When Polonius tells Laertes in Hamlet, “Neither a borrower nor a lender be,” perhaps Shakespeare was speaking from family experience. In the early 1570s, his father, John Shakespeare, was accused in court several times of lending money at usurious rates. While, in modern terms, he settled one case, he was fined in another. It is unclear if these cases were connected to the decline of Shakespeare Sr’s business, but he managed to get into debt himself, echoing Polonius’ warning. Under the laws at the time, usury, the practice of charging interest on debts, was called “a vice most odious and detestable.”

Yet by the time Adam Smith wrote his Inquiry into the Nature and Causes of the Wealth of Nations two hundred years later, credit was an established element of commercial life. Smith devoted an entire chapter to “Of Stock Lent at Interest.” He noted that the borrower viewed the loan as capital, which could either be consumed or, more productively, used as capital for enterprise. In the intervening two hundred years, credit had become an economic institution.

The gap between these two pillars of British literature was filled with the development of English commerce from its medieval form to something we would recognize today. Part of that development was the realization that time does not always cooperate with our financial undertakings. Costs arrive today when income is expected tomorrow. Bridging that gap requires both credit and interest. Commerce worked that out, but explaining why required the development of economics.

Credit did not arise across the Western world because its societies were uniquely greedy or exploitative, nor because bankers somehow imposed a mechanism to extract rent from happily self-sufficient communities. It arose because advanced commercial life requires its existence. That moral hero, the entrepreneur, must often assemble labor and capital before a single unit is sold. Credit bridges the interval.

That is also why credit appears repeatedly even where kings, priests, or populist politicians have tried to suppress it. It appears in many different forms. Sometimes it is a straightforward loan. Sometimes it is trade credit, deferred payment, or discounting. Sometimes it is tailored to the borrower, sometimes it is offered on similar terms to everyone. The underlying function is always the same: providing funds to those who need them, when they need them.

Yet those kings, priests, and populist politicians keep advancing similar objections: that credit is simply greed, or exploitation. Virtually every Western society has had laws against usury on the books, and many still do. What explains how credit continually overcomes this opposition?

The old case against usury was not completely irrational; it was often a moral response to real abuse. Many anti-usury laws grew out of a world where borrowing was not about business investment but relief from distress. A poor man borrowed only because he had suffered a crop failure, a medical emergency, or other personal tragedy. To profit from another man’s desperation seemed predatory. Medieval theologians considered money to be “barren,” as only a medium of exchange. St. Thomas Aquinas argued that charging interest is intrinsically unjust because it demands a double payment: the return of the principal and a price for its use.

This doctrine weakened when commercial societies discovered, first in practice and then in theory (as is so often the case), that money in a market economy is not, in fact, economically barren. Command over money is valuable because it gives access to opportunities, allows one to bear uncertainty and frees one from waiting. Western society evolved from condemning all interest to distinguishing legitimate interest from exploitative usury, thereby more realistically reflecting time, risk, and opportunity cost.

Yet old beliefs linger. Even Adam Smith thought that interest should be capped to benefit the prudent, which led to correspondence with Jeremy Bentham, who argued that rates should be able to float. Bentham’s argument was one that still has validity today: adults should be free to contract on whatever terms they choose and attempts to suppress high-rate lending will only block risky but potentially productive enterprise.

The debate between Smith and Bentham represented a turning point. The West in general gradually moved from asking whether any payment for the use of money was illicit to asking instead what counts as extortionate or abusive, thereby separating the existence of credit from the abuse of credit, a distinction that matters. A society can condemn fraud, coercion, and rapacious terms; this does not mean that all interest is predation.

If commercial credit had triumphed over usury laws, however, a new critique would soon emerge. Karl Marx approached credit from another direction, treating credit as part of the capitalist system of exploitation. In Das Kapital, he argued that it allowed the capitalist to spend money he hadn’t earned yet, thereby disconnecting reality from expectation and serving as the means by which the capitalist steals the value of his production from the worker. This in turn allowed companies to continue producing goods no one would be interested in purchasing, resulting in overproduction, all based on a mirage of “fictitious capital,” which made the world look wealthier than it was. This was what led to financial crises.

It was Eugen von Böhm-Bawerk, an Austrian economist from the turn of the twentieth century, who refuted Marx’s analysis in his work Capital and Interest and other treatises. He realized that human beings have a time preference and that people and indeed society prefer jam today over jam tomorrow. So, far from stealing from or exploiting the worker, the capitalist is actually paying him a premium by giving him higher wages for producing something that might not be sold for some time. Credit allows the capitalist to do this.

The wages Marx views as low are in fact discounted, because the worker gets $100 today instead of the potential of $110 in a year. The 10 percent discount represents the price of getting money immediately, satisfying the worker’s time-preference. Again, von Böhm-Bawerk shows us that credit allows this to happen.

