Economics – Rational Standard https://rationalstandard.com Africa's Top Liberal Commentary Site Wed, 20 Jun 2018 23:51:12 +0000 en-GB hourly 1 https://wordpress.org/?v=4.9.6 https://i2.wp.com/rationalstandard.com/wp-content/uploads/2012/01/cropped-RS-Logo.png?fit=32%2C32&ssl=1 Economics – Rational Standard https://rationalstandard.com 32 32 94510741 Debunking White Economic Oppression https://rationalstandard.com/debunking-white-economic-oppression/ https://rationalstandard.com/debunking-white-economic-oppression/#respond Sun, 15 Apr 2018 21:04:08 +0000 https://rationalstandard.com/?p=7530 First of all, I need to get something out of the way. This is not going to be an argument in favour of discriminatory black empowerment legislation, so for those who expected it to be so and looked forward to either praise or vilify me for it, sorry to disappoint you. What I’m going to […]

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First of all, I need to get something out of the way. This is not going to be an argument in favour of discriminatory black empowerment legislation, so for those who expected it to be so and looked forward to either praise or vilify me for it, sorry to disappoint you. What I’m going to do is debunk the myth that the white South Africans are, in general, being economically marginalised.

According to the latest Stats SA Living Conditions of Households in South Africa survey, the average annual income from work of white South Africans was R 300 498. The average annual income from work of black South Africans was R 69 094. White South Africans thus earn, on average, 4.35 times more than their black counterparts.

Luckily this gap has been narrowing since 2011, when the average black South African earned 4.78 times less than the average white South African. The total average annual household income of white households was R 444 446 for white households, while for black households it was just R 92 983.

The survey also showed that the average consumption expenditure by white household heads was R 350 937, whilst the average expenditure for black African household heads was R 67 828.

The average consumption expenditure on health by white South Africans was R 4 161, whilst the average consumption expenditure on health by black South Africans was just R 479. The average consumption expenditure on education by white South Africans was R 8 069 per annum, whilst the average for black South Africans was R 1 656.

In 2015, 47.1% of black South Africans lived under the poverty line, compared with just 0.4% of white South Africans.

Another portion of good news that has to be mentioned, however, is that the median age of whites in 2011 was 38 compared with 33 in 1996, whilst the median age of black people was still just 21 years just like in 1996. If one takes into account the young median age for black people, they’ve thus made considerable progress in catching up on salaries, according to economist Mike Schussler.

Schussler explains that the still relatively large gap in average income between white and black households can be explained by differences in skill levels, along with the portion of the ethnic group part of the labour force as well as the difference in the number of white individuals who have their own business (6%) compared with the number of black entrepreneurs who do (3%).

It is quite clear that there is a huge economic gap between white and black South Africans. So, who’s to blame for this staggering inequality between white and black South Africans?

Well, Apartheid initiated the inequality, but the ANC is upholding the status quo through widespread corruption, over-regulation of the market that is costing us economic growth, and large-scale wasting of resources. Only through entrepreneurial empowerment can we uplift the majority of black South Africans so that they can make a living for themselves.

I am not in favour of discriminatory legislation. What I am in favour of is popping our own bubbles of ignorance and to reach out a helping hand to our fellow men and women who are suffering (yes, also the white ones; not all white people benefit from white economic privilege). Ethical altruism goes a long way. Teach a person to fish and you feed them for life.

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The Virtue of Peanut Butter Sandwiches https://rationalstandard.com/the-virtue-of-peanut-butter-sandwiches/ https://rationalstandard.com/the-virtue-of-peanut-butter-sandwiches/#respond Tue, 27 Mar 2018 21:25:07 +0000 https://rationalstandard.com/?p=7381 Written by: Simon Venter There is a serious flaw in the way people approach problems, or rather perceived problems, and the way they have a habit of advancing ‘solutions’ for which they may take no responsibility should they be wrong. This piece is an allegory. In early January my family and I packed up house […]

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Written by: Simon Venter

There is a serious flaw in the way people approach problems, or rather perceived problems, and the way they have a habit of advancing ‘solutions’ for which they may take no responsibility should they be wrong. This piece is an allegory.

In early January my family and I packed up house to move from Hilton, KwaZulu-Natal, to Port Elizabeth in the Eastern Cape. The day that the movers came to pack up our home, turning it into a house, arrived shortly before we were scheduled to depart for PE. Due to a miscommunication between my mom and the lady who booked Pickfords for us, the gentlemen responsible for moving our worldly possessions were under the impression that they had to be done with the house by midday, when that was not in fact the case.

It is due to this miscommunication that the virtue of the peanut butter sandwich comes to light. As the men had not planned to be in Hilton past lunch time, none of them had packed lunch for the day – it was six by the time they left – and since we were to leave for Bloemfontein the next day, all our food had been thrown out or was packed – that which would not perish. Leaving only a loaf of bread, peanut butter and syrup among a few other odds and ends.

