War, Peace, and our Economic Future

[NASDAQ_400]

War, Peace, and our Economic Future

by Llewellyn H. Rockwell, Jr.

[Posted March 27, 2003]

The Austrian economists tell us that a price is more than a price. It is an objective expression
of subjective judgments concerning human wants, now and in the future. It conveys
information to us about how we ought to conduct ourselves: where capital should be directed,
how much of what should be consumed now or later, which jobs to take and which to pass over.
In short, prices provide the roadmap to the successful navigation of the material world.

How striking it is to see stock prices respond so actively to the war on Iraq, the dominant
event of the day. Since the war began, prices have risen in response to the prospect that war
would end soon and sunk on the prospect that the war will go on and on. What does this price
information convey? Most likely, it reflects an inchoate sense that this war is doing nothing to
bring us out of economic contraction and into recovery.

A Soft Patch?

That is precisely true. This war could result in a severe setback, not only prolonging the
contraction but deepening it as well. To hear official voices talk, however, we have not been
going through the longest recession in the postwar period. Instead, we have been through a
24-month "slow recovery." It is also called a "sagging economy with sound fundamentals."
Greenspan has made references to a "soft patch" in a foundation otherwise as hard as stone.

Indeed, in the effort to avoid using the term recession, the Federal Reserve has become a
business-cycle phrase mill. Thus, according to the Fed, this is a "soft economy," a "subpar" economy," a "skittish" economy, an
economy "weighed down by weak expenditures," an economy of "persistent weakness," or, my favorite, an economy facing
"formidable barriers to vigorous expansion." Call it what you want, but don't call it a recession. As for the D-word, depression,
don't even think it!

With the latest data on the Producer Price Index and the increase in oil prices, we are starting to see other tortuous linguistic
devices at work. It is not inflation; it is "sector-specific price pressure." In the old days, rising unemployment, sinking
production, and price inflation combined to create what was called "stagflation." What will it be called this time? Something rather
ingenious, no doubt.

The National Bureau of Economic Research officially dates the contraction from March 2001, fully six months before 9/11. Not a
day has gone by in the last two years when some commentator hasn't either denied we are in recession, claimed we are already
out of recession, or cited evidence that the recovery is underway and demanded that everyone admit it already.

Now, until recently, it was possible that the NBER might have backdated the beginning of recovery to have shortened the total
duration of the recession. Recent unemployment numbers, and worsening contractions in New York and California, make that
increasingly unlikely.

Also, if you look carefully, you find that the fourth quarter 2002 GDP data paint a grim picture of slow growth, declining
household net worth, and continued deterioration of the non-farm business sector. In the first estimate, official GDP grew at an
annual rate of 0.7 percent, but when you exclude the government component of GDP, the economy actually shrank in the fourth
quarter.

The revised numbers put growth at an annualized 1.7 percent, but the two factors driving the GDP remain government spending
and credit-fueled personal consumption. You can try this trick in your own neighborhood. Steal your neighbor's furniture and
replace it with stacks of counterfeit money. Encourage everyone to spend the money, and then announce that this amounts to
higher economic growth.

General Economic Meltdown

Our time will be recorded as a period of general economic meltdown. How much worse will it get and how much longer will it last?
We cannot know for sure, but we do know that right now, the government is doing everything in its power to make it worse.

Those of us who warned in the 1990s that the stock-price mania could not last were accused of spreading "gloom and doom."
Our warnings were considered self-evidently ridiculous, because, of course, it was said that we were in a New Economy and such
things as profitability and earnings and savings were old hat and had no bearing on the cyber-world being created before our
eyes. Only the Austrian School economists seemed to wonder who or what was behind the frenzy.

In contrast to the 1980s, when everyone was watching the money supply, the markets were suspiciously uninterested in what the
Fed was up to in the 1990s. It funded a bailout of Mexico, then a bailout of East Asia, and then a bailout of a crazy Connecticut
hedge fund that believed it could predict the future by paying Nobel laureates vast sums to concoct a mathematical model that
perfectly predicted the past.