As for the argument that credit facilitates crises, von Böhm-Bawerk’s theory of value reveals that the failure of companies to sell produced goods is not a phenomenon of the existence of credit, but a miscalculation of subjective value by the company. By articulating a theory of subjective value rather than labor value, von Böhm-Bawerk demolishes Marx’s interpretation of credit.

Thus, a world without credit would not be a world without exploitation in Marx’s sense. It would be a poorer world with fewer enterprises, fewer homes, fewer durable goods, and far less social mobility.

Credit is therefore at the center of production rather than at its margins. It should not be viewed as a device to gratify impatient consumers, but as a way of coordinating stages of production that unfold over time. Interest is the price attached to the use of present goods in a world where future goods are discounted and productive processes take time.

Schumpeter added another important insight. In his Theory of Economic Development, credit is how the entrepreneur acquires command over resources needed to carry out new combinations. As the economist David Henderson succinctly puts it in his “ten pillars of economic wisdom,” the only way to create wealth is to move resources from a lower-valued to a higher-valued use. Innovation requires withdrawing labor and materials from established uses and redirecting them toward untried purposes, which cannot usually be financed out of existing cash reserves. The entrepreneur therefore needs access to purchasing power before she realizes success. In Schumpeter’s framework, bank credit is what allows the innovator to bid resources away from old uses and bring something new into existence.

So, credit actually helps reorder the economy for the better, financing the experiment before the market has validated it. Schumpeter therefore treated credit as integral to entrepreneurship, innovation, and economic progress. A society that wants to increase wealth while disdaining credit is like the man who wants to win the lottery but refuses to buy a ticket.

Human beings live through time, which means their wants, incomes, obligations, and plans do not line up neatly. Risk is inescapable, but credit is what makes civilization durable under those conditions. Families can survive shocks, firms can organize production, entrepreneurs can innovate, and savers can grow wealth by providing the capital that helps families, firms, and entrepreneurs.

We can continue to argue about what rules should govern lending, what terms are abusive, and what legal framework best disciplines fraud and excess (although we might do well to lean towards Bentham rather than Smith in this one limited case.) Credit exists wherever people need to juggle the cost of effort now with the delayed benefit of later rewards. In other words, it is credit that allows us to build anything more durable than a day’s subsistence, whatever the experience of Shakespeare’s dad.

The recent rescission of the US Environmental Protection Agency (EPA) Greenhouse Gas Endangerment Finding and Motor Vehicle Greenhouse Gas Emission Standards Under the Clean Air Act marks one of the largest deregulation efforts in a generation. Among the 571,672 comments the EPA received on this issue last September, my colleagues at AIER Drs. Julia Cartwight, Paul Mueller, Ryan Yonk, and I joined the State Financial Officers Foundation (SFOF) and thirteen state financial officers in submitting a public comment in support of the rescission.

The Endangerment Finding was rescinded in February 2026 by President Trump and EPA Administrator Lee Zeldin. This action stands to help make life more affordable, reduce regulatory uncertainty, and rein in an expansive administrative state. 

What Was the EPA’s Endangerment Finding?  

In 2007, the Supreme Court case Massachusetts v. EPA (2007) ruled that the EPA was allowed to regulate greenhouse gases because they qualify as air pollutants under the Clean Air Act. From this ruling and a failed attempt at getting a climate bill through Congress, President Obama leaned on executive rulemaking. 

From his exercise of executive authority came the EPA’s Endangerment Finding. The finding declared six greenhouse gases broadly endangered public health and welfare, thus requiring regulation. The Endangerment Finding was the basis for vehicle emission regulation, but soon spread beyond that, resulting in costly burdens for Americans. 

One hurdle, however, was that the Clean Air Act was designed to regulate industry, not the specific gases themselves. As Judge Glock of Manhattan Institute notes, “The act required federal permits for any source that emitted more than 100 tons per year of an air pollutant. By this measure, some families would need permits.” 

Despite some Supreme Court rulings limiting the EPA, the Endangerment Finding led to regulations that made life less affordable for the average American. Regulations under the Biden Administration EPA alone cost an estimated $1 trillion. Additionally, as we discuss in our comment, these regulations encourage a “ratchet effect,” where the government (in this case, the executive branch and the EPA in particular) expands in size and/or scope of authority due to perceived crises and rarely fully recedes. This, ultimately, decreases accountability. 

In the end, the Endangerment Finding enabled the creation of stringent rules but failed to clearly demonstrate the social benefits of individual policies proportional to their economic costs. The regulations stemming from the finding made life less affordable, but the benefits of said regulations were much more difficult to prove.

The Benefits of Rescission 

Our comment focused on three key areas: the economic benefits of rescission, the dangers of an expansive administrative state, and the effects of the potential rescission on federalism. 

