The Petrodollar’s Influence on US Foreign Policy

Posted on March 16, 2022 by Logan Davies

There is a considerable chance you have heard that the US government invades countries and steals their oil, and the resource being a driving factor in our foreign policy. This is somewhat correct. Although it may be on a smaller and hushed scale, the government isn’t necessarily invading countries, stealing their oil and proceeding to ship barrels of it back home. One may counter that the US invades countries that are rich in oil, and then maintains an influential presence and places powerful US companies there to conduct the export of the valuable resource, and this is a fair assumption. However, the US government’s presence in the Middle East isn’t necessarily to appropriate oil, rather ensure the longevity of the petrodollar.

The petrodollar’s dawn dates back to the 1940s, particularly after WW2. At the Bretton Woods Conference in 1944, the US dollar was established as the world’s reserve currency. The biggest takeaway from the conference was that since the US held most of the world’s gold, it promised to redeem gold to countries in exchange for US dollars. In 1945, President Franklin D. Roosevelt met with the King of Saudi Arabia and formalized an alliance. This cemented a relationship between the dollar and oil, though its marriage would not be knitted until decades later.

Excessive spending in the 1960s on various government programs and the Federal Reserve’s manipulation caused excess dollars to circulate the international economic environment, predictably decreasing its value. This made other countries exchange their dollars for gold at a faster rate, most notably Britain in the early 1970s.

To stop the drain, Nixon removed the US dollar from the gold standard and defaulted on its promise to redeem gold for dollars, which in turn informally ended the Bretton Woods agreement. Since the dollar was no longer redeemable in gold nor backed by any substance of value, countries had no incentive to continue utilizing the dollar as the world reserve currency. The Organization of the Petroleum Exporting Countries (OPEC) began discussing accepting payments other than the US dollar, including gold. After removing the US dollar from the gold standard and inciting a shock and widespread inflation, coupled with another shock induced by OPEC’s embargo on nations supporting Israel, the US needed a resolution that would attract countries to keep the dollar as their reserve.

With Saudi Arabia being one of the most prominent and powerful members of OPEC, they and the US strengthened their economic alliance in an agreement known as the United States-Saudi Arabian Joint Commission on Economic Cooperation. With Saudi Arabian influence, OPEC agreed to use US dollars for oil contracts, and would then recycle the US dollars back to the US. In exchange, the US promised to keep the House of Saud in power to ensure the US dollar would be utilized for oil trade. This agreement officially gave birth to the petrodollar.

Concisely, an important factor of the US dollar’s value is its dependency on oil trade and the currency being exchanged between exporting and importing nations. It should be noted, even if the US isn’t involved in trade between particular nations, they use US dollars to purchase the oil. This creates an artificial demand for the US dollar. It is a medium of exchange backed by virtually nothing, with its value being derived from its exchange utility and, of course, debt.

The US dollar is a global currency, and the vast majority of international transactions are priced in US dollars. Therefore, oil-exporting countries receive revenue in US dollars. Due to its widespread use, the national income of many oil-exporting nations is dependent upon the value of the dollar. With the historic market volatility of oil prices, countries that are dependent on the exportation of oil peg their currency to the US dollar, and do this in the instance the value of the dollar falls, making all of their goods and services in their economies fall to prevent damaging inflation or deflation.

In due time, oil-exporting nations began branching out to ensure their economies did not depend solely on oil and thus experience the dreaded Dutch disease. These nations began to recycle their US dollars through sovereign wealth funds, which are invested into non-oil-related ventures essentially making them less dependent on oil. To the alarm of the US, 70% of the 700 billion investable reserve funds are untraceable. If it is invested in US treasury bonds, a mass withdrawal could destabilize the dollar. Most countries won’t attempt this, however, since the US is one of OPEC’s biggest customers.

However, countries that refuse to use or attempt to discard the petrodollar for international trade make trade agreements with one another, using their preferred currencies instead of the petrodollar. Some of examples of these countries are Russia, Iran and Venezuela. A notable nation that faced repercussions and military actions for its attempt to use gold instead of US dollars was Libya.

Conclusively, the US dollar relies heavily, but not exclusively, on its use as a medium of international exchange, and it is vital nations play along and continue to utilize it. The history of the petrodollar offers a convincing explanation of why the US is consistently involved in Middle Eastern affairs. It must continue to satisfy Saudi Arabian interests to ensure they continue to use the US dollar, and install governments and regimes in nations that will employ the petrodollar to ensure the currency’s longevity.

This article was originally published on Being Libertarian.

