ISOS 2008


On Wednesday the Adam Smith Institute held its biannual Independent Seminar on the Open Society. Attended by around 200 sixth form pupils we had a highly impressive line-up of speakers.

Opening the seminar was the Institute’s Dr Eamonn Butler who spoke on whether or not our rulers have too much power. Needless to say, he concluded that they do, the challenge for him and the Institute is in finding ways to get it back. Next up was Councillor JP Floru. Having recently been selected to represent the Conservative Party at the 2009 European election, he discussed with verve the threat European politicians pose on the ability for the people of Europe to thrive. Interesting stuff.

The economist Paul Ormerod was next to speak, tackling the key factors shaping the economic realities for future politicians. With cutting accuracy, he showed that despite the growth in size of the state, the problems that it sets out to combat have not been solved but often exacerbated. The Institute’s president Dr Madsen Pirie spoke next, addressing the question of whether a libertarian can be a conservative. Much of the talk centred upon the highly regarded book Nudge, drawing the key practical and moral issues that come from Cameron’s Conservative Party being so taken with ideas contained within it.

After lunch, Dr Steve Davies spoke on the potential for the private supply of public goods. With refreshing iconoclasm, he showed that the state could be superfluous in providing everything (yes, including the police and the military). Journalist and author Ross Clark followed this with an exposition of the surveillance society, detailing the remarkable proliferation and failure of the ubiquitous surveillance camera.

Our penultimate speaker was Vincent Cable MP, Shadow Chancellor of the Exchequer for the Liberal Democrats. Interesting as always, he spoke with his usual clarity on the fundamentals of the credit crunch. Last up was Dr Helen Evans of Nurse for Reform. Addressing the question of whether political factors thwart a rational healthcare system. The answer was unequivocally ‘yes’, once again an argument true to the spirit of Popper’s Open Society.

We plan to run another sixth form conference next March, if you would like your name or school to be put down for an early invitation please send us an email:

Quote of the week


The politico-economic system of the United States today is so far removed from laissez-faire capitalism that it is closer to the system of a police state. The ability of the media to ignore all of the massive government interference that exists today and to characterize our present economic system as one of laissez faire and economic freedom marks it as, if not profoundly dishonest, then as nothing less than delusional.

George Reisman, The Myth that Laissez Faire Is Responsible for Our Present Crisis Ludwig von Mises Institute

Blog Review 759


Another index that we should be looking at to check the real economy: The Baltic Dry Index. Measuring the price of shipping and thus an insight into the levels of trade.

It's always nice when people go to the trouble of correcting the more inane interpretations of what Adam Smith actually said.

Special checkouts at the supermarket for those buying alcohol. One way to undermine this and as one wag pointed out, this'll just be an express checkout line, won't it?

Going back to Keynes and Hayek to look at why the boom happened (without which of course there wouldn't be a crash).

Summer time, double summer time (and remember to change the clocks tonight!)...they're about saving energy aren't they? Pity they seem to increase energy consumption then.

Venezuela looks to be in serious economic trouble. Social spending is all very well but you've got to keep up the investment that finances it too.

And finally, demand in the gag-gift market.

Two-thirds of a pint, anyone?


An announcement that the National Weights and Measurements Laboratory (NWML) is considering introducing a ‘two-thirds of a pint’ measurement into pubs across Britain raises questions as to why publicans and drinkers cannot deal in any quantity they want.

Left to the free-market, consumers would be free to demand whatever quantities of drink they wanted and firms would satisfy those demands in order to make greater profits. Even if the government did not choose to regulate the size of drinks we consume a system of standardisation would no doubt emerge, but one which was more responsive the needs of drinkers rather than being dictated to them.

The arguments for state intervention in the quantity of our drinks seem somewhat restricted from the outset. Perhaps the government thinks that it can tackle the over consumption of alcohol as people will no longer be forced to have a whole pint. This would be a narrow and ineffective goal for the government to aim for.

Why does the state decide what size glasses our alcohol must come in but they do not apply the same logic across the board? For example, when ordering soft drinks, some pubs fill the glass with ice before serving, others do not. The government has not felt inclined to interfere here, so why elsewhere?

Essentially, we should be able to say how much we drink and in what size glass. At the very least, this would lead to a much better allocation of resources when purchasing drinks!

Those hedge funds


There seems to be a certain amount of glee behind this statement:

Emmanuel Roman, of GLG Partners, said 25pc-30pc of the world's 8,000 hedge funds would disappear "in a Darwinian process", either going bust or deciding meagre profits are not worth their efforts.

"This will go down in the history books as one of the greatest fiascos of banking in 100 years,"

But I'm not really sure why. Hedge funds haven't caused any of the current problems, indeed, many of them, by going short, have reduced the size of the bubble and thus the subsequent crash.

"There need to be some scapegoats, and the regulators are going to go hunt people.

Now that is certainly true, and hedge funds most certainly are going to be one of the prime suspects to be those scapegoats. But there's no good reason why they should be.