The economic benefits of the rescission stem from the rollback of the burdensome regulations discussed in the previous section. Repealing these regulations could help lower costs of energy production for both producers and consumers. Regulatory reform would also reduce the policy uncertainty from vague statutes, lowering the costs for both producers and consumers. 

Additionally, the rescission helps return rulemaking power to the legislative branch. Returning rulemaking powers to the elected legislative branch can improve transparency and accountability.

Furthermore, the rescission improves the balance between the federal and state governments. While Congress has primacy in climate policy, states have greater autonomy to apply local knowledge to environmental and energy challenges. This is especially important given the Supreme Court rulings of Loper Bright Enterprises v. Raimondo (2024), which compels courts to exercise independent judicial judgment interpreting ambiguous statutes rather than defaulting to agency readings, and West Virginia v. EPA (2022), which ruled that agencies must rely on Congress to grant it authority to regulate on issues of “economic and political significance” and allow states to set the enforceable rules governing existing energy sources. 

What Comes Next? 

The rescission can help shift environmental and energy policy away from command-and-control regulations and toward institutional frameworks that rely on price signals, property rights, and competition. Markets function as a discovery process where entrepreneurs can test alternative technologies, production methods, and energy sources under conditions of profit and loss. When prices reflect relative scarcity, producers are driven to economize on fuel, improve efficiency, and innovate cleaner production techniques to reduce costs.  

Additionally, by returning rulemaking to Congress and discretion to the states, the federal government can focus on sustaining “competitive, ‘market preserving federalism’” while states are free to innovate without inhibiting free entry and exit between states. Successful institutional arrangements will scale as failed approaches exit as Americans vote with their dollars and their feet. Environmental stewardship emerges through clearly defined property rights, liability rules, and localized governance mechanisms that address identifiable harms.  

By allowing market processes to work, people, not government, can drive lower cost abatement strategies while preserving energy reliability and consumer choice. 

Read the full public comment here.

My colleague Paul Mueller recently published an AIER Paper on Fusionism. He was kind enough to share it with me for review. I agreed with most, and disagreed with some, of Paul’s arguments. This is healthy. You see, Paul was my student at Hillsdale College 15 years ago, when we first discussed the tension between libertarianism and conservatism.

Then, as now, I have major concerns about conservatism. On the one hand, much of what conservatism (at least some brands of conservatism) stands for is essential as a foundation for a free society. On the other hand, much of what conservatism is trying to do runs counter to the free society, as it would make undue impositions on individual liberty.

My purpose here is not to address Dr. Mueller’s paper or to revisit the libertarian-conservative debate. Rather, I will discuss a tension within the classical liberal movement, a tension that is captured in the works of Austrian economist F.A. Hayek. 

As I like to remind readers, Hayek is one of three thinkers, along with Adam Smith and Frédéric Bastiat, who look down on fellows and students in the AIER library.

The tension has to do with the size and scope of a state necessary for the preservation of liberty. In this 250th anniversary year, I would be remiss not to mention that this same tension nourished the debates around the US Constitution. The Federalists thought the young country needed a vigorous — but limited — central government to unify it, protect against enemies foreign and domestic, and preserve liberty. The Anti-Federalists disagreed, foreseeing that any such central government would inevitably impose on the liberties of Americans. 

At least then — unlike the current political fracture in the USA — both sides agreed on the goal: the preservation of liberty. They disagreed on the institutional structure to advance the goal. 

F.A. Hayek

I suspect F.A. Hayek is well known to most readers of The Daily Economy, so I won’t belabor a biography (if you’re interested, I recommend Hayek’s Challenge, by Bruce Caldwell, among others). Hayek was born in 1899 in Vienna, and while serving at the London School of Economics as the Tooke Chair of Economic Science and Statistics, he made a name for himself with his 1944 book, The Road to Serfdom. The book is a warning that the Western democracies were turning to socialism, just as they were defeating national socialism (and about to enter a cold war with international socialism). But it also contains the kernel of a political economy Hayek would develop over his lifetime of thinking, most notably in The Constitution of Liberty (1960), Law, Legislation, and Liberty (1973/1976/1979), and his last book, the Fatal Conceit (1988). Hayek received the Nobel Prize in Economics in 1974, and died in 1992.

Hayek was no slouch in the defense of liberty. The Road to Serfdom is still a clarion call against socialism’s inevitable slide into tyranny. In 1947, he founded the Mont Pelerin Society, an international forum dedicated to advancing the free society. And his entire career was dedicated to preserving rule of law and a “constitution of liberty.” 

And yet, for all that, Hayek was not a small-government libertarian. He saw a place for the state to provide what later scholars dubbed public goods — parks, fire insurance, and limited macroeconomic stimulus. All cautiously, of course, and all with an eye to preserving individual rights and constraining the state.

