Dr. Elinor Ostrum, 76, based her work around the idea that there are human interactions beyond the statistics of market prices surrounding the “commons” such as fish stocks, pastures, woods, lakes, and groundwater basins are managed as common property. Although this idea itself is not new  – Ludvig von Mises covered this in gory detail inHuman Action from 1949, Jared Diamond provided both historical and modern examples in his 2005 book Collapse, and Walter Block and Hans Hermann-Hoppe of the Mises Institute have reviewed many aspects of the commons already – it IS probably new to the Nobel committee.  However, the details of her work itself are very novel.

Nobel’s 5-page informational hand-out reads:  

“Many natural resources, such as fish stocks, pastures, woods, lakes, and groundwater basins are managed as common property. That is, many users have access to the resource in question. If we want to halt the degradation of our natural environment and prevent a repetition of the many collapses of natural-resource stocks experienced in the past, we should learn from the successes and failures of common-property regimes.Ostrom’s work teaches us novel lessons about the deep mechanisms that sustain cooperation in human societies.

“It has frequently been suggested that common ownership entails excessive resource utilization, and that it is advisable to reduce utilization either by imposing government regulations, such as taxes or quotas, or by privatizing the resource. “The theoretical argument is simple: each user weighs private benefits against private costs, thereby neglecting the negative impact on others. However, based on numerous empirical studies of natural-resource management, Elinor Ostrom has concluded that common property is often surprisingly well managed. Thus, the standard theoretical argument against common property is overly simplistic. It neglects the fact that users themselves can both create and enforce rules that mitigate overexploitation. The standard argument also neglects the practical difficulties associated with privatization and government regulation…

“Consider the management of grasslands in the interior of Asia. Scientists have studied satellite images of Mongolia and neighboring areas in China and Russia, where livestock has been feeding on large grassland areas for centuries. Historically, the region was dominated by nomads, who moved their herds on a seasonal basis. In Mongolia, these traditions were largely intact in the mid-1990s, while neighboring areas in China and Russia with closely similar initial conditions had been exposed to radically different governance regimes. There, central government imposed state-owned agricultural collectives, where most users settled permanently. As a result, the land was heavily degraded in both China and Russia.

“In the early 1980s, in an attempt to reverse the degradation, China dissolved the People’s Communes and privatized much of the grassland of Inner Mongolia. Individual households gained ownership of specific plots of land. Again, as in the case of the collectives, this policy encouraged permanent settlement rather than pastoral wandering, with further land degradation as a result. As satellite images clearly reveal, both socialism and privatization are associated with worse long-term outcomes than those observed in traditional group-based governance.”

Later on, the Nobel committee asks some questions on Oliver Williamson’s work (who shared the prize with Ostrum), which they again regard as novel, though the Austrian school of economics has already addressed their questions.

“Why are there large firms? Couldn’t we all be self-employed, trading our goods and services in the market?… According to Coase, firms tend to emerge whenever transaction costs, i.e., the costs of exchanging goods, services, and money, are lower inside a firm than in the corresponding market. But what exactly are those transaction costs that may tip the balance between markets and hierarchies? While Coase offered tentative suggestions, the question remained elusive…According to Williamson’s theory, large private corporations exist primarily because they are efficient. They are established because they make owners, workers, suppliers, and customers better off than they would be under alternative institutional arrangements.“

Again the Nobel committee appears to be ignorant of David Ricardo’s law of division of labor and the Henry Hazlitt’s work Economics in One Lesson. Ricardo’s law states that, provided people’s production skills are different, an economic gain always results from cooperation, even if person A is more superior than person B in good production. Let me explain briefly using three hypothetical scenarios from a deserted island.

• Anna can collect 10 coconuts/hour OR 6 fish/hour.
• George can collect 6 coconuts/hour OR 10 fish/hour.

It is obvious that Anna has an “absolute advantage” in coconut production, and George has an “absolute advantage” in fish production. If they work separately, say for 4 hours, Anna could collect 20 coconuts and 12 fish, while George could collect 12 coconuts and 20 fish/hour. However if Anna and George team up and spend all their labor on their respective competitive advantages, the same 4 hours yield 40 coconuts and 40 fish, a higher average yield (20 coconuts and 20 fish) than both previously had while working separately.

