Archive for Ludwig von Mises

John Tamny on Money and Credit

B121Mr. John Tamny has kindly taken notice  of my review of Money by Steve Forbes and Elizabeth Ames. (Tamny’s comments are here.) In my review, I questioned the claim of Forbes and Ames that money is a measure of value. In doing so, Tamny thinks, I disagreed with Mises. Unlike me, Mises did not deny the obvious truth that money is a measure of value.

Is that so? Here is what Mises says about this exact point in The Theory of Money and Credit:


On the Measurement of Value

1 The Immeasurability of Subjective Use-Values

Although it is usual to speak of money as a measure of value and
prices, the notion is entirely fallacious. So long as the subjective
theory of value is accepted, this question of measurement cannot arise.
In the older political economy, the search for a principle governing the
measurement of value was to a certain extent justifiable. If, in
accordance with an objective theory of value, the possibility of an
objective concept of commodity values is accepted, and exchange is
regarded as the reciprocal surrender of equivalent goods, then the
conclusion necessarily follows that exchange transactions must be
preceded by measurement of the quantity of value contained in each of
the objects that are to be exchanged. And it is then an obvious step to
regard money as the measure of value.

In the plan of Forbes and Ames, the government would aim to keep the dollar price of gold constant. Doing this would require the government to issue or withdraw dollars, from time to time. Amazingly, Tamny says, “Von Mises seemed to agree. As he wrote in The Theory of Money & Credit, ‘No individual and no nation need fear at any time to have less money than it needs.’”  In other words, Forbes and Ames, seconded by Tamny, think that, depending on the dollar price of gold, a nation may have less money than it needs. The government should issue or withdraw enough dollars to restore the dollar price of gold which these authors want to maintain as a constant. A quotation by Mises that denies that a nation need fear having less money than it needs is taken by Tamny to support Forbes and Ames’s contrary opinion.

Evidently, in Tamny’s lexicon, “seems to agree” means “directly contradicts.” This is not the only unusual entry to be found there: “credit” means, as he uses the word, “real resources.” Some remarks from Through the Looking-Glass come to mind:

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

The Road to Poverty Is Paved with Small Inflations

900px-Flag_of_Venezuela_(state).svgThe value of Venezuela’s currency plummeted to record lows on the black market last week, with 100 ‘strong’ bolivars exchanging for $1 (ten times lower than the official rate), and annual price inflation reaching 63%. Chavez’s successor Nicolas Maduro, continuing to denounce the “capitalist economic war” on his socialist regime, now blames airlines for trying to collect ticket revenues the government isn’t able to pay. Meanwhile, the Venezuelan economy is showing symptoms of a rapidly forming crack-up boom: shortage of basic amenities, power outages, depletion of dollar reserves by 30%, and looming debt default. As people scramble to exchange paper money for anything and everything that can still be found on store shelves, “over there”—say their Columbian neighbors just across the border—“there’s no food.”

The ‘final and total catastrophe of the currency system’—as Mises called the terminus point of any sustained inflation—was in fact brewing in Venezuela long before Maduro’s regime, and the country experienced even higher price inflation in late 1990s. But because people held the belief that prices might fall at some point in the future, and continued to increase or maintain their cash balances, the earlier stages of the inflationary process were drawn out over many years. However, two Caracas entrepreneurs have warned that it is now too late for the government to salvage anything: “people clearly haven’t had confidence in [the bolivar] for decades; and even less now… It doesn’t look like the market has much confidence in the government’s ability to get things under control”.

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Mises vs. the Austro-Marxists


Rudolf Hilferding

Paul Krugman isn’t the first economist to project his own faults onto opponents: adversaries of Austrian economics have been doing it since the early days. One lesser-known example is Rudolf Hilferding, a contemporary of Mises and member of the “Austro-Marxist” circle, which appeared in Vienna around the turn of the century.[1]

Hilferding was a student of medicine, but regularly attended Böhm-Bawerk’s seminar along with Mises, Schumpeter, and many of the best young social scientists of pre-WWI Austria.[2] Hilferding’s first foray into economics was a response to Böhm-Bawerk’s critique of Marx; it was discussed at length in the seminar, although Mises recalls that Otto Bauer, another leading Austro-Marxist, “openly admitted to me that Hilferding did not grasp the problems at hand” (Memoirs, 2009, p. 31).

