GENIUS OF THE PAST SHINES A LANTERN ON TODAY'S DECEPTION. LESSONS ON THE SOCIALISM OF OBAMACARE, PURPORTED FREE TRADE AGREEMENTS AND SOCIALIST REVIVALISM OF GREECE AND EUROPE

Yesterday, in , CONTEMPORARY ECONOMICS. ITS TRUE ORIGINS AND WHY IT IS FAKE, I gave you the first part of an essay, On the Science of Economics and Its Relation to Free Exchange and Socialism, written by the brilliant Henry Dunning MacLeod, an eminent banking lawyer of his day and a man who knew more about trade and reality than all those who have since lived and died who have called themselves "economists".



Today, I give you the second part of the essay, itself in two parts. In the first part, MacLeod is gives a lesson on free trade. This lesson holds true whether such trade is insular or foreign. In the second part, MacLeod is gives a lesson on the foolishness of socialism.

When reading this lesson you could apply his lesson upon Obamacare, an example of regulated insular trade, or any so-called contemporary "free trade agreements," which, long ago, all thinking men recognized as treaties of reciprocity designed to promote particular interests.



Here MacLeod begins to lay down his argument that while free trade is inherently right, any force that interferes in free trade between two is little more than robbery by another name.



And here MacLeod lays down what libertarians would recognize as the non-aggression principle long before 20th century libertarians existed.



And then MacLeod reveals how the interference by legislators in the trade of property to the benefit of favored parties amounts to robbery by other means.



To help the reader understand, MacLeod provides an example.



From here, MacLeod dives into his argument.




Though in other writing, MacLeod finds fault with Adam Smith and his many confused, false beliefs, MacLeod praises Smith for his work on free trade.



MacLeod then describes the rise of the dangerous and harmful doctrine of socialism in France.



MacLeod then reveals how “reciprocity” and “fair trade” are merely protectionism under different names.



MacLeod further exposes socialism.



MacLeod reveals the true meaning of value. It's a ratio.



MacLeod reveals that property known as wealth becomes wealth precisely because of trade and by no other means. Said another way, nothing in itself has value but a value arises from the trade rate as expressed by the ratio of one thing traded for another.



MacLeod reveals how the otherwise smart John Locke blew it when it came to economics.



And then MacLeod reveals the errors of Adam Smith, errors that David Ricardo would repeat and from which Karl Marx derived his entire erroneous theory.



MacLeod shows how David Ricardo erred much like Adam Smith. Ricardo's errors provided the basis for Karl Marx's beliefs.



And here MacLeod connects the Socialists with the fallacies of Adam Smith and David Ricardo.




MacLeod shows how the existence of credit exposes the foolishness of socialist belief.



MacLeod sums up his thoughts here.

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WHO NEEDS A CAR AND A 747 WHEN YOU CAN'T BUY A GALLON OF GAS?

So yesterday, a dialogue of sorts opened up between Tim Worstall of Forbes as well as the Adam Smith Institute and myself. Forbes published a piece of work by Worstall in which Worstall makes these claims about gasoline prices in America:

• "Futures speculation doesn't change the price of gasoline one whit"
• Americans do not set the price of gasoline in the USA
• The global balance of supply sets the price of gasoline in the USA 
• Futures trading does not affect the price of physical commodities
• David Ricardo rendered an Iron Law of One Price 

Worstall addressed me and said this bit of foolery,

"[A]t the more general level gasoline prices are set by the international price of crude oil. If this were not true then gas prices would not move in lock step with that price of international crude. Given that they do therefore they must be so influenced...There are significant gasoline exports from the US: so the market is so integrated."

Worstall's beliefs are quite absurd. Worstall believes that crude oil prices set the price of gasoline. Worstall tries to defend the false belief that input prices set output prices. In so doing, Worstall expresses the fallacy that costs set price.

