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Austrian School of Economics

Vernon Smith Prize – new deadline: 11/30/2018

Note: To further reach out to young individuals and increase their chances to win we have extended the deadline of our Essay Competition by 11 days. New deadline is November 30, 2018.

Vernon Smith Prize 2018
11th International Vernon Smith Prize 2018 – Call for Papers!

The 11th International Vernon Smith Prize for the advancement of Austrian Economics is an essay competition sponsored and organized by ECAEF – European Center of Austrian Economics Foundation, Vaduz (Principality of Liechtenstein). We are calling for papers! This years’ topic:

Obscured by Fake News:
The Politics, Morals, and Limits
of Genetic Engineering

Although, Genetic Engineering is a seminal achievement that can be used for life saving drugs, improvements of the environment and GMOs could even help feed the world, many consider this innovation an untested and dangerous intrusion into nature that needs to be regulated or even outlawed by politics. However, where are the limitations of scientific research?  Should we regulate academic freedom and outlaw certain results? In an increasingly distracted age, these are certainly among the most crucial questions about how to preserve and strengthen our free society.

Biotechnological procedures, including genetic modification have been employed successfully in the course of millennia for the making of vital medicines or for selective breeding to generate much of our daily foodstuff. We have used these techniques also in refining plants, in the production of alcoholic beverages, cheeses or for manufacturing garments. And yet, Biotechnology in general and especially Genetic Engineering are subject to controversy, widespread misinformation, and remain shrouded in mystery, characterized by vague apprehensions and common superstitions.

Whereas in conventional breeding methods only more or less the same species can be crossed with each other, Genetic Engineering deals with the isolation, characterization, and recombination of genetic material. Although, this new development has endured the extensive rigor of scientific method, together with academic peer-review concluding empirically in support of the new science, the application and commercialization of genetic engineering innovation in the food system from a business perspective are worthy of debate and have policy considerations. For many, Genetic Engineering is a seminal achievement that can be used for life saving drugs, improvements of the environment and GMOs could even help feed the world. Others consider it an untested and dangerous intrusion into nature that needs to be regulated or even outlawed by politics.
We invite papers on this topic addressing not only the socio-political relevance and the moral implications of Genetic Engineering. But also the implications of possible regulations and even limitations of scientific research on the whole.


First Prize: €4,000


Second Prize: €3,000


Third Prize: €2,000


All entries need to meet the following requirements:
1: Entries may be submitted by individuals of up to 30 years (in 2018).
2: Entries may not exceed 12 pgs.; 1.5 space; left/right margins no less then 1 inch; including a full bibliography and a 1/2 page summary
3: Entries must be submitted in English in electronic form (pdf) to krl@ecaef.li and must include a current CV with DoB.
4: Entries must be received on or before November 30, 2018.
5. It is mandatory that all prizewinners participate in the award ceremony in Vaduz.

Prizes are not transferable and will be awarded on the basis of originality, grasp of subject, and the logical consistence of the argument. An international jury will judge the essays and the winners will be invited to present their papers at a special event in Vaduz, the Principality of Liechtenstein on February 4, 2019.

Vernon Smith Prize 2018
Vernon Smith Prize 2018 – Call for Papers

Money: From the Not So Wild West to the Federal Reserve

By Terry L. Anderson*

“This short paper by Terry L. Anderson (Hoover Institution, Stanford University) will be presented at the Opening Dinner for the III. ECAEF/CEPROM Jacques Rueff Memorial Conference on “Concurrent Currencies: Curse or Cure?”. December 5, 2018 in Monaco. For a detailed program, please visit ceprom-conference-monaco-2018

“The real world is a special case with which economists seldom deal.” This statement always brings a laugh because it is so true. Economists are notorious for making assumptions and drawing conclusions that do not comport with the way the world works. As a result, economic theories result in policy conclusions that often call for government intervention to correct assumed market failures. Famous examples include explanations for why lighthouses would not and could not be built privately and why beehive services would be underprovided privately because orchard owners would free ride on pollination services.

After decades of promoting these conclusions, however, both the fable of the lighthouse and of the bees have been debunked by evidence from the real world. Nobel laureate Ronald Coase showed that lighthouses were built and operated privately through contracts between lighthouse and ship owners, and Steven N.S. Cheung found that apiarist and orchardists contract for pollination services and honey production.

Perhaps there is no better case of economic reasoning leading to unnecessary governmental intervention than the notion that governments must have a monopoly on the provision of money. So the argument goes, without that monopoly Gresham’s law would prevail—bad money would crowd out good money—money would not have a stable value, and multiple forms of money and currency would make transaction costs prohibitive.

