## The Tom Woods Show: Episode 621 – The IRS Is About to Terrify Organizations into Shutting Up

Wait until you hear the new rules the IRS is set to impose on a wide variety of organizations in September 2016 if all goes as planned. For example, forbidden “electioneering” will include so much as the mention of a candidate’s name on a website. We get into the details in this episode.

Dan Johnson and Adam de Angeli are Executive Director and Projects Director, respectively, of the Tax Revolution Institute.

Additional information can be found at the show notes page.

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## David Howden’s Review of In Defense of Deflation by Philipp Bagus

While Keynesians attribute deflation to an aggregate demand deficiency, and monetarists are wont to see contractions to the money supply or drops in the velocity of money as the culprit, Bagus takes the reader through a more nuanced view of falling prices. In particular, in chapter 3 he outlines six ways that prices in general may fall, two stemming from a change to the goods’ side of the economy, and four from the money side. Individuals building their cash balances, losses by the fractional-reserve banking system or governmentally decreed deflation all originate from the economy’s money side. Growth deflation and price control deflation all stem from the goods’ side.

In discussing bank credit deflation, Bagus points out the very important yet widely overlooked truism that this particular form of deflation can only occur after a period of credit inflation (p. 77). Those who fear deflation should take note, as this particular form of falling prices is caused directly by inflationary policies, both by accommodative central bank monetary policy and lax lending standards by the fractional-reserve banking sector. Today this possibility may be more acute than at any other time in history given that the U.S. banking sector has built up roughly $12 trillion of M2 money stock from only$1.4 trillion in currency. (Implying that a complete default of the banking sector would necessitate a monetary deflation of nearly 90 percent.)

A particularly interesting section comes in chapter 4, where Bagus outlines five prominent myths of deflation. The discussion on the fallacies of the liquidity trap argument are especially compelling, and Bagus demonstrates that deflation need not lead to any more of an arbitrary or unfair wealth redistribution than inflation.

In the penultimate fifth chapter, Bagus overviews two deflationary episodes – the American growth deflation from 1865 to 1896, and the German bank credit deflation of the 1930s. This reviewer had misgivings as he delved into this lengthy chapter, mostly owing to doubts as to the worth of case studies in an otherwise theory-laden book. My doubts were soon assuaged, however, as Bagus uses the examples to add the reader’s understanding of not only the earlier theoretical aspects of the book, but also these two commonly cited deflationary episodes.

Many economists now view America’s postbellum deflation as due to strong economic growth. This is a particularly important period as it is one of the few data points that illustrate price deflation coexisting with a strong economy. (Elsewhere, Bagus (p. 139-40) explains that the bulk of data points showing deflation as coexisting alongside economic contractions should properly define the causality as going from the latter to the former, and not blame price deflation for the economic malaise.) In addition, Bagus discusses the role of what he defines “qualitative cash building” (p. 130-31). This furthers his previous work on the quality of money (Bagus 2009; 2015), and explains the general cash building that caused price deflation as stemming from the increase in the quality of money as gold convertibility was reinstated after the Civil War. As a result, the growing American population was more willing to hold cash balances as a store of value, meaning less currency circulating as a medium of exchange. As a result the value of money increased to satisfy the needs of the robustly growing economy, or, what is the other side of the coin, the prices of goods in general fell.

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## Joseph T. Salerno’s Review of The Forgotten Depression: 1921: The Crash That Cured Itself by James Grant

The Forgotten Depression is a narrative history of the depression of 1920–21. Although it is informed by a very definite theory—the Austrian business cycle theory—it is not a standard work in applied economics. It does not first present the theory in a rigorous formulation and then move on to apply the theory by adducing pertinent qualitative facts and statistical data to explain a complex historical event such as a depression. It instead proceeds by way of anecdotes and contemporary media accounts, liberally seasoned with telling quotations from politicians, policy makers, economists, business leaders, and other contemporary observers of the unfolding depression. Data on money, prices, and production are inserted at crucial points to keep the reader abreast of the economy’s precipitous decline, but they do not dominate and weigh down the story. James Grant, a masterful stylist, effectively weaves these disparate elements into a seamless and compelling narrative that never flags in pace or wanders off track. The book should appeal to a wide variety of readers, from college students and business professionals to academic economists and policy makers.