But still, hardly anyone cared. The phrase "money supply" elicited yawns. The Wall Street Journal, meanwhile, ran a few articles
explaining why there is no longer any such thing as risk. It was only the Austrians who seemed to take notice when money
creation rates began to take off in 1995 and climb to 15 percent in late 1998 and 1999, taking the bull market on its
wildest-ever ride. Monetary expansion rates settled down a bit in 2000, a trend which at first seemed merely inauspicious—like a
tiny tap on a domino lined up against a thousand others.

Once the bear market began, there was no turning back, no matter how much the Fed inflated. Instead of stabilizing downward
as they had in Clinton's first term, money-creation rates shot up again, reaching an astounding 22 percent in December 2001
from a year earlier and then fell back down again, creating a double dip bear market in the course of a mere 24 months. In
these numbers we find the secret history of the great boom and bust of our time. Let me give a brief outline of why, and try to
explain why it is that so few seemed to pick up on it.

Mises and Cycles

At the dawn of the age of central banking, an economist named Ludwig von Mises set out to rewrite the theory of what money is
and how government can seriously distort its workings. Among the puzzles he sought to solve was one that most economists,
including Karl Marx, had noticed: swings in business activity from boom to bust.

Marx said that cycles are endemic to capitalism, and a sign of the final crisis that will sweep in the age of socialism. In contrast,
Mises found that the business cycle is a symptom not of the free market but of attempts to manipulate the market through
unsound monetary practices. Moreover, he found that these cycles are self-correcting provided that the government doesn't
attempt to forestall the necessary correction that follows an artificial boom.

Mises concluded by looking carefully at the relationships among the financial sector, money and banking, and the structure of
production itself. On the free market, he said, the interest rate reflects the extent to which people are willing to forego current
consumption for later investment. The more businesses and holders of money are willing to put off consumption, the lower the
rate will be. A low borrowing rate for business, which spurs investment, reflects a high rate of consumer savings, which reflects a
willingness of consumers to purchase the products made in lengthy production processes.

In testimony the other day, Greenspan claimed the following: "Economists understand very little about how technological
progress occurs." Perhaps he should have said that he, Greenspan, knows little about how technological progress occurs. At least
as regards the Austrian economists, his statement is false. Within the framework of the freedom of exchange, entrepreneurs
make judgments about what consumers might want in the future, including new technologies.

Capitalists and investors assume the risk, employing private property, that this judgment is correct. Investments that are
profitable attract more resources and those that yield losses are shelved.

This is the free-market capital structure at work in a complex economy. It is truly a miracle of coordination—extending through
all sectors and across a huge range of time horizons—with no central management, and needing none. It balances human
needs with the availability of all the world's resources, unleashes the amazing power of human creativity, and works to meet the
material needs of every member of society at the least possible cost.

It does this through exchange, cooperation, competition, entrepreneurship, and all the institutions that make possible
capitalism—the most productive economic system this side of heaven. This system of capital coordination not only works without
central management; the attempt to manage it creates dislocations across sectors and across time.

What We Owe the Free Market

Let us never underestimate the social benefits that flow from this seemingly technical mechanism. The market economy has
created unfathomable prosperity and, decade by decade, century by century, miraculous feats of innovation, production,
distribution, and social coordination.

To the free market, we owe all material prosperity, all leisure time, our health and longevity, our huge and growing population,
nearly everything we call life itself. Capitalism and capitalism alone has rescued the human race from degrading poverty,
rampant sickness, and early death.

In the absence of the capitalist economy and all its underlying institutions, the world's population would, over time, shrink to a
small fraction of its current size, with whatever was left of the human race systematically reduced to subsistence, eating only
what can be hunted or gathered. The institution that is the source of the word civilization—the city—depends on trade and
commerce, and cannot exist without them.

And this is only to mention the economic benefits of capitalism. It is also an expression of freedom. It is not so much a social
system but the natural result of a society wherein individual freedom is respected, and where businesses, families, and every
form of association are permitted to flourish in the absence of coercion, looting, and war.

Capitalism protects the weak from the strong, granting choice and opportunity to the masses, who once had no choice but to live
in a state of dependency on the politically connected and their enforcers.

But capitalism has many enemies, among them those who would attempt to gin up economic production through loose credit.
What Mises focused on in his book on money was the effects of this particular attack on the free market: expansion of money
and credit by the central bank, and, in particular, the attempt to drive down the price of credit to spur business investment.