An Economic Theory of the State

Just as the American Framers agreed on liberty and disagreed on the institutional mechanism to deliver it, so do “sincere friends of freedom” (to use Lord Acton’s phrase) disagree on the size and scope of the state best suited to protect freedom and individual rights.

Anarcho-capitalists believe that the state is immoral — because it is, by its very nature, coercive — but also that it is unnecessary (see Murray Rothbard’s For a New Liberty: the Libertarian Manifesto). Markets will handle allocation of scarce resources among competing wants, incentives for innovation, and security (through private security forces and arbitrators). What markets can’t handle will be left to civil society. Instead of coercing our neighbors through taxation to take care of the poor or protect the environment, we will convince them to participate, through families, clubs, churches, or other voluntary associations.

The minarchists (a large subsection of libertarians) reject anarcho-capitalism as a chimera. Ayn Rand notably argued that anarcho-capitalism would lapse into civil war between competing security agencies (see her essay, “The Nature of Government“). Along with Ludwig von Mises and other minarchists, she argued that a “night watchman” state was necessary for the protection of individual rights — a neutral police force, independent courts, and a military. The rest, however, was to be left to markets and civil society.

Further down the spectrum of liberty, we have the theorists of the minimal but active state (sometimes, if confusingly, known as classical liberals; I prefer to call them “HFB theorists”, after Hayek, Milton Friedman, and James Buchanan, all champions of liberty who saw a more expansive role for the state). According to this camp, minarchy’s protection of individual rights is a necessary, but not sufficient, condition for a thriving and free society. 

The HFB camp believes the state can and should do more to protect liberty, but (1) must limit itself to the necessary, and not lapse into socialism; and (2) must be strictly bound by constitutional constraints. Friedman argued that, because education had network effects (we all benefit from a more educated population), the state should guarantee it for all — but it should not provide it, hence his famous vouchers. Buchanan and Gordon Tullock, in The Calculus of Consent (Logical Foundations for Constitutional Democracy) examined situations in which the state might be necessary. If collective action is cheaper than market action, or feasible where markets might fail due to high organization costs, they argued, the state can provide public goods, like education or environmental protection. But it should do so within strict constitutional conditions (see also Buchanan’s The Limits of Liberty: Between Anarchy and Leviathan) and not by launching federal departments to administer them.

Naturally, the three schools disagree with each other, and some are more persuasive than others. But I agree with Paul Mueller that all three belong in the tent of sincere friends of freedom. I will now use Hayek as an example of the tensions.

Hayek’s Constitutional Theory of the Liberal State

Hayek was a fierce advocate of rule of law, and deeply worried about central planning. Nevertheless, he advocated an active, if constrained, role for the state. In The Constitution of Liberty, he explicitly explained that the rule of law does not imply a complete absence of government intervention in the economy — but, rather, intervention constrained by careful rules. 

Hayek argues that the state can assure a basic minimum income for all; provide catastrophic insurance and disaster relief; offer basic macro stabilization policy (if not outright Keynesianism!); use subsidies (so long as they advance the general welfare, and not individual interests); fight pollution; and provide public goods where markets sputter… if carefully.

He summarized his philosophy in The Constitution of Liberty in 1960:

We have already seen… that there is undeniably a wide field for non-coercive activities of government and that there is a clear need for financing them by taxation… All modern governments have made provision for the indigent, unfortunate, and disabled and have concerned themselves with questions of health and the dissemination of knowledge… common needs that can be satisfied only by collective action and which can be thus provided for without restricting individual liberty. 

…that some of the aims of the welfare state can be realized without detriment to individual liberty, though not necessarily by the methods which seem the most obvious and are therefore most popular; that others can be similarly achieved to a certain extent, though only at a cost much greater than people imagine or would be willing to bear, or only slowly and gradually as wealth increases; and that, finally, there are others—and they are those particularly dear to the hearts of the socialists—that cannot be realized in a society that wants to preserve personal freedom.  

While seeking to provide public goods to support liberty and human flourishing, Hayek was always worried about respecting rule of law. His solution was a three-part test for state action. In a 1973 lecture to the Institute for Economic Affairs in London, Hayek offers a simple and straightforward articulation of the three conditions under which “government services are entirely compatible with [classical] liberal principles”:  

1. government does not claim a monopoly and new methods of rendering services through the market are not prevented; 

2. the means are raised by taxation on uniform principles and taxation is not used as an instrument for the redistribution of income; and, 

3. the wants satisfied are collective wants of the community as a whole and not merely collective wants of particular groups.   

Misjudging The Welfare State?