Friedrich A. Hayek’s reasoning in his treatise on “denationalization of money” debunked the myth of government monopolization of the money supply. As a result, that myth should be placed in the dustbin along with lighthouses and bees. Because Hayek provides the debunking logic, my goal in this short paper is to provide examples how money and currency evolved on frontiers beyond the reach of government monopolies and to show how those same frontiers provided the backdrop for promoting the money monopolization myth.

Frontier for entrepreneurship

Frontiers, be they geographic or technological, are the domain of entrepreneurs who observe different constraints and act on those observations to produce new institutions, new production techniques, and new products. Cattlemen organized into associations to prevent the tragedy of the commons by closing the range to newcomers, barbed wire was invented to more precisely define and enforcing property rights, and closer monitoring of cattle breeding improved the quality of meat. On the technological frontier, intellectual property is protected through secrecy and contracting, cell phones replace telephones, and computerization of supply chains reduces inventory costs.

Because entrepreneurs are always on the lookout for ways to reduce transaction costs, it is not surprising that the frontier of the American West led to many different forms of money and currency. Here are several examples.

American Indians

“Wampum clearly had value as a trade item between the various Native peoples before European contact. But it was later on after European settlement of America that wampum began to be used like currency.”

Similarly, other items were used in trade among American Indians. When Lewis and Clark spent the first winter of the Corps of Discovery in the Mandan camps in what is now North Dakota, their blacksmith made trades axes with the Corps’ medallion stamped into them. The axes were traded for food, horses, and other items needed by the expedition. One of the axes traded among Indians, so much so that it preceded the Corps, arriving in the Nez Pearce camps in the Northwest. Clearly the trade axes had intrinsic value, were a store of value, and were readily accepted in trade—all characteristics of money.

Fur Traders

“Beaver pelts were central to the early Canadian trade economy. The centrality of the trade was underlined by the Hudson’s Bay Company introduction of the Made Beaver currency, which first standardized prices in terms of coat beaver pelts, and later allowed hunters to keep the value of their pelts in Made Beaver tokens. Other entities, including the North West Company, also issued tokens in exchange for pelts.

A 1733 Standard of Trade for the Fort Albany HBC post outlines the cost of various items in beaver pelts. For example, one beaver pelt could buy either one brass kettle, one and a half pounds of gunpowder, a pair of shoes, two shirts, a blanket, eight knives, two pounds of sugar or a gallon of brandy. Ten to twelve pelts could buy a long gun, while four pelts would purchase a pistol. The HBC produced brass Made Beaver tokens in the 1860s, and continued to exchange pelts for tokens until 1955.”

Mining Camps

Watch almost any western movie and you’ll see scenes of miners paying the bartender for drinks with a “pinch” or “thumb” of gold dust from the miners poke sack. These methods allowed the shopkeeper or bartender to reach into a miners poke sack with his thumb and forefinger or with his thumb to take as much gold dust as he could acquire on his fingers. Not surprisingly, saloon owners preferred hiring “ham-handed” bartenders.

The following stories illustrate the color of this era: “A story is told of one enterprising bartender who would ‘accidentally’ spill small amounts of his pinch on the barroom floor during the course of transferring the gold dust from the poke sack to the cash drawer. Several times during his shift he would step out the back door to a mud hole where he would muddy the soles of his boots. Then he would re-enter the bar and walk back and forth, picking up the spilled gold dust. Next, he would scrape the mud off his boots on a conveniently placed bucket. It was said that on a good Saturday night he could pan out a hundred dollars worth of gold.”

“The first Catholic mass in Virginia City was held on All Saint’s Day, on November 1, 1863. The mass was celebrated by Father Joseph Giorda, a Jesuit priest who was unfamiliar with the cost of goods and services in the area and the value of gold dust used to pay for them. During mass, Father Giorda received contributions of gold dust from the members of the congregation that had gathered. After the mass, he sought to pay the fees of the stable that had housed his team of horses for two days. He was shocked by the $40.00 bill for the horses’ room and board and said that he did not have enough money to pay it. When asked to examine the gold dust that had been donated to him during mass, he was relieved to be informed that his congregants had been quite generous, as the amount of weight of the dust was worth several hundred dollars.”

A far less well known form of currency was script issued by mining and logging companies. Script was essentially a printed IOU issued by the mining company, mostly coal mining, to workers to provide them with a medium of exchange between pay periods. Script was originally printed cards or scraps of paper, evolved into metallic tokens with many of the physical attributes of official coins.

