Economics Is Super Hard, Y’all (Part III)


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I looked up some general information on these Austrian economists (http://en.wikipedia.org/wiki/Austrian_School) and apparently they are considered outside of the mainstream economists

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Sounds good to me. Mark Twain said, “Whenever you find yourself on the side of the majority, it is time to pause and reflect.”

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and tend to use subjective reasoning instead of using aggregate data to develop their theories.

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Yes, and your point? Austrians observe that humans perceive value as subjective and make decisions likewise. Any observation or theory must be made with the individual in mind. Humans are not computers who will always perform the same action and thus subjective reasoning must be employed in order to develop theories pertaining to subjectively reasoning creatures. “Economics deals with the real actions of real men. Its [laws] refer neither to ideal nor to perfect men, neither to the phantom of a fabulous economic man (homo oeconomicus) nor to the statistical notion of an average man. . . . Man with all his weaknesses and limitations, every man as he lives and acts, is the subject matter of [economics].” —Ludwig von Mises, Human Action

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When looking up one of its main practitioners Ludwig von Mises, I found on wikipedia that he“argued against the use of probabilities in economic models. According to Mises, deductive economic thought experiment can yield conclusions which follow irrefutably from the underlying assumptions and could not be inferred from empirical observation or statistical analysis” – The Ultimate Foundation of Economic Science by Ludwig von Mises”. Mises.org. Retrieved 2012-08-13. Let me ask you John, since you earlier dismissed one of my previous studies comparing MW law effects in NJ versus Pennsylvania because in your opinion they made wild assumptions—you said they would be laughed into obscurity by a scientific community with those kind of assumptions. And here you are, having the temerity to present me these half-baked theories from folks who use thought experiments and who argue against using empirical data to make their cases?

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You misunderstand the method entirely. Austrian economics utilizes deductive reasoning based upon the action axiom to devise their economic laws, predicated on the observation that humans are purposeful beings with subjective tastes. Rather than using empirical evidence to write laws, they use it to prove the effectiveness of such laws afterwards, because past performance is not necessarily an indicator of future performance. Where the Austrian beliefs are vindicated is in their predictions that retroactively prove them right. F.A. Hayek predicted the stock market crash of 1929 via praxaeology (http://www.newworldencyclopedia.org/entry/Wall_Street_Crash_of_1929). Keynes said “We will not have any more crashes in our time,” based on empirical evidence; and then in 1933, reflected with “There is no harm in being sometimes wrong.” Keynesians predicted that in 1946 the US would enter a second depression based on empirical evidence, and they were proven wrong (http://cafehayek.com/2011/07/keynes-vs-reality.html). Austrians on the other hand knew that the post-war economy would boom (in fact, Frederic Bastiat wrote about that very subject 170 years ago). Keynes predicted that the working week would be reduced to 15 hours by 2035 (http://www.theguardian.com/business/2008/sep/01/economics) and that the US would fall behind the USSR (https://www.youtube.com/watch?feature=player_embedded&v=6XbG6aIUlog#t=918s)(mirror). Furthermore, the following list shows many Autrian economists who predicted the Great Recession of 2008 several years in advance (http://www.lewrockwell.com/2010/12/walter-e-block/who-predicted-the-housing-bubble/) while mainstream economists laughed at them. In 2008 Ben Bernanke said “The Federal Reserve is not currently forecasting a recession.” Austrians also predicted the dot-com bubble (http://wiki.mises.org/wiki/Austrian_predictions#Dot-com_bubble) and the stagflation of the 70s (https://mises.org/daily/1507). Shouldn’t “half-baked theories” be wrong once in a while?

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That’s your legitimate scientific source? You’ve got to be joking. Now, I can’t say that some industries like utilities that got advantage through government contracts are a good example or two, but that doesn’t substantiate referring to any market created monoplies as a myth or trying to re-write history.

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Nothing substantiates re-writing history, which is why I resent Keynesians claiming that government action ended the great depression after capitalism caused it. According to Keynesian theory the economy is driven by demand and the depression was brought about by a lack of aggregate demand, which the government increased with spending. If you look at the global numbers, however, you’ll see that demand does not drive economies. There is a very strong relationship between economic growth and investment (supply) while there is a mildly negative relationship between growth and consumption (demand) (https://fbcdn-sphotos-d-a.akamaihd.net/hphotos-ak-ash3/t1.0-9/44848_757861430914948_1592723891_n.png).

If demand drove the economy than the US economy should be growing at record speed since consumption is at a record-high of over 70% GDP.

