Wednesday, March 30, 2016

Remarks of Secretary Lew on the Evolution of Sanctions and Lessons for the Future at the Carnegie Endowment for International Peace

Thank you for the kind introduction.  As many of you know, Ambassador Burns and I were close colleagues at the State Department.  Bill is an American treasure, one of the great diplomats of our day, and a good friend.  It is a pleasure to be here with him and all of you today.

And thank you to the Carnegie Endowment for International Peace for hosting me.  Carnegie has done so much to strengthen our understanding of international affairs, and to help our nation think through difficult national security policy issues.  As we continue to confront complex global challenges in the months and years ahead, your work will remain vital to our efforts.

Seventy-five years ago, one day after Nazi Germany invaded Norway and Denmark, President Roosevelt established an office within the Treasury Department to freeze U.S.-held assets of the governments of Norway and Denmark—and eventually the assets of many other U.S. allies.  The Executive Order he signed on that spring day in 1940 prevented the Nazis from seizing those assets as terror spread across Europe.

Since that time, the threats have changed and the international economy has evolved, and we have refined our capacity to apply sanctions effectively.  Not long ago, conventional wisdom dismissed sanctions as blunt, ineffective instruments.  The old model was a country-wide embargo, which provided little flexibility to mitigate disproportionate costs on innocent civilians—both in the targeted countries and here at home.  At the same time, early efforts to ensure humanitarian relief sometimes fell short of the intended goal.

The sanctions we employ today are different.  They are informed by financial intelligence, strategically designed, and implemented with our public and private partners to focus pressure on bad actors and create clear incentives to end malign behavior, while limiting collateral impact.

Recent sanctions programs have exposed and disrupted the operations of illicit groups including terrorists and narcotics traffickers, as well as sovereigns, shuttering front companies and stopping facilitators from traveling.  Sanctions put concentrated and meaningful pressure on governments abusing their own populations in places like Sudan, Burma, and Libya.  They formed the centerpiece of the international response to Russia’s aggressive actions in Ukraine.  And most dramatically, together with the international community, we put in place sanctions that imposed massive costs on Iran, helping to bring it to the negotiating table, and culminating in a comprehensive understanding that rolled back Iran’s nuclear program and ensures that it is and will remain exclusively peaceful.

Economic sanctions have become a powerful force in service of clear and coordinated foreign policy objectives—smart power for situations where diplomacy alone is insufficient, but military force is not the right response.  They must remain a powerful option for decades to come.  That is why the lessons we have learned from our experience need to guide our approach to sanctions in the future.  And we must be strategic and judicious in how we apply sanctions to challenging situations around the world.

The power of our sanctions is inextricably linked to our leadership role in the world.  Sanctions were forged in the context of our position as the world’s largest economy and the predominant role that the U.S. financial system plays in global commerce.  We must guard against the impulse to reach for sanctions too lightly or in situations where they will have negligible impact.  And we must be conscious of the risk that overuse of sanctions could undermine our leadership position within the global economy, and the effectiveness of our sanctions themselves.

Lessons Learned

While every situation will require a tailored approach, the underlying goal of all sanctions is an effort to change behavior.  Sanctions are not meant to dole out punishment for past actions.  They are forward-looking, intended to keep illicit or dangerous conduct out of our system and create pressure to change future behavior.  This foundational principle is very different from civil penalties and forfeiture, which are punitive and meant to address past behavior.

Building on this principle, three broad lessons apply across a wide spectrum of programs.

Lesson One: Broad Support is Best

First, we have learned that sanctions are most effective at changing behavior when we work closely with our partners to build support for a common objective.  The more international support there is for sanctions, and for their underlying objective, the more effective they will be.

We learned this lesson over the five decades of our unilateral trade embargo on Cuba.  Not only did we fail to win international support, we saw some of our closest partners like Canada and the European Union enact legislation forbidding domestic companies from following these sanctions.  As a result, some foreign subsidiaries of U.S. companies were subjected to an untenable conflict of laws and we were at odds with many neighbors in Latin America.  The outcome has been an ineffective program.

We have the best chance of success when governments and international bodies align their sanctions.  In some cases, UN Security Council resolutions are the best way to reach consensus, as we achieved in December against ISIL and again this month against North Korea.  In others, the best approach may involve action by the G-7 or an informal group of allied countries.  While we must always reserve the right to act alone to protect our national security, unilateral actions should be the exception, not the rule.

Our sanctions against Iran’s nuclear program are the most powerful example of how a broad-based effort, coupled with serious diplomacy, can succeed.  As Iran’s nuclear ambitions came into focus and it repeatedly defied calls to abide by international accords, successive administrations saw as an imperative trying to change Iran’s calculations through various tools of foreign policy, including sanctions.

The United States began by imposing its own sanctions on complicit Iranian banks and businesses.  But it quickly became clear that we needed to work with partners around the world to shut down safe havens and increase pressure on Iran’s economy.  We traveled the world to explain the threat posed by Iran’s nuclear ambitions and win support for common action in the UN Security Council.  Allies such as the European Union, Canada, and Australia came on board, as did countries with traditionally close ties to Iran, including China, Russia, and India.  By 2010, four UN Security Council sanctions resolutions had raised pressure on Iran economically, and the world’s banks were increasingly wary of participating in Iranian transactions.

The U.S. Congress and the administration worked together to amplify the pressure, implementing powerful measures, including secondary sanctions, to threaten foreign companies with serious penalties for offshore transactions—even if no U.S. persons were involved.  These new measures targeted Iran’s crude oil sales, its financial system, and other key sectors providing support to the Iranian economy and its nuclear program.

Working with governments and banks around the world, secondary sanctions on Iran had a powerful effect.  They damaged Iran’s few remaining ties to the legitimate financial system.

The next step was to slow down Iran’s oil revenue.  An immediate halt to all Iranian oil exports on the surface would have looked much tougher than an incremental approach, but this would have imposed an intolerable burden on the energy supply of important allies like China, Japan, and South Korea—and would likely have failed from the start.  So the sanctions instead pressed our international partners to ratchet down their imports every six months over two years.  These efforts resulted in a 60 percent drop in Iran’s most important export, putting massive pressure on Iranian government revenues, while preserving the option to further ramp up pressure.  By building pressure over time, we maintained broad international support, maximized our impact, and effectively restricted or blocked nearly all of the Central Bank of Iran’s foreign reserves.