A far less well known form of currency was script issued by mining and logging companies. Originally printed cards or scraps of paper, evolved into metallic tokens.
A far less well known form of currency was script issued by mining and logging companies. Originally printed cards or scraps of paper, evolved into metallic tokens.

The use of coal company scrip eliminated the need for the coal company to keep a large amount of U. S. currency on hand. Each mine had its own scrip symbols on the tokens, and these tokens could only be used at the local company store.

The transaction costs of coupon scrip eventually encouraged the increased use of metal scrip. This medium became cheaper overall than coupon scrip, in spite of metal’s higher initial costs, largely due to the invention and development of the cash register after 1880.
Script was redeemable for goods or services sold at the company store, making it a form of credit or a demand deposit which would be accounted for by reducing the amount of other currency due to the worker on payday. In many mining camps, scrip circulated more freely than U.S. currency making it the “coin of the realm.”

Because mining camps were so isolated with low population densities and far from commercial centers and because their longevity was uncertain, it was difficult to attract outside investment. This created a lack of infrastructure made up for by the mining companies that were in a better position to estimate demands for goods and services. As a result stores in mining towns were usually owned or run on behalf of the coal companies.
Lyrics to songs claiming a worker “owed my soul to the company store” exemplify criticism of script and hence of this form of private money. A paper by Price Fishback, “Did Coal Miners ‘Owe Their Souls to the Company Store’? Theory and Evidence from the Early 1900s,” however, debunks this myth and illustrates that company stores and the script issued to workers was a very competitive business. The relationship between companies and miners was a contractual one in a competitive environment. As such, the payment package implicitly included payment in script and prices at the company store. Because the script was a form of private money in a competitive world, the company had an incentive to maintain a stable value for the script currency.

Using Hayek’s ideas in the “Denationalization of Money,” let me elaborate on what constitutes a stable value of currency and why private providers—mining companies—would have an incentive to maintain that stability. Stable value implies that a unit of currency can be exchanged for a bundle of goods at the same exchange rate over time. Suppose that a company thought it could increase its profits by raising prices at the company store. This would reduce the value of its script and discourage workers and others from accepting it. In essence this would violate the wage contract. Alternatively, suppose that productivity of workers increased thus increasing the value of their marginal product and their wages. Companies would issue more script, and the demand for goods at the company store would increase putting pressure on store prices, thus reducing the value of the script. To keep the value of currency stable, the company would have to increase the quantity of goods available which it could do because of the increased productive capacity of the company.

The Road to the Fed

So if private money on the frontier was so good, why did it have to give way to nationalization? The same frontier that fostered competitive private money ultimately led to its demise. In particular, the “war of the copper kings” in Butte, Montana—“the richest hill on earth”—pitted William Clark, Marcus Daly, and Augustus Heinze against one another over control of the copper mining industry.
Their “war” engulfed financial giants including J. P. Morgan, a bitter enemy of Copper King Heinze. When the latter ventured into Morgan’s territory—the canyons of New York City—he met his match.

With Heinze’s bank on the brink of failure, the privately managed New York Clearing House, controlled by Morgan, refused to bail him out. The failure of Heinze’s bank started the Banking Panic of 1907. The panic led Congress to appoint the National Monetary Commission, which recommended creation of the Federal Reserve System in 1913 as a lender of last resort and firmly ensconced governmental monopolization of the money supply.

Conclusion

As the saying goes, “the rest is history” regarding the potential for monetary competition. Just as the mining camps of the American West unleashed the entrepreneurial spirit to “invent” new forms of money and currency, the modern-day electronic frontier can unleash entrepreneurial cyber-currencies. The challenge, as it was in the American West, will be whether cyber-entrepreneurs can answer Hayek’s call for “denationalization of money” by out-maneuvering government regulators.


*Terry L. Anderson is a native of Montana (USA), and received his PhD degree in economics from the University of Washington. In 1972 he began his teaching career at Montana State University, where he won several teaching awards. Anderson is one of the founders and the former executive director of PERC (Property and Environment Research Center), a think tank in Bozeman, Montana. He currently serves as a Senior Fellow at the Hoover Institution, Stanford University. Anderson’s extensive work and unique research focus helped launch the idea of free-market environmentalism and has prompted public debate over the proper role of governments in managing natural resources and the environment. Anderson’s research, has also focused on Native American economies and culture. He is the author and/or editor of numerous academic essays and thirty-seven books, among them several award winning publications. Only a few can be mentioned here, Free Market Environmentalism, The Not So Wild, Wild West: Property Rights on the Frontier, Self-Determination: The Other Path for Native Americans (2006), Tapping Water Markets (2012 or his most recent book Unlocking the Wealth of Indian Nations (2016).