Seeing the plight of the movers, one of my sisters was moved to ask my dad if he could go out and buy the men some refreshments, something to drink and some sandwiches, as she felt bad that we had bought lunch whilst they were hard at work on empty stomachs. Due to the obvious cost catering for about 12 hungry men would entail, my dad said no; a response that my sister found very displeasing. It was at this point that I recalled a few points made by Thomas Sowell about how those that perceive a ‘problem’ are more than happy to suggest a ‘solution’ if it does not come at their own expense or that they will not have to face the consequences if their ‘solution’ was not in fact a ‘solution’ and that what is most often the thing that works is the approach of trade-offs. One could also apply Nassim Taleb’s “skin in the game” principle.

In this case, the consequence my sister would not have had to face would be being out of pocket a few hundred rands. The ‘trade-off’ as suggested by me was that she makes a peanut butter and syrup sandwich (the title would have been too long) for the men as opposed to sitting back and feeling bad that dad had not followed her ‘solution’. Having followed my suggestion, with the only hurdle being using a plastic camping spoon to spread the peanut butter and syrup onto the bread, we commenced making the sandwiches. Once done she informed the men of the sandwiches that awaited them – sandwiches that they said tasted amazing – and just like that, instead of her suggesting ‘solutions’ for which others would have to foot the bill, she had taken the ‘trade-off’ and done something proactive that required her putting “skin in the game”.

It was this scenario, however small and insignificant in the grand scheme of things, that sparked this thought process. This little scenario illustrated a bigger point; often people look at a situation and see something they think to be wrong (often with only partial knowledge of what is occurring), then without serious thought, they begin spouting forth ‘solutions’ that will not cost them directly, be it in terms of time, liberty or monetarily. For things ranging from the minimum wage to ‘solutions’ for climate change.

Hence, the virtue of peanut butter sandwiches: if you encounter something that you find concerning but your immediate response is to lobby for others to take responsibility and incur great risk and responsibility whilst you can carry on your merry way unscathed, then you have not helped but merely caused a moral panic. And moral panics seldom result in anything but authoritarian responses.

Whenever confronted with a situation that strikes you as worrisome, ask yourself, will you act out of guilt, or compassion. Depending on your answer, you will either have “skin in the game” or be playing with other people’s pieces.

Author: Simon Venter is a young artist and student currently studying a BA MCC at Nelson Mandela University in Port Elizabeth. Simon’s main intellectual influence is Thomas Sowell.

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We Will Remain Poor If We Don’t Embrace Importation https://rationalstandard.com/will-remain-poor-dont-embrace-importation/ https://rationalstandard.com/will-remain-poor-dont-embrace-importation/#respond Mon, 19 Feb 2018 11:46:22 +0000 https://rationalstandard.com/?p=7305 Imagine waking up to news that the South African government has imposed a 300% dumping duty on the US dollar because Americans are buying too much South African products and thus dumping their currency in this country. I imagine that most people would be outraged at such a ludicrous policy, the only effect of which […]

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Imagine waking up to news that the South African government has imposed a 300% dumping duty on the US dollar because Americans are buying too much South African products and thus dumping their currency in this country.

I imagine that most people would be outraged at such a ludicrous policy, the only effect of which would be to stop South African companies from selling to their American counterparts.

Yet, we tolerate this type of thing when it comes to non-currency goods and services. As I have written before, money is a product like anything else: It is used to facilitate the exchange of goods and services between people without the need to possess the goods and services that the other party to any trade wants.

The roots of this inconsistency seem to arise from nationalism coupled with bad economics. As others have written, even unilateral free trade is good for the country that has politicians wise enough to adopt it, but we in South Africa are not that lucky, and we continue to believe in the dogma of exports good, imports bad.

This is particularly tragic when you consider the scale of the problem of poverty in South Africa as well as the African continent more broadly. Our government once spoke of igniting an African renaissance and getting rid of poverty here at home and throughout the continent, but our actions have not been as lofty as our words.

This can be seen also in the fact that we still require visas from almost all non-SADC African countries if their citizens want to come to South Africa. This is ironic, considering our own government’s protestations when the UK government introduced visas for South Africans. We need frictionless travel and trade within Africa if all of us are going to lift ourselves out of poverty. Nationalism is a loser for Africa.

Imports are as essential to wealth creation as exports are. Immigration can be seen as a special case of imports where businesses bring in the labour that it requires to build more wealth and entrepreneurs move from unfriendly countries to ones that do not impede their wealth creation. If we had real free trade on the continent, companies would have more incentives to build the infrastructure to facilitate this trade and African taxpayers might get some reprieve from the corrupt parasites we call politicians.

This highlights something important: Market participants within a country go to the extra trouble of bringing in goods, services, and people from other countries because there are no better alternatives within the borders of their own country. To the extent that this is restricted, it means that people within the country have to incur unnecessary costs as they produce goods and services so less wealth is created than would otherwise have been the case. We also know that maximising wealth creation also maximises job creation as well as all social indicators like education and healthcare.

Therefore, a policy of prioritising exports over imports is an anti-poor and ultimately anti-human policy. Poor people need not only cheap imports so they can have a little bit extra in their pockets, they also need companies to be able to import skills, machinery and other capital goods so that wealth is created and the ladders of opportunity are built.