Now let’s assume that Anna is a superwoman, and has an absolute advantage in BOTH coconuts and fish. Why would she have anything to gain by working with George?  Ricardo’s law holds that working in cooperation will still result in an overall benefit. Let’s see how this works.

• Anna can collect 10 coconuts/hour OR 10 fish/hour.
• George can collect 5 coconuts/hour OR 1 fish/hour.

Working by herself, Anna can produce either 40 coconuts OR 40 fish in four hours. Poor George can only produce either 20 coconuts or 4 fish in the same amount of time. For 8 hours of work collecting each good for 4 hours, their collective output is 60 coconuts and 44 fish.

However, George has a comparative advantage in collecting coconuts since Anna’s production rate is only twice his, while Anna’s tremendous fish production is 10X greater. If George only produces coconuts, he has 40 coconuts produced in 8 hours. However, Anna only has to work 2 hours to produce another 20 coconuts. She can then output 60 fish in the remaining 6 hours. Their combined efforts yielded 60 coconuts and 60 fish, a larger total than either could produce separately. So, here’s the critical part, even though Anna is a superwoman compared with George, she still has a selfish reason to cooperate as it increases the individual wealth of each.

While this example is extremely simplistic, it holds the core logic as to why, given the scarcity of resources and labor in the world, free trade is advantageous to both poor and rich nations alike. Specialization and cooperation, whether between two people or two countries, creates more wealth through trade than either party would have while working in isolation, which is how the modern exchange economy arose.

Williamson’s work does in part answer the Nobel’s second question, “What exactly are those transaction costs that may tip the balance between markets and hierarchies?” Williamson suggests that among other factors, “undesirable political lobbying” may cause imbalances, and he is absolutely correct. In fact, in my humble opinion, the entire field of present-day economics should be renamed “governomics” as the government, by following Keynesian economic principles, is the driving force behind the destruction of capital in the United States.

As a society, we need to move from the destructive themes of the Keynesian model – deficit spending, government ownership of firms, massive inflation of a fiat monetary supply, crony corporatism, central planning, and redistribution of wealth from the people to the military-industrial complex and banking industries. Instead, we could have all of the benefits of the Austrian model separation of the bureaucratic and inefficient government from the economy, sound money and highly reward those who create wealth while sharing the benefits with all of humanity.  (see slides 46-47 here)

I offer my sincere congratulations to both Ostrum and Williamson. Their new research has added to the vast store of human knowledge, and will likely do far more for world peace if applied than the presidency of Barack Obama, as I covered in Part 1. For the sake of my country, I hope I am gravely mistaken.

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Jake Towne is running for U.S. Congress in Pennsylvania’s 15th District in the 2010 election as a citizen unaffiliated with any political parties. Jake also writes at www.LibertyMaven.com andwww.CampaignForLiberty.com. A novel campaign website where you can comment on articles and start discussions is available at TowneForCongress.com. [Reach the Author Here!]

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We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings of this article to your blog or anywhere else in order to promote the Restoration of our Republic.

Veritas numquam perit. Veritas odit moras. Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.

Tu ne cede malis sed contra audentior ito. Do not give in to evil but proceed ever more boldly against it.

Naturally such are ideas aren’t politically feasible given the current batch of morons elected to Congress, but nevertheless they are badly needed.

Read the article:

A lot of people get annoyed with Austrian economists because they tend to be so dogmatic (we prefer the term consistent) and because they cloak their strictly economic claims with self-righteousness (we prefer the term morality). After a good Austrian bashing of the latest call to steal taxpayer money and waste it on something that will make a given problem worse, the stumped critics will often shout, “Oh yeah? Well do you guys have a better idea?” [Continue]

They started by referencing a topic near and dear to me: Doing nothing to help the economy.

They also discuss Woods’ new book “Meltdown“.

I find it amusing that Beck is the first to bring up Ron Paul, but again mentions that he doesn’t agree with him on everything, but on the economy he is “so right”.

They also discuss Austrian Economics with special mentions of Ludwig Von Mises and Hayek, among others. Beck, obviously doesn’t know who Mises is nor the Mises Institute, but it sounds like he’s about to get an education.

Beck ends the interview saying he wants Woods to come on his show “a few more times this week” and write an article for his newsletter. This is yet another baby step towards educating the masses about the “other way” out of our economic mess. Kudos to Beck for having Woods on his show.