Parallelwährungen – Ausweg aus der Krise?

Ausweg aus der EURO-Krise?

Zum zweiten Mal veranstaltete die Friedrich A. von Hayek-Gesellschaft gemeinsam mit der in Liechtenstein ansässigen European Center Austrian Economic Foundation (ECAEF) eine Konferenz speziell zu Fragen rund um den Euro. Konferenz-Motto:

Parallelwährungen: Ausweg aus der Krise?
Ist der Euro noch zu retten?

Den Luzerner Privatbankier Karl Reichmuth treibt das Thema besonders um – auch jenseits seines beruflichen Interesses in Sorge um das Geld seiner Kunden. Während für die meisten Menschen Geld einfach das ist, was man im Portemonnaie oder auf dem Bankkonto hat, denken Wirtschaftsexperten in aller Welt auch über Parallelwährungen als Alternative zu dem ungedeckten Papiergeld nach, das seit 1971, als US-Präsident Richard Nixon die Goldeinlöseplicht des amerikanischen Dollar abschaffte, die Welt dominiert. Bis dahin konnten Notenbanken gegen Vorlage von 35 US Dollars die Herausgabe einer Unze (31,1035 Gramm) Gold verlangen. Dies hatte das im amerikanischen Bretton Woods 1944 geschaffene Weltwährungssystem fester Wechselkurse bis dahin vorgesehen. Danach war Papiergeld beliebig vermehrbar – und damit von Politikern und Regierungen manipulierbar.

Mindestens ebenso interessant wie die Redner der Währungskonferenz am 5. November 2018 im Steigenberger Parkhotel Düsseldorf waren viele der Teilnehmer, die den Diskussionen folgten. Joachim Starbatty, Euro-Gegner der ersten Stunde und Kläger vor dem Bundesverfassungsgericht gegen Euro-Rettung, ESM und Griechenland-Hilfe, saß ebenso im Publikum wie Bruno Bandulet, der gerade sein neues Buch „DEXIT“ herausgebracht hat. Im Untertitel des neuen Bandulet-Buches heisst es: „Warum der Ausstieg Deutschlands aus dem Euro zwar schwierig, aber dennoch machbar und notwendig ist“.

Bandulets besonderes Interesse an Fragen der Geopolitik wird von dem ebenfalls in Düsseldorf anwesenden Erich Weede geteilt, der zuletzt auf der Frankfurter Buchmesse am Stand der Jungen Freiheit seine Gedanken über den Aufstieg Chinas zur Weltmacht darlegte und eine wachsende Kriegsgefahr feststellte.
Mit einer Parallelwährung haben Deutsche, die die Zeit nach dem Zweiten Weltkrieg miterlebt haben, umfangreiche Erfahrungen gemacht. Nach dem verlorenen Krieg war das alte Geld nichts mehr wert. Schnell etablierte sich eine Parallelwährung in Form von Ziga-retten. Das hörte erst auf, als es im Juni 1948 zur Währungsreform und grundlegenden Wirtschaftsreformen unter Ludwig Erhard kam. Die neu geschaffene D-Mark, deren erste Scheine in Amerika gedruckt worden waren, war knapp, hart und begehrt. Sie erfüllte alle Funktionen und Erwartungen an eine Währung: Sie fungierte als Recheneinheit und Tauschmittel. Vor allem aber diente sie der Wertaufbewahrung – wichtig in einem Land, wo die Erfahrungen der Inflationszeit sich in das kollektive Gedächtnis der Menschen gebrannt hatte …

Lesen Sie den gesamten Konferenz-Beitrag hier ->
Schweizer Wirtschaftsbrief, 7. November 2018 (PDF)

Prinz Michael von und zu Liechtenstein auf der Tagung
Prinz Michael von und zu Liechtenstein auf der Tagung

Am 5. November 2018 veranstaltete die Friedrich A. von Hayek-Gesellschaft gemeinsam mit der ECAEF im Steigenberger Parkhotel (Düsseldorf) eine Konferenz speziell zu Fragen rund um den Euro. Die Tagung wurde modiert von Carlos A. Gebauer. Sprecher: Prinz Michael von und Liechtenstein, Dr. Konrad Hummler, Prof. Dr. Thomas Mayer, Frank Schaeffler MdB, Norbert F. Tofall, Prof. Dr. Roland Vaubel und Dr. Arthur Vayloyan.