South Africa’s nationalistic approach to trade and immigration impoverishes not just South Africans but the rest of the continent as well, meaning our rhetoric about an African renaissance is being sabotaged by the same people who claim to be it’s champions.

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The Morality of Tax Havens https://rationalstandard.com/morality-tax-havens/ https://rationalstandard.com/morality-tax-havens/#comments Mon, 08 Jan 2018 08:26:09 +0000 https://rationalstandard.com/?p=7034 No one, whether individual, government or society, has a moral claim on the wealth that someone else has produced. This fact has been missed in the choir of condemnation of individuals and companies who place their wealth in foreign ‘tax havens’. Instead of questioning why someone might not want to expose their wealth to potential […]

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No one, whether individual, government or society, has a moral claim on the wealth that someone else has produced. This fact has been missed in the choir of condemnation of individuals and companies who place their wealth in foreign ‘tax havens’. Instead of questioning why someone might not want to expose their wealth to potential exorbitant taxes in their own country, people are roundly attacked for doing something perfectly moral – protecting their wealth as they see best. There is more to the leak of the ‘Paradise Papers’ than may meet the eye.

With the continual growth of the state, we have long jettisoned the premise that a person’s wealth is their own to do with as they please. Now the government is the arbiter of what a large part of your wealth should be used for. When government runs out of money, as is consistently the case in South Africa, the demand on the private sector grows bigger and bigger. We are told that business must ‘come to the table’ and contribute more, while at the same time business is demonised.

It is no surprise that those who are taxed more heavily will attempt to protect what they have earned – after the barrage of revelations surrounding the Zuma administration, can we in good conscience demand that those who are productive, run businesses and accrue wealth, be forced to keep their money in the country?

Both politicians and business-owners are mentioned in the Paradise Papers. It is interesting that we condemn both groups for tax evasion. One group contains people who made their wealth through growing businesses, employing people, investing in all types of sectors, trading, and raising the living standards of countless people around them. The other group contains people who ‘made’ their wealth through shadowy deals, cutting corners for government contracts, and using government force to compel others to do business with them. To place in the same bubble people who make wealth through voluntary trade as those who use force to get deals done, is the worst kind of moral error.

We love to call for higher taxes, to rail against inequality, to tell poorer people that their hardship was caused by the big bad man in the suit driving his Mercedes through Sandton. But when we call for higher taxes, we fail to mention that the taxes taken will not come “out of their consumption expenditures, but out of their investment capital” as Ayn Rand explains in “The Inverted Moral Priorities” from The Ayn Rand Letter. Thus, higher taxes mean less investment, which means fewer jobs, lower production, and higher prices.

Why higher prices? Because the businesses being taxed have to make up the hit somewhere, somehow, and the consumer is the one who will feel the slow, steady squeeze down the line. By the time that we’ve brought the rich down to an acceptable level, the standard of living of those lower down the rung will have been wiped out.

The vast majority of people agree that we ought to pay our taxes. But when we repeatedly see how corrupt and wasteful the government is, there may well be a line in the sand that, once crossed, enters the realm of government overstepping its bounds. When you see that the company you invested in is taking a nosedive, you divest and look at other options. The government must make the best possible case as to why you should invest in the country, even if that investment takes the simple form of taxes.

The consistent growth of government means that there are a myriad taxes imposed on both individuals and companies. There is a lot more at work than just an income tax, for example. The more wealth you create, the more you are punished for it.

It will be a lot more productive to combat corruption and lower taxes, thereby encouraging more and more people to pay their taxes in the first place. Shouting at the few productive rich who manage to protect their wealth before someone can steal it will not result in anything tangible. Instead of attacking tax havens we can render them pointless if we make South Africa the best place in which to invest and build businesses.

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Why I’m Angry at Alfred https://rationalstandard.com/im-angry-alfred/ https://rationalstandard.com/im-angry-alfred/#comments Thu, 04 Jan 2018 12:01:23 +0000 https://rationalstandard.com/?p=7028 Most people see a supply and demand graph and either get a feeling similar to an orgasm, or they get a feeling similar to when your teacher ranted on about how Romeo’s vocabulary is what won thy Juliet’s heart. Then you get people who look at the graph and draw the wrong conclusions. Why? Because […]

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Most people see a supply and demand graph and either get a feeling similar to an orgasm, or they get a feeling similar to when your teacher ranted on about how Romeo’s vocabulary is what won thy Juliet’s heart. Then you get people who look at the graph and draw the wrong conclusions. Why? Because the independent variable, that is price, is on the vertical axis and not on the horizontal axis (I know, right). And who do we have to thank for that? Well, that would be none other than Mr Alfred Marshall.

In 1890, dear old Alfred decided to write a book. He called it Principles of Economics. And the principles he laid bare are actually bloody brilliant. I just wish that Alfred took the time to read Bertrand Russel’s The Principles of Mathematics that was published in 1903. Why? Because then he would’ve retracted his own book so as to correct his grave error of placing an independent variable on the vertical axis of a graph. Did he not for one moment foresee how irate it would make me?

