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.This is true within every country and also throughout theworld.Internationally, capital will tend to flow from low-interest to high-interest rate countries, raising interest rates in the former and loweringthem in the latter.In the days of the international gold standard, the process was simple.Nowadays, under fiat money, the process continues, but results in a seriesof alleged crises.When governments try to fix exchange rates (as they didfrom the Louvre agreement of February 1987 until Black Monday), theninterest rates cannot fall in the United States without losing capital orsavings to foreign countries.In the current era of a huge balance of trade deficit in the U.S., the U.S.cannot maintain a fixed dollar if foreign capital flows outward; thepressure for the dollar to fall would then be enormous.Hence, after BlackMonday, the Fed decided to allow the dollar to resume its market tendencyto fall, so that the Fed could then inflate credit and lower interest rates. Making Economic Sense 37But it should be clear that that interest rate fall could only be ephemeraland strictly temporary, and indeed interest rates resumed their inexorableupward march.Price inflation is the consequence of the monetary inflationpumped in by the Federal Reserve for several years before the spring of1987, and interest rates were therefore bound to rise as well.Moreover, the Fed, as in many other matters, is caught in a trap of itsown making; for the long-run trend to equalize interest rates throughoutthe world is a drive to equalize not simply money, or nominal, returns, butreal returns corrected for inflation.But if foreign creditors and investorsbegin to receive dollars worth less and less in value, they will requirehigher money interest rates to compensate and we will be back again,very shortly, with a redoubled reason for interest rates to rise.In trying to explain the complexities of interest rates, inflation, moneyand banking, exchange rates and business cycles to my students, I leavethem with this comforting thought: Don t blame me for all this, blame thegovernment.Without the interference of government, the entire topicwould be duck soup.9Are Savings Too Low?One strong recent trend among economists, businessmen, andpoliticians, has been to lament the amount of savings and investment inthe United States as being far too low.It is pointed out that the Americanpercentage of savings to national income is far lower than among the WestGermans, or among our feared competitors, the Japanese.Recently,Secretary of the Treasury Nicholas Brady sternly warned of the lowsavings and investment levels in the United States.This sort of argument should be considered on many levels.First, andleast important, the statistics are usually manipulated to exaggerate theextent of the problem.Thus, the scariest figures (e.g., U.S.savings as only1.5 % of national income) only mention personal savings, and omitbusiness savings; also, capital gains are almost always omitted as a sourceof savings and investment.But these are minor matters.The most vital question is: even concedingthat U.S.savings are 1.5% of national income and Japanese savings are15%, what, if anything, is the proper amount or percentage of savings? 38 Murray N.Rothbard: Making Economic SenseConsumers voluntarily decide to divide their income into spending onconsumer goods, as against saving and investment for future income.IfMr.Jones invests x percent of his income for future use, by what standard,either moral or economic, does some outside person come along anddenounce him for being wrong or immoral for not investing X+l percent?Everyone knows that if they consume less now, and save and invest more,they will be able to earn a higher income at some point in the future.Butwhich they choose depends on the rate of their time preferences: howmuch they prefer consuming now to consuming later.Since everyonemakes this decision on the basis of his own life, his particular situa tion,and his own value-scales, to denounce his decision requires some extra-individual criterion, some criterion outside the person with which tooverride his preferences.That criterion cannot be economic, since what is efficient and economiccan only be decided within a frame-work of voluntary decisions made byindividuals.For the criterion to be moral would be extraordinarily shaky,since moral truths, like economic laws, are not quantitative but qualitative.Moral laws, such as thou shalt not kill or thou shalt not steal, are qualitative; there is no moral law which says that thou shalt not stealmore than 62% of the time. So, if people are being exhorted to save moreand consume less as a moral doctrine, the moralist is required to come upwith some quantitative optimum, such as: when specifically, is saving toolow, and when is it too high? Vague exhortations to save more make littlemoral or economic sense.But the lamenters do have an important point.For there are anenormous number of government measures which cripple and greatlylower savings, and add to consumption in society.In many ways,government steps in, employs many instruments of coercion, andskews the voluntary choices of society away from saving and investmentand toward consumption.Our complainers about saving don t always say what, beyondexhortation, they think should be done about the situation.Left-liberalscall for more governmental investment or higher taxes so as to reducethe government deficit, which they assert is dissaving. But one thingwhich the government can legitimately do is simply get rid of its owncoercive influence in favor of consumption and against saving and Making Economic Sense 39investment.In this way, the voluntary time preferences and choices ofindividuals would be liberated, instead of overridden, by government.The Bush administration began eliminating some of the coercive anti-saving measures that had been imposed by the so-called Tax Reform Actof 1986.One was the abolition of tax-deduction for IRAs, which wipedout an important category of middle-class saving and investment; anotherwas the steep increase in the capital gains tax, which is a confiscationof savings, and to the extent that capital gains are not indexed forinflation a direct confiscation of accumulated wealth.But this is only the tip of the iceberg.To say that only governmentdeficits are dis-saving is to imply that higher taxes increase socialsavings and investment.Actually, while the national income statisticsassume that all government spending except welfare paymentsare investment, the truth is precisely the opposite.All business spending is investment because it goes toward increasingthe production of goods that will eventually be sold to consumers.Butgovernment spending is simply consumer spending for the benefit of theincome, and for the whims and values, of government s politicians andbureaucrats.Taxation and government spending siphon social resourcesaway from productive consumers who earn the money they receive, andaway from their private consumption and saving, and toward consumptionexpenditure by unproductive politicians, bureaucrats, and their followersand subsidies.Yes, there is certainly too little saving and investment in the UnitedStates, as a result of which the U.S
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