Listen to the audio here:

Download audio file (tomwoods-glennbeck-radio-02092009.mp3)

or download the mp3 here (right click, save as).

Amid a horrific financial crisis, all we hear are calls for more of the money-printing, spending and subsidies that created this mess. So I choose my great teacher, Ludwig von Mises, champion of the Austrian School of economics, who taught us how a central bank like the Fed causes booms and busts and how to build prosperity through sound money and economic freedom.

When men realized that the phenomena of the market conform to laws, they began to develop catallactics and the theory of exchange, which constitutes the heart of economics. After the theory of the division of labor was elaborated, Ricardo’s law of association enabled men to grasp its nature and significance, and thereby the nature and significance of the formation of society. The development of economics and rationalistic sociology from Cantillon and Hume to Bentham and Ricardo did more to transform human thinking than any other scientific theory before or since. Up to that time it had been believed that no bounds other than those drawn by the laws of nature circumscribed the path of acting man. It was not known that there is still something more that sets a limit to political power beyond which it cannot go. Now it was learned that in the social realm too there is something operative which power and force are unable to alter and to which they must adjust themselves if they hope to achieve success, in precisely the same way as they must take into account the laws of nature. This realization had enormous significance for men’s action. It led to the program and policies of liberalism and thus unleashed human powers that, under capitalism, have transformed the world.

But today’s politicians ignore this reality and, either through hubris or deceit, make promises they simply cannot keep.  Richman writes:

Today’s political leaders, regardless of party and including, alas, Barack Obama, operate with this pre-modern mentality. We saw it throughout the presidential campaign, and heard its words when Obama said, “There is nothing we can’t do, nothing we can’t accomplish if we are unified.”

This is opposite of the classical-liberal insight, which can be summed up with this bumper-sticker slogan: Economics. It’s not just a good idea. It’s the law.

Because there are economic laws, there are limits to what “we” can do and how we can do it. (By we, of course, Obama doesn’t mean the spontaneous social order; he means the state and deliberate planning.) We cannot raise wages or create jobs or eliminate poverty or make medical care cheap and widely available — or do any of the other things politicians promise — by decree. But we can move toward those goals by freeing the market, the undesigned yet orderly process that distills the knowledge and wisdom of the people and rewards entrepreneurs for solving problems.

Government cannot do those things directly. If it tries, it will fail and make us worse off. The key to understanding this lies in the nature of human action. We live in a world of scarcity, and the list of scarce resources includes time and knowledge. At any moment demand exceeds supply. Under these conditions, we adapt means to achieve chosen ends. We face opportunity costs and make tradeoffs according to our subjective preferences. The perception of costs prevents us from achieving lesser values at the expense of greater values. Respect for other people and their property, backed by law, prevents us from shifting costs to them without their consent. The result is the market — that emergent order which serves the general welfare and encourages personal responsibility as each person pursues his or her private interests.

You’ll want to read the whole article.

I realize the WSJ is in the business of selling newspapers, and that calling injections of Fed funny money “medicine” is a catchy opening. But if our present crisis it the result of prior injections of artificial credit, then the medicine is in fact arsenic. What is especially ironic is that this very article later on alludes to the possibility that the housing boom was fueled by Greenspan’s low rates. In any event, the most recent Fed cut was largely symbolic, since the actual fed funds rate (as opposed to the official “target” set by the Fed) had already been below 1 percent for some time…

Murphy dissects the WJP piece almost line-by-line, and as usual, does a great job of bringing clarity to the situation at hand.  Read it all here.

Central banking has been a corrupt, mercantilist scheme and an engine of corporate welfare from its very beginning in the late 18th century. The first central bank, the Bank of North America, was “driven through the Continental Congress by [congressman and financier] Robert Morris in the Spring of 1781,” wrote Murray Rothbard in The Mystery of Banking (p. 191). The Philadelphia businessman Morris had been a defense contractor during the Revolutionary War who “siphoned off millions from the public treasury into contracts to his own … firm and to those of his associates.” He was also “leader of the powerful Nationalist forces” in the new country.

The main objective of the Nationalists, who were also known as Federalists, was essentially to establish an American version of the British mercantilist system, the very system that the Revolution had been fought against. Indeed, it was this system that the ancestors of the Revolutionaries had fled from when they came to America.