Those of us who know that price is the independent variable in its relationship with the quantity supplied and demanded, are able to make some very sound deductions. For instance, we know that a change in the equilibrium price level leads to a change in quantity supplied and demanded, and not the other way around. If the price rises, output rises. This is because an economic incentive is created: you get more in return for what you supply. Alfred, however, failed to see that his apocalyptic blunder would lead to a lot of people to assume the exact opposite, and thus anger me.

If people assume quantity is the independent variable, the logical deduction that they would make is that the equilibrium price level changes in response to a change in quantity supplied and demanded. In essence, they would conclude that businesses increase prices when they increase production.

This would be pretty nonsensical, as an increase in the price level leads to an increase in quantity supplied because there’s more profit to be made. But thanks to Alfred, people won’t automatically know that quantity is the one who responds to price. This, unfortunately, leads a lot of people to assume that businesses are simply greedy. And that is what angers me the most about Alfred’s blunder.

What has by this time come to be known as ‘The Great Blunder of 1890’ has led people to perpetuate the false narrative that businesses, especially the big ones, are just plain greedy. In all honesty, I’d also believe it to be so if I thought that businesses will simply keep increasing their prices as they get bigger and bigger. I’d also want to limit the size of companies to keep price levels as low as possible. I’d also think that businesses are only interested in charging us more and more. Hell, I’d even go stand in the street with a placard whereon I rant about how capitalism is only bad and then go grab a soy latte at the nearest Starbucks. All in all, I’d be what a lot of people are these days: ignorant.

And that, Alfred, is why I’m angry at you. It’s not because I’m a fundamentalist about on which axes variables go.  It’s not because I don’t understand how supply and demand works.  It’s not because I hate neoclassical economists.  It’s because there are people in the streets shouting about a problem that does not even exist, all because you decided to be different.  Or is it just me?

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A Free Market in Labour is in the Best Interests of the Unemployed https://rationalstandard.com/free-market-labour-best-interests-unemployed/ https://rationalstandard.com/free-market-labour-best-interests-unemployed/#comments Sat, 16 Dec 2017 06:00:16 +0000 https://rationalstandard.com/?p=6953 Politicians love talking about jobs, not only here in South Africa but all over the world. They are fond of reminding us how much they want to create jobs. But it is clear that government has been the only thing that can and has reduced the potential to create employment. If you want jobs, reduce […]

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Politicians love talking about jobs, not only here in South Africa but all over the world. They are fond of reminding us how much they want to create jobs. But it is clear that government has been the only thing that can and has reduced the potential to create employment.

If you want jobs, reduce the government-imposed costs of hiring an individual to zero. Simple, right? Not if you are allied to unions with an interest in keeping out competing workers, who would drive down wages. This is the basic supply-demand curve: increasing the supply of labour drives down the price of labour. Incidentally, that’s why unions tend to be economic nationalists. They want to restrict the influx of competing labour from other countries as well as raise the price of imports produced in foreign markets with cheap labour or machines.

Now, the government-imposed cost of hiring someone includes, but is not limited to, the following:

1) The minimum wage.

2) Collective bargaining. Without the ability to negotiate, a mutually-beneficial settlement is not reached between employer and employee. Instead, a settlement that is acceptable to the union bosses has to be reached regardless of the interests of any individual worker.

3) Ease of firing. If firing unproductive workers is too difficult, companies will tend to be more unproductive than they would otherwise be, meaning that relative to less restrictive global peers, you are forced to accept less returns and global capital will respond accordingly. If it’s hard to fire, it will be more expensive to hire in the sense that any new employee is a high risk if they turn out to be unproductive.

4) Income tax. When employment is taxed, you get less employment; unless you believe taxing sugar, taxing alcohol, taxing cigarettes, etc. has no effect on the demand for these products.

This is not a comprehensive list, of course, but it does serve to illustrate the point.

The inescapable conclusion that arises from all of this is that unions have strong incentives to use government force to restrict new entrants into the labour market, in the same way that a large corporation has an incentive to use that force to restrict new competitors from entering the market. In fact, along with woeful employment growth, South Africa has experienced woeful small business growth. That’s why you have NEDLAC.

The National Economic Development and Labour Council (NEDLAC) is a very strange beast in a country with a Competition Commission that’s supposed to fight against collusion and promote free market competition. NEDLAC, after all, is composed of big business and big labour setting rules by which other market participants have to abide by. It’s obvious that a consequence of such an entity is likely to be anaemic job and small business growth.

If you are poor and unemployed, it is in your interest to have both small business as well as employment creation. The one relies on the other – without small business, it is impossible to maximise job growth because big corporates are in the business of consolidation, not growth. But government cronies from big labour and big business won’t allow this. This is despite the media narrative of ‘big business versus labour’, the reality of which being that both big business and big labour are enabled by government to act against the interests of the poor.

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Would you work for an 2-4, maybe 5 percent commission? https://rationalstandard.com/work-2-4-maybe-5-percent-commission/ https://rationalstandard.com/work-2-4-maybe-5-percent-commission/#respond Fri, 15 Dec 2017 20:47:14 +0000 https://rationalstandard.com/?p=6759 Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy; its inherent virtue is the equal sharing of misery. – Winston S. Churchill Great fuss is made by assorted socialists and other valuable members of the “never closing club of the eternally annoyed, insulted, suppressed and downtrodden” (in other words, […]

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Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy; its inherent virtue is the equal sharing of misery.