Ultimately, Iran saw a choice: pursue an illicit nuclear program or rejoin the global economy.  In 2012, we opened a narrow window to see if a diplomatic solution was possible.  Back when Bill Burns was Deputy Secretary of State and I served as White House Chief of Staff, we worked quietly with a small group to see if engagement could work.  This process—which was sped up by the Iranian people’s election of Iranian President Rouhani—led to a preliminary arrangement in 2013, the Joint Plan of Action or JPOA, which froze nuclear activity and laid a foundation for a broader negotiation.  After two years of tremendous diplomatic efforts led by Secretaries Kerry and Moniz, as well as former Under Secretary Wendy Sherman, with the support of teams from the Departments of State, Treasury, and Energy and our international partners, we secured a comprehensive arrangement to cut off all of Iran’s pathways to a nuclear weapon, removing a serious threat from a region that cannot afford further destabilization.

Lesson Two: We Must Be Prepared to Offer Sanctions Relief if We Want Countries to Change their Behavior

Another lesson we have learned is that since the goal of sanctions is to pressure bad actors to change their policy, we must be prepared to provide relief from sanctions when we succeed.  If we fail to follow through, we undermine our own credibility and damage our ability to use sanctions to drive policy change.

The experience with Iran demonstrates how difficult this can be, essential as it is.  To achieve its goal of lifting sanctions, Iran had to accept a comprehensive nuclear deal.  Lifting nuclear sanctions was an incentive we established to help achieve this profound change in Iran’s calculations and that incentive, coupled with tough, principled diplomacy, worked.  Since Iran has kept its end of the deal, it is our responsibility to uphold ours, in both letter and spirit.  For this reason, it was vitally important that, on Implementation Day, we lifted the sanctions we promised to lift and provided guidance to make clear where commerce can resume.  Since Implementation Day, we have engaged in widespread global outreach to help governments and businesses understand the sanctions relief provided—and, critically, the non-nuclear sanctions that remain in place.  And while we have lifted the nuclear sanctions, we continue to enforce sanctions directed at support for terrorism and regional destabilization, and missile and human rights violations.

Iran’s nuclear program posed a special threat to many countries individually and globally—and for countries like Israel, a potentially existential threat.  There is no question that removing this nuclear threat has made the region and the world safer.  As Lieutenant General Gadi Eizenkot, who commands the Israeli Defense Forces, put it, and I quote: “Without a doubt the nuclear deal between Iran and the West is a historic turning point. It is a big change in terms of the direction that Iran was headed, and in the way that we saw things.”

By following through on our commitment to provide sanctions relief, we sustain the powerful incentive for other malign actors to respond to sanctions by changing their behavior.

Two years ago, when Russia launched aggressive and destabilizing actions in eastern Ukraine and occupied and attempted to annex Crimea, it was clear that the world needed to respond.  It was also quickly apparent that economic and financial sanctions would be the most appropriate action.  While its veto at the UN Security Council made a response from the UN Security Council impossible, working with the G-7 and other like-minded partners, we developed an international plan to respond to Russia with the goal of changing Russia’s policy choices.  Russia’s economic prominence and global financial links meant that powerful sanctions would need to be carefully designed to avoid serious unintended consequences and spillovers for a still fragile global economy.

While some called for the United States to respond with everything in our sanctions arsenal, President Obama directed us to develop a coordinated response in concert with our allies, that would deliver strong but measured pressure, and which could preserve our options and be ratcheted up or down over time depending on Russia’s behavior.  We moved quickly to impose sanctions on key officials and entities linked to the crisis in Ukraine, with a particular focus on the inner circle of Russia’s leadership and associated companies.  And in readying broader measures, we sought out asymmetries—particular areas where the Russian government relied upon European and U.S. technology and financing, but where sanctions would have the smallest possible spillover effects on us, our allies, and the Russian people.

The impact has been significant: sanctions have contributed to tighter financial conditions, weaker confidence, and lower investment in Russia.  While Russia’s very deep economic decline was amplified greatly by the dramatic drop in oil prices, our targeted sanctions have worked as intended: imposing great costs to Russia with only a limited macroeconomic effect on the U.S. and European economies.  The path forward will depend on Russia’s conduct.  Russia has made commitments under the Minsk process, and if it keeps those commitments sanctions will be lifted.  If not, sanctions will continue, along with the pressure they impose over time.

Lesson Three: Implementation is Vital

A third lesson we have learned is that our experience has shown that to be effective, sanctions programs require an investment in infrastructure to implement and support our efforts.

Powerful sanctions require investigators and analysts to track how key actors move and store their money and to build detailed cases drawing on intelligence analysis.  And they rely on enforcement officers to investigate violations and levy penalties for significant wrongdoing.

Implementation of targeted sanctions means a commitment to due process.  Freezing assets and severing financial access is a powerful step and requires decisions that can be appropriately reviewed and reversed when appropriate.  This requires a careful review of evidence and a rigorous legal process.

Finally, using licenses we can protect against unintended effects on the innocent, for example to authorize exports of food, medicine, and medical devices as we did in the aftermath of the Bam earthquake in Iran and Cyclone Nargis in Burma.

Here at home, we have spent decades building a system to implement sanctions and to help private companies and foreign governments understand how sanctions apply to a complex range of industries and transactions.  We work closely to maintain two-way communications with companies that are well-positioned to observe the effects of our sanctions and often to assess where they can be improved.

This behind the scenes work is what makes an effective program.

We need more partners internationally to help with this effort, which is why we are working to build capacity in countries around the world.  At the outset, this work ensures that sanctions are narrowly and accurately targeted; it continues through designations, especially when targets inevitably seek to evade sanctions.

Internationally, we must work closely with the UN Security Council and expert monitoring teams that support its efforts, with the Financial Action Task Force, which upholds standards and best practices, and with the International Monetary Fund to help countries build capacity to deal with illicit financial flows.

The United States has the most developed capabilities in this area, combining intelligence, policy, regulatory, and enforcement capabilities under one roof.  But we need to enhance them further.  And we will work with our counterparts in other governments to build their own capabilities.

Threats We Face Today

We must take these lessons learned and apply them to the critical threats of today and tomorrow, like North Korea.  And no lesson is more important when it comes to North Korea than the need for international support.   The United States worked closely with China and other members of the UN Security Council this month to unanimously adopt a resolution that significantly ratchets up the sanctions on Pyongyang and underlines for the North Korean regime the resolve of the international community to stop its nuclear and missile programs.

The President then issued an Executive Order to implement this resolution and the strong legislation passed by Congress this February.  Taken together, these new domestic and multilateral sanctions measures will increase the pressure on North Korea in several key economic sectors, including banking, transportation, mining and metals, and labor.  We are mindful, though, that North Korea’s leadership has prioritized the pursuit of nuclear weapons over just about anything else, including economic growth or the day-to-day lives of its own people.  But it is precisely because of this that we must work closely with China and others in the region to ensure strong implementation of the new sanctions.  Only with robust international cooperation can we convince Pyongyang to change its calculus and stop its activities.