While he was an enriching thinker — and he remains an intellectual hero to my coauthor Chris Martin and me — Hayek does seem to allow a bit too much latitude for the state. While some functions may indeed be necessary for human flourishing, it’s hard to see how they will not violate rule of law or nudge us dangerously forward on the road to serfdom. Still, we are hesitant to push too hard against such a hero of liberty.

Murray Rothbard shared no such compunction. In a memo, he commented that “F.A. Hayek’s Constitution of Liberty is, surprisingly and distressingly, an extremely bad, and, I would even say, evil book. Since Hayek is universally regarded, by Right and Left alike, as the leading right-wing intellectual, this will also be an extremely dangerous book.”

In a 1960 review of The Constitution of Liberty, Ludwig von Mises bluntly wrote that “Professor Hayek has misjudged the character of the Welfare State.” Hayek’s concessions would inevitably lead to a “system of all-round planning” — even if they were initially modest and circumscribed. Mises softens his critique, though, when he argues that Hayek’s fundamental misjudgment of the welfare state “does not seriously distract from the character of his great book.” He concluded:

“[Hayek’s] searching analysis of the policies and concerns of the Welfare State show to every thoughtful reader why and how these much praised welfare policies inevitably always fail. These policies never attain those, allegedly beneficial, ends which the government and the self-styled Progressives who advocated them wanted to attain, but, on the contrary, bring about a state of affairs which — from the very point of view of the government and its supporters — is even more unsatisfactory than the previous state of affairs they wanted to ‘improve’.”

Ayn Rand, characteristically blunt, referred to Hayek’s work as “real poison,” because he was willing to balance freedom with various “collectivist” interventions. For Rand, Hayek’s compromises made him a “pernicious enemy” of the freedom movement.

Does Fusionism Have Room For All?

Hayek is as rich as he is puzzling, as delicious as he is infuriating. For my money, he remains the single most important thinker on these questions. This may be because, in the words of my mentor Roger Koppl, Hayek is not a system builder, but an honest muddler.

Hayek explicitly explained, in the postscript to The Constitution of Liberty, “Why I am not a Conservative.” Conservatism, for him, was too static, and too ready to impose its views on society through the state. But he is also clearly not a small-government libertarian.

Unfortunately, Hayek left many puzzles and challenges. Fortunately, his careful thinking helps prepare us to be better advocates of liberty in his absence.

Listen on Apple: The Future of Fusionism: Liberty, Virtue, and Conservatism’s Path Forward

Economics is a peculiar science. On the one hand, it is the queen of the social sciences and offers a powerful logic for understanding the world. On the other, as Henry Hazlitt put it, it is haunted by more fallacies than any other study known to man. People simply love to misunderstand economics.

Ironically, this presents a profit opportunity to those who choose to exploit people’s willing ignorance…especially if they are economists. Then they can present popular fallacies as seemingly insightful critiques or even novel takes. Because they are from the inside — one of “them” — people are willing to take their word for it. 

University College London economist Mariana Mazzucato is a case in point. She has made a name for herself writing books and consulting policymakers on how the State can be used to produce “free lunches.” Books like The Entrepreneurial State and Mission Economy argue that the State can be an effective low- or no-cost shortcut to prosperity and that it should therefore be used liberally by policymakers. 

Any economist worth his salt would naturally object that there are no “free lunches.” Nothing is without opportunity cost, which is why we must economize. But this “dismal” view, albeit true, is often rejected by those who wish to believe in a mystical world in which money trees exist and scarcity does not. Unfortunately, Mazzucato and others are happy to provide rationalizations for those who don’t understand basic economics.

In her new book The Common Good Economy, to be released this fall, Mazzucato, per the blurb, “builds on her visionary ideas of the entrepreneurial state and mission-oriented policies to establish a new theory of the common good, one which allows governments and businesses to develop purposeful economic relationships, creating value and building spaces where human flourishing can happen.” In other words, it is more of the same. The State, assumed glorious, both can and should actively interfere in the economy and beyond because businesses cannot be trusted to produce what people actually want.

It is a curious argument, especially when considering the nature of voluntary exchange and market entrepreneurship. In markets, entrepreneurs can only earn profits by satisfying their customers — on the customers’ terms. They compete by creating as much value as possible, but must bear the uncertainty of their speculation because there is no way of knowing what consumers appreciate until after the goods are already produced and available for sale.

The State, in contrast, is not subject to such approval. It does not need to produce value and does not even need to economize on resources. It has the power to take and need not ask permission. This creates serious incentive problems and leaves the State operating in the dark, unable to know — or even reliably estimate — how resources are best used. Lacking a conception of actual value, which in the market is determined for and by consumers, and not needing to economize, what are the odds that the State will produce something good? And what are the odds that it will be effectively produced?