Continue reading the article at the Ludwig von Mises Institute.

Jesse Ventura, when he’s not talking about 9-11, makes a lot of sense. Describing the two party system to Larry King, he said,

[W]hat you have today is like walking into the grocery store and you go to the soft drink department, and there is only Pepsi and Coke. Those are the two you get to choose from. There is no Mountain Dew, no Root Beer, no Orange. They’re both Colas; one is slightly sweeter than the other, depending on which side of the aisle you are on.

In an interview with Newsmax, he described politicians in the two party system as pro wrestlers.

In pro wrestling, out in front of the people, we make it look like we all hate each other and want to beat the crap out of each other, and that’s how we get your money, [and get you to] come down and buy tickets. They’re the same thing. Out in front of the public and the cameras, they hate each other, are going to beat the crap out of each other, but behind the scenes they’re all going to dinner, cutting deals. And [they're] doing what we did, too — laughing all the way to the bank. And that to me is what you have today, in today’s political world, with these two parties.

Jesse’s right. Our political system is a farce. This year, we have running for president a warmonger who’s a reluctant socialist versus a socialist who’s a reluctant warmonger. We have two parties that claim they’re different, but when the Establishment, the Complex, our shadowy overlords, whatever you want to call them, really want something, they get it. When the Establishment wanted the Bailout in the face of almost universal grassroots opposition, they got it. When the Complex wanted immunity to the telecoms who knowingly spied on Americans, they got it. When our shadowy overlords wanted stormtroopers to brutally stifle protesters during the party conventions, they got it.

But even if voters had a real choice — and even if the politicians followed the majority will on issues that matter — the system would still most likely be a farce. As Augustine observed, without justice, a government is nothing but a band of thieves. Augustine was writing about kingdoms, but his insight applies to democracies as well. Without justice, the ability of the subjects of a government to vote on the laws and rulers that govern them doesn’t make a government any more legitimate than an unjust monarchy. And the founders of this country did not believe democracies were likely to be just.

Continue reading here.

The world is a dangerous place.
Not because of the people who are evil
But because of the people
who don’t do anything about it.

– Albert Einstein

If you agree, and aren’t silly enough to think that Obama or McCain will bring the needed “change” to turn things around, you might enjoy the following video by Conza88, which contains some new clips of Ron Paul, Michael Badnarik, and Murray Rothbard, among others.

Ask yourself this question: was the housing price bubble, which has burst, caused by (a) a Fed policy of too much liquidity, which caused artificially low interest rates, which in turn caused a great deal of malinvestment, or (b) a Fed policy of too little liquidity which caused high interest rates and a credit-starved economy? If you chose answer b, congratulations, you may have a future as a celebrated author, historian, and Wall Street Journal commentator.

Answer b is a theme of a truly ridiculous article by John Steele Gordon in the October 10 issue of the Wall Street Journal online entitled “A Short Banking History of the United States.” The article is an attempt to defend the Fed, its founding father, Alexander Hamilton, and the regime that it finances. (Gordon is the author of a book entitled Hamilton’s Blessing which sings the praises of a large public debt, something that Hamilton himself called a “public blessing.”)

Enjoy the rest of the article here.

Bankruptcy is a normal part of economic life, covered by laws that guarantee stockholders will be compensated as much as possible. More efficient firms move in to take over what is left of bankrupt firms, buying what can be put to productive use. There is no crime in bankruptcy and, if handled quickly, little economic harm. When the largest US energy company Enron went bankrupt a few years ago, there was not even a ripple in the energy markets, much less the economy. Bankruptcy is not criminal and should not be a surprise, but it can be unnerving if large, well-known firms go bankrupt.

Naturally, Big Government’s natural inclination is to intervene further into the private marketplace in attempt to stop necessary declines, which only makes the problem worse, distorts the market even more, and often rewards bad behavior.

One part of the evolving financial bailout is the government using taxpayer money to help people who have not been able to pay their mortgage. The government is taxing those who have paid their mortgages and transferring the money to those who have not. It is not a good idea to reward inefficiency.

The article goes on to discuss the detriments of the recent financial bailouts and the government scrambling to “fix” the problem it created by doing more of what cause the problems in the first place.

Read the article here.