Why does a parent have the moral right to forcefully control his children, but government does not have the right to forcefully control its citizens? Why is is permissible to enslave animals, but not human beings? What is the fundamental difference between animals and man, or children and adults?

What is the definition of a child, and how do we arrive at that definition? Why is it moral to be biased against animals that have a desire for life, freedom and happiness? Why do we insist that all men have a natural right to these things, a self-evident right, but animals do not? Do we imagine that if we found a method for honest communication, animals would not insist that they too deserve these rights?

What happens when machines become so complex that they too demand the same rights?

This is a continuation of this discussion, which went to some length at the Cafe Hayek blog.

Lavaux Vineyard Terraces, Switzerland

Emerald Coast, Florida

Zanzibar, Tanzania

White Mountains, New Hampshire

Shoreline Highway, Marin County, California

Bandarban, Bangladesh

A bank brokers a deal between a wine-maker and a consumer, Bob. It buys ten bottles of wine for $10 with new dollars, and sells them to Bob on credit, charging 10% interest per year. Bob agrees to repay the debt in one year, and will pay $11 as a balloon payment in twelve months. Currently, dollars are worth about $1 per bottle of wine. Assuming the bank brokers no more deals, the value of Bob's dollars will rise as the months go by, because he will eventually owe $1 that does not exist -- the bank only created $10 and he owes $11, so Bob's desire for more dollars goes up as the due date draws closer.

To solve this problem, the bank (or the Fed) buys something from anyone in Bob's neighborhood for $1, or directly from Bob. If it buys something near the payment date, it will be able to garner more material goods from Bob (or anyone who knows Bob is desperate) than it would if it purchased something at the beginning of the year, when Bob isn't so desperate to acquire another dollar.

So deflation occurs even absent a rise in the wine's value. Let's imagine that dollars, wine, coconuts, and cheese are the only assets available in the marketplace, and that there are only three men alive, the banker, Bob, and the wine-maker. All three men trade wine, coconuts, and cheese at a one-to-one exchange, and after dollars are issued, all three value wine, coconuts, and cheese at $1.00 as well.

If half the wine suddenly spoils, its value will rise; there are only 5 bottles left. Its supply has dropped relative to cheese, coconuts, and dollars, but this does not affect the value of the dollar relative to all other assets -- coconuts, cheese, and dollars continue to trade as equals. The change in the value of wine is more accurately described as "wine deflation." We can say that dollars have lost value compared to a total sampling of all assets available in the marketplace, but this confounds the true nature of the changes. Dollars didn't really drop in value relative to all other assets -- the value of wine went up; all assets dropped in tandem compared to the value of wine. So a change in the value of assets purchased by banks would appear to have no real ability to affect the value of the dollar, per se. If we look at a sampling of everything it creates the illusion of inflation, but at a distance, viewed properly, the value of dollars were only affected as much as all other goods in the marketplace, and only lost value against the original asset -- the asset we already defined as having lost value vs the dollar in the first place. A fall in the value of bank purchases would have a similar and opposite effect, but would not directly affect the value of dollars when compared to the total market.

If Bob defaults on the loan, the remaining dollars would fall to zero value rather quickly, absent anyone who wanted them to pay off a loan, so defaults do create inflation.

If the banker brokers a second deal between two other men, but is tricked into brokering a purchase at $2.00 per bottle, when the market at that moment in time values them at $1.00, the result would still seem to avoid inflation, because the man who owes $20 after the trade clears will eventually provide double the demand for dollars when compared the man who agreed to pay $10. Because the value of dollars depends on the desire of each man to pay off his debts, the specific act of paying too much for a market asset cannot affect the long-term value of dollars, if those assets are at the same time sold for too much. Dollars brokered into existence can never be inflationary, as long as defaults do not occur. If the man who bought wine for ten dollars has the same credit rating as the man who paid twenty, there can be no inflation created as a direct result of the brokering activity.

So it appears, by the above simplified logic, that the only way to create inflation is to broker deals for poor credit-risk borrowers. Sub-prime lending, in all its forms, creates inflation, but apparently it is the only thing banks control capable of lowering the value of dollars relative to other goods available in the market.

"Because of its explosive nature, not all applications of nitrocellulose were successful. In 1869, with elephants having been poached to near extinction, the billiards industry offered a $10,000 prize to whoever came up with the best replacement for ivory billiard balls. John Wesley Hyatt created the winning replacement which he coated with a new material he discovered called camphored nitrocellulose—the first thermoplastic, better known as celluloid. The invention enjoyed a brief popularity, but the Hyatt balls were extremely flammable, and sometimes portions of the outer shell would explode upon impact. An owner of a billiard saloon in Colorado wrote to Hyatt about the explosive tendencies, saying that he did not mind very much personally but for the fact that every man in his saloon immediately pulled a gun at the sound." Wiki

Jörg Guido Hülsmann (audio only) explains that "Gresham's Law -- It's not a general law of the market, it is a law of interventionism."

This is simply wrong. "Bad coins" are used as money, and good coins hoarded even absent legal tender laws. In WW2 prison camps, the worst cigarettes were traded and the best were hoarded. In early America, tobacco was used and the same thing happened; the poorest quality plants were traded as money.