The answer is that we cannot expect the State to do anything effectively — other than waste resources. Any reasonable analysis of opportunity costs of the State’s undertakings should find that they are higher than the supposed value they create. Even relying only on the “seen” as captured in official statistics, the State’s investments have dubious returns. And despite Mazzucato’s claims, there is certainly no lack of public “investments.” As McCloskey and Mingardi note in The Myth of the Entrepreneurial State, which illuminates the limitations of Mazzucato’s claims, “in the past century government expenditure as a percentage of GDP has drifted up towards 50 percent.”

Basic economic understanding and research are of no relevance to Mazzucato. She has already attempted to redefine the very concept of value to serve her political purposes in the highly confused The Value of Everything. And she keeps finding ways to argue that politically directed investments not only outperform private ones but conjure value from nothing.

Many more grounded economists have pushed back on the claims by Mazzucato and others. The Entrepreneurial State was debunked. And so was Mission Economy. Perhaps this is why the profiteers keep inventing new terms for the same basic fallacy. The Common Good Economy will be no different in this regard. It will probably sell well, however — and further undermine economic understanding in the process.

In 1895, Greek journalist Vlasis Gavriilidis traveled to Cambridge University seeking advice from three leading economists — Alfred Marshall, Henry Sidgwick, and John Neville Keynes — on the most urgent economic problem facing his country: a collapsing market for currants (Corinthian raisins), which then accounted for roughly half of all Greek exports. 

Overproduction, fueled by earlier government policies and a temporary export boom, threatened widespread rural unemployment and poverty. The economists offered divided counsel. That ambiguity gave organized currant growers the opening they needed to lobby successfully for a price-support system — a “temporary” intervention that promised stable incomes for growers while shifting costs onto taxpayers and distorting the broader economy. 

The Greek currant crisis of the 1890s offers enduring lessons in policy hubris, the stubborn longevity of supposedly temporary measures, and the lasting damage caused by interfering with market incentives. 

Boom, Bust, and the Roots of Overproduction 

Currant cultivation in Greece had ancient roots, but the crisis was modern. French vineyards were devastated by the phylloxera pest in the 1860s and 1870s, creating massive demand for Greek currants to produce “raisin wine.” This surge encouraged rapid expansion. 

The First Agrarian Reform of 1871 had distributed national lands (former Ottoman holdings) in small plots to create a broad class of peasant proprietors. Many new landowners, often with credit secured against their holdings, rushed to plant currants — the most profitable crop at the time. Currants quickly became Greece’s dominant export. 

Then the boom reversed. French vineyards recovered. French producers, noting consumer preference for the taste and shelf-life of currant-based wine, successfully lobbied for the Méline Tariff of 1892 and the Turrell Act of 1896, which effectively shut Greek currants out of the French winemaking market. 

At the same time, high-quality, consistent California raisins entered global markets as strong competitors. The result was a sharp and sudden price collapse. As Patras merchant Theodoros Burmuli warned in 1899 in the Economic Journal, prices fell to the bare cost of production, threatening “disastrous and far-reaching consequences” for the Greek economy. 

The Retention Scheme and the Cambridge Debate 

Burmuli advocated a state retention system: exporters would be required to deliver 10–15 percent of their currants to a government depot (initially for supposed domestic use), artificially restricting supply to prop up prices and shield small growers from market reality. 

A group of anti-retentionists — largely free-trade liberals — opposed the plan. They argued it would distort markets, encourage even more overproduction, impose heavy administrative and fiscal costs, and fail to address the underlying imbalance between supply and demand. They also warned that any “temporary” program would prove difficult to end. 

The debate reached Cambridge in 1895. Sidgwick and John Neville Keynes leaned toward supporting the retention idea, with Keynes suggesting it “might prove temporarily effective” in easing growers’ distress. Alfred Marshall opposed it, though the exact record of his reasoning has not survived; his broader body of work aligns clearly with the anti-retentionist emphasis on allowing prices to adjust and resources to reallocate. 

The divided expert opinion helped the well-organized currant growers prevail politically. Greece enacted the retention law in 1895 as a supposedly short-term measure. 

What Actually Happened 

The results vindicated the critics. In his 1906 Economic Journal article “The Currant Crisis in Greece,” economist Andreas Andréadès documented how the program backfired. By guaranteeing inflated prices, it subsidized rather than discouraged production. Growers planted more vines, including on marginal land. Terraced hillsides and drained wetlands were converted to currants long after global demand had shifted. 

The measure was anything but temporary. Renewed annually at first, it was reorganized in 1899 as the “Currant Bank” and extended for another decade. Variants and references to retention schemes lingered into the early 1930s. 

The government accumulated debt and stockpiles of unsold currants. Andréadès concluded that the real crisis was no longer the initial overproduction but the intervention itself. By interfering with the law of supply and demand, policymakers turned a painful but localized adjustment into a prolonged national problem. He wrote: “Consequently, the only result [of the program] was to render permanent a crisis which could have been only temporary if the ‘economic laws’ had been respected.” 

