The prizes have been awarded on the basis of originality, grasp of subject, and the logical consistence of the argument. An international jury did judge the essays and the winners were invited to present their papers at a special event in Vaduz, the Principality of Liechtenstein on Monday, February 10, 2020.
The 2019 topic was: ‘When the People fear their Government, there is Tyranny. When the Government fears the People, there is Liberty.’
A democratic government derives its authority from the consent of the governed and is loosely defined as a set of institutions through which we adjudicate our disputes, defend our rights and protect honestly acquired property. Under the rule of liberty the government is assigned the duty of impartial umpire, and each individual gives reason, intent and moral scope to his own life. As long as a person does not violate the rights of others he is sovereign over his own affairs.
Tyranny on the contrary, is characterized as a government that is an active player in people’s affairs. From a dictatorship to the benevolent welfare state all shapes of despotism wield their political authority and legitimized power of coercion to assure certain outcomes or forms of behavior considered desirable to determine how the members of the society may live, work, and associate with each other. Thus, the challenge in a democratic society is to keep government constrained and limited so that individuals can prosper and solve problems as free, independent and responsible citizens. However, it is the character rather than the volume of government activity that is important and ought to be specified in a constitution.
The International Vernon Smith Prize for the advancement of Austrian Economics is an annual essay competition sponsored and organized by ECAEF – European Center of Austrian Economics Foundation, Vaduz (Principality of Liechtenstein).
Stärken und Schwächen von Nationalstaaten gegenüber einem supranationalen Staatenbund.
Beitrag von Ekkart Zimmermann*, erschienen im Schweizer Monat Nr. 1027, Ausgabe Dezember 2019
Derr Schweizer Philosoph und Aufklärer Johann Georg Zimmermann meinte im 18. Jahrhundert sinngemäss, so wie der Esel seinen Stall habe, so gehe es dem Bürger mit der Nation. Nun sind beide, Esel und Zimmermann, kluge Wesen. Doch wohin führt uns diese Klugheit?
Im 19. Jahrhundert war der nationalstaatliche Rahmen zu gross ausgelegt für die bestehenden Gemeinschaften, er musste erst aus gefüllt werden. Mit den Worten von Eugen Weber: “Bauern mussten erst zu Franzosen werden, durch eine national orientierte Erziehung ebenso wie durch Strassen und Eisenbahnbau”. Der Staat war der proaktive, der nach vorn gerichtete Rahmen. Nach dem Zweiten Weltkrieg kam der Nationalstaat vor allem in den letzten 50 Jahren unter Druck: durch multinationale Unternehmen und Nichtregierungsorganisationen, durch internationale Bündnisse und überstaatliche Vereinigungen sowie durch den Abbau von Hemmnissen für Handel, Ideen und Personenverkehr. Der Nationalstaat hat Wettbewerber erhalten und erwies bzw. erweist sich als relativ schwach. Er wirkt nun für viele nicht mehr vorwärts, sondern rückwärtsgewandt und ist in die Defensive geraten.
Von Heimatgefühl, der engen regionalen Bindung an Familie, Landschaft und vertraute Kultur, über Nationalbewusstsein, also das Gefühl der Zugehörigkeit zu einer grösseren kulturellen und sprachlichen Gemeinschaft, bis zum Nationalstaat, also der Idee, dass kulturelle Gemeinsamkeiten und historisches Schicksal einer breiten Bevölkerungsgruppe sich in einem Staat mit eigenen Institutionen, eigener Identität und Werten finden sollten, existiert ein breites Kontinuum. Der Staat, auch der Nationalstaat, ist durch die Dreiheit von Territorium, Grenzen und institutionalisierter Staatsgewalt gekennzeichnet. Minderheiten werden in einem solchen Nationalstaat von der Mehrheit höchstens geduldet, sind aber selten gleichberechtigt. Staatsgebilde, Territorium und kulturell und sprachlich relativ einheitliche Bevölkerung sollen möglichst eine Einheit bilden. Häufig sind in den Nachbarländern aber Landsleute anzutreffen. Im 19. und 20. Jahrhundert war dabei oft von Irredenta, unerlösten Gebieten, die Rede, die notfalls mit Gewalt einverleibt werden sollten …
Summary: This paper examines the economics of blockchain and cryptocurrencies. Three questions focus on the most important aspects: 1. What is the economics behind cryptocurrencies, or, are cryptocurrencies money? 2. Which are possible value-drivers of cryptocurrencies, or, are cryptocurrencies a bubble? 3. How does blockchain influence the structures of governance, or, is blockchain revolutionary? While cryptocurrencies can be used as money, they are not without problems. Their commitments to a limited quantity as well as the absence of quality criteria ensuring temporal liquidity pose dangers to their further development. However, according to this paper, the most important contributions of the blockchain are to provide for a means with almost unlimited spatial liquidity and an innovative system of governance.