Doing this through the interest rate injects new money into the economy. One effect of this has been known for centuries: it
causes prices to rise. But the other effect Mises discovered: it subsidizes long-term capital investment in a manner than cannot
be supported by the patterns of consumption and saving. As one Austrian economist puts it, when the central bank drives down
interest rates, it causes the economy to bite off more than it can chew.

The effects of artificially inflating the economy can be to cause prices to increase. But as we saw in the late 1920s and other
times since, that is not always the case. It often causes a kind of investment euphoria that leads people to believe that nothing
can go wrong.

The monetarists, for example, believe that so long as prices remain in check, there is no problem associated with money
expansion. The supply-siders, though sound on many issues, have an unfortunate faith in the power of loose credit to make
bread from stones.

Mises developed his theory throughout the 1920s and warned of the coming of the 1929 stock market crash. His work was
carried forward by F.A. Hayek throughout the 1930s. Hayek later received the Nobel Prize for this. Indeed, the theory was widely
embraced until Keynes dreamed up an alternative view that resurrected all the old fallacies about the miracles of money creation
and centralized economic management.

Then the Misesian theory languished for decades until the current downturn. Today it is getting new attention as the leading
explanation of the insanity of the late 1990s and the current bust. Only the Austrians knew all along that reality would strike
back.

The Fed and the administration have worked ever since, using the only tools they have of regulation, spending, and credit
expansion, to reverse the course of the recession.

When I think of the Fed's spreading money far and wide, I think of the government in Huxley's Brave New World handing out
soma pills or spreading soma vapors to distract people from reality, drugging them so they will be content despite the
surrounding disaster. If they start to resist, out comes the soma until the crowds collapse in kisses and hugs.

The Money Illusion

It is always an illusion to believe that more money is the answer. The federal funds rate is at a 40-year low, and that hasn't
done the trick. During the 1990s, the Bank of Japan tried again and again to manufacture a recovery through absurdly low rates,
but that didn't work either. There is no evidence from either theory or history that pounding interest rates into the ground can
create anything resembling a sustainable prosperity. And yet, people believe it, or want to believe it, because it seems better
than the alternative.

This entire affair illustrates the underlying reality of American political and economic life: the state's ability to create money and
credit. All other powers of government—regulatory, fiscal, even military—pale in comparison to this.

Despite that, the Fed is the least controversial institution in American political life. Apart from Ron Paul of Texas, no sitting
politician understands how it works. When Greenspan comes before Congress, he is treated like a minor god.

If this worship is ever tempered with skepticism, it is on grounds that he is not inflating enough, that he is somehow being
stingy and not spreading the wealth. Tragically, there is no organized constituency in American politics for tighter money, less
credit, sounder finance.

Mises distinguishes three varieties of inflationism, that is, the demand that the state work with the banking industry to flood the
economy with credit. The first is naïve inflationism that sees no real downside to monetary expansion, the second is inflationism
intended to reward debtors at the expense of creditors, and the third sees disadvantages to an expansionary policy, but
believes that the advantages outweigh them.

The U.S. is right now in the grip of the worst form: naive inflationism, which, as Mises says "demands an increase in the quantity
of money without suspecting that this will diminish the purchasing power of the money. It wants more money because in its eyes
the mere abundance of money is wealth. Fiat money! Let the state 'create' money, and make the poor rich, and free them from
the bonds of the capitalists!"

And here we are today enduring the longest recession in postwar history, a Nasdaq off 75 percent from its highs and a Dow off
40 percent, and the government is still issuing buy signals.

Imagine if you had used George W. as your portfolio manager. You would have bought stocks when he became president, held
onto them through 9–11 and then bought more and more afterwards.

Incidentally, you'll notice that the official rationale for buying stocks has changed. Whereas once it was said that you should buy
because the economy is on a permanent growth path, after September 11, it was said that you should buy to display your
patriotism.

If that isn't a sell signal, I don't know what is.

Of course no one in his right mind would let the president of the United States manage his stock portfolio. Why, then, do we
trust his government to spend wisely the $2.5 trillion it will extract from the private economy this year? Of course, we don't really
trust the government to do that, but we do not have much choice in the matter. This money is taken from us through force and
is thereby, by definition, directed toward uses that are not those owners would choose. This is power, not market, at work.

