Quote note (#176)


A king owned the territory and could hand it on to his son, and thus tried to preserve its value. A democratic ruler was and is a temporary caretaker and thus tries to maximize current government income of all sorts at the expense of capital values, and thus wastes. […] Here are some of the consequences: during the monarchical age before World War I, government expenditure as a percent of GNP was rarely higher than 5%. Since then it has typically risen to around 50%. Prior to World War I, government employment was typically less than 3% of total employment. Since then it has increased to between 15 and 20%. The monarchical age was characterized by a commodity money (gold) and the purchasing power of money gradually increased. In contrast, the democratic age is the age of paper money whose purchasing power has permanently decreased. […] Kings went deeper and deeper into debt, but at least during peacetime they typically reduced their debt load. During the democratic era government debt has increased in war and in peace to incredible heights. Real interest rates during the monarchical age had gradually fallen to somewhere around
2½%. Since then, real interest rates (nominal rates adjusted for inflation) have risen to somewhere around 5% — equal to 15th-century rates. Legislation virtually did not exist until the end of the 19th century. Today, in a single year, tens of thousands of laws and regulations are passed. Savings rates are declining instead of increasing with increasing incomes, and indicators of family disintegration and crime are moving constantly upward.

All familiar, to a sedative degree, to those here, of course. Except, crucially, the interest rate stuff — which is remarkably dissonant with our contemporary situation. Since Hoppe’s expectation — based on a long-term, fairly consistent trend — is the rational one, it suggests that the present collapse of interest rates is intriguingly anomalous. Is there a sharp, big-picture analysis of the phenomenon out there somewhere?

July 31, 2015admin 38 Comments »
FILED UNDER :Democracy


38 Responses to this entry

  • Orthodox Says:

    The anomaly is demographics. Is there a comparative period other than the Black Death?


    admin Reply:

    My worry is that it is the consummation of a higher fascism, whose competence is being widely underestimated (by myself, among innumerable others).

    Krugman is its Goebbels, but it would perhaps be too comforting to generalize from his thuggish crudity to the competence of his master.


    Xoth Reply:

    I can see at least two hypotheses:

    1. There is more capital competing for borrowers now compared to then.

    2. As alluded to, we have lenders (state) and borrowers (banks) colluding in smiling corporatist friendship.

    Also, we are now cosplay lending and borrowing very soft money indeed, not even paper, rather than specie. That has to have some effect.


    Posted on July 31st, 2015 at 11:54 am Reply | Quote
  • Quote note (#176) | Neoreactive Says:

    […] Quote note (#176) […]

    Posted on July 31st, 2015 at 11:59 am Reply | Quote
  • OLF Says:

    This: The artificially suppressed market interest rate […] induces firms to engage in a kind of production that does not correspond to actual demand.
    Macroeconomics and Democracy sure are match made for each other. Keynesians don’t care what is actually happening in the economy, they only care about graphs – so if the state pays people newly printed paper pseudo-money to dig ditches and fill them back in, they see it as the greatest thing ever since sliced bread, unemployment falls and GDP grows, despite the actual capital, real wealth, being destroyed in the process. Interest rate manipulation and QEs are just finer tools than direct money-printing, though now that economy has become cheap-money junkie, CBs are practically forced to keep artificially low interest rates indefinitely.

    Some more links:
    The Dark Side of Artificially Low Interest Rates
    The ECB and the Negative-Interest-Rate Game
    Government Spending and Negative Interest Rates


    admin Reply:

    Thanks. The historical discontinuity is remarkable though, isn’t it? Passage through an economic singularity.


    Manticore Reply:

    In a gravity well, the time value of money is diminished.


    Posted on July 31st, 2015 at 12:15 pm Reply | Quote
  • Brett Stevens Says:

    Kings saw themselves as curators; democratic States see themselves as market participants in need of reward.

    Great quotation. It expresses a nice laundry list of practical reasons to avoid democracy, which is like a big fat franchise for parasites.


    admin Reply:

    Then whole essay is excellent.


    Posted on July 31st, 2015 at 2:26 pm Reply | Quote
  • spandrell Says:

    Kings more often than not didn’t effectively own anything but the surroundings of the capital; court politics means they had plenty of incentives to screw with much of the country, and that’s when they even bothered with government; because why should they give a shit when they could spend the day hunting, drinking and having fun?

    Monarchs in the East were always more powerful than in Europe; what about interest rates over there? Oh the economy was completely in hands of the state, who didn’t like commoners getting rich and messing with the social order? You don’t say. Maybe the European economy had more to do with those Italian and Jewish bankers than with the nominal form of government.

    If we wanna attack democracy we must do better than this.


    Chris B Reply:

    “If we wanna attack democracy we must do better than this” agree. Hoppe`s essay is interesting, but I think he misses the mark on a couple of points when he extrapolates from De Jouve (whIch MM does a better job of.) The killer is when you bring statistics to the issue.