He is very wrong to assume that legal tender laws are the cause of this process, and he's missing the bigger point, known to anyone who studies those ancient hoards of metal coins. They were tokens, and the metals were used because they did not rust; they were durable. They had no way to create durable paper, as we do today, so they used metal.

Ancient coins were created without any concern for their weight (except in rare cases, designed to fight counterfeiting), and their weight varied so much that the metals in them could not possibly have been the basis for their value. Some of them were as much as 90% pure, and others contained almost no precious metal, even though they circulated at the same time. Most were not stamped with a face value, only the name of the king or bank that created them. Their value was not based on the metals in the coins.

Hülsmann claims that "A central bank cannot go bankrupt." This is correct, but only because it doesn't need any assets, per se, to begin operations. The central stores, acting as banks in prison camps started with nothing. They issued paper from thin air to purchase goods -- with the promise to exchange them for paper in the future. This was the method used to to buy things for the store; to stock the shelves. Banks can legitimately start with nothing. They are brokers; they don't need any assets to operate in a free market.

Breathalyzers work by calculating the amount of alcohol in the breath, and extrapolating the amount of alcohol in the blood by assuming that the ratio is 2100 to 1 -- that for every gram of ethanol in the breath, there are 2100 grams in the blood. In europe, breath testers assume that the ratio is 2300 to 1.There are many problems with this assumption.

1. The ratio varies from person to person, and women typically have a lower ratio, meaning that breath tests are biased against them.

2. About 1.8% of people have a ratio below 2,100, about 14% have a ratio higher than normal.

3. The ratio depends on the temperature of the breath. The ratio is only 2,100 at 37 °C, and the average temperature of the breath is 34°C. If one is running a fever, the machine will read a higher blood alcohol content, and if one is cold, it will read lower. This is further confounded by the variation in average body temperature between individuals.

4. The ratio will change if the person is still absorbing alcohol into his system. The amount of ethanol vapor will be higher during the absorption phase, which lasts from 20 to 90 minutes, depending on the types and quantities of foods and drinks consumed.

5. The human body generates about three grams of ethanol per day in its normal operation. Ethanol is a byproduct of our digestive system, and the amount generated will vary. People on low calorie, carbohydrate restricted diets will generate more, and their breath can read as high as .02 (1/4 legal limit in the US), without ingesting any external alcohol whatsoever.

6. Ethanol vapor in the lungs takes time to evaporate from lung tissue; faster than normal breathing can lower the reading by as much as 32%, and slow breathing or holding one's breath can raise the reading by the same amount.

So a breath test certainly could be accurate, but it seems about as likely as finding a broken watch showing the correct time. Even if they take you to the station and draw blood, the concentration will vary between arteries and veins, depending if the person is still absorbing alcohol previously consumed. Veins will show a higher reading after absorption is complete, and the law generally states that they are to be used for the blood sampling.

To lower a breath test reading:

1. Lower your body temperature -- remove clothing, drink a lot of cold water, etc.
2. Breathe as fast and deeply as possible before the test.
3. Eat a lot of carbs before drinking.
4. Leave the bar a long time after your last drink.
5. Make sure you don't have a fever (Tylenol and Advil are fever reducers.)

Inflation is caused primarily by the rise of wealth in society, making labor more expensive. If you won the lottery tomorrow, how much would you charge for an hour of labor? The same applies to societies that become richer over time. Today the average unskilled worker earns about 25 times more per hour than he did in 1774, and is also about 25 times richer. The time one spends laboring today buys a lot more milk and bread than it did, for an average worker, in 1774.

Imagine two islands, one where everyone is living in a nice hut with a lot of preserved meat, cheese, wine, spices, etc, and another were everyone lives on the beach and fishes to eat each day. If men on the rich island want to hire others to work in their factory, they'll need to pay them more because both of them have more assets. Rich men can pay more, and rich men demand more for their time. On the poor island, a worker might be available for two fish per day. On the wealthy island that has a lot of preserved fish and a lot of fishing boats, food is easier to acquire and the amount offered for a day of work will have to be higher.

Further, imagine that the supply of fish and food did not rise faster than the amount of other material goods and people on the islands over time. Even if each man pulls two fish from the sea each day for life, and they use fish as money, the richer island would demand more fish per hour of labor, lowering the value of money when compared to labor and services (inflation). Because most things today require human labor to create, their price has risen vs most things that require very little human effort. Fishing nets are now made by machines and their price has fallen over time, but the price to hire a fisherman for a day has steadily gone up since 1774.

This is not to say that labor is the reason that anything is valuable, or is based on the labor that goes into it. It is only to state that as society becomes richer, each rich man demands more assets from other rich men in order to labor for them, raising the cost to produce new assets in terms of what already exists.

If tomorrow everyone suddenly had ten times more of everything they owned yesterday, what would be the only thing that would rise in value? Labor. And as we became richer, we got more of everything we previously had, including money.

“Apple was in very serious trouble, and what was really clear was that if the game were a zero sum game, where if Apple were going to win, Microsoft has to lose, then Apple was going to lose. A lot of people’s heads were in that place at Apple, even in the customer base. There were too many people at Apple playing the game of “if Apple is going to win, Microsoft has to lose.” It was clear that we didn’t have to play that game; Apple wasn’t going to beat Microsoft... Apple didn’t have to beat Microsoft. To me, it was essential to break that paradigm.” Steve Jobs, 2007, on his return to Apple