Peace will come to earth when the people
have more to do with each other
and governments less.

On Thursday, I had lunch with the remarkable Legatum Institute. Their vision:

To advance human liberty and a more prosperous and secure world, through researching and promoting the integration of human dignity, liberty, and development.

To encourage the adoption of sound policies grounded in a holistic understanding of the human person, the wisdom and prudence of free markets, and a comprehensive approach to international development.

Perhaps uniquely amongst London-based think tanks, the Institute is part of a larger group comprising:

• Legatum Capital: a private portfolio investment firm
• Legatum Institute: this globally-focussed think tank
• Legatum Foundation: the granting arm of the group, allocating capital to those in poverty and abject poverty
• Legatum Ventures: investing in growing enterprises in the developing world
• Legatum Centre at MIT: which provides educational programmes aimed at delivering economic progress and good governance in low-income countries through entrepreneurship and empowering ordinary citizens.

It’s a quite astonishing group of organisations committed to human flourishing, right across the range of what Legatum calls the  ProsperityLadder™.

I thoroughly recommend their Prosperity Index™ and their notion that “business is development”.

An article by my Cobden Centre colleague, Toby Baxendale, exploring whether manipulating the interest rate can create real wealth:

You often hear politicians and economic commentators say that we must have low interest rates to make sure the price of money is as low as possible to allow people to borrow and thus spend. This is very much the common view whatever your political outlook. The thought behind this is the Keynesian notion that one person’s spending is another person’s income. This is the famous circular flow of income. In a further article, I will address the latter notion. The first notion — whether cheaper money will make for greater prosperity — I will address now.

First of all, I would like to recap how we entrepreneurs create wealth.

Of course, those in debt want low interest rates and those saving want them high, but that is not the question before the country… read more here.

Bureaucracy: from Stalin and Trotsky to David Cameron, we all know we loathe it. What is it?

In “Bureaucracy”, Ludwig von Mises explains:

Bureaucratic management is management bound to comply with detailed rules and regulations fixed by the authority of a superior body. The task of the bureaucrat is to perform what these rules and regulations order him to do. His discretion to act according to his own best conviction is seriously restricted by them.

“Bureaucracy” is a slim book of only 101 pages, thoroughly readable and insightful. Mises uses his understanding of economic calculation to explain succinctly the differences between bureaucratic management and profit and loss management in the free market. His argument has far reaching consequences: it demonstrates that public administration must become uneconomic and irrational.

Here’s a favourite section:

The history of Sweden can be treated with almost no reference to the history of Peru. But you cannot deal with wage rates without dealing at the same time with commodity prices, interest rates, and profits. Every change occurring in one of the economic elements affects all other elements. One will never discover what a definite policy or change brings about if one limits his investigation to a special segment of the whole system.

It is precisely this interdependence that the government does not want to see when it meddles in economic affairs. The government pretends to be endowed with the mystical power to accord favours out of an inexhaustible horn of plenty. It is both omniscient and omnipotent. It can by a magic wand create happiness and abundance.

The truth is that the government cannot give if it does not take from somebody. A subsidy is never paid by the government out of its own funds; it is at the expense of the taxpayer that the state grants subsidies. Inflation and credit expansion, the preferred methods of present-day government open handedness, do not add anything to the amount of resources available. They make some people more prosperous, but only to the extent that they make others poorer.

So we begin to see how the Austrian school of economics explains how the policies of the left create the very inequalities and injustices that they rail against: inflation hits savers and credit expansion widens inequality (the poor don’t invest with leverage). The intentions of the left are very well, but their impatience to use the power of the state to advance social, economic and political justice is a great enemy to progress in every area.

The champions of socialism call themselves progressives, but they recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement. They call themselves liberals, but they are intent on abolishing liberty. They call themselves democrats, but they yearn for dictatorship. They call themselves revolutionaries, but they want to make the government omnipotent. They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office.^[Lenin] Every man but one a subordinate clerk in a bureau, what an alluring utopia! What a noble cause to fight for!

No one likes bureaucracy. Detailed rules and regulations abolish much in life for which we strive: they destroy progress and extinguish hope. We need another way.