The Law Revisited

This is the thirty-eighth in a series on The Harvard Classics; the rest of the posts are available here. Volume XXXVIII: Harvey, Jenner, Lister, Pasteur

The label on this week’s beer (pictured below with a pretty sweet lava lamp) makes the same claim as innumerable other German beers. In case you do not read German, bottle says that this beer is brewed in accordance with the Reinheitsgebot, the Bavarian “Beer Purity Law.” I have railed against that law in the past, but there are a few things that I would like to set straight.

For some background, the original Bavarian Reinheitsgebot was enacted in 1516. In short, the law regulated the ingredients allowed in beer. Under the Reinheitsgebot, beer could be made only with water, malted barley, and hops. Ostensibly, the law was intended to protect consumers from beer made with inferior ingredients. In practice, it stifled the innovative use of other sources of fermentable sugars, such as wheat or rye, as well as herbs or spices that could be used as an alternative to hops. It also proved to be an effective barrier to the importation of foreign beers that might include such ingredients.

When I discussed the Reinheitsgebot before, I claimed that the Reinheitsgebot was enacted as part of a scheme of protection for the local bakers’ guild. By reducing the demand for wheat and rye, the law reduced prices for those grains, much to the advantage of the bakers. However, I have also heard that the Duke of Munich owned virtually all of the hops farms in Bavaria. As if monopoly status was not enough, the duke used the law to force brewers to buy from him rather than use other herbs or spices to bitter their beer. Either way, the Reinheitsgebot is economic protectionism disguised as consumer protection. Whether it was for the benefit of the baker’s guild or the hops growing monopoly, it was certainly at the expense of everybody else. This sort of economic law was called “legal plunder” by French economist Frédéric Bastiat.

Additionally, I have asserted that the law is now only a marketing ploy. However, a version of the law does still exist on the books in Germany. It only applies to domestic beer production though, so non-conforming imports are now allowed into the country.  Its value other than as a marketing ploy is totally unclear to me, especially at a time when innovative brewers around the world are experimenting with new styles and ingredients.

Finally, astute readers will have noticed that yeast is not listed as an acceptable ingredient. Back in 1516, yeast was still centuries from being discovered. It was not until Louis Pasteur’s scientific experiments in the middle of the 19th century that we learned that alcoholic fermentation is the product of living yeast cells. Consequently, the modern version of the law lists yeast as a valid ingredient, as well as ground hops and hops extract. Obviously, yeast has always been used in beer making, even if the brewers did not actually know what it was. Hops extract, however is anything but traditional.

I still think that the Reinhietsgebot was a bad law when it was passed and that the current version is no better. I am glad that my own beer choice is not limited by that law.

Beer of the week: Aecht Schlenkerla Rauchbier Märzen – This dark brown rauchbier – German for smoked beer – comes from Bramberg, Germany. The name refers to the fact that the malt is smoked in a kiln over burning beechwood. It pours with plenty of tan head. The aroma is primarily of smoke, as is the flavor. For all the smoke, it is not overbearing. Especially as it warms, Schlenkerla shoes itself to be a very well-balanced brew.

Reading of the week: The Physiological Theory Of Fermentation by Louis Pasteur – For thousands of years before Pasteur’s discoveries, humans have used yeast for brewing and baking. In this excerpt, he describes in part how brewers unknowingly created the ideal conditions for yeast growth and fermentation.

Question for the week: Is yeast really an “ingredient” in beer? Usually, it is added to the wort, where it multiplies and ferments the sugars, and then it is filtered out. That makes it seem more like a process than an ingredient.

Govern Less

Everybody ought to be familiar with Thoreau’s motto: “That government is best which governs least.” But does assessment not depend on what government is and where it comes from?

One understanding of the origin of government is the banding together of individuals for their common defense. “If every man has the right of defending, even by force, his person, his liberty, and his property,” writes Frédéric Bastiat, “a number of men have the right to combine together, to extend, to organize a common force, to provide regularly for this defense.” A government so organized may only do what each individual could legitimately do himself. And if the action of government is properly limited to the common defense, it is surely the best government that needs to act the least.

Such a government could not take from one group of citizens to line the pockets of another group any more than an individual could steal from his neighbor. Neither could such a government subsidize a given industry any more than an industrialist could demand that his neighbors fund the building of his new factory. When these things are done by individuals, they are called theft and extortion, so why should they be permitted on a larger scale?

But the idea that government sprang from the collective right of self defense is not universally accepted. John Stuart Mill identifies the origin of government (or at least most governments) as separate from “the people”. In many instances, government did not derive from organized self defense of the governed but from conquest of the strong over the weak. Such governments were “in a necessarily antagonistic position to the people whom they ruled.”

Again, is it not clear that Thoreau’s maxim holds true? At least for those who are subjugated by the hostile ruling class, the government is best which governs (or, if you prefer, subjugates) least.