We have also put these sanctions lessons learned to use over the past two years in our campaign against the so-called Islamic State, conscious of the fact that sanctions will never be a silver bullet to use against every threat.  As a group that derives most of its revenues from within, ISIL is not as susceptible to the donor and facilitator-focused approach we used with other terrorist organizations, such as al Qaida or Hizballah.  But ISIL has vulnerabilities, which we have attacked step by step, using sanctions as just one part of a much broader effort to cut it off from the international financial system and curtail its renewable sources of funding.

ISIL started out seizing territory and money from banks.  We worked closely with the Central Bank of Iraq to cut off the 90 bank branches within ISIL-controlled territory in Iraq from the international financial system and exchange houses.  But much of ISIL’s financial strength comes from its ability to generate funding internally through extortion of the local population and oil revenue.  Over the past year, the government of Iraq has taken important steps to curtail ISIL’s access to public sector salary payments, helping to ensure that ISIL cannot extort those funds.  And in recent months, the coalition led by the U.S. has targeted ISIL’s entire oil supply line, going after oil fields, refineries, and the tanker trucks that transport that oil across the country and to the border.

These actions have made an impact. Late last year ISIL leaders in the Raqqa province of Syria cut in half the salaries of all its fighters there, citing in a letter “exceptional circumstances.”  To ensure broad international support and cooperation, in December, I chaired the first-ever UN Security Council meeting of finance ministers, where we adopted a resolution to expand the longstanding sanctions regime against al Qaida to increase focus toward ISIL.  This resolution will keep ISIL cut off from the international financial system and impose sanctions on anyone caught doing business with it, even middlemen.  And just last week, military actions took one of ISIL’s top financial leaders off the battlefield.

We are clear-eyed about the challenge we face in going after ISIL’s finances.  Successful implementation will take sustained determination by local partners and other countries facing an ISIL threat, and broad international cooperation to make sure ISIL is denied the resources it needs to grow, and to create ongoing pressure to shrink its operations.  Through a targeted and multilateral effort—built upon years of international coordination—we have accomplished a great deal, but we still have much more to do.

The Risks of Overuse

Just as with the other ways that the United States projects power, imposing sanctions also involves costs and risks.  Sanctions should not be used lightly.  They can strain diplomatic relationships, introduce instability into the global economy, and impose real costs on companies here and abroad.  And of course they carry a risk of retaliation.

Actions that trigger U.S. sanctions must constitute a significant threat to our national security, foreign policy, or economy.  And even then, we should impose sanctions only when we have reasonable confidence that they will achieve their intended policy goal, and only when the balance of costs and benefits is in our favor.

It is important to make sure these tools remain available and effective.  And there is a risk that overuse could ultimately reduce our capability to use sanctions effectively.  While sanctions are a valuable alternative to more severe measures, including the lawful use of force, it is a mistake to think that they are low-cost.  And if they make the business environment too complicated—or unpredictable, or if they excessively interfere with the flow of funds worldwide, financial transactions may begin to move outside of the United States entirely—which could threaten the central role of the U.S. financial system globally, not to mention the effectiveness of our sanctions in the future.

We need to be cautious of rising expectations in this arena.  We must be on guard that the ultimate and extreme steps in our Iran nuclear sanctions, taken after eight years of building international support for tougher action, do not become a starting point when we confront each new crisis.  We know that foreign policy and security threats will always exist and it is critical that we have scalable options at our disposal.

Secondary sanctions prompt particular concerns.  Unlike primary sanctions, which focus on activities of U.S. individuals and companies, secondary sanctions generally are directed towards foreign persons.  These measures threaten to cut off foreign individuals or companies from the U.S. financial system if they engage in certain conduct with a sanctioned entity, even if none of that activity touches the United States directly.  As a result, they are viewed, even by some of our closest allies as extra-territorial attempts to apply U.S. foreign policy to the rest of the world.

The risk that sanctions overreach will ultimately drive business activity from the U.S. financial system could become more acute if alternatives to the United States as a center of financial activity, and to the U.S. dollar as the world's preeminent reserve currency, assume a larger role in the global financial system.  Global norms are hard to reshape, existing alternatives are not well positioned to fully fill the role of U.S. markets and the U.S. dollar, and there are many factors that will continue to make the United States the most attractive financial system in the world.  But our central role must not be taken for granted.  If foreign jurisdictions and companies feel that we will deploy sanctions without sufficient justification or for inappropriate reasons—secondary sanctions in particular—we should not be surprised if they look for ways to avoid doing business in the United States or in U.S. dollars.  And the more we condition use of the dollar and our financial system on adherence to U.S. foreign policy, the more the risk of migration to other currencies and other financial systems in the medium-term grows.  Such outcomes would not be in the best interests of the United States for a host of reasons, and we should be careful to avoid them.

Since World War II, the centrality of our financial system has been a source of tremendous strength for our economy, a benefit for U.S. companies and a driver of U.S. global leadership.  And, given the volume of trade in the U.S. dollar, even our ordinary, or “primary,” sanctions carry enormous weight and influence beyond our borders.

Sanctions have become a powerful way to protect U.S. national security interests.  We must remain vigilant to maintain a high bar for imposing sanctions, so that they are used only to address significant threats to our national security, foreign policy, or economy, and only when the costs and benefits have been carefully evaluated.  And secondary sanctions should be used only in the most exceptional circumstances, where—as with Iran—the threat is severe, where we have international consensus, and when ordinary sanctions have fallen short of their mark.

Looking Forward: A Sanctions Strategy that Endures

Today’s economic tools are sophisticated and potent—but they are not the answer to every threat we face.  When used thoughtfully and in concert with other tools of national power, they can protect our financial system and apply substantial pressure against our most troubling national security threats.  They are a powerful alternative to military engagement, which should remain the option of last resort, not the first.

To preserve the effectiveness of sanctions over the long term, we must use them wisely.  We must clearly articulate our goals, and we must provide relief when those goals are met.

Future presidents will need these sophisticated tools to deal with urgent national security objectives.  We must continue to build the diplomatic relationships and the operations needed for implementation and private sector coordination.

If we adhere to our principles and continue to learn from what has worked, and what has not worked, I believe that we will be able to use these tools to protect our citizens and our values for many years to come.

Thank you again for hosting me here this morning.

Tuesday, March 29, 2016

Mercantilism: A Lesson for Our Times?

