Friday, December 2, 2016

Is It Moral for Libertarians to Invest in Defense and Bankster Stocks?

A couple of weeks prior to the U.S. election, in the EPJ Daily Alert,  I recommended the purchase of bankster stocks. After the Donald Trump election victory, I recommended the purchase of  defense stocks.

An ALERT subscriber has emailed me this question:
Do you have any moral qualms about investing in stocks such as the big banks, US treasuries and the merchants of death? The fact that I would be helping to fund the evil things these entities do is giving me pause. As a Rothbardian, how do you reconcile this with the NAP?
My response:

As is clear from my writings at EPJ and Target Liberty, I am not in favor of bankster operations or military adventures of the Empire.

I would never promote them and I certainly wouldn't fund them. So how can I justify making recommendations to BUY stocks in such operators?

I see such purchases as merely accumulating capital that I expect to increase in value. By purchasing such stocks, I am simply acquiring rights to capital that already exists. This would be different if I were to buy new issues of stocks issued by banksters or military contractors. That would most often be directly funding the purchase of new capital for these operators. (For a detailed explanation of when direct funding really occurs and when it doesn't see  The Stock Market, Credit, and Capital Formation by Fritz Machlup.)

Note: I am not making the argument "Well, someone is going to do it." My argument is, "By buying stocks in a secondary fashion on exchanges (as opposed to initial offerings and other direct corporate offerings), I am not directly increasing the amount of capital going into any of these companies."

Because buying an initial offering and other direct company offerings could result in the direct expansion of capital in these sectors I would never buy bankster or defense stocks offered directly by the companies.

By buying on the secondary market, I am merely observing the world and accumulating assets that I expect to climb---but not climb because of anything I am actively doing to promote their advance in the sense of calling for operations in these areas to continue or expand. In fact, I am doing the opposite and would hope they would shut down.

In the same way, I buy gold assets because I expect central banks to madly pump more money into the world. I don't want the banks to do so and it would be wrong to advocate such but by owning gold  and gold stocks I am only protecting my wealth in a crazy world---without violating NAP.

It's the same with buying bankster and defense stocks in this crazy world. I am not expanding their funding and I am certainly not advocating for bankster operations or military spending but if others are going to set up an environment where these capital assets will climb, there is no violation of NAP to purchase them.

Indeed, I note that central banks could pump more money to fund wars so that my gold could climb because of such war funding. But if I am not advocating such wars, or the funding of such wars, then I see no problem with owning gold that will climb in a war environment that I have nothing to do with creating.

As for U.S. Treasury securities, things are a little more tricky here.

It should first be noted that we live in a world that is not designed by us. We use U.S. paper dollars that have been created and are controlled by the government to promote the government's agenda. Because dollars are the generally accepted medium of exchange, it would be very difficult to live a modern day life if we didn't use this government creation. We should never advocate a government controlled monetary system but the government really has us boxed in when it comes to the real world and its use of its money.

It is pretty much the same thing with our savings. If we put cash in a bank, it expands that bank's reserves which will allow it to add loans via the fractional reserve system that results in the boom-bust cycles. But what are we to do, not use the banking system at all? The government has us boxed in again. The same way they also do with roads, public transportation etc. that are built with taxpayer money.

Things would be much different in a Private Property System, but we aren't there yet---not even close.

Getting back to the banking system, because the Federal Reserve manipulates interest rates and money supply, there are no 100% safe investments. This would be significantly different in a PPS, where many things would be much more stable, but we aren't there. Booms occur and busts occur making almost any investment (even triple a rated commercial paper) susceptible at times to total loss.

But like dollars, sidewalks and roads, the government does offer its edgy alternative: Treasury securities.

I would never advocate government debt funding, any more than government currencies, sidewalks etc. but when it comes to the safety of principle (setting aside losses via price inflation) the government has us boxed in here also, by creating an environment where nothing else is as stable in comparison.

When it comes to your money and its safety, the system is really government rigged. Putting cash in the bank or buying Treasury securities will benefit the government or its benefactors. There is nothing you can do about that.

But here is the kicker with Treasury securities. The government is going to fund its operations one way or another. but by your buying Treasury bills you are actually preventing the funding of the debt via inflation, since if there are no buyers for securities at a given interest rate, the Federal Reserve will step in to buy the securities (via a complex bankster route).  So when you have no alternatives when you are looking for safety and  buy Treasury securities, just know that you are doing your very tiny part to fight money printing by buying the securities instead of the Fed.

As far as being Rothbardian on the subject, according to Murray's wife, Joey, Rothbard once invested in some deeply discounted government bonds on anticipation of a bailout of the bonds. The bailout didn't come but it suggests that Murray's thinking was in line with mine: If you are buying assets that already exist, you are not in any way promoting the state or its opportunists but simply aligning capital investments in line with the anticipated environment.



  1. Not sure which stocks you've recommended but noting their sector, I'm sure they're tied into early money production and deeply discounted borrowing. By purchasing their stock are you not increasing the company's valuation which will in turn lead to their ability to borrow and grow their capital assets through cheap financing; while at the same time creating a demand for their stock (by propping up their valuation/market capitalization), no?

  2. You acknowledge an ideological war with an insurgent socialism, especially among young people. How do you think they would react to your cynical mental gymnastics? Oh, you bought those shares of banksters and merchants of death, speculating for personal gain on more crooked bank profits and more wars and rumors of wars, on the secondary market not in an initial offering? Ok, totally morally justified, my bad... So, owning physical gold is just a libertarian "bet" on bad gov't policy. That's all owning gold is about, huh? Wow, it must be hard to be such a negative doom & gloomer... Rothbard bought some gov't bonds at some point? Well then...

    Divestment and shaming has been a successful tactic for other elements of the political spectrum in the past and could be today for libertarians.

  3. This reminds me of the question if a libertarian takes social services (unemployment, housing, etc) are they a hypocrite in violation of NAP. I had a discussion with a co-worker and he rationailized it by saying; "Well I "paid" into it, so I'm just using what I paid for." Alternatively he said that it was his way of getting his money back.

  4. I think RW's distinction between buying on the secondary market and primary market misses the point that a liquid, thriving secondary market in a stock provides significant benefits to management teams who hold equity options in the company, and also helps a company raise additional money in the market in the future on a primary basis, borrow money, etc. If you want to take a principled stand against a company, other than boycotting its products you could do your small part to reduce the robustness of its publicly-traded securities by abstaining from becoming a stockholder.