2012-02-07

No Monarchs, Only People

Nick Rowe tells a story about monetary policy, central banks, and whom to obey. What's fascinating about this story is how incredibly honest it is.

First of all, Rowe begins by admitting that central banks are effectively monarchs, setting guidelines that we must all obey. This one admission is precisely what Austrian School adherents have been criticizing for a century. Like all situations, monarchs rule at the expense of freedom and the choices of the masses. Rowe's parable gives away the whole game.

Second of all, Rowe admits that the only real power central banks have is society's collective belief in their authority. In other words, in order for despots to be effective, they must have at least the illusion of the consent of the governed. Or, if you don't like the phrase "the consent of the governed," you may replace it with another phrase I like.

Rowe's story climaxes with a naive child wondering why we couldn't just decide to obey the queen. I submit the following re-writing of the story's end, however...

Then one day a small boy had a suggestion: "Why does anyone give us orders? Why don't we act according to our own best interest, and that of those we care about?" 
The people were bemused. "We should obey! We're not the king! I fail to see any possible mechanism that links our choices what is happening out there in the real world. How can our choices possibly get the King to give orders in a lower tone? Everyone knows he can't lower his voice any lower. Sure, if everyone expected that everyone else would act in their own rational self-interest, then each individual would have to be stupid not to act in their own. But why should anyone expect that? Your reasoning is circular. Kings are real flesh and blood, with real kingly powers. Your belief in individual choice and monetary freedom is just fairy tale nonsense. Free choices are like Tinkerbell; they only have powers if people believe in them! Tell me what concrete steps my own choices could take to make people better off, and then I will believe you." 
The small boy started talking about imaginary worlds where there are no kings or queens, and where nobody gave anyone else any orders, and people still lived and thrived, happily. 
But the people just laughed. Those imaginary worlds weren't the real world, where kings gave orders, and people obeyed kings. And the boy's imaginary worlds didn't even include the role of the king's ministers, so they totally ignored the channel through which the king's orders were communicated to the people! Who could possibly take such stories seriously?
What a silly small boy I am.