I spent a large number of hours in adolescence playing Rummikub with my family. We played the game according to our understanding of the printed rules that came with the game. Eventually we lost that piece of paper, but we kept playing and having fun.

As an adult I sometimes play this game with new groups of people with prior experience of the game. Sometimes they interpreted the rules differently. Generally we resolve these differences without calling the police or giving someone the right to beat up whoever disagrees. I would be very unhappy if the police threw my friend in jail because he wanted to play the game differently. I would be very unhappy if my friend had to pay a heavy fine because he understood the rules differently than a judge.

Do I really need a government forcing my friends to play Rummikub with a specific set of rules? Things seem to work pretty well without it. Maybe the same can be said of coercive government in other areas too.

A person may note the necessity of judges in any highly competitive game. The World Cup and World Series use judges to resolve inevitable disputes. Not all people agree with the results, but the process works pretty well.

Does this idea work as well in real life?

The nature of games and real life have a very importance difference: the goals of a game are predetermined. Everyone playing the game agreed to play by those rules beforehand. It is impossible to play outside the rules or invent new rules while still playing the game.

For example, a player cannot decide during a chess match that he wants to arrange his pawns in the shape of an S. His goal is predetermined: capture the other player’s king. The black and white teams cannot decide to work together to move all their pawns to the other side of the board.

Real life is more flexible. A baby is not born holding a piece of paper upon which a handy set of rules and goals are written.

In Human Action, Ludwig von Mises noted how man must discover his own goals:

man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference.

And the best way to accomplish them:

Means are not in the given universe; in this universe there exist only things. A thing becomes a means when human reason plans to employ it for the attainment of some end and human action really employs it for this purpose. Thinking man sees the serviceableness of things, i.e., their ability to minister to his ends, and acting man makes them means. It is of primary importance to realize that parts of the external world become means only through the operation of the human mind and its offshoot, human action. External objects are as such only phenomena of the physical universe and the subject matter of the natural sciences. It is human meaning and action which transform them into means.

We will disagree on both goals and the means to achieve them: I want to code; you want to fish.

Daneil Lapin explains how these disagreements are what creates prosperity:

If we all agreed that fishing was better than sitting on a computer, none of us could be discussing such things on the internet.

I always have the first opportunity to consume the fruits of my labor. What I do with the remaining amount enables me to access other things I want in life: clothing, shelter, software. This increases my enjoyment of life; eating only fruit all day long will give me the runs.

I can also decide to exchange my fruit for money. I can save this money until the future, which frees up resources for other activity in the mean time. There is only a particular amount of fruit, clothes or anything else on any given day. You can only use what I do not; I can only use what you do not. Saving money allows other people to consume things instead.

A hungry person is very eager to eat some fruit and bread as soon as possible. He can only eat fruit and bread that I do not. How does he stop me from eating my fruit? He has to entice me with an alternative.

He may have something that I want today. He may offer to exchange a coat for a particular amount of fruit. Lowering the coat price makes me more likely to prefer the coat to eating the fruit and bread he wants. This only works when he has something that I want today.

What if he has no coat today?

If he has nothing I want in his immediate possession, I might eat the fruit or exchange it with someone else. Neither of these actions solve his hunger. How can he convince me to give him the fruit? By promising to make me something I want tomorrow that I cannot have today.

It is not important what the something is. There are infinite possibilities: a better or cheaper coat, more coats, a new fleece jacket invention… who knows! The point is that he offers me a future something valuable enough to stop my present consumption. He must convince me to refrain from eating my fruit or exchanging it with someone else. Only then can the man use the fruit to satisfy his hunger.

I may be hungry or cold today. The more hungry or the colder I am today the more expected value I require tomorrow. This determines the rate at which my savings must become more valuable in order to defer my consumption today and save. This is the cost of money, also called the interest rate.

The interest rate helps me determine how much to consume today and how much to consume tomorrow. Tom Woods explains how interest rates help people serve each others needs in his best-selling book, Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse:

The interest rate coordinates production across time. It ensures a compatible mix of market forces: if people want to consume now, business responds accordingly; if people want to consume in the future, business allocate resources to satisfy that desire as well (p. 67).