Alvin Rabushka: Economic Freedom

ECAEF Alvin Rabushka: Economic Freedom
ECAEF Alvin Rabushka: Economic Freedom

In his blog “Thoughtful Ideas” (Commentary on Current Political, Economic, and Social Developments in the United States and Around the World) author Alvin Rabushka recently published his thoughts on Economic Freedom …

Alvin Rabushka*

Economic Freedom, Part 1

In October 1986, with support from the Liberty Fund in Indianapolis, Indiana, the Fraser Institute convened the first of four conferences in Napa Valley, California. The Fraser Institute published the proceedings in 1988, Economic Freedom, Democracy and Welfare. Edited by Michael A. Walker, Director of The Fraser Institute, and co-chaired with Milton and Rose Friedman, the conference was organized as a counterpart to do for economic freedom what Freedom House did for political freedom: to calculate the amount of economic freedom that exists in various nations of the world.

Its origins can be traced to a conversation in 1994 at the Mont Pelerin Meeting in Cambridge, England, between Michael Walker and Milton Friedman, whose book Capitalism and Freedom had been extant since 1962. However, there had been no serious attempt to explore the relationship between economic and political freedom in a scholarly way. That conversation led to the idea of broadening the analysis to also include civil freedoms, which can often be more important than political freedoms …

Read the all three parts of Alvin Rabushka’s blog on Economic Freedom ->

Blog “Thoughtful Ideas”: Economic Freedom, part 1
Economic Freedom, part 2
Economic Freedom, part 3


*Alvin Rabushka is an American political scientist. He is a David and Joan Traitel Senior Fellow at the Hoover Institution at Stanford University, and member of the Mont Pelerin Society. He is best known for his work on taxation and transition economies. Together with Robert Hall, he wrote a detailed Flat Tax plan known as the Hall–Rabushka flat tax.

Vernon Smith Prize 2018 – Call for Papers!

Vernon Smith Prize 2018
Vernon Smith Prize 2018 – Call for Papers

The 11th International Vernon Smith Prize for the advancement of Austrian Economics is an essay competition sponsored and organized by ECAEF – European Center of Austrian Economics Foundation, Vaduz (Principality of Liechtenstein). We are calling for papers! This years’ topic:

Obscured by Fake News:
The Politics, Morals, and Limits
of Genetic Engineering

Biotechnological procedures, including genetic modification have been employed successfully in the course of millennia for the making of vital medicines or for selective breeding to generate much of our daily foodstuff. We have used these techniques also in refining plants, in the production of alcoholic beverages, cheeses or for manufacturing garments. And yet, Biotechnology in general and especially Genetic Engineering are subject to controversy, widespread misinformation, and remain shrouded in mystery, characterized by vague apprehensions and common superstitions. Whereas in conventional breeding methods only more or less the same species can be crossed with each other, Genetic Engineering deals with the isolation, characterization, and recombination of genetic material. Although, this new development has endured the extensive rigor of scientific method, together with academic peer-review concluding empirically in support of the new science, the application and commercialization of genetic engineering innovation in the food system from a business perspective are worthy of debate and have policy considerations. For many, Genetic Engineering is a seminal achievement that can be used for life saving drugs, improvements of the environment and GMOs could even help feed the world. Others consider it an untested and dangerous intrusion into nature that needs to be regulated or even outlawed by politics.
We invite papers on this topic addressing not only the socio-political relevance and the moral implications of Genetic Engineering. But also the implications of possible regulations and even limitations of scientific research on the whole.


First Prize: €4,000


Second Prize: €3,000


Third Prize: €2,000


All entries need to meet the following requirements:
1: Entries may be submitted by individuals of up to 30 years (in 2018).
2: Entries may not exceed 12 pgs.; 1.5 space; left/right margins no less then 1 inch; including a full bibliography and a 1/2 page summary
3: Entries must be submitted in English in electronic form (pdf) to krl@ecaef.li and must include a current CV with DoB.
4: Entries must be received on or before November 19, 2018.
5. It is mandatory that all prizewinners participate in the award ceremony in Vaduz.

Prizes are not transferable and will be awarded on the basis of originality, grasp of subject, and the logical consistence of the argument. An international jury will judge the essays and the winners will be invited to present their papers at a special event in Vaduz, the Principality of Liechtenstein on February 4, 2019.