To understand the liquidationist position, one must first grasp its foundational concepts and assumptions. In the world of the early 1920s so richly portrayed by Grant, there was no national macroeconomic entity with which economic theory and policy were concerned: “As far as the political-economic mind of 1920 was concerned, there was no ‘U.S. economy.’ And as the economic totality was yet unimagined, so too was the government’s role in directing, managing and stimulating it” (p. 128; see also p. 67). Economists—with a few notable exceptions—did not think of the “price level” as a unitary statistical construct or worry overmuch about its fluctua-tions. Nor did they try to calculate “aggregate demand” or total spending or even consider either relevant to economic performance. Indeed, for most economists, the core of the market economy was the interdependent system of money prices, including wage and interest rates. Money prices were seen as the foundation for the calculations of revenues, costs, profits, and asset values upon which entrepreneurs based their resource-allocation decisions. Furthermore, it was widely recognized that money prices were in constant flux as they coordinated economic activities in the face of ceaseless change in consumer tastes, business organization, technology, population, labor skills, and so on. As Grant aptly and incisively expresses his theme in the preface, “The hero of my narrative is the price mechanism” (p. 2).

The favorable view of liquidation as a cure for depression thus arose naturally out of the belief that the price mechanism, when left undisturbed, benignly adapts resource allocation and production to the underlying economic realities. As Grant points out, to liquidate, as the term was used at the time, simply meant “to throw on the market” (p. 172). In this sense, “liquidating” labor, inventories, farms, and businesses was a call to allow the price system to operate to discover the configuration of wages, prices, and asset values appropriate to the reemployment of idle resources in the production of goods most urgently demanded by consumers. If this price adjust-ment incidentally resulted in deflation, then so be it. In lieu of the fictitious concept of a unitary price level, inert and resistant to movement, money prices were conceived as naturally and fluidly (but not instantly) moving up and down like a swarm of bees in flight. The fact that the “price swarm” might be ascending or descending would not inhibit and, indeed, might be required to facilitate necessary changes in the relative positions of money prices. (The metaphor of a “price swarm” wasn’t coined until 1942 by Arthur W. Marget in The Theory of Prices: A Re-examination of the Central Problems of Monetary Theory, 2 vols. [New York: Kelley, 1966, pp. 2:330–36], but it aptly describes the earlier classical-liquidationist view of the value of money.) Deflation presented no special problem because the classical view of the value of money still prevailed. In this view, money’s value was simply the unaveraged array of money prices inverted to reveal the alternative quantities of each good or service that exchanged for the money unit—for example, the dollar. Money prices fluctuated freely, so then must the value of money, which was determined in the same integral market process.

There was no fear among contemporary observers that, as current macroeco-nomic jargon would put it, “aggregate supply curves” would shift slowly and painfully to the right because entrepreneurs’ and workers’ expectations would adjust very slowly to the new reality. For liquidationists, in contrast, deflation would proceed very rapidly because bankers, investors, entrepreneurs, and consumers expected it to do so. And they expected it to do so because the intellectual paradigm and the monetary policy regime fostered such expectations. Even though the Fed was up and running, it did not yet see its task as preventing money prices from adjusting to changed conditions of money supply and demand.

Contemporary economic observers also did not fret about the modern specter of a runaway deflationary spiral that might result from plunging prices stoking expectations of further declines in prices and inducing consumers and entrepreneurs to delay purchases into the indefinite future. The reasons they ignored such an eventuality were obvious. First, such an event had never been experienced previously under the gold standard. Second, according to the liquidationist view, credit con-traction and deflation was the most expeditious method for realigning money prices and costs, in particular wage rates. It was well understood that capitalists and entrepreneurs did not react to some abstract price level but to actual or expected price margins. Deflation under a freely operating price mechanism did not just lower the height of the price swarm but also deftly reconfigured it so that price margins expanded to the point where entrepreneurial pessimism and malaise gave way to optimism and energetic risk taking.