It was Worstall's beloved David Ricardo who is well-known for having started that fallacy. It is Karl Marx who is well-known for perpetuating that fallacy in is his foolish “Labor Theory of Value”.

If it were true that crude set gasoline, that is, if the fallacy of costs set price were true, then why do refiners go out of business? Why do retailers go out of business?  Why wouldn’t businessmen merely charge costs to avoid bankruptcy? Why wouldn’t businessmen merely raise prices at will to cover increasing costs to avoid bankruptcy?

Crude oil prices do not set gasoline prices, ever. Gasoline prices for gasoline bought by retailers are set by futures markets players. To believe anything else is to reveal profound confusion on the matter.

Futures speculation sets prices of refined gasoline purchased by retailers. At the delivery date of a futures contract, someone must take physical delivery of that refined gasoline at the settlement price of the contract.

The entire purpose of futures speculation is to set prices of commodities. In so doing, futures markets players keep the flow of gasoline to retailers both in times of glut and in times of shortage.

Speculation into graded contracts creates a steady, active market for property of all kinds without respect to on-the-spot winning bids for what is on offer at any moment. The purpose of organized futures speculation is to give rise to consistent profit from transmuting property as capital into property as wealth under efficiency.

Gasoline retailers are price takers of the gasoline price set by futures markets players. Oil refined into gasoline is the product they sell at retail. Gasoline retailers are retailers the same as supermarket operators who sell milk, eggs, bread, meat.

All prices adhere to the one and only true law that governs all of commerce — the Law of Prices. The Law of Prices holds the winning bids of purchase and sale in the face of what is on offer sets the price.

It is drivers alone who buy gasoline who set the retail price from their winning bids.  Once futures players set the price of gasoline for retailers, retailers try to make a go of it by accepting prices set by drivers who buy gasoline.

The whole trick of business is producing so that one can adhere to the Axiom of Profit on given prices set by winning bidders. The Axiom of Profit holds the sum of sales on prices set by winning bidders must at least equal the cost of production, otherwise the seller goes to ruin.

If drivers drive less, buying many thousands fewer gallons of gasoline, retailers shall be forced to accept lower winning bids for what they have on offer.  For some, owing to inefficiency, they shall sell at a loss and get forced into bankruptcy. That is the great Axiom of Profit in action.

In 1994, there were 202,800 retail sites for the sales of gasoline. In 2012, that number had fallen to 156,065. The total number of sites has fallen -29.9% falling at a rate of -1.4% a year.

Thus, it can be seen that between 1994 and 2012, many retailers could not make a go of it profitably on extant prices for gasoline set by futures speculators. Therefore, these unprofitable retailers exited the field.

Worstall is quite wrong about all of it, as usual from my experiences reading his work. Perhaps Worstall should find another occupation as he seems to be wrong, consistently on all matters of commerce.

Reality thoroughly contradicts Worstall. As to prices of gasoline, the EIA reports prices in the USA differ by region. As well, Bloomberg reports prices for gasoline differ by country. Thus, it can be seen there is no fictitious global balance of supply and demand that sets the price of gasoline in the USA as Worstall so wrongly believes.

Further, imports of refined gasoline can come into the USA profitably only if outlays to refine elsewhere are low enough such that when combined with transport outlays, foreign producers can at least break even on prices set here in various regions of the USA. As can be seen here by PADD (Petroleum Administrative Defense Districts) region, most foreign exporters of crude to Americans do not also export gasoline likely because it is not profitable to do so.

David Ricardo never wrote about an “iron law of one price.” Germans academicians stuck Ricardo with the phrase, “the Iron Law” and they did so because Ricardo had written something about wages only and not other prices.

Specifically, Ricardo claimed there is a tendency for population to rise as soon as wages would rise above bare necessaries to sustain living thus. This thought became known as the "Iron Law of Wages."

Worstall tries to make an appeal to authority by mentioning Bank of Sweden laureate, Paul Krugman. According to Worstall, Krugman claims futures trading doesn’t affect the price of commodities.