The twist is that when the people take control of the government, either from the beginning as Bastiat suggests or after popular uprisings occur as identified by Mill, they almost invariably go beyond the scope of simple defense. The tyranny of the majority is every bit as dangerous as the outside forces that Bastiat’s society banded together to defend against. The majority is also every bit as dangerous as the conquering rulers that subjugated Mill’s society.

It seems that however the government comes to be, Thoreau hit the nail on the head.

Granola Shambler

Beer of the week: Berghoff Granola Shambler – It is still technically summer, and it is still warm out, so pumpkin beers can wait. A radler (also known as a shandy) is usually beer mixed with a soft drink such as pop or lemonade. Traditionally, the base beer is a cheap pale lager. Berghoff has attempted to make their radler a bit more fancy. First, they brew the beer with wheat, oats, rye, and barley malt to get a full, rich base. Then they add grape juice and citrus fruits for a refreshing tang. Personally, I think that the amount of fruit they use is over the top. But I do like the idea of trying to make a high-end shandy.

Reading for the week: On Liberty by John Stuart Mill – Language is always equivocal, so it is important to start any serious work with definitions. On Liberty starts with the definition of liberty, not as freedom of will, but freedom from tyranny.

Question for the week: Is the organization of government for the common defense, like “Rousseau’s noble savage in smock and jerkin”, merely a fanciful tale to explain the creation of government?

But what will become of the glaziers?

Many Americans just recently filed their federal income taxes. Some of them are eagerly awaiting refund checks, or even refund direct deposits since “who writes checks anymore?” There are two things that these people should remember:

1. This money is not a gift from the government. It is your money that you already earned. Think of it more as an interest free loan to the government that you are forced to make and you have to ask nicely before they will pay back.

2. Tax money (money that you worked for and that the government has appropriated) that gets spent on “stimulus” is false economy.* The problem with stimulus spending is that it only accounts for what is seen, not what is unseen.

Every dollar that the government spends is a dollar that some productive person could have spent himself.** We see the government spending the dollar and count it as stimulus. What remains unseen is what the taxpayer would have done with that dollar if he had been allowed to keep it. As it turns out, it is more than likely that he would have spent it. Not only would he have spent it, but he would have spent it on something that he wanted. That is to say, he would have gained something in exchange. Instead, the government gave it to somebody else to spend. The net effect on the economy looks like of $0 (since either way, one dollar gets spent.) However, the tax payer doesn’t get the benefit of his own dollar and the government doesn’t operate for free. So the taxpayer loses a dollar (or, what amounts to the same thing, whatever he would have spent that dollar on) and the economy loses the administrative cost of the government mechanism. So stimulus spending is a net loss.***

Beer of the Week: Bitburger Pilsner – Simple is good. This beer is very simple. It smells of soft malt and a bit of hops. The flavor and texture are both light and refreshing. It is not a great beer, but it is a very nice beer that is made for drinking.

Reading for the Week: The Broken Window by Fredrick Bastiat – In this short and amazingly clear and intelligible economic parable Bastiat explains why a broken window may be good for the window maker, but it is a net loss for the economy on the whole. It is all, as is evident from the title of the essay that contains this parable, all about That Which Is Seen and That Which Is Unseen.

Question for the week: Is there a fundamental difference between stimulus spending and breaking windows? (Hint: In an earlier reading on this site, Bastiat used physical obstructions as an allegory to tariffs.)

Artificial Obstacles

When it comes to shipbuilding, the Republic of Korea has a system. Since they are on the tip of a peninsula and their only land-boarder is a dangerous no-man’s land, it seems only natural that they should turn to the sea for commerce. But they don’t just build ships, they build tons of them. In terms of gross tonnage, Korea produced 137,596,000 GT, some 37.45% of the world’s shipping capacity built in 2011. That is a lot of ship. Some are cruise liners and drill ships, but most are designed for transporting cargo and resources from one port to another. Naturally, most of the ships are sold to other countries, but some are used for transporting goods to and from Korea. It is these ships that form part of the topic here.

Korea builds ships designed specifically to engage in the trade of goods and resources with other countries. These ships are made bigger and faster to make it easier for goods and resources to reach their respective markets. The end result of making transportation easier is to make it cheaper and to reduce the market prices, encouraging commerce, etc.

While the shipbuilders at Ulsan are working diligently to make international trade easier and cheaper by overcoming the natural obstacles that impose themselves on shipping, the politicians in Seoul are working diligently to overcome the artificial obstacles that hinder international commerce and raise prices in the domestic market. Those artificial obstacles are tariffs, and Korea is finally getting rid of some.

Until recently, all imported beer has been subject to an absurd 30% tariff. Not only that, but since Korea does not grow the hops or barley needed to produce beer, the quality of domestic beer has been adversely affected by high tariffs. (That and a collection of regulations that have essentially granted a duopoly on beer production to two giant corporations that have no particular incentive to improve the quality of their products.)