Paradoxically, in the immediate aftermath of its greatest triumph, the liquidationist position was completely discredited and placed beyond the pale of rational discourse. By the mid-1920s, the early Fisher–Keynes macroeconomics of price-level stabilization swept the field in the English-speaking world. Under the sway of this sophisticated brand of monetary crankism, policy makers and politicians deliberately disabled the price mechanism and ensured that less than a decade later a garden-variety recession would be transformed into the tragedy of the Great Depression.

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## A Portuguese East Indiaman from the 1502–1503 Fleet of Vasco da Gama off Al Hallaniyah Island, Oman: an interim report

Two Portuguese naus from Vasco da Gama’s second voyage to India, left behind to disrupt maritime trade between India and the Red Sea, were wrecked in May 1503 off the north-eastern coast of Al Hallaniyah Island, Oman. The ships, Esmeralda and São Pedro, had been commanded by da Gama’s maternal uncles, Vicente and Brás Sodré, respectively. A detailed study and scientific analysis of an artefact assemblage recovered during archaeological excavations conducted in Al Hallaniyah in 2013 and 2014 confirms the location of an early 16th-century Portuguese wreck-site, initially discovered in 1998. Esmeralda is proposed as the probable source of the remaining, un-salved wreckage.

In 1502, four years after his discovery of the sea route to India earned him the titles Dom and Admiral of the Indies in addition to other royal grants, Vasco da Gama was once again appointed Captain-Major by Dom Manuel I for a voyage to India. Following the disastrous outcome of Pedro Cabral’s earlier (1500–1501) command of 13 ships, of which only six made it to the Malabar coast, da Gama was apparently a late replacement for Cabral of this 4th Portuguese voyage, which was central to the prestige and military ambitions of Dom Manuel. The Portuguese king’s investment in the Indian Ocean had yet to turn a profit, nor had it resulted in finding large numbers of friendly Christians in India who could be allies against the Mamluks of Egypt who controlled the spice trade through the Red Sea. In fact, Cabral’s relations with the Zamorin of Calicut were decidedly unfriendly. Continuing da Gama’s policy of hostile trade, Cabral’s fleet first seized a Muslim ship, which in turn precipitated a retaliatory attack by the enraged Muslim merchants on the newly established Portuguese feitoria in Calicut. Fifty-four Portuguese, including the feitor Aires Correia, were killed in the ensuing battle. Cabral’s reply to the heavy loss of his men and goods was to capture still more Muslim ships and then to bombard Calicut with his heavy guns, killing as many as 500 (Subrahmanyam, 1997: 181).

In replacing Cabral, Dom Manuel opted for a fleet that was full of military intent and family members of da Gama. Of the 20 ships, the largest Carreira da India fleet to date, five were commanded by present, or soon to be relations of da Gama, including: the Sodré brothers, a cousin Estêvão da Gama, a brother-in-law Alvaro de Ataíde, and a future brother-in-law Lopo Mendes de Vasconcelos (Livro das Armadas da Índia, c.1497–1640). The main figure, however, other than da Gama himself, was Vicente Sodré, who was to assume the role of Captain-Major if anything happened to his nephew. Sodré, who was both a knight of the Order of Christ and of the royal household, was given a separate regimento by Dom Manuel to use his partially independent squadron of five ships to ‘make war against the ships of Meca’ along the coast of Malabar and the entrance to the Red Sea (Barros, 1552: 87; Subrahmanyam, 1997: 190). In leaving Sodré’s smaller squadron behind, Dom Manuel was looking to forcibly control and dominate the spice trade by the naval power of his technically superior ships armed with heavy guns.

After da Gama returned to Lisbon in early 1503 with the main part of the fleet, Sodré was instructed to patrol the waters off the south-west Indian coast. From this post he could protect the newly established Portuguese factories and their allies in Cochin and Cannanore from the inevitable Zamorin attacks, and still be able to capture Arab ships trading between the Red Sea and Kerala to fulfil the royal regimento. Sodré, however, ignored these instructions and instead sailed to the Gulf of Aden where his squadron captured and looted a number of Arab ships of their valuable cargoes (Subrahmanyam, 1997: 229). In conducting this high-seas piracy, Sodré was abetted by his brother Brás in the São Pedro, who led brutal attacks that spared no lives as every ship was burnt after being plundered. According to Pêro d’Ataíde (1504), who was captain of the third nau, the Sodré brothers kept the lion’s share of the stolen cargoes (pepper, sugar, clothing, rice, and cloves), leading to dissension among the other commanders and crews.