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Even now, the economy moves toward creating monopolies and reduces competition, all by its own devices. Due to shrinking sources of oil,

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Say what? Shrinking sources of oil? That’s a laugh. (https://www.youtube.com/watch?feature=player_detailpage&v=AcWkN4ngR2Y#t=85) (mirror)

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major oil companies in the early 2000s grouped into combinations—BP merged with Amoco, Exon merged with Mobile, Conoco merged with Philips. http://en.wikipedia.org/wiki/File:Big_Oil.svg. Did government push all of them into doing that? No. Market forces did.

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Actually, no one pushed them; they chose to. But just as with Standard Oil a hundred years ago, we needn’t fear that competitors will chip away at their market share with competition and out-innovation.

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Monsanto is cornering the food market and seed production.

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Incidentally, the farm subsidies put in place by FDR give farmers more subsidies based on crop production, which means that the bigger producers will get more money and can then buy out smaller competitors. Consequently, the number of farms has fallen from 7 Million to 2 Million since 1933. Also, Obama just so happened to appoint a Monsanto executive to the chair of the FDA. Please tell me more about this “natural” monopoly.

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Even more recently, there’s talk of Comcast buying out Time Warner and consolidating 30% of internet and just about all of cable into one market. Did Government cause that? No.

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Yes. The Telecommunications Act of 1996 gave $25 Billion of taxpayer money to telecoms to put fiber in the ground across the US and artificially increased supply. When the dot-com bubble burst many smaller competitors went bankrupt before they could make a return on the work they put in to laying the fiber, which was then bought up by larger companies such as Verizon and AT&T at a wholesale discount (http://usatoday30.usatoday.com/money/covers/2002-03-21-fiber-optics.htm). If not for the government indirectly resulting in those smaller companies going bankrupt they could have had the chance to out-innovate the bigger ones all this time. Furthermore, any attempt to enter the local broadband market is almost always hindered by local governments (http://www.wired.com/opinion/2013/07/we-need-to-stop-focusing-on-just-cable-companies-and-blame-local-government-for-dismal-broadband-competition/). A lack of competition in phones and internet comes from the government. It doesn’t come from the free market, because we don’t have one. You got any more examples I can disprove?

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In all of these cases, government actually has been the one element potentially stopping or attempting to hinder those combinations, to keep monopolies from happening. So don’t give me this story that there are no “natural monopolies”. Market economies produce them all the time.

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Show me even one example. I mean, a valid one. And don’t say “Microsoft,” because Linux has been publicly available for two decades as a free alternative to Windows. I’m typing in it right now.

[concerning child labor:]

Excuse me John, but how is the burden of proof on me?

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Because you’re the one who made the claim that capitalism causes child labor. Because you made the claim, the burden of proof rests on you. If you said that Bigfoot exists, you would be expected to prove it right, not to assume that it’s true until proven wrong.

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Child Labor may have been around forever, but that doesn’t mean capitalism doesn’t cause it now.

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Based on what logic and facts? If capitalism causes child labor, that means that in its absence child labor would not exist.

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Prior to what we know was capitalism, child labor was slavery, which is an obvious morally wrong situation, but even after that we had markets that promoted that behavior.

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Prove it. What you mean is that capitalism INHERITED child labor. That is a fact.

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Sure it wasn’t called capitalism by name at the time–it wasn’t codified and had the rules by which we recognize it as capitalism now, but industries followed the same principle as far back as the middle ages, following supply and demand, keeping products cheap by underpaying workers, thus inducing children to join the workforce to make up the difference in pay.

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Based on what evidence? I’m not asking you to tell me a story, I’m asking you to defend your position with facts. Also, many sweatshop workers make better pay than the rest of the employees in those countries (https://mises.org/daily/6696/Sweatshops-A-Way-Out-of-Poverty).

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So again, we come back to what I’ve been saying since the beginning—there is a societal toll by keeping product prices low and not evaluating their effects on the labor market—child labor is that toll, John.

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Prove it. Also, how is raising prices going to help the poor? Aren’t they poor because they can’t afford things? ‘Yes,’ you say, ‘but if you raise prices you can raise their wages.’ I then return with, ‘but if you lower their wages you can lower prices.’ How about just not messing with the market at all and let the equilibrium reach itself?

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Are you suggesting it was governments that somehow made all those industries employ children?

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Ultimately, yes. Countries with more economic freedom have less child labor. The less free a government makes a country, the more likely a child will be to work. (http://www.economicfreedom.org/wp-content/uploads/2012/09/Benefits-of-EF.jpg)

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Can you hear your argument here? And is it really making sense to you? If so, I’d say it’s time to get off the Thomas Woods cool-aid. PS I noticed the wall behind Mr. Woods plastered with the word “Mises”—again Austrian economists at “work”.