By Murray N. Rothbard
Mercantilism has had a "good press" in recent decades, in contrast to 19th-century opinion. In the days of Adam Smith and the classical economists, mercantilism was properly regarded as a blend of economic fallacy and state creation of special privilege. But in our century, the general view of mercantilism has changed drastically.
Keynesians hail mercantilists as prefiguring their own economic insights; Marxists, constitutionally unable to distinguish between free enterprise and special privilege, hail mercantilism as a "progressive" step in the historical development of capitalism; socialists and interventionists salute mercantilism as anticipating modern state building and central planning.
Mercantilism, which reached its height in the Europe of the 17th and 18th centuries, was a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state. Thus, mercantilism held that exports should be encouraged by the government and imports discouraged. Economically, this seems to be a tissue of fallacy; for what is the point of exports if not to purchase imports, and what is the point of piling up monetary bullion if the bullion is not used to purchase goods?
But mercantilism cannot be viewed satisfactorily as merely an exercise in economic theory. The mercantilist writers, indeed, did not consider themselves economic theorists, but practical men of affairs who argued and pamphleteered for specific economic policies, generally for policies which would subsidize activities or companies in which those writers were interested. Thus, a policy of favoring exports and penalizing imports had two important practical effects: it subsidized merchants and manufacturers engaged in the export trade, and it threw up a wall of privilege around inefficient manufacturers who formerly had to compete with foreign rivals. At the same time, the network of regulation and its enforcement built up the state bureaucracy as well as national and imperial power.
The famous English Navigation Acts, which played a leading role in provoking the American Revolution, are an excellent example of the structure and purpose of mercantilist regulation. The network of restriction greatly penalized Dutch and other European shippers, as well as American shipping and manufacturing, for the benefit of English merchants and manufacturers, whose competition was either outlawed or severely taxed and crippled. The use of the state to cripple or prohibit one's competition is, in effect, the grant by the state of monopolistic privilege; and such was the effect for Englishmen engaged in the colonial trade.
A further consequence was the increase of tax revenue to build up the power and wealth of the English government, as well as the multiplying of the royal bureaucracy needed to administer and enforce the regulations and tax decrees. Thus, the English government, and certain English merchants and manufacturers, benefited from these mercantilist laws, while the losers included foreign merchants, American merchants and manufacturers, and, above all, the consumers of all lands, including England itself. The consumers lost, not only because of the specific distortions and restrictions on production of the various decrees, but also from the hampering of the international division of labor imposed by all the regulations.

Adam Smith's Refutation

Mercantilism, then, was not simply an embodiment of theoretical fallacies; for the laws were only fallacies if we look at them from the point of view of the consumer, or of each individual in society. They are not fallacious if we realize that their aim was to confer special privilege and subsidy on favored groups; since subsidy and privilege can only be conferred by government at the expense of the remainder of its citizens, the fact that the bulk of the consumers lost in the process should occasion little surprise.1
Contrary to general opinion, the classical economists were not content merely to refute the fallacious economics of such mercantilist theories as bullionism or protectionism; they also were perfectly aware of the drive for special privilege that propelled the "mercantile system." Thus, Adam Smith pointed to the fact that linen yarn could be imported into England duty free, whereas heavy import duties were levied on finished woven linen. The reason, as seen by Smith, was that the numerous English yarn spinners did not constitute a strong pressure group, whereas the master weavers were able to pressure the government to impose high duties on their product, while making sure that their raw material could be bought at as low a price as possible. He concluded that the motive of all these regulations, is to extend our own manufactures, not by their own improvement, but by the depression of those of all our neighbors, and by putting an end, as much as possible, to the troublesome competition of such odious and disagreeable rivals.
Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.… But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.
In the restraints upon the importation of all foreign commodities which can come into competition with those of our own growth, or manufacture, the interest of the home-consumer is evidently sacrificed to that of the producer. It is altogether for the benefit of the latter, that the former is obliged to pay that enhancement of price which this monopoly almost always occasions.
It is altogether for the benefit of the producer that bounties are granted upon the exportation of some of his productions. The home-consumer is obliged to pay, first, the tax which is necessary for paying the bounty, and secondly, the still greater tax which necessarily arises from enhancement of the price of the commodity in the home market.2

Before Keynes

Mercantilism was not only a policy of intricate government regulations; it was also a pre-Keynesian policy of inflation, of lowering interest rates artificially, and of increasing "effective demand" by heavy government spending and sponsorship of measures to increase the quantity of money. Like the Keynesians, the mercantilists thundered against "hoarding," and urged the rapid circulation of money throughout the economy; furthermore, they habitually pointed to an alleged "scarcity of money" as the cause of depressed trade or unemployment.3 Thus, in a prefiguration of the Keynesian "multiplier," William Potter, one of the first advocates of paper money in the Western world (1650), wrote:
The greater quantity … of money … the more commodity they sell, that is, the greater is their trade. For whatsoever is taken amongst men … though it were ten times more than now it is, yet if it be one way or other laid out by each man, as fast as he receives it … it doth occasion a quickness in the revolution of commodity from hand to hand … much more than proportional to such increase of money.4
And the German mercantilist F.W. von Schrötter wrote of the importance of money changing hands, for one person's spending is another's income; as money "pass[es] from one hand to another … the more useful it is to the country, for … the sustenance of so many people is multiplied," and employment increased. Thrift, according to von Schrötter, causes unemployment, since saving withdraws money from circulation. And John Cary wrote that if everyone spent more, everyone would obtain larger incomes, and "might then live more plentifully."5
Historians have had an unfortunate tendency to depict the mercantilists as inflationists and therefore as champions of the poor debtors, while the classical economists have been considered hardhearted apologists for the status quo and the established order. The truth was almost precisely the reverse. In the first place, inflation did not benefit the poor; wages habitually lagged behind the rise in prices during inflations, especially behind agricultural prices.
Furthermore, the "debtors" were generally not the poor but large merchants and quasi-feudal landlords, and it was the landlords who benefited triply from inflation: from the habitually steep increases in food prices, from the lower interest rates and the lower purchasing power of money in their role as debtors, and from the particularly large increases in land values caused by the fall in interest rates. In fact, the English government and Parliament was heavily landlord dominated, and it is no coincidence that one of the main arguments of the mercantilist writers for inflation was that it would greatly raise the value of land.