    Lesser Bull Reply:

    I vote in favor of Spandrell’s complaint.


    admin Reply:

    Any chance you can get Ace to read this?


    Alrenous Reply:

    This dynamic will always occur if you refuse to call a spade a spade.

    Eternal Apparatchik Reply:

    Hoppe’s argument is only in need of minor revisions, not a complete overhaul.

    >Monarchs in the East were always more powerful than in Europe; what about interest rates over there?

    From “A farewell to alms” —

    “All societies before 1400 for which we have sufficient evidence to calculate interest rates show high rates by modern standards.5 In ancient Greece loans secured by real estate generated returns of close to 10 percent on average all the way from the fifth century to the second century BC. The temple of Delos, which received a steady inflow of funds in offerings, invested them at a standard 10 percent mortgage rate throughout this period.6 Land in Roman Egypt in the first three centuries AD produced a typical return of 9–10 percent.
    Loans secured by land typically earned an even higher return of 12 percent.7”

    “Medieval India had similarly high interest rates. Hindu law books of the first to ninth centuries AD allow interest of 15 percent of the face amount of loans secured by pledges of property, and 24–30 percent of loans with only personal security. Inscriptions recording perpetual temple endowments from
    the tenth century AD in southern India show a typical income yield of 15 percent of the investment.8 The return on these temple investments in southern India was still at least 10 percent in 1535–47, much higher than European interest rates by this time. At Tirupati Temple at the time of the Vijayanagar Empire the temple invested in irrigation improvements at a 10 percent return to the object of the donor. But since the temple only collected 63 percent on average of the rent of the irrigated land, the social return from these investments was as high as 16 percent.”

    “In the Ottoman Empire in the sixteenth century debt cases brought to court revealed interest rates of 10–20 percent.”

    “By 1800 Japan was the closest of the Asian economies to England in terms of social characteristics. While Japan could eventually have developed an Industrial Revolution in isolation, at the start of the Tokugawa era in 1603 it had the look more of medieval England than of England in 1760. Interest rates, for example, were still high. In the mid-seventeenth century interest rates for loans made to local governors (daimyo) in anticipation of receipts from the land tax were 12–15 percent, even though these were secured loans. The banking system which developed in the late seventeenth century made loans on real security such as buildings at rates averaging 15 percent, though more creditworthy borrowers could get lower rates.”

    >Oh the economy was completely in hands of the state

    Not so.


    Eternal Apparatchik Reply:

    Forgot to paste:

    “Medieval England had real rates of return typically 10 percent or greater. By the eve of the Industrial Revolution rates of return had fallen to 4–5 percent. The rates of return for medieval England were in fact typical of Europe in this period.”


    Posted on July 31st, 2015 at 2:42 pm Reply | Quote
  • Death Metal Underground » Invention versus novelty in metal Says:

    […] Speaking of alternative history, I encountered this passage today. You might call it Libertarians for Monarchy. It takes an economist’s view of the change in history, and shows how alternative history might have been right, after all, and how we might all just be living in denial and cruising on the wealth of the past (Hans-Hermann Hoppe via Outside In: […]

    Posted on July 31st, 2015 at 3:04 pm Reply | Quote
  • Quote note (#176) | Reaction Times Says:

    […] Source: Outside In […]

    Posted on July 31st, 2015 at 3:34 pm Reply | Quote
  • vxxc2014 Says:

    Vote for Spandrell.

    They don’t want to attack democracy, they want to be Kings and Lords.

    Without any of their spade work of course.


    Posted on July 31st, 2015 at 9:23 pm Reply | Quote
  • August Hurtel Says:

    They can’t really raise it or everything falls apart. We point back to Weimar, but they at least had the constriction of having to print the stuff. No, it has become a debt engine, and if they push up the interest rate that engine will immediately start to lock up. They just keep creating it, and the big dogs slosh it around. They’ve got market maker amounts of money, so they can drive stocks up and push commodities down, until they decide to sell their stocks high and their commodities low. Or they drive up bonds should Yellen dare try increasing rates, while the government will quickly figure out how much more that costs them in debt payments- plus the general chaos caused among corporations that exist on short term debt.

    So they’ll slap it back down quick, and hope nobody notices.


    Posted on July 31st, 2015 at 9:34 pm Reply | Quote
  • vxxc2014 Says:

    The Prophet Roddy Piper has died at 61.


    PBUH and Bubble Gum too….


    Posted on July 31st, 2015 at 10:22 pm Reply | Quote
  • georgesdelatour Says:

    In iTunes University you can find a Gregory Clark lecture series, loosely based around the ideas in “A Farewell To Alms”. I can’t recommend it highly enough. It’s full of interesting data (for instance, he shows that street beggars in 18th century London had far better numeracy than Roman centurions).