Krugman is an expert in academic economics. However, Krugman appears not to know anything about commerce.  Like Worstall, Krugman is a shop-talker and not a man who deals in profit and loss from selling stuff. Krugman works at think tanks and he teaches.

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WORK NEVER CREATES VALUE. WORK CREATES PROPERTY.

Recently, noted anti-banking blogger, Charles Hugh Smith wrote in The Changing Nature of Middle Class Work, "If we ask, what is work?, the conventional answer is tasks that somebody will pay us to do. This is true, but it doesn't address why someone is willing to pay us. The answer is to create value."

Charles Hugh Smith and all those like him perpetuate fallacy. The fallacy that work creates value is a variant of David Ricardo's labor causes value theory, which Karl Marx built upon his entire theory. 

As I show in BUT I SPENT 150 HOURS HANDCRAFTING THAT OIL ON CANVAS! OR THE LABORER'S SILLY THEORY OF VALUE, labor has nothing to do with prices. Prices get set by winning bidders. 

All prices adhere to the one and only true law of trade, the Law of Price — the winning bids of purchase and sale in the face of what is on offer sets the price. Prices get set by winning bidders who possess the means — these days legal tender cash or credit — in the face of what is on offer.

If no one bids for anything made, no matter how skillfully done, it's worthless. If bids are below cost, oh well. That is an signal that most everyone in a society of property deem the work worthless and a waste of resources. 

The entirety of trade, or commerce, or real economics ties up with two words — property and profit. Without profit from effort, anyone would lack buying power to buy anything else. Without property, no one can trade. 

Though most think of property as things possessed, property always has meant the right of ownership and never the thing owned. Only when property gets created, can trade arise between two persons. 

The name for property put to making stuff is called capital. The name for property put to purchase and sale for cash and credit is wealth. 

Work is expressed skills through time. Work becomes the wealth of the laborer when traded away in a purchase and sale. Why someone pays for work is to gain property in that work. 

Cash and credit in the form of wages becomes the wealth of the employer when traded away in a purchase and sale for wealth of the worker, which is her work.

In a purchase and sale, work is what the laborer sells and wages in the form of cash or credit is what the laborer buys. 

Until an employer gains property in the effort of an employee, which we call work, the employer cannot do anything with that work. Taking possession of something without having property in something is called theft. 

Work of a laborer is no different than computer chips made by robots in a factory. Both are components of a larger product. 

The manufacturer of smartphones with computer chips does so in quest to trade away at profit, property in smartphones for property in cash or credit.

Value does not mean usefulness. Value is a ratio. Value is the ratio of one thing for another. The ratio of exchange, that is, the rate of exchange, or said as the exchange rate, is the value. 

When one two things in a purchase and sale is cash or credit denominated in cash, value gets called by the word price. Value is the quantity of what is acquired in a purchase in sale over cash or credit denominated in cash given up in that purchase and sale.  

So, 6 oranges for $1 is the value, written as 6 oranges / $1. 6 oranges together is a trade quantity. $1 is a trade quantity. 

Stuff doesn't have value. Stuff makes value. Value is a ratio of one thing for another in actual trade. Value arises from valuation. Always, value is a ratio expressed as one thing traded for another. 

Value arises solely in the moment of trade. When one of two things in trade is cash or credit, we give the word value another name. We call it price.  

Value results from reciprocal desire to gain property from whatever causes in the minds of those involved in the trade. 

To someone, she might sell $8 and buy a hamburger and a milkshake. To someone else, he might sell $8 for a six-pack of beer.  

Even though their subjective desires differ with respect to the same sum of cash, $8, any outside observer can observe objectively value in either transaction, one burger and shake for $8 as well as one six-pack of beer for $8. 

There is no other cause for price (value) than the quest to gain control of property. No one can realize profit gains without property owing to being among a society of property. No one can derive the usefulness of goods before possessing those goods.

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