Exploitation of Workers

Far from being true friends of laborers, the mercantilists were frankly interested in exploiting their labor to the utmost; full employment was urged as a means of maximizing such exploitation.
Thus, the mercantilist William Petyt wrote frankly of labor as "capital material … raw and undigested … committed into the hands of supreme authority, in whose prudence and disposition it is to improve, manage, and fashion it to more or less advantage."6 Professor Furniss comments that
it is characteristic of these writers that they should be so readily disposed to trust in the wisdom of the civil power to "improve, manage, and fashion" the economic "raw material" of the nation. Bred of this confidence in statecraft, proposals were multiplied for exploiting the labor of the people as the chief source of national wealth, urging upon the rulers of the nation diverse schemes for directing and creating employment.7
The mercantilists' attitude toward labor and full employment is also indicated by their dislike of holidays, by which the "nation" was deprived of certain amounts of labor; the desire of the individual worker for leisure was never considered worthy of note.

Compulsory Employment

The mercantilist writers realized frankly that corollary to a guarantee of full employment is coerced labor for those who don't wish to work or to work in the employment desired by the guarantors. One writer summed up the typical view: "it is absolutely necessary that employment should be provided for persons of every age that are able and willing to work, and the idle and refractory should be sent to the house of correction, there to be detained and constantly kept to labor." Henry Fielding wrote that "the constitution of a society in this country having a claim on all its members, has a right to insist on the labor of the poor as the only service they can render." And George Berkeley asked rhetorically "whether temporary servitude would not be the best cure for idleness and beggary?… Whether sturdy beggars may not be seized and made slaves to the public for a certain term of years?"8
William Temple proposed a scheme to send the children of laborers, from the age of four on, to public workhouses, where they would be kept "fully employed" for at least twelve hours a day, "for by these means we hope that the rising generation will be habituated to constant employment." And another writer expressed his amazement that parents tended to balk at these programs:
Parents … from whom to take for time the idle, mischievous, least useful and most burdensome part of their family to bring them up without any care or expense to themselves in habits of industry and decency is a very great relief; are very much adverse to sending their children … from what cause, it is difficult to tell.9
Perhaps the most misleading legend about the classical economists is that they were apologists for the status quo; on the contrary, they were "radical" libertarian opponents of the established Tory mercantilist order of big government, restrictionism, and special privilege. Thus, Professor Fetter writes that during the first half of the 19th century, the
Quarterly Review and Blackwood's Edinburgh Magazine, staunch supporters of the established order, and opponents of change in virtually all fields, had no sympathy with political economy or with laissez-faire, and were constantly urging maintenance of tariffs, expenditures by government, and suspension of the gold standard in order to stimulate demand and increase employment. On the other hand the Westminster's [journal of the classical liberals] support of the gold standard and free trade, and its opposition to any attempt to stimulate the economy by positive government action, came not from believers in authority or from defenders of the dominant social force behind authority, but from the most articulate intellectual radicals of the time and the severest critics of the established order.10

Southey Favors Nationalization

In contrast, let us consider the Quarterly Review, a high Tory journal which always "assumed that the unreformed Parliament, the dominance of a landed aristocracy … the supremacy of the established church, discrimination of some sort against Dissenter, Catholic, and Jew, and the keeping of the lower classes in their place were the foundations of a stable society." Their leading writer on economic problems, the poet Robert Southey, repeatedly urged government expenditure as a stimulant to economic activity and attacked England's resumption of specie payments (return to the gold standard) after the Napoleonic Wars.
"Inflation did not benefit the poor; wages habitually lagged behind the rise in prices during inflations, especially behind agricultural prices."
Indeed, Southey proclaimed that an increase in taxes or in the public debt was never a cause for alarm, since they "give a spur to the national industry, and call forth national energies." And, in 1816, Southey advocated a large public works program for relief of unemployment and depression.11
The Quarterly Review's desire for stringent government control and even ownership of the railroads was at least frankly linked with its hatred of the benefits that railroads were bringing to the mass of the British population. Thus, where the classical liberals hailed the advent of railroads as bringing cheaper transportation and as thereby increasing the mobility of labor, the Quarterly's John Croker denounced railroads as "rendering travel too cheap and easy — unsettling the habits of the poor, and tempting them to improvident migration."12
The arch-Tory, William Robinson, who often denounced his fellow Tories for compromising even slightly on such principles as high tariffs and no political rights for Catholics, wrote many pre-Keynesian articles, advocating inflation to stimulate production and employment, and denouncing the hard-money effects of the gold standard. And the Tory Sir Archibald Alison, inveterate advocate of inflation, who even ascribed the fall of the Roman Empire to a shortage of money, frankly admitted that it was the "agricultural class" that had suffered from the lack of inflation since resumption of the gold standard.13

Controls Under Elizabeth

A few case studies will illustrate the nature of mercantilism, the reasons for mercantilist decrees, and some of the consequences that they brought to the economy.
One important part of mercantilist policy was wage controls. In the 14th century, the Black Death killed one-third of the laboring population of England, and naturally brought sharp advances in wage rates. Wage controls came in as wage ceilings, in desperate attempts by the ruling classes to coerce wage rates below their market rates. And since the vast bulk of employed laborers were agricultural workers, this was clearly legislation for the benefit of the feudal landlords and to the detriment of the workers.

Textiles vs. Agriculture

The result was a persistent shortage of agricultural and other unskilled laborers for centuries, a shortage mitigated by the fact that the English government did not try to enforce the laws very rigorously. When Queen Elizabeth tried to enforce the wage controls strictly, the agricultural labor shortage was aggravated, and the landlords found their statutory privileges defeated by the more subtle laws of the market. Consequently, Elizabeth passed, in 1563, the famous Statute of Artificers, imposing comprehensive labor control.
Attempting to circumvent the shortage caused by previous interventions, the statute installed forced labor on the land. It provided that
  1. whoever had worked on the land until the age of 12 be compelled to remain there and not leave for work at any other trade;
  2. all craftsmen, servants, and apprentices who had no great reputation in their fields be forced to harvest wheat; and
  3. unemployed persons were compelled to work as agricultural laborers.
In addition, the statute prohibited any worker from quitting his job unless he had a license proving that he had already been hired by another employer. And, furthermore, justices of the peace were ordered to set maximum wage rates, geared to changes in the cost of living.
"Where the classical liberals hailed the advent of railroads as bringing cheaper transportation and as thereby increasing the mobility of labor, the Quarterly's John Croker denounced railroads as 'rendering travel too cheap and easy.'"
The statute also acted to restrict the growth of the woolen textile industry; this benefited two groups: the landlords, who would no longer lose laborers to industry and suffer the pressure of paying higher wage rates, and the textile industry itself, which received the privilege of keeping out the competition of new firms or new craftsmen.
The coerced immobility of labor, however, led to suffering for all workers, including textile craftsmen; and to remedy the latter, Queen Elizabeth imposed a minimum wage law for textile craftsmen, thundering all the while that the wicked clothing manufacturers were responsible for the craftsmen's plight. Fortunately, textile employers and workers persisted in agreeing on terms of employment below the artificially set wage rate, and heavy textile unemployment did not yet arise.

