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Barnacles

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Barnacles are hard-shell-encased creatures often found on the sides of ships. They are of concern to people mostly because of the drag they increase, causing shipping companies increased cost; one estimate led to the calculation that over 41 million barrels of oil are wasted due to them, costing over $2 billion with oil at $50 per barrel. Of course, the sides of ships are not their usual place of residence, which is typically near the shore and in the inter-tidal zone.

The seacoast is a harsh but productive environment for life; waves constantly pound upon rock, to say nothing of the effects of storms. In this situation, one would expect that the inter-tidal barnacles, taking the constant assault of water and wind, would have sturdier shells than ones of the same species living on the calmer nearby ocean bottoms. In fact, the exact opposite effect obtains: barnacles in gentler waters have stronger shells. The reason is evolutionarily simple: barnacles exposed by the tides and battered by the waves are more subject to predation and early death, and so more of their life energy goes toward reproduction rather than building a tougher shell before death takes them; a barnacle near the shore that built a sturdier shell would get out-bred by faster-reproducing ones, and so become extinct.

One attraction of Austrian economics reflects its grounding in the long tradition of natural law; economic laws are not made, but discovered, and they are in force whether one recognizes or chooses to acknowledge them. The same economizing that the barnacles must undertake in the face of strife should likewise apply with other living creatures, including man. In the area of constructing living quarters, one can see some of the same effects encapsulated in the expression "they do not build them like they used to."

Two houses, each alike in dignity, show the effects of battering of stormy seas on economic life. One has recently undergone renovation, melding older and newer construction, and the other is largely unchanged from its original format; the renovated house is older.

It is interesting to observe the construction problems of the older house: its dimensional lumber is oversized for modern usage, with 2×4 studs actually measuring two inches by four inches. All other lumber likewise measures out to exact inch measurements. Thus when adding new studs to an older wall, it is necessary to take a current "2×6" and rip it down to a stud that measures exactly 4 inches deep, increasing material and labor costs. The older studs' wood is denser, having come from old-growth trees; it resists and holds nails much better than its shrunken modern counterpart. The older house's neighbor has studs that are about 1.75×3.75 inches; modern 2x4s are 1.5×3.5 inches.

What could cause this degradation in language, and inflation in the amount of claimed wood offered for a fixed measurement? The older house was built in 1910, its neighbor in the 1920s; the renovation is a 21st-century affair. The older house was thus built at the end of what Murray Rothbard called "the golden age," a time of more honest money, with a century from 1815 to 1914 of human productivity gradually deflating prices by about 2% annually when compared to gold; $20.67 was required to buy an ounce of gold when the house was built, a price that had been so fixed for over a century.

In 1913, the Federal Reserve act went into effect, centralizing control over money and interest rates. Of course, gold coin would remain legal currency at $20.67 an ounce until 1933, when an enabling act, grown out of World War I, was used by Franklin Delano Roosevelt to forbid the private ownership of more than five gold coins per citizen; following this act in 1934, the dollar price of gold was changed to $35 per ounce. This nominal price, unavailable to citizens, was maintained until 1972. Thanks to the Gold Bullion Coin Act of 1985, it is set today at $50 per ounce.

The dollar, then, which was once a relatively fixed measure like a pound or a foot, has changed its size with respect to gold, and realistically it is worth 1/40th of the amount it brought when the older and newer houses were built; the effects of currency debasement can already be seen in the decline in the standard of the 2×4. The effects on home construction appear elsewhere, as more costly materials and methods, which would last longer, are replaced with cheaper materials and methods.

The craftsmanship required to nail (By hand! With no nail guns!) lathing to studs, and then apply three coats of plaster was made too expensive by the uncertainty that a floating dollar and World War Two manpower shortage introduced, and it was replaced by the now-ubiquitous wallboard, made of gypsum. Walls were now less prone to cracking, but less solid and soundproof, and more easily dented. Plywood gradually replaced sawn boards (to great detriment, as the glue wears out in 40 years, causing houses to literally come apart at the seams), and was replaced in turn by oriented strand board, each substituting cheaper lumber for more expensive. At the same time, artificially low interest rates caused labor in home construction to be replaced by capital (something that should cause labor unions to support honest money, but doesn't). The 1970s saw the nadir of construction, with aluminum wiring replacing the copper in many newly-constructed houses; not coincidentally, that era was a time of massive commodity inflation and shortages driven by the 1971 suspension of the gold window by Richard Nixon.

More recent times have seen even greater price instability. After the relative calm of the Clinton years, gold prices started to gyrate wildly in the 21st century, hitting a new nominal high over $1000 an ounce. This instability was driven by Federal Reserve interest rates of 1%, which set off a housing construction boom. Because of the shifting standard in money, earning a return meant exposing oneself to a minimum of time before selling a newly-constructed house. As Christopher Leinberger notes, the "future is not likely to wear well on suburban housing. Many of the inner-city neighborhoods that began their decline in the 1960s consisted of sturdily built, turn-of-the-century row houses, tough enough to withstand being broken up into apartments, and requiring relatively little upkeep. By comparison, modern suburban houses, even high-end McMansions, are cheaply built. Hollow doors and wallboard are less durable than solid-oak doors and lath-and-plaster walls." He predicts that the exurban fringe will become the "next slum."

One can thus see the effects of shifting tides of currency values, abetted by the battering of war. It has driven the construction of American living quarters to a lower standard than that obtained in time of peace. (Environmentalists will hopefully note that those old-growth forests are gone, a victim of both the tragedy of the commons seen when private ownership is lacking and the hypertrophic economic growth caused by fiat currency, reflecting the same public choice effect that causes democracy to be less stable, economically, than monarchy.) Fiat money and war cause a drag on the economy; allowed to build, like barnacles on the hull of the ship, they slow and eventually stop economic progress. If the encrustation goes far enough, their weight will eventually sink the economic ship.

December 3, 2008

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