Taxation: The Antithesis of A Civilized Society

Posted on June 26, 2021 by Logan Davies

Across political spectrums, surely an agreement can be made that each and every human should have freedom and the absence of bondage—especially in a civilized society. Self-ownership is fundamental to freedom, and it can irrefutably be argued that self-ownership implies you are private property to yourself.

Therefore, private property is a reflection of self-ownership, and the fruits of one’s labor is their private property. Those fruits are an extension of the individual due to it being received voluntarily from another individual through some form of trade for their output.

The notion that man is indebted to society assumes that man is not a free individual, rather a statistic whom is shackled by a controlling and overreaching society who uses legislation as a means of tyranny. Man is not in debt to society for simply existing.

Man’s only debt is to suppress his urge to violate the rights of others in exchange for the respect of his own, essentially sacrificing freedom for liberty. This ensures man’s tendencies are limited, so that another is not negatively impacted by one’s action.

Ultimately, the price one pays to live in a civilized society is a voluntary mutual covenant to restrict certain actions that harm others, placing an emphasis on liberty. Forcing man to sacrifice his property in the name of progress by use of coercion is hardly civilized. Rather, it is barbaric.

The idea that we must pay taxes to protect our rights is the epitome of irony. Having a gun held to one’s head in order to fund the entities that vow to protect you is preposterous. Instead of voluntary actions or perhaps diplomacy in any non-aggressive form, they assert the only way to obtain harmony is through violence. In essence, the statist believes plunder is the only medium to subsidize shared services. The taxpayers are simply owned by the collectors, due to this illusion of debt.

This is why many assert that taxation is theft. This statement isn’t simply a principle that is tied to a particular ideology. It is an observation and conclusion from deductive reasoning.
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This begs the question, at what exact percentage of your labor being subject to the legal confiscation by another constitutes you a free individual? Is a man not a slave if his fruits are appropriated at 99%? He still owes debts to another without signing a valid contract for simply producing. If you are not enslaved because your labor is not taxed at 100%, what if one does not consent at any given percentage? A collectivist would perhaps introduce the “social contract” as an answer, though it could be refuted due to the signee being under duress, through threat of jail or violence. This undoubtedly invalidates the contract in jurisprudence.

This is why many assert that taxation is theft. This statement isn’t simply a principle that is tied to a particular ideology. It is an observation and conclusion from deductive reasoning. Unless the taxpayer consents or has the ability to opt out of society’s fiscal requirements, taxation certainly is theft.

If one is to put a gun to a wealthy, elderly woman’s head and demand her money, and then direct the plunder towards a poor family, is that not armed robbery? What the armed robber does with the money does not remove the initial act of theft. To make the claim that it is not theft and rather a sacrifice for sake of civilization… is nothing more than a poor attempt at rationalization.

What is it that makes sexual intercourse not be rape? It’s consent, certainly. This example further illustrates that without consent, any method of force used in a sequence of means to reach an end is robbery, extortion or some form of involuntary act in which one gains and one loses. Therefore, theft.

To counter this reasoning, one will produce dozens of examples of public utilities that taxpayers use, and conclude that since we use the services, the services conveniently negate the taxing entity’s initial means to produce the services. The use of these services by the taxpayer does not legitimize the legal plunder. By this logic, it is perfectly fine to remove another individual’s property for your own use, as long as you grant them the ability to use a portion of it at your discretion.

The taxpayer must still optimize any means to obtain their desired end, even if it means using the displaced wealth. They were cornered into this position, and have limited options due to being insidiously handicapped and subdued. For example, the governing entity monopolizes roads and highway systems, and charges one to use them through taxation.

The individual has no other choice but to use the roads they were forced to initially subsidize. Even if a large contingent of individuals opted out of taxation and combined resources to construct their own highway systems, any attempt at free enterprise in the controlled industry would end in an unfair advantage due to the government having the ability to regulate and ultimately control its competition.

One can justify the use of theft, and perhaps in some instances the justification may very well be seen as reasonable within some contexts, although this is entirely subjective. However, one cannot simply disregard the initial action, being theft, which brought forth the public utility or service. When one utters ‘Taxation is the price one pays for a civilized society,’ is to insinuate that ‘We are free, only if we are enslaved.’

This article was originally published on the website Being Libertarian. It can be found on their website here.

Addressing the Living Wage

Posted on June 20, 2021 by Logan Davies

Since the mid- to late-1800s, better working conditions have been proposed by both activists and government bureaucrats, with constant political pressure on entrepreneurs having yet to cease. Of the many policies that have been suggested or, better yet, enforced, there is one in particular that has remained consistent: increasing the minimum wage.