Enron, WorldCom, and the Market Economy

What is striking to note, however, is all the ways in which power is not only destructive but also ineffective against the market
economy. The government did not know that firms such as Enron and WorldCom were unviable. All the regulators put together
could not anticipate the consequences of what private traders alone were to discover: that these businesses had wildly
overextended themselves.

Leaving aside questions of ethical lapses at these companies, the most significant lesson we should learn from their collapse is
that the market economy has built within it a fabulous internal check against illusion. Companies that could not sustain
themselves on their own merits were simply abandoned by investors. It counts toward the enduring shame of the Bush
administration that it attempted to blame the market for the bust of so many companies, rather than having given credit to the
market for having discovered the problem in the first place and having done something about it.

But as F.D.R. demonstrated after the depression, there are political points to be made by skewering the private sector to distract
from the failures of the public sector. The alleged crime the Bush administration seized on was "accounting fraud"—even though
it is not at all clear that what WorldCom, Enron, Computer Associates, Global Crossing, or Qwest did, often with the blessing of
respected auditors, amounts to that at all.

In each case, the accusation was similar: their books counted spending as profitable investment before the revenue was in the
bag, and when the economic tables turned, their optimistic projections proved unsound and even, in retrospect, absurd.

WorldCom was the worst case of the batch, which is why the government has made such a big deal out of the arrest of two
former executives. Their spectacular shifting of a total of $3.8 billion from expenses to capital began small, in mid 2000 as the
bust was hitting and their accounts were starting to appear unimpressive.

No one disputes the facts. WorldCom's expenses for last-mile leases on other companies' communications networks were rising
very quickly. Managers wanted to move these expenses out of their operating account (filed quarterly and watched carefully) into
the capital account—which is something akin to treating the electric bill like the mortgage.

Now, understand that there was no lying going on, and no graft or theft or anything else of that nature. What we have here is an
imprudent reclassification designed to impress investors who, at the height of the bubble, demanded nothing less. Unless you
are an accounting whiz, there is no way to say that this is a priori evil. In any case, it didn't fool everyone. Many skeptics drew
attention to the crazy finance of WorldCom's books. But in the boom times made possible by the Fed, most people didn't care.

Most of the other cases of corporate fraud that came under the microscope were far less serious than WorldCom, and none are
obvious cases of theft or fraud. Mostly it was just bad forecasting reflected in optimistic accounting methods. The supposed
damage caused by their behavior was that their pretty books kept their stock price rising even as the financial condition of the
company deteriorated. That's probably true, but it is also a short description of what it means to be in a bubble economy. If this
be fraud, the entire economic boom is fraud.

Hitting closer to the truth, the New York Times called D.C.'s anti-business frenzy "the vital center of the administration's strategy
for reducing the political vulnerability for the White House." In other words, the Republicans were up to their old trick of behaving
even worse than the Democrats in order to keep the Democrats from coming to power. If you disagree with this approach, you
must be some sort of libertarian utopian who doesn't understand the need for compromise.

The underlying assumption was the view that it is always a terrible thing for a business to go under, which in fact it is not. It is
merely a reflection of human preference as expressed in buying and selling decisions. The only option to going under, in some
cases, is to operate uneconomically. But that is precisely what the government had in mind for the steel sector last year.

Soviet-Like Tariffs

As a way of dealing with domestic inefficiencies and growing imports, the U.S. imposed a 30-percent tariff on steel. The idea was
to help one inefficient, bloated, and pampered industry at the expense of all U.S. consumers of steel, including U.S.
businesses, and all producers in Europe, Asia, Brazil, and Australia. This is brazen protectionism, deeply harmful all around, not
to mention morally repugnant.

Did it help the steel industry? In the short run, yes. But we have to ask ourselves whether this kind of help is a good thing in the
long run. The tariffs permit an inefficient industry to continue to produce inefficiently, and forestall improvements in technology
and cutbacks in wages that are necessary if the industry is to adjust to twenty-first-century realities. There is no virtue to
keeping dying technology humming along so that workers and managers who might be better employed elsewhere can continue
to enjoy fat checks doing outmoded work.