But free trade agreements with the United States and the European Union have been signed and will remove many of the mutual trade barriers that have served primarily to enrich large companies at the expense of the consumers while simultaneously preventing quality beer from making headway in such a large market. Good times lie ahead for Korean (and American and European) consumers. That is to say, the societies as a whole.

But what about other beers from other parts of the world? Why should they still be subject to the tariffs? Some will argue that the FTAs are only good because they are bilateral. The USA takes down its tariffs, Korea takes down its tariffs, everything remains on equal footing. If Korea would remove tariffs on Australian goods without Australia removing its own tariffs on Korean goods, the obstacles of trade would be in only one direction and Korea would be “downstream” of Australia. It would be more expensive to ship goods to Australia than from Australia and that would be… bad? Korea would then be situated relative to Australia in the way that “Havre, Nantes, Bordeaux, Lisbon, London, Hamburg, and New Orleans are with relation to the towns situated at the sources of” the respective rivers on which they lie since it is cheaper for goods to travel down the river than up the river. And are the cities at the mouth of the river not more prosperous than the cities at the source?

Beer of the Week: Hacker-Pschorr Münchner Gold- This is a good example of the Munich Helles Lager. It is a light, clear gold, with a very white head. The aroma is mostly of bready malt. The flavor matches the smell, malty with only a hint of hops at the end. As the beer warms, a touch of alcohol warmth is easily detected in the finish. 5.5% isn’t that high, but it sure makes itself felt.

Reading of the week: Stulta and Puera by Frédéric Bastiat – In this amusing little apologue, Bastiat tells the story of two towns that went to great expense to build a highway to facilitate trade and then went to the further expense of placing obstacles on the road to make trade more difficult and expensive.

Question of the week: Have you ever wondered why high-fructose corn syrup is used instead of sugar (sucrose) in the United States? Did you know that since the early 1980’s, tariffs have made sugar twice as expensive in the United States as it is in the rest of the world?

Plundering Fools

“The law perverted!” writes Frédéric Bastiat, “The law become the tool of every kind of avarice, instead of being its check!” The proper aim of law is to protect the person, liberty and property of individuals. Any attempt to extend law beyond that protection necessarily must infringe on the rights it was set out to protect in the first place. The result is inevitably “legal plunder.” The law directly or indirectly takes the liberty or property from one individual or class to give to another individual or class. Take for example, the Reinheitsgebot.

Modern brewers make much of the Reinheitsgebot, also known as the German Purity Law. Under this 16th century Bavarian law, the only acceptable ingredients in beer are water, hops and barley. The name of the law implies that the purpose was to protect the consumer from “inferior ingredients.” But that was not the purpose. The original purpose was to serve as protection for the bakers’ guilds. As long as brewers were allowed to use wheat or rye in their beer, simple supply and demand dictated that the price of those grains would be higher, hurting the bakers’ bottom line. But by restricting beer to barley, the prices on other grains stayed low. The law successfully served the interest of one class (the bakers) at the expense of others (the brewers and their customers.)

Once this system of using law as a way to gain at the expense of others, it is only a matter of time before the oppressed get control of the law and use it to their own ends. Originally, only Bavaria was subject to the Purity Law. But when the German unification occurred, the Bavarians insisted that the Reinheitsgebot become national. And why would they be so insistent? Because now the law could be used to drive out competition. Brewers in parts of Germany that had not been so restricted before were now forced to change their recipes or close shop. Beers from Holland and England were excluded from the German markets because they had other ingredients. The Bavarian brewers, the original victims of this legal plunder were now on the receiving end.

Today, Germany still has a version of this law on the books. It is no longer the Reinheitsgebot, but it is similar. And it similarly acts to protect the established brewers against innovative competition. Now, the Reinheitsgebot proper is primarily a popular marketing tool to advertise the quality and purity of beers. Even some wheat beers claim to be brewed in accordance with the Reinheitsgebot, though under the law wheat was definitely verboten.

Beer of the Week: König Pilsener – Marketing ploy though it may be, beers such as König Pilsener, which boast of their compliance with the Reingeitsgebot, are a pleasant departure from adjunct lagers brewed with sugar, rice or corn and lord knows what chemicals. König Pilsener, itself is a great example of what an expert brewer can do with only 3 ingredients. It is a crisp, dry beer with a light and pleasant lingering flavor of hops. Would make for an excellent everyday beer.

Reading of the week: The Law by Frédéric Bastiat – This short excerpt from the beginning of the essay leaves one thirsty for more. “The law perverted!” is followed by the law defined. The definition is formulated and explained in this excerpt. Not given here is Bastiat’s explanation of how law is perverted or by whom, neither is his systematic dismantling of social philosophers who view all of humanity as clay with which their “superior” minds could mold a perfect society. The entire essay is worth reading, but it will take more than one beer to get through it.

Question of the week: Bastiat defines the law as the organization of the natural right of individuals to self-defense. Once individual laws are made that extend beyond that scope, is it no longer “law” or does the definition of law simply change?