– Winston S. Churchill

Great fuss is made by assorted socialists and other valuable members of the “never closing club of the eternally annoyed, insulted, suppressed and downtrodden” (in other words, by failed individuals who would – to adapt a quip from Otto von Bismarck – also have failed in other subsidized jobs and especially in real free market jobs where the good, hard wind of competition from all directions is blowing) about families of entrepreneurs possessing a huge amount of partly-inherited wealth, being able to go sailing in their own yachts (I won’t), living in palaces (I don’t), driving RR or Bentleys (I can’t), possessing private jets (I go tourist class with the most pricey airline), which is in their gutter mind, of course, highly unjust and attracts the ire of the professional and, in most cases, subsidized “social justice warriors”.

Are all the bureaucrats, the subsidized Marxists in academia, “the socialists in all parties” (cf. Friedrich August von Hayek) and all other receivers of subsidies (from agriculture to unmarried mothers) aware what the precise economic advantages and values of one successful enterprise are? And have they understood that success is only possible if the consumers, the clients, the customers accept the products and services of one enterprise?

Have they added through all the years of the enterprises’  existence:

– the salaries paid out,

– the fringe benefits received,

– the taxes on salaries,

– other taxes levied on labour,

– contributions to social security,

– income tax paid by the owners,

– corporate income tax paid by the enterprise,

– the economic value of all the investments done,

– the VAT on its products and services,

– VAT paid by the employed as consumers which they can be as receivers of a salary,

– the general value of the products and services produced and provided,

– the possibility to make savings due to all the salaries and other payments done,

– revenues from exports and imports caused by the enterprise,

– the value of purchases from all kind of business partners,

– the value of patents and all kind of immaterial protective rights created,

– the value of all other civil rights created under that framework (for example the house a worker can build and own),

– the contribution to general economic stability and growth.

Have they – those socialist and nihilist nincompoops – ever thought of calculating all these advantages, and compare it with the entrepreneurs’ income and the wealth of the owners? Surely not, as they can’t calculate.

I bet that income and acquired wealth are very moderate compared with  those enlisted advantages accumulated  together, and even if the enterprise runs through generations (which is not easy, as I know from my own family), it is not more than 2-4 (maybe at most 5) percent of the accumulated value mentioned above. I normally never bet. But now I bet a crate of Villiera Brut rose Champagne that I am right. Bolshies, come on… challenge me!

Can any other way of organizing an economy compare with that kind of success and production of wealth? Are central planning and commanding bureaucracies cheaper? Are all the subsidized fat cats in politics, banks and institutionalized agitators of social justice  aware who is really productive and who is paying the bill? Surely not.

Have we ever calculated the economic costs of all kinds of socialism and welfare states? I do not speak about the cruel costs due to mass murder, genocide and tyranny. These costs should alone be enough to deter every decent one to ‘go’ red. Just the economic costs I speak about. In 1914 in a stupid totalitarian world war, socialism started – it was no coincidence that the German High command organized Lenin’s travel in 1917 into Russia and paid him then millions of “Goldmarks” to further his cause. And then comes one red revolution after the other and that includes FD Roosevelt’s “New deal”, fascists’ economic blunders – although you have to admit in organizing sometimes they had been more productive – blunders by “social democrats” and the ever expanding welfare state in Europe and North America.

That is the one and only triumph of cultural Marxism – it did not abolish the materially rich; it made them vulgar like any gutter-boy, and made them cowards who do not dare to speak out what they actually do for state, economy and society and are actually ashamed of themselves. Therefore, believing that wearing ill-fitting blue-jeans and sneakers make them “people like us”. No, they are not people like us – real entrepreneurs and builders of lasting enterprises are exceptional. They have any right to acquire wealth, enjoy it and leave to whomever they believe is worthy of that.

I repeat my question from the headline: Would you work for an 2-4 maybe 5 percent commission? No, I won’t and socialists and assorted nihilists and bureaucrats, red academics and bolshies and subsidized scum of all kind also won’t, but real entrepreneurs do, did it and will do also in future !

And therefore we should say: “Thank God!”

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Money, Natural and Artificial https://rationalstandard.com/money-natural-artificial/ https://rationalstandard.com/money-natural-artificial/#respond Wed, 13 Dec 2017 18:05:58 +0000 https://rationalstandard.com/?p=6976 Written by: Rory Short For aeons we have had, and thus have become thoroughly accustomed to, artificial money and its associated problems. Consequently, we think that the problems with money are inherent in money itself. But these problems are not inherent and will disappear if we change our Money System (MS) so that it only […]

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Written by: Rory Short

For aeons we have had, and thus have become thoroughly accustomed to, artificial money and its associated problems. Consequently, we think that the problems with money are inherent in money itself.

But these problems are not inherent and will disappear if we change our Money System (MS) so that it only produces Natural Money.

Artificial money is money that is produced independent of any exchange and until the advent of mobile phones, information technology and the internet, we had little choice but to produce new money artificially.