In other words, a high interest rate signals how people can help others. Interest rates and the cost of money rise when people have more immediate wants and needs. Increasing the value of money rewards people who produce more and/or reduce their present consumption. This allows others to satisfy those present needs with what is produced and not consumed.

A low interest rate also signals how to help others. Interest rates and the cost of money decline as people’s immediate wants and needs are satisfied. People satisfied with the present state of affairs will value new and innovative ideas. This makes it increasingly affordable for others to satisfy their immediate needs working towards a better future for the satisfied.

A free-market interest rate helps the needs of a poor person in all situations. High interest rates help encourage comparatively wealthy people to defer their consumption, allowing the comparatively poor to consume things instead. Low interest rates make it more affordable for the poor to learn and invent new ways of satisfying the increasingly diverse and complex needs of society.

Peter Schiff gave a talk on Why the Meltdown Should Have Surprised No One. The talk was in honor of late economist Henry Hazlitt at the Mises Institute’s Austrian Scholars Conference.

He had many personal stories and metaphors I enjoyed. The following are some notes from the talk:

• Yahoo:
  Would you rather own Yahoo or New Zealand with its $1b dividend? At one point, people said Yahoo.
• Renting:
  • Paying a couple thousand dollars per month to be someone’s landlord is absurd.
  • People did this because they had nothing to lose, so much to gain.
  • Average home buyer expected his home to gain 20% per year for next 10 years.
  • No money down.
• FDIC:
  People spend more time researching what TV to buy than where they deposit $100,000.
• Bankruptcy:
  Falling prices are the market’s solution for overvalued, misallocated assets.

Other highlights:

• Overvaluation of tech stocks
  • Even if doorknobs.com sold every doorknob on the planet, it was too expensive.
  • Investors valued Yahoo above New Zealand.
  • Would you rather have a country and $1b dividend or this company that started a few years ago?
  • People told Schiff: give me Yahoo.
  • A company looking for VC financing with no assets, no revenue, no customers valued itself at $50m.
  • Schiff: I can duplicate your entire business in a couple weeks.
  • Company: you don’t understand, we’re going public!
• Overvaluation of real estate and the importance of rent:
  • Cost more to live in a 20 yr old townhome than a far nicer apartment (same size) next door.
  • Apartment also included free security, racquetball court, better view, etc.
  • NY real estate agent considered paying a $6,000 per month mortgage in order to receive a $4,000 month rent a good investment property.
  • Cannot cash flow at present prices. How could price go up?
  • General idea: Pass up living in this nice place in order to pay more to live in this dump. After a few years, sell the dump to someone else for even more. Pyramid scheme.
• Regulation failures and moral hazard
  • Most regulated entities, Fannie and Freddie, are the most problematic aspects of housing market.
    • Financed the bubble since government insures their debt
    • How will more regulation help?
  • Securitization causes moral hazard.
    Firms making the loans do not suffer the costs of default.
  • FDIC creates a moral hazard.
    Insured deposits remove any incentive to deposit money in a responsible lender.
    People spend more time researching what TV to buy than where they deposit $100,000.
  • SEC regulation did not prevent Bernie Madoff.
    Madoff should be next Treasury Secretary.
• Pro bankruptcy and low prices.
  • Falling prices are the market’s solution for overvalued, misallocated assets.
  • Low, subsidized interest rates cause high prices.
  • People gamble when they have nothing to lose and so much to gain.
    • Nothing down.
    • Average home buyer expected his home to gain 20% per year for next 10 years.
  • Bankruptcy cleanses economy of misallocated resources.
    Non-performing debt is the caboose slowing down the economy.
• Political inability to repay debts.
  • Gave an example of Obama saying something to the effect of, “You know the social security, medicare we promised you? We can no longer give you that. You need to go back to work and enjoy a far lower standard of living because we need to keep our promises with the Chinese.”
  • Huge laugh from audience, which thought it was absurd. Claims everyone knows the US will not repay. Rather disturbing and sad when you think of the implications.