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To quote you, “I normally don’t like to automatically reject a source out of hand….” And yet having ‘Mises’ behind his head makes him wrong? Please to tell me, how is it that stating observable fact (how many children are working and where) makes me a kool-aid drinker? Are you implying that if I am to be independent I should stop believing things based on how true they are? Maybe that’s been my problem this whole time–I let reality dictate my beliefs instead of the other way around.

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If this is you challenging your beliefs, I think you may need to go back to the drawing board—you seem to be coming up with the wrong answers.

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Based on what evidence are they wrong? You’re just saying that because my beliefs disagree with yours. Also, I do go back to the drawing board constantly. As soon as I realize that something I believe is wrong, I refute it. If I were closed-minded, I would still be a democrat.

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When it comes to being human, I think it benefits everyone to feel a little bit for the common man/woman and see things from their circumstances.

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So do I. That’s exactly why I want them to have capitalism.

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Being cool and detached has its place, dealing with experiments, especially if their facts are correct, but there’s nothing worse, in my mind, then a detached person, certain of their facts and being dead wrong.

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Then stop it.

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That kind of combination has created some horrific events in history.

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{And, I have to say, it’s a bit lazy to defend that statement with a link to a libertarian think tank like CATO institute that, “Who cares if they’re a think tank or not? What matters is whether the content is true or false.” Agreed, which is why I took issue with CATO publishing blips of a report and cherry pick comments that did not engender the complete conclusions of that report. It’s a bit disingenuous to rip off papers to say things they are not in their full context. I’m sure you can appreciate where I’m coming from on this.}

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What did they cherry pick? What evidence is there to back up your claim? If your definition of cherry picking is to reject whatever is false and only cite sources that are true, then I agree.

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I am not kidding John.

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The article you linked on Voxeu says the exact opposite of what you claimed. If you’re not kidding then you’re blind.

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So what is your answer to an imperfectly enforced law? Ignore it? Cause that solves the problem, right? Close your eyes and it doesn’t happen anymore. Really?

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The problem is poverty–child labor is a symptom. Actually, poverty itself is just a symptom of tyranny. If you believe that making it illegal for children to earn money will make them richer, then you’re delusional. Thomas Reed once said, “One of the greatest delusions in the world is the hope that the evils in this world are to be cured by legislation.” Banning poverty won’t make people rich! I support a system that allows children to work themselves out of poverty so that their children and grandchildren won’t have to. And you propose banning poverty. What a great idea! Why don’t we just ban mortality and then no one will die!

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If laws need better enforcement, then increase enforcement. If the properly enforced Child Labor Law solves the problem (which you admitted above, it stopped child labor)

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I absolutely did not. I said that it diverted child labor from the factory to the street corner.

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and causes another problem like prostitution, you go after child prostitution.

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You take away the children’s source of income at the factory, then you take away their source of income on the street, and then what? When these children take to stealing as a last resort or starving to death, what will you do then? Children work because they’re poor. How simple do I need to make this concept in order for you to understand it?

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People are doing it all over the world—governments are working together to end the practice, but a lot more needs to be done. https://www.unodc.org/unodc/en/human-trafficking/global-report-on-trafficking-in-persons.html

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That link deals with trafficking which is a separate issue. Trafficking even happens in Las Vegas, so it’s little to do with economies. As to the original argument, how governments can make people less poor: the answer is quite simple. From Fredrick Douglass: “What shall be done with the negro? … Our answer is, do nothing with them; mind your business, and let them mind theirs. Your doing with them is their greatest misfortune. They have been undone by your doings, and all they now ask, and really have need of at your hands, is just to let them alone. They suffer by every interference, and succeed best by being let alone. The Negro should have been let alone in Africa— … let alone by courts, judges, politicians, legislators and slavedrivers—let alone altogether, and assured that they were thus to be let alone forever, and that they must now make their own way in the world, just the same as any and every other variety of the human family. As colored men, we only ask to be allowed to do with ourselves, subject only to the same great laws for the welfare of human society which apply to other men, Jews, Gentiles, Barbarian, Sythian. Let us stand upon our own legs, work with our own hands, and eat bread in the sweat of our own brows. When you, our white fellowcountrymen, have attempted to do anything for us, it has generally been to deprive us of some right, power or privilege which you yourself would die before you would submit to have taken from you” Sadly, black unemployment is twice that of white unemployment. Good job, government (http://www.pewresearch.org/fact-tank/2013/08/21/through-good-times-and-bad-black-unemployment-is-consistently-double-that-of-whites/).

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Capitalism and Markets don’t fix those kinds of problems.

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Based on what evidence? This graph of Sub-Saharan Africa shows that, even in the poorest nations, child labor is still less prevalent in the comparatively richer poor countries (http://www.childinfo.org/images/childlabour_activity_3.jpg)

And I assure you that less than 23.8% of American children work; and it was far, far lower than that before child labor was outlawed in the US.