In April of 1503, Sodré took his squadron to the Khuriya Muriya Islands off the south-eastern coast of Oman to shelter from the south-west monsoon and to repair the hull of one of the caravelas. They remained on the largest and only inhabited island (now known as Al Hallaniyah) for many weeks and enjoyed friendly relations with the indigenous Arab population, including bartering for food and provisions. In May the local fishermen warned the Portuguese of an impending dangerous wind from the north that would place their anchored ships at risk unless they moved to the leeward side of the island. Confidant that their iron anchors were strong enough to hold their naus in place, the Sodré brothers, along with Pêro de Ataíde, kept their ships in the northern anchorage, while the smaller caravels moved to a safe location on the other side of the island.

When the winds came, as the Arab fisherman had accurately predicted, they were sudden and furious and were accompanied by a powerful swell that tore the Sodré brothers’ ships from their moorings and drove them hard against the rocky shoreline smashing their wooden hulls and breaking their masts. An illustration in Livro das Armadas (c.1568) dramatically captures the demise of the two naus (Fig. 1). While most men on the São Pedro survived by scrambling across the fallen mast and rigging on to land, it was reported that everyone from the Esmeralda, including the squadron commander Vicente Sodré, perished in the deeper waters of the bay. Although Brás initially survived the wrecking of his ship, he later died of unknown causes; but not before he had two Moorish pilots killed, including the best pilot in all of India left to him by his nephew da Gama, in misplaced revenge for the death of his brother (Ataíde, 1504).

After burying their dead on the island, the surviving Portuguese spent six days salvaging as much as they could from the wrecks before setting fire to the hulls (Ataíde, 1504). Under the new command of Pêro de Ataíde, the three remaining ships sailed back to India where they met Francisco D’Albuquerque and, according to Ataíde, handed over 17 pieces of artillery they had salvaged from the wrecks. Ataíde later succumbed to illness and died in early 1504 after his ship wrecked near Mozambique during his return journey to Lisbon. Shortly before he died, however, Ataíde wrote a five-page personal letter to Dom Manuel relating the events described above. This letter, the original of which is held in the Arquivo Nacional da Torre do Tombo in Lisbon, represents the most complete first-hand account of what transpired with the Sodré patrol, and it is against this account that the Portuguese chronicles of Corrêa, Barros, Castanheda and Góis, were compared for the purpose of determining where to search for the wreck-site.

Although no record exists of the Portuguese contemplating additional salvage of the wrecks, a letter to Dom Francisco de Almeida, first Viceroy of India, dated 10 September 1508, tells how a sworn enemy of the Portuguese got to the site first and apparently recovered the guns that Ataíde and the surviving crews left behind (ANTT-CC, 1508). The guns, including 50 or 60 berços, two bombardas grossas and one falcaõ, where then in the hands of Malik Ayaz, who, as the governor of Diu and their main adversary in Gujarat (Pearson, 1976: 67), recently handed the Portuguese their first naval defeat in the Indian Ocean at the Battle of Chaul in March 1508. Undoubtedly the most upsetting fact for Almeida was that this valuable and strategically important collection of ordnance had been recovered from the Sodré wreck-site in Khuriya Muriya. Almeida was already aggrieved that his son Lourenço had been defeated and lost his life in the battle, but now he learned that the guns Malik Ayaz used to inflict this blow were Portuguese. No doubt this provided extra motivation for Almeida to take his revenge against Malik Ayaz and the Egyptian-Gujarati fleet, which he promptly did in early 1509 at the Battle of Diu (Pearson, 1976: 70).