In any case, in 1910 Hilferding published Finance Capital, an influential discussion of the decline and fall of capitalism. The book was intended to flesh out Marx’s thought on the subject, which had remained somewhat sketchy; however, Austrians will find a lot to chew on in Finance Capital, which offers an odd mixture of intriguing and flawed ideas (see here and here). In particular, Hilferding argued that in the last stage of capitalism, financial interests would grow to dominate the economy, and, facing economic crises of their own making, would rely on imperialism to maintain their eroding power base.

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Protectionist Politics at the WTO


The WTO meets.

Amidst news of the prolonged worldwide recession, new air strikes, secession attempts, and climate change, international trade—which in 2008 went through its largest crisis in history—has been mostly out of the public eye.  Yet we’ve been told not to fear: the World Trade Organization, the foremost global body for promoting multilateral trade, remains watchful, and is optimistic that efforts for liberalization will bear fruit in the near future.

Sadly, the WTO’s hopes aren’t justified: the Doha Round of trade negotiations began in 2001, and even after thirteen years, success is nowhere in sight.

Seeking to address the liberalization concerns of WTO’s less-developed members, the Doha Development Round was supposed to culminate in 2005 with a new trade agreement. The envisioned deal concerned the reduction of trade barriers in commodities and services, as well as a new international framework for intellectual property rights. But soon after negotiations began, governments from developing countries—India, Brazil, China, and South Africa—and NGOs began to worry that international negotiations were an obstacle to the governmental protection of developing sectors and regulation of financial services. After the failure of the Cancún proceedings in 2004, trade scholars worried that Doha might not be completed by its original deadline, but kept the hope that negotiations would continue. However, trade talks came to a deadlock in 2006, 2009, and 2011, mainly due to differences in agricultural policies. The US and the EU even backed out of previous agreements to reduce export support and agricultural subsidies, arguing that they did not want to weaken their bargaining positions too early in the Round.

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Who Pockets the Gains from a Weak Euro?

5857407803_014e7e9994_mNew EU stimulus measures will begin next month with aggressive purchases of asset-backed securities and covered bonds, and will eventually increase the ECB balance sheet by approximately €1 trillion. Among their touted benefits—higher asset prices, increases in bank lending and employment, rivers of milk and honey—many expect an upswing in exports, as the depreciation of the euro will make them cheaper and more attractive to foreigners. In fact, because Eurozone monetary inflation lagged behind the Japan and the U.S. in recent years, it has—among other things—turned the exchange rate against European exporters. “Perhaps the main immediate benefit of the additional policy action is a weakening of the exchange rate,” claims the chief economist of Markit, Chris Williamson. “The lower exchange rate will undoubtedly provide a boost to exporters’ competitiveness.”

Mises dealt with the alleged stimulating effect of inflation on trade for the first time in 1907 in an essay titled “The Political-Economic Motives of the Austrian Currency Reform”. Mises explained that interest groups in Austria at the end of the 19th century pushed for currency reform so as to favor their commercial ventures. The depreciation of the Austrian florin which followed “functioned like a protective tariff against the import of foreign manufactured goods, and assisted the export of domestic products like an export premium” (Mises 2012 [1907], 13).

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Mises Weekends – Guido Hülsmann: Inside the Mind of Mises

Jeff Deist and Guido Hülsmann discuss Hülsmann’s years spent writing Mises’s biography (‘Mises: The Last Knight of Liberalism’), the serendipitous discovery of Mises’s papers in Moscow that made the book possible, how Mises endured and kept working as Europe burned, and how Mises’s personal sacrifices helped pave the way for Austrian academics working today.

Available in these formats:


Thomas Piketty and Mises’s ‘The Anti-Capitalistic Mentality’

Money balanceMises Daily Friday:

In his short book The Anti-Capitalistic Mentality, first published in 1954, Ludwig von Mises explains why Piketty’s new anti-capitalist tome is popular among a certain class of people, and why much of Piketty’s book relies on a re-telling of old myths about capitalism.