Hedge funds are simply investment vehicles, ones that by restricting themselves to only taking investments from sohpisticated investors are able to do things that mutual funds and unit trusts cannot because of regulation. They can go short, invest in different classes, commodities, bonds, shares, as they wish.

It's also true that they have grown massively in recent years (even decades) as new opportunities tend to. One or more people find a way to make excess returns, above the usual risk adjusted level, and then others spot that. So they move their own capital into that very field. This is exactly what we want to happen, capital moving towards its most productive use, just as we want the same to happen with any other resource. Now certainly markets often overshoot, so it's entirely possible that there's too much capital now chasing those excess the point that there are no excess returns, even that returns in the field as a whole are below the normal risk adjusted rate. OK, "shrug", some people will continue to make profits, others perhaps losses , some will leave the market and the risk adjusted return will level out at around and about that which is normal in the rest of the economy.

But via innovation (in this case financial) we've seen that high profits attract capital until there's enough capital there so that profits aren't high. Which, as I say, is exactly what we want to happen, just as we do with bananas, electricty and lawyers.

Why should the people in such a process become scapegoats...other than the thought that our rulers might not understand such simple points about how markets allocate resources?

Blog Review 758


There really are some things that we don't need a debate upon. A swift and firm rejection of the very concept often suffices.

Interesting charts for the monetarists amongst us.

Just how many blogs are illegal under German and or Austrian law?

More Austrians: although this time talking about the appropriate form of bank regulation.

Turns out that those booming sales of Das Kapital aren't going to do people much good. Well, doorstops are all very well, but don't bother reading it.

Recessions aren't all that big a deal you know.

And finally, yes, school inspectors are indeed insane.

Power lunch with Liam Fox MP


Shadow Defence Minister Liam Fox MP was our guest at a Power Lunch in Westminster this week. It's not a job that anyone envies him. If the Conservatives win the next election they will inherit not only a wrecked economy, but a defence apparatus that's outdated and starved of funds.

We've not had a strategic defence review since 1998, despite the fact that the world has changed a lot since then, and the threats are both larger and very different. To some extent, we're still fighting the cold war. But now we have to contend with energy supply, a bullying Russia, an Iran that wants to be first in a regional nuclear arms race, a divided nuclear Pakistan... It's clear that we need frequent and regular defence reviews if we are to keep on top of a changing and complex defence problem.

Gordon Brown never financed Tony Blair's military excursions adequately – which is why we had troops being killed because they couldn't find any body armour to borrow, or spare parts for their tanks and their few helicopters. Meanwhile, other NATO countries are happy for us to provide their insurance, without paying an adequate premium. So we're overstretched and under-supplied, and when Russia re- arms and starts parking troops next to the Georgian oil pipelines, or stakes a claim in the Arctic, or surrounds Norwegian oil rigs, or when Iran starts playing with nuclear fission, we have neither the forces nor the stamina to stand up to them. But our own security demands that we should.

Sorting that lot out is not going to be an enviable job at all.

Credit crunch basics

  • Forget all about Keynes. Anybody who believes that “If you save five shillings you put a man out of work for a day" is economically illiterate. Saving is spending – on capital goods not consumer goods. A switch of consumer preference from drinking beer to drinking wine has employment effects identical to those from a switch from drinking beer to building a brewery.
  • Liquidity and credit and market interest rates are all a matter of supply and demand. There is no credit “seizure"; there is simply a shortage of savings due to artificially low interest rates.
  • Market interest rates represent consumer preferences for saving versus consumption. Artificial rates throw a spanner in the whole structure of production; an artificially low rate signals that consumers are prepared to save for little reward, so entrepreneurs start to build breweries rather than provide more immediate beer. Once this error becomes clear, all projects dependent on artificially low interest rates must be cancelled as unviable. Hence the unavoidable recession.
  • Government can only make matters worse and more prolonged by ignoring this. Furthermore since paper money has no intrinsic worth government cannot create wealth; it can only redistribute it – take and give with a hefty cut for itself.
  • Banks cannot borrow short and lend long without risking defaulting. But if they borrow short and do not lend long, they can pay no interest. Only free market banking, as practised in Scotland for the first half of the 19th century, can resolve this dilemma. (No, Walter Bagehot was not against free market banking; he advocated a Lender of Last Resort because the Bank of England had an absolute monopoly of note issue.)  The bank of England must be abolished or sold.
  • Borrowing and lending does not require the preservation of bankrupt banks. The banking industry is the greatest example of corporatism, in which government and banks form unholy alliances for their mutual gain, with government holding the ring. It is difficult to imagine anything more remote from “laissez faire".

Terry Arthur is the author of Crap: A Guide to Politics. Buy it here.

Blog Review 757


Tales from the Paul Krugman's classmates predicted his Nobel.

Britain through the eyes of an expat. Surely it should be better than this?

It's quite amazing the way this Osborne/Mandelson story has been spun.

It's possibl;e (in at least one way) that the bank bailout has made things worse.

The falling oil price could lead to some terrible problems in the oil producers.

Yet another incredibly bad argument for ID cards.

And finally, apparently it's all Adam Smith's fault. No, really.