But for us today, with the aforementioned technology, plus the fact that the rand has been a fiat currency since the 1970s, this is no longer the case. What this means is that the rand Money System is already part way to producing only Natural Money; all that is required is to make some adjustments to the Rand MS itself.

So, what does the Rand MS do? It produces and administers money.

What is Money‭?

The beauty and power of money lies in the fact that it can be exchanged for absolutely anything of equivalent value. In other words the units of a currency, legitimate within a legally established monetary area, are universally exchangeable for goods and services within the area.

But how does money come by this miraculous property?

The answer to this question is central to any deeper understanding of money. There is however an even more fundamental question that needs to be answered first. This is: what is an economy? Why this question, you might ask? It is because money’s miraculous ability is totally bound up with its role in the economy.

What is this role?

In order to survive, let alone flourish, human beings have a constant need to make voluntary exchanges of goods and services with one another. Now, each of these exchanges is an economic event in its own right and the accumulation of these events is what makes up an economy.

Basically, if there are no exchanges then there is no economy. Thus, if we are to fully understand what money is, we need to first understand the role of money in exchanges.

Of course we can, and do, make exchanges without the aid of money, so why is money needed? Because it facilitates the making of exchanges and this increases the volume of successful exchanges happening in an economy, thus increasing its size which is to everybody’s benefit.

Voluntary exchanges without money

For convenience we call such one to one exchanges Moneyless Simple Exchanges (MSEs). ‭These exchanges are logistically very difficult to arrange, however. They require the simultaneous satisfaction of a number of coincident conditions, i.e. both parties must be face to face, they must have with them, and show the other party, the item that they wish to exchange and they must be happy to accept the other party’s item in exchange for their own item. In addition, these one to one exchanges only happen if both parties feel that the item that they are getting in exchange is worth more to them than the item that they are losing.

‎From the last sentence, we can see that money, in its natural form, is just a name for the externalisation of the values that are in the heads of the exchanging parties, namely, the values of the exchanged items.

‎Moneyless Simple Exchanges might be difficult to arrange, but they nevertheless contain all the ingredients needed for the creation of a healthy economic event. These are:

a) voluntary
b) one to one
c) automatically healthy because they are healthy, both
(i) economically, i.e. fair value, and;
(ii) socially, each party, plus offering, is accepted by the other,
otherwise the exchange would not complete
d) when completed they form, one, integral, healthy, economic unit, or event.

‎Voluntary exchanges involving money

‎Money is introduced into exchanges because it hugely facilitates the exchange process, whilst maintaining the economic health, if not the social health, of the resulting economic event. Consequently, in cash-based societies like ours, exchanges using money, old or new, have become the norm. They are not automatically socially healthy, however because all the people involved in exchanges using money do not have sight of one another, nor of all the items involved in all the exchanges.

‎This uncertainty in the social health of completed exchanges could be remedied, however, by attaching a list of its successive holder identities to each UoC. The provision of this information on request will enable any potential recipient of a UoC, in payment of a debt, to decide whether any particular UoC is acceptable to them or not.

‎Money is not a product of nature; it has to be produced by people before it can be used in exchanges, and new money is produced in one of two ways, artificially, i.e. apart from any exchanges, or naturally as a by-product of a completed complex exchange.

‎Initially, money could only be produced artificially and to prevent its fraudulent production if it was given its backing value on issuance. The backing value came from the State’s precious metal holdings – gold in our case. Thus, right from its issuance, artificial money could legitimately be used as a replacement for the item(s) in one half of a simple exchange.

‎We now have the technology (mobile phones, the internet, information technology) which enables us to issue fiat money, new or old, at any point of purchase. We call such money ‘fiat’ because it has no backing value on issuance. It has to gain its backing value from its participation in a successfully-completed complex exchange, otherwise it has to appropriate it from the backing value of all the money already in circulation, and this misappropriation debases the currency, causing inflation. Gained in the correct way, however, the backing value is a natural consequence of a completed complex exchange.

‎Exchanges involving fiat money are of two kinds: complex and simple. Complex exchanges involve three or more people and the use of newly-issued fiat money. Simple exchanges use old money and involve only two people. Old money is money that has  already been used in a previously successful completed exchange whether complex or simple.

‎Complex exchanges use new money

‎Newly-issued fiat money, V, enables one of the two parties, in a Moneyless Simple Exchange, to initiate the complex exchange, whilst the other party is replaced by two people: a seller person and a buyer person.

The initiator anchors the exchange by receiving V as interest-free debt from the Money System. The anchor then uses V to purchase something of value V from the seller person. They then sell something of value V to the buyer person. The income from the sale enables them to settle their interest free debt V. This completes the exchange and fills V, now in circulation, with its backing value.

‎Thus natural money is quite simply the externalised, shared, or equal in value, in quantitative terms, of the items exchanged in a completed complex exchange.

‎The completion of the complex exchange indisputably establishes

‎a) a voluntary exchange
‎b) a healthy economic event, through the use of V
c) ‭the backing value of V

‎The allocation of legitimate backing value to V turns V into old money. This makes it possible for V to serve as a legitimate stand-in for the exchangeable item(s) in one half of any Simple Exchange.