    I seem to remember that at some point he shows a graph measuring the fall in interest rates across the last 2000 years. The lesson is, people’s future time orientation improved, probably for genetic reasons. This meant that fewer individual borrowers were considered high risk, so lenders were willing to lend at lower rates.

    It’s possible the reduction in interest rates is a response to that earlier growth in future time orientation, plus increased social trust. Modern democratic politics is setting both processes in reverse. But there’s a lag.


    Eternal Apparatchik Reply:

    I’m also backing this recommendation. Clark neatly complements Hoppe.


    Posted on July 31st, 2015 at 11:43 pm Reply | Quote
  • freihals Says:

    Not really anomalous, taken in the larger sense….bottoming interest rates are a result-in large part-to rampant fiat money creation( QE ) in an attempt to, ironically, address amassed debt. ABCT( my understanding ) leads to a correction of the boom( inflation, low rates, high rate money printing) towards a bust. The eventual deflation and rise in interest rates. The collapse of rates suggests QEing+1 will eventually lead to one hell of a painful correction(bust).


    Posted on August 1st, 2015 at 3:30 am Reply | Quote
  • SVErshov Says:

    CBs message is simple: – here is your money, enjoy your high standard living till you all become mad and kill each other.


    Posted on August 1st, 2015 at 4:42 am Reply | Quote
  • Alrenous Says:

    “All familiar, to a sedative degree”
    Good turn of phrase is good.

    Interest rates are time preference. Duh, democracy shortens your time horizons. Biology sets the lower limit on interest rates, and within that limit, rationality sets it; you cannot rely on a stable or otherwise predictable future around a rabid, e.g. democratic, government.


    Posted on August 1st, 2015 at 9:16 am Reply | Quote
  • michael Says:

    This utter bullshit I cant get through the first three sentences with out my head exploding. Kings rarely worked for all sorts of reasons which i wont even bother with since only a moron doesnt know them, How many english barony’s were lost to debts and how many more would have been if debts could have been enforced properly, and even if this system worked as described it could not have worked in the modern era. So even bringing ww1 into the same paragraph is ridiculous; once serfs became people it was game over they were an army and they demanded a cut.and the elites saw the justice in this and sided with them and cut a deal of various terms and quality.
    This happened earliest in the united states but by the end of ww1 it was game over. These ad hoc power sharing systems are now failing and must be fixed, to revert to kings is ludicrous and from you technologists its mind boggling beta role playing faggotry.
    The answer is to reduce government almost entirely by outsourcing, using technology big data etc to enable citizens to contract traditionally government services competitively to the private sector ,the ratchet will reverse, A patchwork of localities emerges again,democracy becomes irrelevant ,capitalism becomes vigorous,wealth is conserved etc etc
    Todays times actually has new orleans using a uber like app to summon private police in a black city

    If the police can be privatized the fire deptartment can go back to private and many are still volunteer, then so can sanitation and health and safety inspection, schooling continues towards vouchers, roads transportation and infra structure are easy most used to be private. Government got involved because of economies of scale that tech can now address. Eventually government barely exists, SJWs must exit the academic world or support it with their own money,It will be similar to how they are losing control of media, mostly theirs ideas will have to compete in the market like others ideas.And no one really likes their ideas except the hordes of very low IQ people that know they cant compete. If social welfare is replaced by private insurance even if mandatory there is no longer a free lunch the idiots leave for warmer weather


    Lucian of Samosata Reply:

    The trick is getting the fascists to look the other way while all of this happens, as opposed to trying to counteract it through self-serving legislation as they do w/r/t capital flight (aka intelligent banking).


    michael Reply:

    In new orleans case witth the sanitation and now police they basically collapsed after katrina they really didnt have an option if they wanted any white people. In NYC and elsewhere even Europe we are watching what you fear unfold in real time with UBER AIRBNB etc basically these company’s give the govt the finger and proceed then within a few months wage a sophisticated media referendum on their services and the people seem to like it too much for the politicians to interfere, these apps seem to couple helot/prole labor and elite needs triangulating the left well.


    michael Reply:

    In the United States, private police officers currently outnumber their publicly funded counterparts by a ratio of roughly three to one. Whereas in past decades the distinction was often clear — the rent-a-cop vs. the real cop — today the boundary between the two has become ‘‘messy and complex,’’ according to a study last year by Harvard’s Kennedy School of Government. Torres’s task force is best understood in this context, one where the larger merging of private and public security has resulted in an extensive retooling of the nation’s policing as a whole. As municipal budgets have stagnated or plummeted, state and local governments have taken to outsourcing police work to the private sector, resulting in changes that have gone largely unnoticed by the public they’re tasked with protecting.