How long must such tariffs remain in place? The steel industry says they are only necessary in order to get the industry back on
its feet. But that belies the question of what, precisely, is going to inspire this sector to clean up its act? Protecting an industry
from competition is a method that permits everything wrong with the industry to persist.

If you think about it, Soviet socialism survived for seventy-two years on precisely such policies. The Soviet state protected all its
industries from market competition under the alleged need to build socialism. Factories were never closed, and workers were
never let go except for political reasons, when their services were employed in the Gulag. The system worked only if your
standard is not efficiency but merely the guarding of the status quo. Eventually this system collapsed, as it must, and the
Russians woke up to a world that was horrifically backward and decayed.

The steel tariff imposed by the Bush administration was different from Soviet socialism only in degree. It was an attempt to
circumvent the market process through a centrally administered system of rewards and subsidies, to ensure that an industry
abides by political priorities rather than market dictates. In the meantime, every purchaser of steel, whether a consumer or a
business, has been harmed by being forced to pay a higher price for an inferior product.

The same pattern repeated itself with the punitive duties on softwood imported from Canada. Canada refused to obey a U.S.
demand that it place a new tax on its softwood, and so the U.S. struck back. The new duties raised the price of softwood, used
for building nearly every home in America, by 27 percent.

In economic terms, tariffs are indistinguishable from taxes. They take people's property by force, requiring businesses and
consumers to pay higher prices for goods than they would otherwise pay in a free market. To that extent, they harm the
prospects for economic growth. If anyone says otherwise, he is ignoring hundreds of years of scholarship, and the entire sorry
history of government interference with international trade.

Here again, this can create the illusion of prosperity, but we must also remember that first lesson of economic science: the world
is a finite place where the use of any and all resources is constrained by scarcity. This is just another way of saying that you can't
always get what you want, and when you do, it must come from somewhere. When the government spends resources, it must
drain them from the private economy through taxation and borrowing, or by inflating the money supply.

Economics doesn't deny that redirecting resources from one sector where they are valued by consumers, to another sector where
they are valued by government, can create pockets of expansion. What economics suggests is that this is not an efficient or
sustainable use of such resources. Only the unhampered competitive market economy, with its system of market prices, profits,
and losses, can reveal to us with any certainty the most desirable destination of economic goods.

If credit expansion, protectionism, and government spending were a path to prosperity, mankind would have long ago created
heaven on earth. However, the politicians engaged in these activities have to contend with reality, and the reality is that
economic forces in society must be mutually sustaining. To have production and borrowing, there must be savings, which only
occurs when people forestall consumption today to prepare for tomorrow, and investment that pans out in the form of
consumption. Absent such conditions, economic growth lacks a foundation in reality and turns to dust when conditions change.

Terrorism, War, and Recession

Recession, inefficiency, and bankruptcy are not the only man-made disasters with which government threatens us. Hardly a day
goes by when the government doesn't issue some maniacal warning about an impending terror attack. And the sense of
uncertainty and confusion that follows can only forestall recovery.

How much is real and how much is propaganda or merely bureaucratic risk aversion? We cannot know. They recently urged us to
buy duct tape to seal the windows in a suitable spot in our house in order to hide from chemical warfare. They told us that they
may use nuclear bombs against enemies real and imagined.

When the warning was given in February, gullible Americans cleaned out the stores of duct tape. Buried in the news a week later
was the fact that the person who gave the tip that led to the orange alert was lying.

Of course, the revelation didn't do the government much harm, and the crisis environment that the tip engendered did much
good for our masters, who want to keep us in a relentless state of insecurity and therefore dependent on them.

That helps them keep doing what they want to do anyway: for example, spend money and inflate away the debt thereby
incurred. Politicians say they must run deficits of hundreds of billions of dollars to avert an impending calamity that will make
9–11 look like a warmup. They say this, but have yet to issue a sell signal.

The government continues to downplay the economic calamity before our eyes while talking up the prospects for a calamity that
can only be solved, they say, by use of the biggest big-government program of them all: war.