The Matter with Blockchain: Cryptocurrencies and more
The matter with cryptocurrencies and blockchain is convoluted: There are discussions about the technology, its programing code, its use and usefulness. There are controversies about whether cryptocurrencies are money, about their supply, transactions, and costs. There are disputes about their use, volatility, legality, links to the illegal world, and impact on the stability of financial systems. There is even debate about their energyconsumption. Settling all these issues is an impossible task. But it is useful to develop a framework of orientation from a non-partisan perspective. Non-partisan means that cryptocurrencies at large, and more generally, the blockchain technology, deserve an analysis that goes beyond hailing it as the all-innovative disruptor …
Many global central banks are developing projects to introduce own cryptocurrencies, and year-2020 could be the right one to observe the first examples.
J. Christopher Giancarlo, the ex-chairman of the U.S. Commodity Futures Trading Commission (CFTC) has established theDigital Dollar Foundationto evaluating the possible introduction of a digital dollar, issued by the Federal Reserve. An example of Central Bank Digital Currency (CBDC), a revolutionary blockchain-based tool that may disrupt the global monetary system over the next years. It will not easy, after U.S. watchdogs have stopped Libra, Facebook’s digital currencies. Mark Zuckerberg, Facebook’s CEO, warned the U.S. Congress this move could pave the way to Chinese supremacy on blockchain technology, with all the consequences on payment and banking system.
On the U.S. CBDC project, Giancarlo told that: “The digital 21st century is underserved by an analog reserve currency, a digital dollar would help future-proof the greenback and allow individuals and global enterprises to make payments in dollars irrespective of space and time. We are launching the Digital Dollar Project to catalyze a digital, tokenized U.S. currency that would coexist with other Federal Reserve liabilities and serve as a settlement medium to meet the demands of the new digital world and a cheaper, faster and more inclusive global financial system.”
Nevertheless, despite U.S. efforts, is China to have currently a competitive advantage in the CBDC arena. The People Bank of China, the Chinese central bank, has recently published the Outlines of ‘DCEP’ (Digital Currency Electronic Payment). Huang Qifan, the vice chairman of the China International Economic Exchange Center, explained that “the currency is not for speculation. It is different to bitcoin or stable tokens, which can be used for speculation or require the support of a basket of currencies.” The introduction of a “digital yuan”, on which the PBoC is spending time and resources, could really endanger the supremacy of the dollar in trade transactions, as warned by Japanese Government some days ago.
However, it is not only China. The European Central Bank is also speeding up plans for the introduction of its own CBDC to promote the “digital euro” and Russia could test a state-backed digital currency soon, considering issuing a digital currency backed by gold. They are acting like second movers, after their officials have always been skeptical on new monies for a long time.
The mood on digital currencies have radically changed over the last months. Even international watchdogs are opening the doors to the new currencies. The UN secretary-general, Antonio Guterres, for instance, said his organization must embrace the blockchain technology going forward, according to Forbes. The IMF has also explained the benefits of CBDCs in its blog, explaining how some countries are dynamically piloting the projects to explore the scope and the feasibility of CBDCs, by increasing resources allocated to CBDCs and fintech research at the central bank, sometimes in partnership with private sector advisors. A few nations are also reconsidering their legislation to fortify CBDCs prospects in case it were issued.
Investment banks have also jumped into the business. JP Morgan, led by CEO Jamie Dimon launched its token ‘JPM Coin’ last February, which along with the major cryptos, is used for interbank transfers to save time and money.
*Emmanuele Canegrati is an economist, senior analyst at the London-based Forex broker BP Prime. He is a Faculty Member of the Liechtenstein Academy Foundation. He works as economist at the Italian Parliament and the Italian Ministry of Economy. He is a guest professor of Economics at LUISS University and La Sapienza University in Rome. He was Visiting Fellow at the London School of Economics and at the Luxembourg Income Study Office.
Latin America’s freest, most stable and richest nation, Chile, is in a free fall. Public order has collapsed, violence is out of control and populism is the new creed of the political class. There is an economic crisis, characterized by capital flight and rising unemployment and there is a serious chance that three decades of progress made in the fight against economic inequality will be reversed according to a recent statement by Chile’s Central Bank.
