense part of the end – for example, playing all the notes to perform Chopin’s Prelude in C Minor is internal to the end in a way that working in the field to purchase diamonds is not.

[iii] Hulsmann makes a similar point in his masterful Realist Approach to Equilibrium Analysis (https://mises-media.s3.amazonaws.com/qjae3_4_1.pdf?file=1&type=document) although it isn’t in the context of objective ethics: it merely states that individuals choose certain means and ends for particular reasons beyond just choosing such means or ends, yet ex post their internal valuation system could recognise these choices as successful or as a failure.


Why Libertarians Should Read Mises – Part Two

Why Libertarians Should Read Mises

Part Two

By Duncan Whitmore


In Part One of this series of three essays exploring the significance of Ludwig von Mises for libertarian thought, we examined the specific place that Mises holds in our tradition, and outlined the unique sophistication of his utilitarian theory in favour of freedom compared to that of other theories that can be grouped into this bracket.

In this part we will turn our attention to a detailed analysis of the action axiom – the keystone of Misesian economic theory – and its implications for concepts that we readily encounter in libertarianism.

Somewhat ironically, it was largely as a result of his influence that the wertfreiheit of Mises’ praxeology was regarded as a separate discipline from the search for an ultimate, ethical justification of liberty – a belief that was sustained by Murray N Rothbard.1 In more recent years, Hans-Hermann Hoppe has probably come closest to providing a link between the two through his derivation of “argumentation ethics” within the praxeological framework, and his identification of the pervasive problem of scarcity – a key praxeological concept – as underpinning any system of ethics.

Nevertheless, one may conclude that a full reconciliation, or synthesis, between the two is still wanting and that there remain other important commonalities to which this essay will seek to provide an introduction. Some of what we will learn below will have implications for a general understanding of right, and that the truths we reveal are inescapable for any political philosophy. Others will be specifically pertinent to libertarianism and will provide us with insights as to how we can further the libertarian goal. Continue reading

Austrian Economics Part One – Action

Matthew John Hayden

Economics rather sucks. Not because of some deficiency of the impulse to understand human action, but rather because the vast majority of economists have little time for any real human actions at all amidst their vast anonymous modelling of group behaviours without reference to the actual people in those herds. This might be why the economics establishment stared at their feet when the Queen asked them why they didn’t see the late crisis and recession coming. As to the great work at hand, and the struggle it represents, it behoves one to remember the basis for our worldview, to remember that it is something that has been arrived at through philosophical rationalism, that is mental deduction. This makes us a tribe of rationalists rather than empiricists. The positivism of the economic mainstream and of Post-Keynesianism can seem very scientific – it is the method of natural science after all – but for social science it is utterly inadequate for one simple reason. It hasn’t proved or disproved anything. Verification and falsification are not enough when there is no laboratory in which to repeat experiments. We will have to turn elsewhere. Continue reading