New Remastered Digital Edition of ‘Liberalism’

unnamedThe Mises Institute professionally contracted to have this eBook remastered and the result is spectacular. A pleasure to read on any device, with prices up to 70% less than the hardcover edition!

This is Mises’s classic statement in defense of a free society, one of the last statements of the old liberal school and a text from which we can continue to learn. It has been the conscience of a global movement for liberty for 80 years. This edition, from the Mises Institute, features a foreword by Thomas Woods.

Ludwig von Mises Explains: Are Workers In Conflict with Employers?

Ludwig von Mises was asked to respond to the question: “Are the interests of the American wage earners in conflict with those of their employers, or are the two in agreement?” This recording is made available through the generosity of Bettina Bien Greaves, and was originally recorded on 10 May 1962 and aired on 17 May 1962 during the intermission of the U.S. Steel Concert Hour.

Ludwig von Mises’s ‘Erinnerungen’ Is Back in Print

31q5pvH6REL._Ludwig von Mises’s Erinnerungen is back in print! Publisher Lucius & Lucius, Stuttgart, has produced a very nice format, including a foreword written by yours truly.

This German-language book is available on Amazon here, and is from Mises’s original manuscript, written in German.

English-language readers will know this book as Memoirs or Notes and Recollections.

[From Guido Hülsmann's foreword to the 2009 English version (written prior to the completion of Last Knight of Liberalism):

"Much if not most of what we know is based on the present autobiographical recollections, which Mises started to write upon his arrival in the United States in August 1940. By the end of that year he had finished a first draft of the German-language manuscript and then polished his memoirs for another two years. Finally he gave the handwritten text to his wife Margit for custody and eventual publication. In 1978, five years after his death, she published both the German original and an English translation..."]


Entrepreneurship without Romance

3279740532_d4105eb4fa_oJames Buchanan’s work on the economics of public choice has been called “politics without romance,” because it looks beneath the glossy exterior of government and reveals the underlying reality of political behavior. Unfortunately, the “romantic” view of politics is shared by supporters of all types of political power, who seem to don rose-colored hazmat suits in order to promote their particular candidates, parties, or ideologies. As I’ve mentioned elsewhere, from the perspective of economics, politics looks less like romance and more like an abusive marriage.

Entrepreneurship also attracts a kind of mistaken romanticism, although in a different way than politics. A couple of weeks ago, Isaac Morehouse wrote an insightful post on the Praxis blog warning that we should take care to avoid glamorizing creativity too much. His point is that creative success, especially in entrepreneurship, can derive from relatively straightforward decision making. Creativity is often simply an attempt to solve a problem while avoiding harm to oneself, as opposed to the flashy, dramatic, and heroic struggle against the odds we sometimes imagine it to be.

In other words, we often place undue emphasis on the personal magnetism and economic “heroism” of entrepreneurs. Yet despite being the “driving force of the market,” entrepreneurship is often quite mundane. Taking a romantic view can be misleading if we end up thinking in terms of only the most dramatic cases of disruptive innovation or personal entrepreneurial charisma (or lack thereof!), and less on the pervasive and vital role of entrepreneurial calculation and judgment.

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The High Price of Delaying the Default

Politician kicking the can down the roadThorsten Polleit writes in today’s Mises Daily:

Running the electronic printing press will be perceived as the policy of the least evil — a reaction that could be observed many times throughout the troubled history of unbacked paper money. Since the end of 2008, many central banks have successfully kept their commercial banks afloat by providing them with new credit at virtually zero interest rates.

This policy is actually meant to make banks churn out even more credit and fiat money. More credit and money, provided at record low interest rates, is seen as a remedy of the problems caused by an expansion of credit and money, provided at low interest rates, in the first place. This is hardly a confidence-inspiring route to take.

It was Ludwig von Mises who understood that a fiat money boom will, and actually must, ultimately end in a collapse of the economic system. The only open question would be whether such an outcome will be preceded by a debasement of the currency or not:

Read the full article.