Enforcing Bad Laws

The programs of wage controls could not cause undue dislocations until they were stringently enforced, and this came to pass under King James I, the first Stuart king of England. Upon assuming the throne in 1603, James decided to enforce the Elizabethan control program with great stringency, including extremely heavy penalties against employers. Rigorous enforcement was imposed on minimum-wage controls for textile craftsmen, and on maximum-wage decrees for agricultural laborers and servants.
The consequences were the inevitable result of tampering with the laws of the market: chronic severe unemployment throughout the textile industry, coupled with a chronic severe shortage of agricultural labor. Misery and discontent spread throughout the land. Citizens were fined for paying their servants more than ceiling wages, and servants fined for accepting the pay.
James, and his son Charles I, decided to stem the tide of unemployment in textiles by compelling employers to remain in business even when they were losing money. But even though many employers were jailed for infractions, such Draconian measures could not keep the textile industry from depression, stagnation, and unemployment. Certainly the consequences of the policy of wage controls were one of the reasons for the overthrow of the Stuart tyranny in the mid-17th century.

Mercantilist Practices in Colonial Massachusetts

The young colony of Massachusetts engaged in a great many mercantilist ventures, with invariably unfortunate results. One attempt was a comprehensive program of wage and price controls, which had to be abandoned by the 1640s. Another was a series of subsidies to try to create industries in the colony before they were economically viable, and therefore before they would be created on the free market.
One example was iron manufacture. Early iron mines in America were small and located in coastal swamps ("bog iron"); and primarily manufactured, or "wrought," iron was made cheaply in local bloomeries, at an open hearth. The Massachusetts government decided, however, to force the creation of the more imposing — and far more expensive — indirect process of wrought iron manufacture at a blast furnace and forge. The Massachusetts legislature therefore decreed that any new iron mine must have a furnace and forge constructed near it within ten years of its discovery. Not content with this measure, the legislature in 1645 granted a new Company of Undertakers for an Iron Works in New England, a 21-year monopoly of all iron making in the colony. In addition, the legislature granted the company generous subsidies of timberland.
But despite these subsidies and privileges, as well as additional large grants of timberland from the town governments of Boston and Dorchester, the Company's venture failed dismally and almost immediately. The Company did its best to salvage its operations, but to no avail.
A few years later, John Winthrop, Jr., the main promoter of the older venture, induced the authorities of New Haven colony to subsidize an iron manufacture of his at Stony River. From the governments of New Haven colony and New Haven township, Winthrop was granted a whole host of special subsidies: land grants, payment of all costs of building the furnace, a dam on the river, and the transportation of fuel. One of Winthrop's partners in the venture was the deputy governor of the colony, Stephen Goodyear, who was thus able to use the power of government to grant himself substantial privileges. But again, economic law was not to be denied, and the ironworks proved to be another rapidly failing concern.

Debtors' Relief: A Scheme to Aid the Rich

One of the most vigorously held tenets of the dominant neo-Marxist historians of America has been the view that inflation and debtors' relief were always measures of the "lower classes," the poor farmer-debtors and sometimes urban workers, engaging in a Marxian class struggle against conservative merchant-creditors. But a glance at the origins of debtors' relief and paper money in America easily shows the fallacy of this approach; inflation and debtors' relief were mercantilist measures, pursued for familiar mercantilist ends.
"Even though many employers were jailed for infractions, such Draconian measures could not keep the textile industry from depression, stagnation, and unemployment."
Debtors' relief began in the colonies, in Massachusetts in 1640. Massachusetts had experienced a sharp economic crisis in 1640, and the debtors turned immediately to special privilege from the government. Obediently, the legislature of Massachusetts passed the first of a series of debtors' relief laws in October, including a minimum-appraisal law to force creditors to accept insolvent debtors' property at an arbitrarily inflated assessment, and a legal-tender provision to compel creditors to accept payment in an inflated, fixed rate in the monetary media of the day: corn, cattle, or fish.
Further privileges to debtors were passed in 1642 and 1644, the latter permitting a debtor to escape foreclosure simply by leaving the colony. The most drastic proposal went to the amazing length of providing that the Massachusetts government assume all private debts that could not be paid! This plan was passed by the upper house, but defeated in the house of deputies.
The fact that this astounding bill was passed by the upper house — the council of magistrates — is evidence enough that this was not a proto-Marxian eruption of poor debtors. For this council was the ruling group of the colony, consisting of the wealthiest merchants and landowners. If not for historical myths, it should occasion no surprise that the biggest debtors were the wealthiest men of the colony, and that in the mercantilist era a drive for special privilege should have had typically mercantilist aims. On the other hand, it is also instructive that the more democratic and popularly responsible lower house was the one far more resistant to the debt relief program.

Paper Money Inflation

Massachusetts has the dubious distinction of having promulgated the first governmental paper money in the history of the Western world — indeed, in the history of the entire world outside of China. The fateful issue was made in 1690, to pay for a plunder expedition against French Canada that had failed drastically.
But even before this, the leading men of the colony were busy proposing paper-money schemes. The Rev. John Woodbridge, greatly influenced by William Potter's proposals for an inflationary land bank, proposed one of his own, as did Governor John Winthrop, Jr., of Connecticut. Captain John Blackwell proposed a land bank in 1686, the notes of which would be legal tender in the colony, and such wealthy leaders of the colony as Joseph Dudley, William Stoughton, and Wait Winthrop were prominently associated with the plan.
The most famous of the inflationary land-bank schemes was the Massachusetts Land Bank of 1740, which has generally been limned in neo-Marxist terms as the creation of the mass of poor farmer-debtors over the opposition of wealthy merchant-creditors of Boston. In actuality, its founder, John Colman, was a prominent Boston merchant and real-estate speculator; and its other supporters had similar interest — as did the leading opponents, who were also Boston businessmen. The difference is that the advocates had generally been receivers of land grants from the Massachusetts government, and desired inflation to raise the value of their speculatively held land claims.14  Once again — a typically mercantilist project.
"The fact that this astounding bill was passed by the upper house — the council of magistrates — is evidence enough that this was not a proto-Marxian eruption of poor debtors. "