As of late, it has been referred to as the “living wage.” This policy essentially advocates that companies increase the pay of their workers, particularly those that maintain a meager amount of skills valued in the market. After brief analysis, however, one will conclude that the “living wage” is nothing more than an asinine populist term that maintains steep repercussions not only for companies, but also for the intended beneficiaries of the policy.

Even when examining this progressive concept without much thought, it still falls under scrutiny. Its advocates claim the wage is determined by calculating the expenses for food, healthcare, rent, transportation, childcare, and a handful of other costs in a particular area. Like the CPI, these costs are completely arbitrary. Of the millions of individuals who maintain subjective consumer tastes, preferences and tendencies, how can one accurately determine an average price that would efficiently fulfill each individual’s need?

Before we proceed, one must grasp those economic dynamics that determine wages, which we will find is nothing more than a price. Prices, and the signals they convey, are a vital tool in a market economy. They are essentially a language. They allow both producers and consumers to observe and communicate the aggregate value of a particular commodity or factor of production. These prices reflect the current market conditions of the good or service consumers wish to purchase, without having to know its current supply.

Think of it as a simplified ledger conveyed into a single number.

The determination of the price of the good or service is determined purely by its demand. This is not to insinuate that demand is the only influence of a price, but is rather the origin of the good or service in question. The supply of the given good or service maintains its importance in the determination of the price, but it is certainly not the driving factor.

The failure to realize demand is the vital determining factor of a price. This has created the claim that an increase in wages inflates the price of a good, which is misleading. Prices are not set by producers and the costs of production, but rather by consumers. The price can only be raised by the producer to the point where consumers are willing to purchase the good, due to elasticity. For the remainder of this analysis, we will refer to demand as the demand for labor.

When demand has been realized in the marketplace, workers will offer their labor to meet the demand, which constitutes the supply of labor.

In essence, the living wage intends to support those who maintain little to no skills. The main concern with this notion is that there is already a large supply of unskilled workers in the marketplace. When the wage rate is mandated to be set above its equilibrium price, a surplus of labor arises. With each additional increase in labor, the utility of each additional laborer decreases. This is otherwise known as the law of diminishing marginal utility. During the production process, the entrepreneur utilizes the amount of labor required to fulfill the marketplace demand. With each additional worker enacting their labor, a point will ultimately be reached where an additional input of labor will generate no return, and instead increase the cost of production. This concept is known as the law of diminishing returns.

With these economic principles being realized, the entrepreneur will determine the amount of labor needed to generate the required output to receive a profit, or at the very least break even. The entrepreneurs will pay each laborer their price which was set by the market demand for their skills well before the production process is complete. This is because laborers tend to have a high time preference, meaning they prefer income now rather than later. This causes the individual with a high time preference to receive their income at a discounted rate.

This concept is what determines the wage rate of the laborer, known as the discounted marginal value product, or simply the marginal product. Simply put, each laborer’s wage is determined by the required output to satisfy consumer demand. But why, one may ask, has productive output increased over the past few decades, yet wages have been stagnant when adjusted for inflation?

One could make dozens of suggestions, but the most observable is the increase in the productivity of capital goods. One must recall that labor is not the only factor of production.

Contrary to those who favor a universal basic income and who maintain this erroneous fear of automation, the increase in output due to capital investment is a good thing. This is because the increase of output at lower production costs due to capital investments allow consumers to purchase goods at lower prices! This is why, contrary to Keynes in his General Theory, real wages are what is important, not money wages. As long as artificial inflation is not induced, the purchasing power of real wages to consume goods and services ensures a respectable quality of life.

We have established what constitutes the wage of a laborer, and have also determined that wage rates artificially held above the equilibrium price set by the market results in surplus labor, thus unemployment.

We may now conclude that this surplus of labor induced by the artificial wage set by the government, in fact, harms and discriminates against unskilled workers. As noted earlier, a brief observation of the “living wage” can be turned on its face. With further analysis, it is simply not feasible and maintains damaging ramifications. The “living wage” is nothing more than left-wing populist rhetoric that seeks to reach politically-expedient goals in the immediate future, disregarding the externalities and negative long-term effects of the policy.

This article was originally published on the website Being Libertarian. It can be found on their website here.

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Author Archives: Logan Davies

The Petrodollar’s Influence on US Foreign Policy

Taxation: The Antithesis of A Civilized Society

Addressing the Living Wage