Key individual artefacts that helped in identification of the wreck site as Vicente Sodré’s nau Esmeralda include:

• an important copper-alloy disc marked with the Portuguese royal coat of arms and an esfera armilar (armillary sphere), which was the personal emblem of King Dom Manuel I.
• a bronze bell with an inscription that suggests the date of the ship was 1498.
• gold cruzado coins minted in Lisbon between 1495 and 1501.
• an extraordinarily rare silver coin, called the Indio, that was commissioned by Dom Manuel in 1499 specifically for trade with India.  The extreme rarity of the Indio (there is only one other known example in the world) is such that it has legendary status as the ‘lost’ or ‘ghost’ coin of Dom Manuel.

The bulk of the recovered artefacts were artillery and ordnance from the arsenal on board the ship.  These included lead, iron and stone shot of various calibres, a large number of bronze breech chambers and several ancient firearms.  Together they provide tangible proof of the military objectives of this fleet as ordered by Dom Manuel and brutally carried out by Vasco da Gama and his two uncles Vicente and Brás Sodré.

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## From Science Daily: Neanderthals diet: 80% meat, 20% vegetables Isotope studies shed a new light on the eating habits of the prehistoric humans

Scientists from the Senckenberg Center for Human Evolution and Palaeoenvironment (HEP) in Tübingen have studied the Neanderthals’ diet. Based on the isotope composition in the collagen from the prehistoric humans’ bones, they were able to show that, while the Neanderthals’ diet consisted primarily of large plant eaters such at mammoths and rhinoceroses, it also included vegetarian food. The associated studies were recently published in the scientific journals Journal of Human Evolution and Quaternary International.

The paleo-diet is one of the new trends among nutrition-conscious people — but what exactly did the meal plan of our extinct ancestors include? “We have taken a detailed look at the Neanderthals’ diet,” explains Professor Dr. Hervé Bocherens of the Senckenberg Center for Human Evolution and Palaeoenvironment at the University of Tübingen, and he continues, “In the process, we were able to determine that the extinct relatives of today’s humans primarily fed on large herbivorous mammals such as mammoths and woolly rhinoceroses.”

But our extinct relatives did not solely thrive on meat: Studies of the isotope composition of individual amino acids in the collagen offer proof that plant matter constituted approximately 20 percent of their diet. In scientific circles, this evolution-biologically relevant question has been discussed intensively for decades, albeit without leading to any tangible results.

“In this study, we were able for the first time to quantitatively determine the proportion of vegetarian food in the diet of the late Neanderthals. Similar results were found for more recent Stone Age humans,” adds Bocherens.

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## What War Does: A Speech by Tom Woods

Tom Woods gave an outstanding antiwar speech four years ago. This is probably the best of Woods’ many talks and one of the finest antiwar speeches I have heard. Despite being four years old, it is timeless.

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## From the Tenth Amendment Center: Wyoming Bill Expanding Health Freedom Signed Into Law

A Wyoming Gov. Matt Mead signed a bill into law that will help facilitate healthcare freedom and set the foundation to nullify Obamacare in practice earlier this month. It went into immediate effect.

The new law (SF49) specifies that direct primary care agreements (sometimes called medical retainer agreements) do not constitute insurance, thereby freeing doctors and patients from the onerous requirements and regulations under the state insurance code.

After a 30-0 vote in the Senate on Feb. 12, the House unanimously passed the bill 60-0 on Feb.24. Mead inked his name on the bill March 2. Based on language written into the legislation, it went into effect immediately upon his signing.

According to Michigan Capitol Confidential, by removing a third party payer from the equation, medical retainer agreements help both physicians and patients minimize costs. Jack Spencer writes:

“Under medical retainer agreements, patients make monthly payments to a physician who in return agrees to provide a menu of routine services at no extra charge. Because no insurance company stands between patient and doctor, the hassles and expense of bureaucratic red tape are eliminated, which have resulted in dramatic cost reductions. Routine primary care services (and the bureaucracy required to reimburse them) are estimated to consume 40 cents out of every dollar spent on insurance policies, so lower premiums for a given amount of coverage are another potential benefit.”

This represents the kind of cost control Obamacare promised, but failed to deliver.

Under Obamacare, regulations define such programs as a primary care service and not a health insurance plan, and current IRS policy treats these monthly fee arrangements just like another health plan.

Several states including Idaho, Oklahoma, Mississippi, Texas and Missouri passed similar bills in 2015.

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