    A recent report by the Justice Department, which has become one of the most prominent advocates of such collaborative efforts, identified 450 partnerships in the country between law enforcement and the private sector. Nationwide, there are now more than 1,200 ‘‘business improvement districts’’ in which businesses pay self-imposed taxes to fund improved services, including security. In many cases, officers covered by corporate entities have become indistinguishable from those paid for by taxpayers. Last year, Facebook entered into a three-year partnership with the Menlo Park, Calif., Police Department in which the social-media giant agreed to pay the $194,000 salary of a police officer whose job was going to be cut. One of the largest private security forces in the nation today is the University of Chicago Police, which has full jurisdiction over 65,000 residents, only 15,000 of whom are students. More than 100 public housing projects in Boston are patrolled by private security, including one company that has been authorized to arrest suspects under certain circumstances


    Posted on August 1st, 2015 at 1:52 pm Reply | Quote
  • Kgaard Says:

    Interest rates today are similar to those that prevailed in the 30s and 40s. It wasn’t until the early 50s, IIRC, that the US economy got back to sustainable pre-1929 growth rates. 2008 was the second coming of 1929. We are not experiencing the full effects of that (fishing through garbage dumps for half-eaten T-bones) thanks to QE.

    Looking ahead I agree that weak demographics should keep rates low for decades. The obvious driver for the elites opening the borders is so their capital stock will remain in the black as the native population’s birth rates have plunged.

    A successful play of late has been to buy Sri Lankan and Pakistani bonds, as their demographics have cooled and educational standards have risen (leading to lower interest rates).


    Posted on August 1st, 2015 at 3:49 pm Reply | Quote
  • michael Says:

    risk is less people are traceable and controllable they live longer and are better civilized, money is in greater abundance, gdp per capita is greater, the whole world is participating, great pools of money are now in insurance that were not before,under performers have secondary markets all debt is usually sold dozens of times are losses are a write off. There is a lot of very good reasons money is cheap before we even get to fiat gold etc


    Posted on August 1st, 2015 at 4:24 pm Reply | Quote
  • Blogospheroid Says:

    As long as actual financial repression is not there, I find it very difficult to go with the misesian explanation. The currency is being debased, but you DON’T HAVE TO KEEP YOUR PORTFOLIO IN FIXED INCOME. The US has a very developed financial market with most people either allowed to invest wherever they want to OR entrepreneurs come and create products that average investors can invest in. Now, actual risk may be there in investing in other territories, but that is not the misesian explanation.

    I believe that demographics is the big reason for low interest rates, along with a delay in the Indian liberalisation. Stay with me for a minute for an explanation. The great savings glut is a function of the people who need to invest for the future and the number of possible projects they can invest in. These projects generally need to be in places that have a good legal infrastructure. Now, unless switzerland is creating new cities (btw. why isn’t switzerland creating new cities ?) these have to be in the emerging world. The closest fit for quick rollout is infrastructure investment in India, the only area rivalling china in size, the size that can move investment rates around the world. The current government lacks a majority in both houses of parliament, a major factor preventing them from legislating pro-capitalist reforms today. Now, in 2016, the current gov in India will get true majority. If they’re able to ignite true reform, one might see another real phase of investment and with enough of investment, one could see relatively higher rates all over the world. But whether this will be enough to bring them to higher levels than in the past, not sure.


    Posted on August 2nd, 2015 at 6:46 am Reply | Quote
  • SVErshov Says:

    level of capital can be described via two loops: negative and positive. positive loop must generate capital. negative loop accounts for capital discharge. At present positive loop do not generate anything and capital discharge rate in negative loop much higher then normal. that is why QE works. same with population, population level depend on death rate negative loop and birth rate positive loop. If more people die then born, then immigration will work to keep population level on the same level. present reality is quite disconnected from historical precedents and in matter to be able to engage with it, you have to see in simplified way how it works.


    Posted on August 2nd, 2015 at 9:21 am Reply | Quote
  • vxxc2014 Says:

    “VXXC ‏@VXXC2014

    @ad_proelium Our inequality problem could be solved if we could release the masses from the oppression of sub-light speed money.”


    Posted on August 3rd, 2015 at 12:33 am Reply | Quote
  • outsider Says:

    It’s a terminal vision problem. Life has become too complicated and bureaucratized to start new projects anymore. The regulations imposed under Bushbama make every entrepreneur an automatic criminal.


    Posted on August 4th, 2015 at 6:40 am Reply | Quote
  • Economists against democracy Says:

    […] From Hans-Hermann Hoppe via the always-interesting Outside In: […]

    Posted on August 4th, 2015 at 8:03 am Reply | Quote
  • Lightning Round – 2015/08/05 | Free Northerner Says:

    […] Hoppe on the king. […]

    Posted on August 5th, 2015 at 6:36 am Reply | Quote

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