Keynes Wouldn't Learn

From just a brief excursion into mercantilist theory and practice, we may conclude that Lord Keynes might have come to regret his enthusiastic welcome to the mercantilists as his forbears. For they were his forbears indeed; and the precursors as well of the interventions, subsidies, regulations, grants of special privilege, and central planning of today. But in no way could they be considered as "progressives" or lovers of the common man; on the contrary, they were frank exponents of the Old Order of statism, hierarchy, landed oligarchy, and special privilege — that entire "Tory" regime against which laissez-faire liberalism and classical economics leveled their liberating "revolution" on behalf of the freedom and prosperity of all productive individuals in society, from the wealthiest to the humblest.
Perhaps the modern world will learn the lesson that the contemporary drive for a new mercantilism may be just as profoundly "reactionary," as profoundly opposed to the freedom and prosperity of the individual, as its pre-19th-century ancestor.
  • 1."The laws and proclamations … were the product of conflicting interests of varying degrees of respectability. Each group, economic, social, or religious, pressed constantly for legislation in conformity with its special interest. The fiscal needs of the crown were always an important and generally a determining influence on the course of trade legislation. Diplomatic considerations also played their part in influencing legislation, as did the desire of the crown to award special privileges, con amore, to its favorites, or to sell them, or to be bribed into giving them, to the highest bidders.… The mercantilist literature, on the other hand, consisted in the main of writings by or on behalf of 'merchants' or businessmen … tracts which were partly or wholly, frankly or disguisedly, special pleas for special economic interests. Freedom for themselves, restrictions for others, such was the essence of the usual program of legislation of the mercantilist tracts of merchant authorship." Jacob Viner, Studies in the Theory of International Trade (New York: Harper and Bros., 1937), pp. 58–59.
  • 2. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (New York: Modern Library, 1937), p. 625.
  • 3. See the laudatory "Note on Mercantilism" in chap. 23 of John Maynard Keynes, The General Theory of Employment, Interest, and Money (New York: Harcourt, Brace, 1936).
  • 4. Quoted in Viner, Studies in the Theory of International Trade, p. 38.
  • 5. Quoted in Eli F. Heckscher, Mercantilism, 2nd ed. (New York: Macmillan, 1955), 2, pp. 208–9. Also see Edgar S. Furniss, The Position of the Laborer in a System of Nationalism (New York: Kelley and Millman, 1957), p. 41.
  • 6. Quoted in ibid., p. 41.
  • 7. Ibid.
  • 8. See ibid., pp. 79–84.
  • 9. Ibid., p. 115.
  • 10. Frank W. Fetter, "Economic Articles in the Westminster Review and their Authors, 1824–51," Journal of Political Economy (December 1962): p. 572.
  • 11. See Frank W. Fetter, "Economic Articles in the Quarterly Review and their Authors, 1809–52," Journal of Political Economy (February 1958): pp. 48–51.
  • 12. Ibid., p. 62.
  • 13. See Frank W. Fetter, "Economic Articles in Blackwood's Edinburgh Magazine, and their Authors, 1817–1853," Scottish Journal of Political Economy (June 1960): pp. 91–96.
  • 14. See the illuminating study by Dr. George Athan Billias, "The Massachusetts Land Bankers of 1740," University of Maine Bulletin (April 1959).

Tuesday, March 22, 2016

Video and Transcript of Donald Trump Speech to AIPAC

Good evening. I speak to you today as a lifelong supporter and true friend of Israel. I am a newcomer to politics but not to backing the Jewish state.

In late 2001, weeks after the attacks on New York City and Washington - attacks perpetrated by Islamic fundamentalists, Mayor Giuliani visited Israel to show solidarity with terror victims. I sent him in my plane because I backed the mission 100%.

In Spring 2004, at the height of violence in the Gaza Strip, I was the Grand Marshal of the 40th Salute to Israel Parade, the largest single gathering in support of the Jewish state.

It was a very dangerous time for Israel and frankly for anyone supporting Israel - many people turned down this honor –I did not, I took the risk.

I didn't come here tonight to pander to you about Israel. That's what politicians do: all talk, no action. I came here to speak to you about where I stand on the future of American relations with our strategic ally, our unbreakable friendship, and our cultural brother, the only democracy in the Middle East, the State of Israel.

My number one priority is to dismantle the disastrous deal with Iran. I have been in business a long time. I know deal-making and let me tell you, this deal is catastrophic - for America, for Israel, and for the whole Middle East.

The problem here is fundamental. We have rewarded the world's leading state sponsor of terror with $150 billion and we received absolutely nothing in return.

I've studied this issue in greater detail than almost anybody. The biggest concern with the deal is not necessarily that Iran is going to violate it, although it already has, the bigger problem is that they can keep the terms and still get to the bomb by simply running out the clock, and, of course, they keep the billions.

The deal doesn’t even require Iran to dismantle its military nuclear capability! Yes, it places limits on its military nuclear program for only a certain number of years. But when those restrictions expire, Iran will have an industrial-size military nuclear capability ready to go, and with zero provision for delay no matter how bad Iran's behavior is. When I am president, I will adopt a strategy that focuses on three things when it comes to Iran.

First, we will stand up to Iran’s aggressive push to destabilize and dominate the region. Iran is a very big problem and will continue to be, but if I'm elected President, I know how to deal with trouble. Iran is a problem in Iraq, a problem in Syria, a problem in Lebanon, a problem in Yemen, and will be a very major problem for Saudi Arabia. Literally every day, Iran provides more and better weapons to their puppet states.

Hezbollah in Lebanon has received sophisticated anti-ship weapons, anti-aircraft weapons, and GPS systems on rockets. Now they're in Syria trying to establish another front against Israel from the Syrian side of the Golan Heights.

In Gaza, Iran is supporting Hamas and Islamic Jihad - and in the West Bank they are openly offering Palestinians $7,000 per terror attack and $30,000 for every Palestinian terrorist's home that’s been destroyed.

Iran is financing military forces throughout the Middle East and it is absolutely indefensible that we handed them over $150 billion to facilitate even more acts of terror.

Secondly, we will totally dismantle Iran’s global terror network. Iran has seeded terror groups all over the world. During the last five years, Iran has perpetrated terror attacks in 25 different countries on five continents. They’ve got terror cells everywhere, including in the western hemisphere very close to home. Iran is the biggest sponsor of terrorism around the world and we will work to dismantle that reach.

Third, at the very least, we must hold Iran accountable by restructuring the terms of the previous deal. Iran has already - since the deal is in place - test-fired ballistic missiles three times. Those ballistic missiles, with a range of 1,250 miles, were designed to intimidate not only Israel, which is only 600 miles away but also intended to frighten Europe, and, someday, the United States.

Do you want to hear something really shocking? As many of the great people in this room know, painted on those missiles – in both Hebrew and Farsi - were the words “Israel must be wiped off the face of the earth.”