The upheaval is all the more remarkable because of Chilean progress over the last four decades. Chile’s free market reforms knocked down the poverty rate to less than 10% of the population–from over 50% pre-reform. Over the same period per capita income quadrupled, chronic inflation disappeared, social mobility shot up and intergenerational income inequality shrank to a historic low.
It took a mere 40 days for the Latin American “oasis”—as President Sebastián Piñera called Chile not long ago—to vanish. How a stable and prosperous Chile fell so dramatically in such a short period is a lesson for every Western democracy.
The immediate cause for the crisis was the small increase in the price of public transportation tickets in Santiago. As soon as the price hike was announced on October 4th criticism arose. Demands for a withdrawal of the increase became widespread after the new tariff was implemented three days later.
Initially the government showed no willingness to reconsider what it called a “technical” measure. As a result, hundreds of students began to evade payment of the subway. On Oct. 18, two weeks after the price increase had been announced, the country exploded. Coordinated groups burned and destroyed almost 80 subway stations bringing Santiago’s public transportation system to a halt. Riots and massive attacks on public and private property followed unleashing chaos in the capital city.
By the end of the day, the situation was so desperate that Mr. Piñera had no choice but to declare a state of emergency and put the military in control. Massive demonstrations followed, and violence returned as soon as the state of emergency was lifted. A few weeks later, the consequences are everywhere: more than $2 billion in losses and damages, around 1,200 looted retail stores, an estimate of 300,000 new unemployed, 25 dead, more than 2,000 injured police officers and a political and economic crisis with no end in sight.
A small hike in the price of subway tickets didn’t cause so much devastation. The economic malaise started with the anti-market reforms of the previous government under Socialist President Michelle Bachelet, from 2014-18. In her second term, Ms. Bachelet raised corporate taxes by 30%; signed a law banning the replacement of workers on strike, thereby dramatically increasing the costs of labor; increased public spending at a rate three times faster than the growth of the economy and unleashed armies of regulatory bureaucrats on the private sector. As a result, capital investment fell in each year of her four-year term. Such a consistent reduction in investment hasn’t happened since data was first collected in the early 1960s. Not surprisingly, economic growth collapsed from an average 5.3% under the previous government of Mr. Piñera (2010-14) to an average of 1.7% under Ms. Bachelet. Real wage growth took a 50% hit.
In his campaign for president in 2017, Mr. Piñera promised to bring back better times. He failed to deliver. Hence the anger against him. But Ms. Bachelet’s harmful policies aren’t the root of the problem. As historian Yuval Noah Harari has pointed out, humans are, above all, a story-telling species. It is the narratives, myths and stories we share what enable us to create institutions that favor personal freedom, prosperity and peace. By the same token, narratives can also lead to destruction, war and misery as the cases of communism and national socialism perfectly illustrate. In Chile the emotional power of story-telling has overthrown the sober appeal of reality. Over the past 20 years, intellectuals, media personalities, business leaders, politicians and celebrities in this Latin American nation have created the myth that Chile is an extreme case of injustice and abuse. This false narrative began at the universities, where progressive ideologues spread the idea that there was nothing to feel proud about when it came to Chile´s social and economic record. They accused “neoliberalism” of creating a society of winners and losers, where neither group deserved the position in which they found themselves. Ms. Bachelet’s second term and her social justice-driven agenda were the inevitable result. Even Mr. Piñera, himself a billionaire, basically accepted the premises of the progressive elites’ narrative. In his first term he raised taxes, declaring that one of Chile´s main problems was inequality. Now he is trying to re-establish order by buying off interest groups with further economic interventions. Among other measures, he has announced a substantial increase in government spending for supporting retirees, higher personal income taxes, more generous health insurance schemes and a guaranteed minimum income for all full time Chilean workers.
Nor is the damage done by progressive narratives restricted to economics. A sustained war against law enforcement has been going on for years. As a result, many police officers don’t dare act for fear of biased media coverage and punishments by courts dominated by progressive elites. The same is true for the military. The truth is that tolerance of violence, public disorder and crime was the norm in Chile long before the recent crisis.
The free market did not fail Chile, whatever its politicians might say, and the state does not lack the means to restore the rule of law. The central problem is that a large part of the elites who run key institutions—especially the media, the National Congress and the judiciary no longer believe in the principles that made the country successful. The result is a full-blown economic and political crisis with no end in sight. To other western nations, this should offer a lesson.
*Dr. Axel Kaiser is a scholar at Adolfo Ibañez University in Santiago, and currently a Visiting Fellow at Stanford University’s Hoover Institution.