Public Choice in Action 

Classic public-choice dynamics explain why the program persisted. As land values rose to capitalize on the artificial support, farmers came to depend on continuation of the policy. Any attempt to repeal it would impose visible, concentrated losses on a politically powerful group, while the costs (higher taxes, misallocated resources, and slower economic adjustment) were diffuse and borne by the broader economy and future generations. 

Greece’s heavy reliance on a single crop left the country economically fragile, and the fiscal burden of the scheme contributed to its chronic debt difficulties. 

Lessons for Today 

The nineteenth-century Greek currant saga remains highly relevant in an era of widespread agricultural subsidies, “temporary” assistance programs, and industry bailouts. 

1. Price signals matter. When demand falls or competition rises, the healthy response is reduced production and reallocation of resources — not government price floors that delay inevitable adjustments and lock capital and labor into unproductive uses. 
2. “Temporary” support rarely is. Programs sold as short-term relief tend to become entrenched when concentrated interest groups benefit and develop a stake in their continuation. 
3. Concentrated benefits, diffuse costs. Vocal, organized groups often succeed in capturing gains for themselves while spreading the bill across taxpayers and the wider economy — frequently at the expense of long-term growth and resilience. 

Greece’s currant crisis shows that good intentions and political expediency can transform a manageable market correction into decades of distortion. Policymakers tempted by price supports or industry rescues would do well to remember how a “temporary” Greek retention scheme outlived its justification by generations and left the economy weaker for it. 

Energy price increases are hitting Americans hard. In the March 2026 Everyday Price Index, my colleague Pete Earle noted that the Iran war drove up energy prices, with adjacent industries feeling the impact, while core inflation remained muted. These price increases resemble an energy shock rather than broad-based inflation that might concern the Fed.  

For ordinary Americans, however, Earle comments, “consumers are first encountering the shock in the most visible and psychologically powerful places — gas stations, travel, and transportation-linked expenses — while the rest of the basket remains relatively stable.” 

The “visible and psychologically powerful” price increases have many policymakers rightly concerned. Both Indiana and Georgia have enacted state gas tax holidays while Utah will implement one from July through December. Several states are also considering issuing similar policies, and federal lawmakers have proposed a nationwide gas tax holiday. 

Concerns about affordability are genuine, but this is a case where good intentions do not guarantee good outcomes. Our present strains at the pump are due to limited supply. Pausing gas taxes will not increase the supply of gas. Instead, policymakers should focus on regulatory reforms that lower energy production costs and reduce bottlenecks. 

Reasoning from the Pump Price 

Prices act as a signal that informs buyers and sellers how much of a good or service is available and how much others want that good or service. Scott Sumner’s insight, “people should never reason from a price change, but always start one step earlier—what caused the price to change” is essential here.  

The legal incidence (who is legally obligated to pay the tax) falls on wholesalers or retailers while the economic incidence (who bears the cost of a tax) falls on consumers. Consumer demand for gas is relatively less elastic than other goods and services in the short run, meaning people are willing to forgo other spending before reducing fuel consumption. 

When prices rise due to a supply shock, consumers continue purchasing gasoline. A tax holiday can, therefore, increase demand at precisely the worst moment. Evidence from past tax holidays and disaster responses shows that such policies often shift consumption, but do not provide lasting relief. 

When refining capacity, inventories, or distribution networks tighten, the benefits of tax cuts dissipate. In those conditions, tax holidays provide less relief precisely when relief is needed the most.  

Gas tax holidays must be judged by their outcomes. Understanding the cause of price increases helps policymakers avoid responses that are ineffective or do further damage. 

What Can Be Done? 

The good news is that there are some reforms that federal and state policymakers can accomplish to help the American people. While avoiding gas tax holidays prevents additional harm, they can focus on getting government out of the way through regulatory reforms that improve supply. 

Policymakers should reform regulations that currently constrain oil and gas production and create supply chain bottlenecks. Federal actions include accelerating leasing, streamlining permitting processes, and reining in executive discretion over permitting, which allows the President to revoke permits that go against a given administration’s preferred energy agenda. States can roll back renewable portfolio standards to reduce compliance costs and ease permitting bottlenecks. They can also exit regional cap-and-trade programs to lower costs often passed to consumers. 

Additionally, with the Greenhouse Gas Endangerment Finding rescinded, now is the time to conduct regulatory audits to assess the costs and benefits of regulations. Policymakers could enact regulatory budgets that cap the number of regulations in force at any given time. Finally, they should consider sunset requirements that remove regulations after a certain period unless explicitly renewed by the legislative branch.  