At the end of the Cold War, many of us hoped that normalcy would return, that the U.S. would become again a peaceful
commercial republic. But Bush the elder had a different idea. He decided to bomb Iraq and to impose sanctions that would last
12 years, kill untold hundreds of thousands, inspire terror plots all over the Muslim world, and provide a new rationale for why
the U.S. must continue to squander hundreds of billions a year on military public-works programs.

We are often told we must go to war because some swarthy foreign head of state is not a big fan of the U.S. president. This
year, the person fitting that description is Saddam Hussein. Before that it was the Mullah Omar. A few years earlier, it was
Milosevic. Before that, it was some ward-heeler in Somalia. Moving backwards in time, we had to take out the strongmen in
Panama and Haiti. The story goes on and on. It seems that the U.S. government is addicted to conflict. It just can't seem to
give it up.

Now, I know there will be plenty of disagreement when I say we ought to be trading with Iraq, not bombing it. But let's at least
be clear on what we are talking about when we refer to the U.S. military machine. The U.S. will spend $400 billion on its military
this year—and that doesn't include V.A. hospitals, most spying, the atom-bomb building at the Energy Department, the military
part of Nasa, or the Pentagon's huge "black" or secret budget.

The second highest military budget in the world is Russia. Going down the list, next comes China, then Japan, then the U.K. You
have to tick through 27 countries and add their total spending together to equal what the U.S. spends per year. Not since the
Roman Empire has a single country been so militarily dominant.

Let's look at the relative strength of the U.S. versus Iraq in particular. Quantitatively, Iraq spends one quarter of one percent of
what the U.S. government spends on its military. Qualitatively, the Iraqi military machine is crippled, with no spare parts for its
ancient equipment. The soldiers are teenage conscripts in rags with old rifles. The idea that this is going to be a fair fight is a
joke.

Those who worry about Iraq over-arming ought to look a bit closer to home. As for the shooting war, some military
commentators have compared its ease to drowning puppies. Thanks to a combination of misrule and punishing sanctions, this
once prosperous country has been reduced to rubble. The U.S. proposes to reduce it further, though in doing so the U.S. faces a
difficult foe: the desire of a people not to be invaded by a foreign army.

The longtime emphasis of the old liberal tradition with regard to war is this: even the victor loses. We lose resources. We lose
tax dollars. We lose trading relationships and good will around the world. Most of all, we lose freedom. And herein lies the
biggest cost of war to us, for there is no way that the U.S. can maintain a free market that is the foundation of prosperity while
at the same time attempting to create a global military central plan.

Big government abroad is incompatible with small government at home. To the extent we cheer war, we are cheering domestic
socialism and our own eventual destruction as a civilization. But perhaps you do not need persuading on any of these matters. I
know many people who look at the economy and the military belligerence of the US government and they react with despair. I
reject this posture. For one thing, I am firmly convinced that the government has reached too far.

When you consider the full range of social, economic, and international planning on which it has embarked, you can know in
advance that this cannot work. Government is not God, nor are the men who run it impeccable or infallible, nor do they have a
direct pipeline to the Almighty. The method they have chosen to bring about security and order is destined toward failure.

The Impossibility of the War on Terrorism

The war against terrorism is a good example. Everyone in Washington is terrified of the next attack. To shore up the war, there
has been no shortage of rhetoric. No expense is spared on arms escalation. There is no lack of will. The effort has the aid of
plenty of smart people. It is backed by threats of massive bloodshed.

What is missing is the essential means to cause the war to yield beneficial results. Of all the millions of potential terrorists out
there, and the infinite possibilities of how, when, and where they will strike, there is no way the state can possibly stop them.

Behind terrorism is political grievance, mostly having to do with frustration at the activities and arrogance of the state and its
violations of rights. This is not speculation. This is the word of the terrorists themselves, from Timothy McVeigh to Osama Bin
Laden to the suicide bombers.

The pool of actual terrorists (like the pool of the poor in the war on poverty) is limited and can be known, and they are the ones
the state focuses on. But the pool of potential terrorists (and potential poor people) is unlimited, and unleashed by the very
means the state employs.

Hence, not only does the state not accomplish its stated goals, it recruits more people into the armies of the enemy, and ends
up completely swamped by a problem that grows ever worse, as the target population is able to make a mockery of the state
through sheer defiance.