‎Simple exchanges use old money

‎Because of the universal exchangeability of money, Moneyless Simple Exchanges have virtually ceased to exist. Monied Simple exchanges are referred to either as purchases, or sales, depending on their initiator’s role in the exchange.

‎The Pros and Cons of using artificial money

‎Currently we use artificial money in exchanges but its use is not without both negatives and positives. The pros and cons are as follows:

‎Pros

‎a) it completely eliminates the logistical difficulties associated with arranging Moneyless Simple Exchanges;
‎b) money makes visible and quantifiable all ‘in-process exchanges’ in the economy.

‎Cons

‎The Cons depend on the type of money being used in exchanges. If it is natural there are no cons but if it is artificial then:

‎a) where old money, fiat or commodity-based is being used, exchanges are:

‎i) not automatically socially healthy

‎b) where new commodity-based currency is being used, exchanges are;

‎i) not automatically socially healthy;
‎ii) not open to those who have no money.

‎This is money poverty which means that people are unable to automatically participate in a cash based economy and thus the size of the economy is unnecessarily reduced and people experience real poverty in terms of access to goods and services.

‎c) where new Fiat money is being used exchanges are;

‎i) not automatically socially healthy
‎ii) not economically healthy, until the new money gains its legitimate  backing value
‎iii) not open to those who have no money
‎iv) the money is not stable, it is susceptible to chronic debasement, i.e. inflation, depending on the MS responsible for administering it.

‎Inflation means continuous theft of value from all the money already in circulation. The SA Reserve Bank has a target range  for inflation, not of 0% but of 3 to 6 percent. Consequently people are confronted on a daily basis with the ever decreasing purchasing power of Fiat money.

‎In view of the above cons the obvious next question is, can the pros be preserved whilst eliminating the cons? Yes, they can by completing the transition to an MS that produces only Natural Money. We have, however, continued with the artificial money approach even though the Rand has been a Fiat currency since the ‘70s. But there is no reason why the Rand MS could not be altered to produce only Natural Money thus eliminating the four Fiat money cons listed above.

Author: ‎Rory Short is a retired IT professional who worked and lectured at Wits. His lecturing focused on the front end of the systems development life cycle for information systems. The money system is actually an information system that reports on the allocation (distribution) of purchasing power within the economy.

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Reviewing Maimane’s 6-Point Plan to Fix SA’s Economy https://rationalstandard.com/reviewing-maimanes-6-point-plan-fix-sas-economy/ https://rationalstandard.com/reviewing-maimanes-6-point-plan-fix-sas-economy/#comments Thu, 07 Dec 2017 14:39:33 +0000 https://rationalstandard.com/?p=6958 Mmusi Maimane has presented a 6-point plan of what he thinks will help fix South Africa’s economy. Maimane is typically schizophrenic on policy, jumping between support for a liberal free market on some occasions while positing a racial socialistic order on others. What follows is a point by point appraisal of his 6-point plan and […]

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Mmusi Maimane has presented a 6-point plan of what he thinks will help fix South Africa’s economy. Maimane is typically schizophrenic on policy, jumping between support for a liberal free market on some occasions while positing a racial socialistic order on others.

What follows is a point by point appraisal of his 6-point plan and an overall evaluation of the policies themselves and their ramifications.

1. State-owned entities

Maimane has rightfully condemned state-owned entities, stating:

“They are haemorrhaging public money and delivering dismal services at exorbitant prices.”

He argues that non-strategic state assets need to be sold, with the strategic enterprises being reformed to cut down on corruption and incompetence.

As a whole, this is a good point. State enterprises are a drain on the fiscus and cannot surpass the private sector as sustainable and high performing producers. Privatisation will go a long way in reducing negative government spending, corruption and the capacity for state capture.

I would, however, like to know what “strategic” means. If it means that the Army shouldn’t be privatised, then that is fine – but if it means that the state should still have a monopoly on Lenin’s ‘Commanding Heights’, then Mmusi still has a long way to go.

2. Remove red tape

Maimane wants to cut red tape that prevents job seekers, especially young job seekers, from finding jobs. Labour regulations and union interference makes finding a job almost impossible.

While non-specific about how far he is willing to go here, I am very much in favour of this point. We need to make employment viable in this country, and deregulation is the only way to do that.

3. Empowerment

On current government empowerment schemes, Maimane says the following:

“The current system has been used as a mechanism for elite re-enrichment and corruption. It imposes a heavy regulatory burden on businesses and raises the cost and lowers the quantity of service delivery to the poor. We want companies’ greatest contribution to be to society in general, not just to the elite.”

Empowerment is racist and is used merely as a tool to hide corruption behind ‘restitution’. But I fear that Maimane still thinks that some form of race-based appointment is necessary and virtuous. This is definitely not the case in reality.

On the face of it, his condemnation of empowerment projects is good, however.

4. Make SA open for business

This section starts great, with Maimane arguing that we do the following:

  • Reduce corporate taxes
  • Abolish exchange controls
  • Remove trade barriers

This is all in an effort to attract investors to provide much-needed capital for the economy.