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They don’t care about those kinds of problems, so all you and your friend Mr. Woods have is hope some magic solutions appears out of thin, capitalist air. You offer no solutions. None.

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I’m not interested in your opinion, nor do I wish to engage in a pat-yourself-on-the-back contest. If you have irrefragable hard evidence to the contrary, you are welcome to share it.

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I’m assuming you are you referring to my link to a New York times article (http://www.nytimes.com/2014/02/10/us/politics/fight-over-minimum-wage-illustrates-web-of-industry-ties.html?_r=1) that shows your EPI source was receiving money from the industry it was supposed to be giving un-baised reports on. There is a vast difference between a journalistic source, a world renowned newspaper like the New York Times (known for its integrity by the way),

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Is it now? (http://www.canadafreepress.com/index.php/article/3222) (http://www.poormojo.org/pmjadaily/archives/004641.html) (http://www.loyolamaroon.com/mobile/2.6710/professor-accuses-new-york-times-of-libel-1.2857201)

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and an organization where most of its funding comes from the industry that it is “critiquing”. Night and day, sir. True, all sources have some biases, but I don’t get my links from Forbes opinion pages or think tank blogs. When I pull from the New York Times, I get them from investigative journalist whose sole mantra is reporting facts as dispassionately as possible.

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But earlier you said that being detached was bad.

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Going back to your criticism of scientific studies that have bad assumptions…if I was to tell people in the scientific community that I had a scientific paper claiming that effluent from the coal industry was non-harmful to local water sources, and then it was found out that the paper was funded almost entirely by the coal industry, that scientific community would be highly skeptical about the bias of that report.

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But they wouldn’t consider it true or false based on its source, they would consider it true or false based on whether it’s true or false.

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And that is the type of report you are providing to me as being equivalent to a purely journalistic source. It’s a false equivalency.

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I never made such an equivalency, but you are correct that it would be.

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{A quick aside, if you compare that 2012 report to the BLS report in 2002, http://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1… , you’ll notice that the numbers of 25 and older workers receiving minimum wage or less went slightly up (about 3% increase) from 47% in 2002). 25 or older workers in MW jobs are typically not entering the workforce for the first time, or trying to train themselves up to move to a better paying job. “Based on what facts?” It’s a survey John. Unless everyone is lying on the survey, and had some ulterior motive to do so, on a massive national scale, then you really cannot discount it like that.}

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Certainly not. I’m suggesting that perhaps the survey could have been carried out in such a way as to achieve a desired outcome. Some surveys have done that.

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You should probably dig a little deeper than some graphic as backup. According to Time Business, since the recession ended, for instance, inflation has only averaged 2% overall,

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Because they’re using a different measurement. The CPI is not the most accurate measure of inflation and since 1996 it has shown varying degrees of downward bias. (http://www.bls.gov/opub/btn/volume-1/consumer-price-index-data-quality-how-accurate-is-the-us-cpi.htm)

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and this is after the Fed Reserve had been pumping trillions of “worthless bank notes” into the economy. There is no rampant inflation…if anything we have too little inflation. If you have too little inflation, you start running into deflation, which is what Weimar Germany had in 1931 during the depression.

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Because Brüning artificially lowered and froze all prices, wages, and rents by 20% nation-wide. His tampering with the free market resulted in equilibrium being thrown off. The subsequent damage didn’t happen because of the market; it happened because of the government. Also, tell me something. If inflation is good for the economy, then why is counterfeiting illegal?

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But I’m guessing your alternative to current FED policy is to tie the dollar back to the gold standard, which tends to fluctuate all over the place—the price of gold has increased 70% in the last 4 years. That will bring real stability I’m sure. http://business.time.com/2013/03/12/if-theres-no-inflation-why-are-prices-up-so-much/

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Do the years of gold-standard currency look unstable to you? (http://www.zealllc.com/c2000/Zeal063000A.gif)

It’s not that gold has risen dramatically, it’s that the value of the dollar has comparatively dropped. (http://www.rapidtrends.com/gold-is-not-going-up-%E2%80%93-paper-money-is-going-down/) There is a near-constant global supply of gold– the Fed can’t print more gold, but they can print more paper! “The gold standard has one tremendous virtue: the quantity of the money supply, under the gold standard, is independent of the policies of governments and political parties.” -Mises. The only way for the value of gold to go up is for demand to increase, and demand has increased in recent years because people fear the instability of the dollar. And it’s easy to see why: an ounce of gold when you’re born will still be an ounce of gold when you die. But a dollar in 1913 is only four cents in 2013.

[note: this is why the Constitution says “No state shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.”]

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Next page: Unemployment, welfare, and charity

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