Mises Explains the Ukraine Conundrum


Loyalists exiled by American revolutionaries

Obviously, Mises could not anticipate the specific conflict now at work in the Ukraine, but here we see the sorts of conflics we have witnessed time and time again within multiethnic countries, in two or more groups fight over control of the central state which enables one ethnic or linguistic group the ability to crush another.

We’ve certainly seen similar conflicts in the United States (sometimes along ethnic lines and sometimes not), and we see it today in the Ukraine. Anywhere a strong state exists, different factions will battle to control that state. As Mises noted, as long as states exist, the only way to deal with this reality is to lessen the need and desire to control the central state, and this is done by making the state weak.

In Liberalism (1929),  Mises wrote:

Modern imperialism is distinguished from the expansionist tendencies of the absolute principalities by the fact that its moving spirits are not the members of the ruling dynasty, nor even of the nobility, the bureaucracy, or the officers’ corps of the army bent on personal enrichment and aggrandizement by plundering the resources of conquered territories, but the mass of the people, who look upon it as the most appropriate means for the preservation of national independence. In the complex network of antiliberal policies, which have so far expanded the functions of the state as to leave hardly any field of human activity free of government interference, it is futile to hope for even a moderately satisfactory solution of the political problems of the areas in which members of several nationalities live side by side. If the government of these territories is not conducted along completely liberal lines, there can be no question of even an approach to equality of rights in the treatment of the various national groups.There can then be only rulers and those ruled. The only choice is whether one will be hammer or anvil. Thus, the striving, for as strong a national state as possible, one that can extend its control to all territories of mixed nationality, becomes an indispensable requirement of national self-preservation. [Emphasis added.]

Weekend Daily: Mises and Schumpeter: Friendly Rivals?

Cafe house in Vienna, AustriaMatt McCaffrey writes in this weekend’s Mises Daily:

Another fact that may not be well-known is that Schumpeter attended Mises’s famousprivatseminar. At the time, due to the intellectual milieu fostered by the German Historical School, the Mises circle was one of the few places in Viennese academia where discussions of economic theory were welcome. Simply being theoretical economists apparently constituted enough common ground to continue to bring the two together, despite their significant methodological and theoretical differences.

Mises and Schumpeter: Friendly Rivals?

Joseph_Schumpeter_ekonomialariaLudwig von Mises and Joseph Schumpeter are the most famous economists trained by the older Austrian School, although generally Schumpeter has received the lion’s share of attention.[1] This is especially true, for example, in the field of entrepreneurship. To this day, the term entrepreneurship is almost synonymous with Schumpeter, whose fame was built on the success of his Theory of Economic Development (1911) and Capitalism, Socialism, and Democracy (1942). In particular, the 1911 book defined much of the theoretical framework for entrepreneurship research in economics for decades to come. Unfortunately, it also overshadowed numerous other economists in the Austrian tradition who were writing about the entrepreneur at the time, including Herbert Davenport, Frank Fetter, and Viktor Mataja. I’ve argued in a recent paper that Mises too has been unduly neglected, as he was already beginning to think seriously about the problems of entrepreneurial calculation and judgment in The Theory of Money and Credit (1912).

While plenty has been written about the theoretical differences between the Mises and Schumpeter (for example here and here), I want to comment on their personal relationship. We don’t have a great deal of information about their interactions over the years, but we do have a few intriguing hints regarding how they felt about each other. What is most interesting is that despite serious differences on economic issues that endured throughout their respective careers, they seem to have been reasonably friendly, especially in their Vienna years.

The two presumably met at the University of Vienna, where both participated in Böhm-Bawerk’s seminar. Although they drew on different economic traditions in their own works, they shared common research interests, and each showed a certain amount of respect for the other’s early work. In fact, as late as 1933 Mises described Theory of Economic Development as one of the top four German-language contributions to economics (Hülsmann, 2007, p. 172). In turn, Schumpeter applauded The Theory of Money and Credit, saluting “its ‘power and originality,’ [and] noticing that ‘as usual’ the critics had overlooked these qualities in their discussion of unsubstantial side issues” (Hülsmann, 2007, p. 208).