The Problem Isn’t Gas Prices — It’s Supply

Gas tax holidays might be politically attractive, but they do not expand supply nor ease supply chain constraints. They can even worsen shortages by increasing demand. 

A more effective approach focuses on reducing regulatory barriers and improving energy market flexibility. This approach can address some of the root causes of policy volatility during and after the supply shock. 

Prices work best when they are treated as signals, not problems to suppress. By understanding how and why prices change and minimizing interference in the price system, policymakers can avoid doing unintentional harm.

Recent remarks by Elon Musk have reignited debate over the economic implications of artificial intelligence, following a widely circulated video clip in which he predicts a future of “universal high income” funded by direct government payments. In the clip — shared broadly on X and quickly amplified across financial media — Musk argues that AI-driven production will expand so rapidly that it will outpace growth in the money supply, rendering such payments non-inflationary and potentially even deflationary. As he puts it, if goods and services grow faster than money, prices should fall, even as governments distribute cash to households. The claim builds on his longstanding advocacy of income support in an AI-disrupted labor market, but extends it into a more explicit monetary argument: that large-scale issuance of money need not distort prices if productivity growth is sufficiently strong.

It is a striking claim, and one that arrives at a moment when Musk’s commercial interests are increasingly tied to the perceived scale and inevitability of the AI transformation. With his artificial intelligence initiatives becoming more deeply integrated into the broader SpaceX ecosystem — and with expectations of a major capital markets event on the horizon — there is a clear incentive to frame AI not merely as an incremental innovation, but as a system-altering force capable of reshaping the global economic landscape. That does not make the vision wrong. But it does suggest that rhetoric surrounding abundance, inevitability, and frictionless adjustment should be read, at least in part, as a forward-looking narrative — an attempt to describe not just what may happen, but what investors and the public should come to expect.

The economic reasoning underlying the claim, however, is where the argument begins to break down. Issuing money — even in a high-productivity environment — does not create income in any real sense. It redistributes claims on output. Goods and services must still be produced. The act of distributing purchasing power does not add to that production; it just reallocates access to it. Even if AI dramatically increases the total quantity of goods available, the path by which money enters the system matters. New money is never distributed evenly or instantaneously. It arrives through specific channels — government transfers, financial institutions, asset markets — and those entry points shape how prices adjust across sectors.

This is why the idea that inflation or deflation can be understood as a simple ratio of aggregate output to the money supply is misleading. Prices are not set in the aggregate; they are relative, reflecting the interplay of supply, demand, expectations, and timing. When new money is introduced, it affects some prices before others, altering incentives and redirecting resources. Some sectors expand more rapidly than they otherwise would, while others are effectively taxed by rising input costs or shifting demand. These relative price movements are not noise — they are the mechanism by which the economy coordinates activity. Distort them, and the structure of production itself becomes misaligned.

The role of monetary policy does not disappear in such a world; it may become more subtle, but no less important. If income transfers are financed by sustained monetary expansion, interest rates and credit conditions will still respond. Artificially abundant liquidity can suppress borrowing costs and encourage investment projects that appear viable under those conditions but are not supported by underlying resource availability or consumer preferences. (Indeed, these conditions may already be manifesting.) Over time, this can lead to overextension in some sectors and underinvestment in others — a familiar pattern that has historically culminated in corrections when financial conditions tighten or expectations shift.

What is notable is how closely these latest remarks mirror Musk’s earlier statements about an AI-driven future of “sustainable abundance.” For years, he has argued that advances in automation would so dramatically expand productive capacity that scarcity itself would fade as a central economic concern. The current formulation simply extends that logic: if scarcity recedes, then distributing money becomes a largely administrative exercise, unmoored from traditional constraints. But this is precisely where the conceptual error lies. Technology can expand what is possible — it can shift the frontier outward — but it does not eliminate the need for intertemporal coordination, nor nullify the importance of how resources are allocated.

A substantial expansion in productive capacity is entirely within reach. Advances in AI could lower costs across wide swaths of the economy, streamline production, and unlock entirely new forms of output. But greater plenty does not eliminate the need for coordination, nor does it neutralize the role of money. Prices, investment decisions, and income flows are still shaped by institutional frameworks and incentive structures, and those forces continue to operate regardless of how quickly output is growing.

If the coming decades deliver anything like the transformation being envisioned, its success will depend not only on technological capability but on how well economic systems adapt to it. Producing more with fewer inputs is a powerful development, but it does not negate the importance of sound signals in markets or disciplined allocation of capital. Expanding the money supply alongside rising output does not bypass these considerations; it interacts with them, and if handled poorly, can obscure rather than clarify the information that markets rely on. If nothing else, seeing the convergence of the thinking of generational entrepreneur Elon Musk with that of NYC Mayor Zohran Mamdani confirms that economists, myself included, need to do a far better job of communicating basic economic concepts.