What kind of demented minds write that in Hebrew? And here's another twisted part - testing these missiles does not even violate the horrible deal that we made!

The deal is silent on test missiles but those tests DO violate UN Security Council Resolutions. The problem is, no one has done anything about it. Which brings me to my next point – the utter weakness and incompetence of the United Nations.

The United Nations is not a friend of democracy. It's not a friend to freedom. It's not a friend even to the United States of America, where as all know, it has its home. And it surely isn’t a friend to Israel.

With President Obama in his final year, discussions have been swirling about an attempt to bring a security council resolution on the terms of an eventual agreement between Israel and Palestine. Let me be clear: An agreement imposed by the UN would be a total and complete disaster. The United States must oppose this resolution and use the power of our veto. Why? Because that's not how you make a deal.

Deals are made when parties come to the table and negotiate. Each side must give up something it values in exchange for something it requires. A deal that imposes conditions on Israel and the Palestinian Authority will do nothing to bring peace. It will only further delegitimize Israel and it would reward Palestinian terrorism, because every day they are stabbing Israelis – and even Americans.

Just last week, American Taylor Allen Force, a West Point grad who served in Iraq and Afghanistan, was murdered in the street by a knife-wielding Palestinian. You don't reward that behavior, you confront it!

It's not up the United Nations to impose a solution. The parties must negotiate a resolution themselves. The United States can be useful as a facilitator of negotiations, but no one should be telling Israel it must abide by some agreement made by others thousands of miles away that don't even really know what's happening.

When I'm president, believe me, I will veto any attempt by the UN to impose its will on the Jewish state. You see, I know about deal-making - that's what I do. I wrote The Art of the Deal, one of the all-time best-selling books about deals and deal making. To make a great deal, you need two willing participants.

We know Israel is willing to deal. Israel has been trying to sit down at the negotiating table, without pre-conditions, for years. You had Camp David in 2000, where Prime Minister Barak made an incredible offer – maybe even too generous. Arafat rejected it.

In 2008, Prime Minister Olmert made an equally generous offer. The Palestinian Authority rejected it. Then John Kerry tried to come up with a framework and Abbas didn't even respond, not even to the Secretary of State of the United States of America!

When I become President, the days of treating Israel like a second-class citizen will end on Day One. I will meet with Prime Minister Netanyahu immediately. I have known him for many years and we will be able to work closely together to help bring stability and peace to Israel and to the entire region.

Meanwhile, every single day, you have rampant incitement and children being taught to hate Israel and hate the Jews. When you live in a society where the firefighters are the hero’s little kids want to be firefighters.

When you live in a society where athletes and movie stars are heroes, little kids want to be athletes and movie stars. In Palestinian society, the heroes are those who murder Jews - we can't let this continue. You cannot achieve peace if terrorists are treated as martyrs. Glorifying terrorists is a tremendous barrier to peace.

In Palestinian textbooks and mosques, you’ve got a culture of hatred that has been fermenting there for years, and if we want to achieve peace, they’ve got to end this indoctrination of hatred. There is no moral equivalency. Israel does not name public squares after terrorists. Israel does not pay its children to stab random Palestinians.

You see, what President Obama gets wrong about deal making is that he constantly applies pressure to our friends and rewards our enemies. That pattern, practiced by the President and his administration, including former Secretary of State, Hillary Clinton, has repeated itself over and over and has done nothing but embolden those who hate America. We saw that with releasing $150 billion to Iran in the hope that they would magically join the world community - It's the same with Israel and Palestine.

President Obama thinks that applying pressure to Israel will force the issue, but it's precisely the opposite. Already, half the population of Palestine has been taken over by the Palestinian ISIS in Hamas, and the other half refuses to confront the first half, so it’s a very difficult situation but when the United States stands with Israel, the chances of peace actually rise. That's what will happen when I’m president.

We will move the American embassy to the eternal capital of the Jewish people, Jerusalem - and we will send a clear signal that there is no daylight between America and our most reliable ally, the state of Israel.

The Palestinians must come to the table knowing that the bond between the United States and Israel is unbreakable. They must come to the table willing and able to stop the terror being committed on a daily basis against Israel and they must come to the table willing to accept that Israel is a Jewish State and it will forever exist as a Jewish State.

Thank you very much, its been a great honor to be with you.

Thursday, March 17, 2016

Occam's razor

From Wikipedia:

Occam's razor (also written as Ockham's razor, and lex parsimoniae in Latin, which means law of parsimony) is a problem-solving principle attributed to William of Ockham (c. 1287–1347), who was an English Franciscan friar and scholastic philosopher and theologian. The principle can be interpreted as stating Among competing hypotheses, the one with the fewest assumptions should be selected.

The application of the principle can be used to shift the burden of proof in a discussion. However, Alan Baker, who suggests this in the online Stanford Encyclopedia of Philosophy, is careful to point out that his suggestion should not be taken generally, but only as it applies in a particular context, that is: philosophers who argue in opposition to metaphysical theories that involve any kind of probably "superfluous ontological apparatus."[a]

Baker then notes that principles, including Occam's razor, are often expressed in a way that is unclear regarding which facet of "simplicity"—parsimony or elegance—the principle refers to, and that in a hypothetical formulation the facets of simplicity may work in different directions: a simpler description may refer to a more complex hypothesis, and a more complex description may refer to a simpler hypothesis.[b]

Solomonoff's theory of inductive inference is a mathematically formalised Occam's razor:[2][3][4][5][6][7] shorter computable theories have more weight when calculating the probability of the next observation, using all computable theories that perfectly describe previous observations.

In science, Occam's razor is used as a heuristic technique (discovery tool) to guide scientists in the development of theoretical models, rather than as an arbiter between published models.[8][9] In the scientific method, Occam's razor is not considered an irrefutable principle of logic or a scientific result; the preference for simplicity in the scientific method is based on the falsifiability criterion. For each accepted explanation of a phenomenon, there may be an extremely large, perhaps even incomprehensible, number of possible and more complex alternatives, because one can always burden failing explanations with ad hoc hypotheses to prevent them from being falsified; therefore, simpler theories are preferable to more complex ones because they are more testable

Hitchens' Razor

that which can be asserted without evidence can be dismissed without evidence.

From Wikipedia:

Hitchens' razor is an epistemological razor asserting that the burden of proof regarding the truthfulness of a claim lies with whoever made the claim; if this burden is not met, the claim is unfounded and its opponents need not argue further in order to dismiss it.

. It is named, echoing Occam's razor, for the journalist and writer Christopher Hitchens, who, in 2003, formulated it thus: "What can be asserted without evidence can be dismissed without evidence."