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Krugman Claims Mises Couldn’t Explain the Great Depression

6651Joseph Salerno writes in today’s Mises Daily:

In fact, economists are finally beginning to rediscover Mises’s explanation of the prolonged mass unemployment of the 1930s. For example, UCLA economist Lee Ohanian in his recent paper, “What—or Who—Started the Great Depression,” argues that Hoover’s policies of propping up wages and encouraging work sharing “was the single most important event in precipitating the Great Depression” and resulted in “a significant labor market distortion.” He estimates that “the recession was three times worse — at a minimum — than it otherwise would have been, because of Hoover” and that the severe labor-market disequilibrium induced by Hoover’s policies accounted for 18 percent of the 27 percent decline in the nation’s GDP by the fourth quarter of 1931. Ohanian concludes along Misesian lines:

the [Great] Depression is the consequence of government programs and policies, including those of Hoover, that increased labor’s ability to raise wages above their competitive levels. The Depression would have been much less severe in the absence of Hoover’s program. Similarly, given Hoover’s program, the Depression would have been much less severe if monetary policy had responded to keep the price level from falling, which raised real wages. This analysis also provides a theory for why low nominal spending — what some economists refer to as deficient aggregate demand — generated such a large depression in the 1930s, but not in the early 1920s, which was a period of comparable deflation and monetary contraction, but when firms cut nominal wages considerably.

How the Early Capitalists Saved Europe From Starvation

Wojciech_Gerson_-_Gdańsk_in_the_XVII_century[A selection from Economic Policy: Thoughts for Today and Tomorrow]

by Ludwig von Mises

Two hundred years ago, before the advent of capitalism, a man’s social status was fixed from the beginning to the end of his life; he inherited it from his ancestors, and it never changed. If he was born poor, he always remained poor, and if he was born rich-a lord or a duke-he kept his dukedom and the property that went with it for the rest of his life.

As for manufacturing, the primitive processing industries of those days existed almost exclusively for the benefit of the wealthy. Most of the people (ninety percent or more of the European population) worked the land and did not come in contact with the city-oriented processing industries. This rigid system of feudal society prevailed in the most developed areas of Europe for many hundreds of years.

However, as the rural population expanded, there developed a surplus of people on the land. For this surplus of population without inherited land or estates, there was not enough to do, nor was it possible for them to work in the processing industries; the kings of the cities denied them access. The numbers of these “outcasts” continued to grow, and still no one knew what to do with them. They were, in the full sense of the word, “proletarians,” outcasts whom the government could only put into the workhouse or the poorhouse. In some sections of Europe, especially in the Netherlands and in England, they became so numerous that, by the eighteenth century, they were a real menace to the preservation of the prevailing social system.

Today, in discussing similar conditions in places like India or other developing countries, we must not forget that, in eighteenth-century England, conditions were much worse. At that time, England had a population of six or seven million people, but of those six or seven million people, more than one million, probably two million, were simply poor outcasts for whom the existing social system made no provision. What to do with these outcasts was one of the great problems of eighteenth-century England.

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Mises on Economics, Education, and The Experts

Dunce_cap_from_LOC_3c04163u[To complement Robert Murphy's post today on economics and education:]

From Human Action XXXVIII: 

by Ludwig von Mises

In countries which are not harassed by struggles between various linguistic groups public education can work if it is limited to reading, writing, and arithmetic. With bright children it is even possible to add elementary notions of geometry, the natural sciences, and the valid laws of the country. But as soon as one wants to go farther, serious difficulties appear. Teaching at the elementary level necessarily turns into indoctrination. It is not feasible to represent to adolescents all the aspects of a problem and to let them choose between dissenting views. It is no less impossible to find teachers who could hand down opinions of which they themselves disapprove in such a way as to satisfy those who hold these opinions. The party that operates the schools is in a position to propagandize its tenets and to disparage those of other parties.

In the field of religious education the nineteenth-century liberals solved this problem by the separation of state and church. In liberal countries religion is no longer taught in public schools. But the parents are free to send their children into denominational schools supported by religious communities.

However, the problem does not refer only to the teaching of religion and of certain theories of the natural sciences at variance with the Bible. It concerns even more the teaching of history from the impact of nationalism and chauvinism. But few people realize that the problem of impartiality and objectivity is no less present in dealing with the domestic aspects of history. The teacher’s or the textbook author’s own social philosophy colors the narrative. The more the treatment must be simplified and condensed in order to be comprehensible [p. 877] to the immature minds of children and adolescents, the worse are the effects.