In the war on poverty, as more and more were added to the ranks of the poor and the intended beneficiaries of the programs
themselves began to mock the state's benevolence, people began to speak of the failure and collapse of the Great Society. Of
course the welfare state still exists, but the moral passion and ideological fervor are gone. In the same way, we will soon begin
speaking of the collapse of the War on Terror.

Bin Laden is still on the loose, and everyone knows that there are hundreds or thousands of additional Bin Ladens out there.
Terrorism has increased since the war began. Israel suffers daily, and in constantly changing ways, ways in which even the most
famous and empowered intelligence and military units cannot anticipate or prevent.

But can't the state just kill more, employ ever more violence, perhaps even terrify the enemy into passivity? It cannot work.
Even prisons experience rioting. A bracing comment from Israeli military historian Martin van Creveld: "The Americans in
Vietnam tried it. They killed between two-and-a-half and three million Vietnamese. I don't see that it helped them much."
Without admitting defeat, the Americans finally pulled out of Vietnam, which today has a thriving stock market.

Can the U.S. just back out of its war on terror? Wouldn't that mean surrender? It would mean that the state surrenders its role,
but not that everyone else does. Had the airlines been in charge of their own security, 9–11 would not have happened. In the
same way that the free market provides for all our material needs, it can provide our security needs as well.

In all the talk of war on Iraq, I've yet to hear anyone claim that taking out Saddam or bringing about a regime change will make
the world a more peaceful, happy place. No one believes that. The last war on Iraq gave rise to al-Qaeda, due to sanctions and
Christian troops in Saudi Arabia, led to the bombing of the Oklahoma City federal building, and emboldened an entire
generation of Muslims to devote their lives to fighting America. What will the next one bring?

The War on Terror is impossible, not in the sense that it cannot cause immense amounts of bloodshed and destruction and loss
of liberty, but in the sense that it cannot finally achieve what it is supposed to achieve, and will only end in creating more of the
same conditions that led to its declaration in the first place.

In other words, it is a typical government program, costly and unworkable, like socialism, like the war on poverty, like the war on
drugs, like every other attempt by the government to shape reality according to its own designs.

The next time Bush gets up to make his promises of the amazing things he will achieve through force of arms, how the world will
be bent and shaped by his administration, think of Stalin speaking at the 15th Party Congress, promising "further to promote
the development of our country's national economy in all branches of production." Everyone applauded, and waded in blood,
pursuant to that goal, but in the end, even if he did not know it, it was impossible to achieve.

Mises on Peace

Mises, who was so brilliant when it comes to issues of money and credit, also saw the need for a thriving economy to operate
amidst an environment of peace. "War," he said, "is harmful, not only to the conquered but to the conqueror. Society has arisen
out of the works of peace; the essence of society is peacemaking. Peace and not war is the father of all things. Only economic
action has created the wealth around us; labor, not the profession of arms, brings happiness. Peace builds, war destroys."

Our age is dominated by the state and its errors. The state has given us recession and war, while liberty has given us prosperity
and peace. Which of the two paths prevails in the end depends on the ideas we hold about freedom, capitalism, and ourselves.

May we never forget the great truth that our founding fathers worked so hard to impart: tyranny destroys, while liberty is the
mother of all that is beautiful and true in our world.

I make no apologies for being a champion of prosperity and its source, the free-market economy. It is what gives birth to
civilization itself.

It is fashionable to reject concerns about the economy as narrow and uninteresting, a merely bourgeois interest. If this attitude
comes to prevail, we have great reason to be concerned about our present age.

If, on the other hand, we can educate ourselves about the workings of economic forces, and the way in which they are the
foundation of freedom and peace, we will not only emerge from this recession prepared to enter onto a new growth path; we will
have gone a long way to protecting ourselves from future assaults on our right to be free.



Llewellyn H. Rockwell, Jr. (Rockwell@mises.org) is president of the Ludwig von Mises Institute in Auburn, Alabama, and editor of
LewRockwell.com. This text is drawn from the keynote address at the spring conference of Sage Capital Management in
Houston, Texas, March 12, 2003.

http://www.mises.org/fullstory.asp?control=1191