Where this heading falls short is Maimane’s argument that a wealth tax and estate tax are more preferable to redistribute wealth, and don’t scare investors.

No, wealth tax will scare off investors. Investors don’t like having their money stolen just because they have it. If Maimane was serious about attracting foreign investors, he would support South Africa becoming a full tax haven, with a minimal flat-rate tax.

Redistribution itself is fruitless and unjust exercise based on the false principle of equality before desert. Any tax aimed at achieving it is an illegitimate tax.

5. Be tourism-friendly

Yes, we do need to make travel to SA easier. But we must also make it safer. I’m sure Maimane will agree that we need to solve our crime so to not scare away even more tourists. Making it easier to arrive will not help matters if nobody wants to arrive.

6. Zero tolerance for corruption

“Corruption is destroying our nation and we need to signal a zero tolerance attitude henceforth,” says Maimane.

Well, yeah. Not much to argue about here. Except that zero tolerance is sufficient to minimise corruption. Corruption follows any organisation that involves a lot of power and a lot of wealth. The key to minimising state corruption is minimising the state.

You can’t loot the treasury if there is no treasury, after all.

The government is too entrenched in our day-to-day lives. And as corruption is an inevitability of government involvement, this means that our society corrupts. Thus, minimise the state and you minimise corruption.

Conclusion

Overall, this plan isn’t bad. It presents quite a few common sense free market solutions to South Africa’s woes – the right solutions. Its only pit-falls are that it may not go far enough and that I don’t think Maimane is truly behind it. Maimane’s policies tend to flip-flop, and he has stated his distaste for liberalism in the past. If the DA truly supports this plan, it will be an improvement, but I’m not holding my breath.

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According to Government, ‘uBuntu’ is Marxism Dressed in African Clothing https://rationalstandard.com/according-government-ubuntu-marxism-dressed-african-clothing/ https://rationalstandard.com/according-government-ubuntu-marxism-dressed-african-clothing/#comments Mon, 04 Dec 2017 20:13:56 +0000 https://rationalstandard.com/?p=6933 In a recent newspaper advertisement of government’s National Health Insurance (NHI) scheme, the health department wrote the following in support of its implementation: “Currently due to rising costs of medical care, medical aid schemes have introduced several options which exclude a range of cover for the patients. Further more,many [sic] people exhaust their funds in […]

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In a recent newspaper advertisement of government’s National Health Insurance (NHI) scheme, the health department wrote the following in support of its implementation:

“Currently due to rising costs of medical care, medical aid schemes have introduced several options which exclude a range of cover for the patients. Further more,many [sic] people exhaust their funds in the scheme as early as June and they are without cover for the rest of the year. In other words,they [sic] are covered for sa long as they are not sick.

Not anymore. NHI will give cover to all, in line with the Ubuntu principle: from each one according to his ability, to each one according to his needs.” (my emphasis)

For those unfamiliar with the highlighted portion in the above quote, it is a slogan popularized by the founder of modern socialism, Karl Marx, in 1875.

“From each according to his ability, to each according to their need” is based on the fallacy that in a communist society, such abundance of goods will be produced that everyone’s needs and material desires will be fulfilled. Everyone is merely expected to contribute as much as their own capacity allows, but will get in return whatever they need, freely.

Those who understand basic economics, of course, know this is nonsense. The post-scarcity society envisioned by socialists is impossible, and even if it were possible, it wouldn’t make a difference to human relations. Socialism’s, and apparently now uBuntu’s, essence is compulsion. Liberty’s essence is voluntaryism: Do as you please as long as you don’t violate the same right of others.

With all the talk of ‘African solutions for African problems’, and the developing ‘Afrocentric’ criticism of South Africans adopting ‘foreign’ ideas and narratives now needing to be ‘decolonized’, the health department’s statement above is particularly amusing. We have long known that these same critics of so-called ‘Western’ ideas, who to no end proclaim that individual liberty and economic freedom are inherently incompatible with the ‘African context’ and the ‘African philosophy’ of uBuntu, are merely socialists who think their disastrous ideology will work in Africa.

Karl Marx was born in Germany and died in Britain, having lived his entire life in the West. His ideological influences and predecessors were all non-African. Now that uBuntu has been confirmed to merely be Marxism dressed in localized African nationalist rhetoric, surely the next step is to also bin it in the battle of ideas?

To the extent that its proponents want it infused with public policy, all the various conceptions of uBuntu are fiercely opposed to the notion of a society based on voluntaryism, peaceful cooperation, and liberty. As a matter of governance, it should be rejected.

National Health Insurance will be unaffordable and if tried, will seriously hurt our fledgling economy. The quality of South African healthcare will need to be compromised across the board, for no reason other than to satisfy the ideological desires of Aaron Motsoaledi and the ruling party. Going ahead with this disastrous scheme simply because uBuntu apparently requires it is suicidal.

Those who seek to practice uBuntu should do so within the comfort of their own homes and communities, and leave those of us truly committed to a way of life founded on interconnectedness, voluntary community, peace, and freedom, alone.

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