As the Marxians and the interventionists see it, the teaching of history in the schools is tainted by the endorsement of the ideas of classical liberalism. They want to substitute their own interpretation of history for the “bourgeois” interpretation. In Marxian opinion the English Revolution of 1688, the American Revolution, the great French Revolution, and the nineteenth-century revolutionary movements in continental Europe were bourgeois movements. They resulted in the defeat of feudalism and in the establishment of bourgeois supremacy. The proletarian masses were not emancipated; they merely passed from the class rule of the aristocracy to the class rule of the capitalist exploiters. To free the working man, the abolition of the capitalist mode of production is required. This, contend the interventionists, should be brought about by Sozialpolitik or the New Deal. The orthodox Marxians, on the other hand, assert that only the violent overthrow of the bourgeois system of government could effectively emancipate the proletarians.

It is impossible to deal with any chapter of history without taking a definite stand on these controversial issues and the implied economic doctrines. The textbooks and the teachers cannot adopt a lofty neutrality with regard to the postulate that the “unfinished revolution” needs to be completed by the communist revolution. Every statement concerning events of the last three hundred years involves a definite judgment on these controversies. One cannot avoid choosing between the philosophy of the Declaration of Independence and the Gettysburg Address and that of the Communist Manifesto. The challenge is there, and it is useless to bury one’s head in the sand.

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‘The Essential von Mises’ and ‘Scholar, Creator, Hero’ now in Japanese

51nmz72qOnL._AA278_PIkin4,BottomRight,-37,22_AA300_SH20_OU01_Rothbard’s  The Essential von Mises which includes Rothbard’s biographical monograph Ludwig von Mises: Scholar Creator Hero  is now available in Japanese, thanks, yet again, to the efforts of Tatsuya Iwakura.

Both are available in one volume now available as an ebook on Amazon. 

Following is a part of the ‘book description’ of Amazon (translated):

Rothbard’s ‘The Essential von Mises’ was published in 1973. And now it is coupled with another book  ’Scholar, Creator, Hero’ written by Rothbard in 1990. Each book corresponds to part 1 and part 2 of this book.

In part 1, the contributions to economics by Ludwig von Mises, are outlined in chronological order. This is useful as an introduction to Mises and Austrian Economics.

Part 2 is a biography of Mises. Rothbard talks about his feelings toward the results of of Mises’s search for economic truth and what he did in spite of many severe restrictions put on his efforts.

When I read this, I (the translator) imagine the following passage from Mises’s ‘Human Action’:

“Many a genius could have used his gifts to render his life agreeable and joyful; he did not even consider such a possibility and chose the thorny path without hesitation.” (The Scholar’s Edition, 1998) p.139


The Myth of the Failure of Capitalism (1932) in French

The French-language site Contrepoints published Ludwig von Mises’s 1932 essay “The Myth of the Failure of Capitalism” in French last week:

De nos jours, un sentiment quasi universel veut que la crise économique des dernières années marque la fin du capitalisme. Ce dernier aurait échoué, dit-on. Il se serait révélé incapable de remplir son rôle économique et l’humanité n’aurait ainsi pas d’autre choix, en vue de survivre, que d’effectuer la transition vers une économie planifiée, vers le socialisme.

Ce n’est vraiment pas une idée nouvelle. Les socialistes ont toujours prétendu que les crises économiques étaient le résultat inévitable du mode de production capitaliste et qu’il n’y avait pas d’autre moyen pour éliminer la résurgence des crises économiques que de se convertir au socialisme. Si ces affirmations sont exprimées de nos jours avec plus de force et rencontrent un plus grand écho auprès du public, ce n’est pas parce que la crise actuelle est plus sévère ou plus longue que celles qui l’ont précédée, mais plutôt parce que l’opinion publique d’aujourd’hui est bien davantage influencée par les idées socialistes qu’elle ne l’était au cours des décennies précédentes.

Read the full article.

Also available here.