Beware of packaged thinking

Doing the same thing over and over again and expecting different results is colloquially defined as insanity, per a quote attributed to Albert Einstein.  Call me insane, but I wince whenever I hear this.  As a rule of thumb it’s fine but it can be slippery.  I’m reminded of another quote from the Greek philosopher Heraclitus who is alleged to have said, “A man cannot step into the same river twice, for it is not the same river and he is not the same man.”

Heraclitus, in other words, would say it is not possible to do the same thing over and over.  We may think we’re doing the same thing, but on closer inspection we’re not.  We never are.  He has a point: If couples took Einstein’s quote literally when trying to procreate, there would be far fewer of us around.  

In matters of government there is a fundamental tension between Einstein and Heraclitus.  Defenders of government tend to favor Heraclitus — it’s not the coercive approach that’s wrong, it’s the particulars of the approach.  Better people and more money will move us forward.  The fundamentals of government per se are certifiably sound.

If we look at particulars we might get confused.  A case can be made that the War on Poverty is the mother of all government programs in the extent of its failure, yet it’s been around since 1964.  How failed is it?  Economist Walter Williams writes:  

Since President Lyndon Johnson declared war on poverty, the nation has spent about $18 trillion at the federal, state and local levels of government on programs justified by the "need" to deal with some aspect of poverty. In a column of mine in 1995, I pointed out that at that time, the nation had spent $5.4 trillion on the War on Poverty, and with that princely sum, "you could purchase every U.S. factory, all manufacturing equipment, and every office building. With what's left over, one could buy every airline, trucking company and our commercial maritime fleet. If you're still in the shopping mood, you could also buy every television, radio and power company, plus every retail and wholesale store in the entire nation" (http://tinyurl.com/kmhy6es). Today's total of $18 trillion spent on poverty means you could purchase everything produced in our country each year and then some.

It would seem the Einstein theory of insanity has taken center stage, but defenders of government programs take a dissenting view.  For one, the idea of poverty is a river that flows with the times.  As Williams notes, today’s poor have many of the things not usually associated with poverty, such as air conditioning and computers.  The poor are simply responding to a market that makes these things affordable for more and more people — but they’re still poor.  One of the engines of poverty is divorce, and the divorce rate, though trending downward since 1981, is much higher today than it was in the 1960s when Johnson launched his program.  More evidence of a changing river.  Einstein’s insanity doesn’t apply.   

Coercion fails, over and over

Defenders of free markets might say that any government attempt to interfere with the choices of individuals is a recipe for failure.  From the point of view of an economist, the various kinds, shapes and sizes of government programs or agencies, or the level of rot in the culture, are all irrelevant.  You do not solve problems with coercion.  Government through its forced involvement in our lives is in fact committing the same error over and over and expecting positive results.  In Einstein’s sense it is insane.

Worse, the voters are insane for putting up with it.  

Year after year they go to the polls, and year-after-year government gets worse.  Why do they do the same dumb thing over and over?  If voting changed anything they’d make it illegal, said Emma Goldman.  But that’s unnecessary.  Rather than make it illegal and cause a stir they simply screen out candidates that threaten the system.

In many ways we’re still free but this is not a matter of voters drawing a line and telling government don’t cross it.  Voters don’t talk about freedom anymore.  What freedom we have comes from a sober realization on the part of the parasitic class that they need to avoid killing their goose.

Thomas Paine observed this principle over two centuries ago:

The portion of liberty enjoyed in England, is just enough to enslave a country more productively than by despotism; and that as the real object of all despotism is revenue, a government so formed obtains more than it could do either by direct despotism, or in a full state of freedom, and is therefore, on the ground of interest, opposed to both.  Thomas Paine, Rights of Man, p. 284

When given an unprecedented opportunity to vote for someone who actually opposes coercive means, they go along with the bought media and kick him like a dog.  Voters are insane.

More precisely, they’re graduates of government schools.

It is said that central planning has failed over and over, and this is the reason for its abandonment.  Central planners therefore are not insane.  But central planning has not been abandoned.  It is enthusiastically endorsed by economists the world over in one area especially, central banking.  This one exception apparently refutes Einstein.  Establishing a committee of bright people to force their monetary decisions on millions of market participants is better than allowing those participants to make monetary decisions on their own. 

It is better, but only for a privileged few.

In politics, the Einstein - Heraclitus distinction is useless because what’s good for the ruling elite is usually bad for the general public.  Communism imposed misery on millions but not on those holding the reigns of power.  As counterfeiting by another name, central banking is a means of piling up money and power in a few hands while draining wealth from the rest.  But the cheat is invisible to the populace so it stays, and with the blessings of economists it stays as a prestigious institution.

The Fed inflates over and over, and the ones connected to it get richer, over and over, while the ones least connected to it get impoverished, over and over.  It’s only insane from the losers’ perspective, provided they understood the cheat.  But they don’t.

Aphorisms such as those attributed to Einstein and Heraclitus represent packaged thinking that takes critical thinking to unwrap properly.  

An impossible epiphany

So, you woke up this morning to learn you’ve been asked to replace Janet Yellen as chairman of the Federal Reserve.  You would normally be full of questions but the guy on the other end of the phone is the president, and either the person is doing a great impression or he’s the real thing.  With a robe thrown hastily around her your wife comes into the bedroom with three stout, suited men behind her.  None of them is smiling.  All of them are over six feet and athletic-looking.  Your wife looks like she’s seen a ghost.  You figure you’re talking to the guy in the White House.

This is unreal of course because you have had nothing but contempt for the Fed and government, as you’ve made clear in your many articles, books, and speeches.  You just know it’s a case of mistaken identity, a colossal blunder, that will embarrass the powers in Washington when they find out.  But you politely thank the president for his confidence in you and assure the man you will not let him down. 

Already you feel like a liar.  

“See you soon,” he says, and hangs up.

Somehow you manage to fumble the phone back into its cradle.  You appeal to the men standing at the edge of your bedroom.

“Why me?  Why ME?”

There is an unnerving silence.  One of them speaks.  “Even if we knew we couldn't tell you.  Our only job is to get you to the White House ASAP.”

“One way or the other,” another one adds.

Three hours later the same three guys and two others escort you into the Oval Office.  The president looks you in the eyes and shakes your hand, as if you were old friends.  The others leave, closing the door behind them.

“Thank you for coming on such short notice, John.  Have a seat.  Can we get you coffee or something? A danish?  Some fruit?”

John?  He thinks my name is John?  “I’m fine, Mr. President.  I ate on the flight over.”

He half-sits on the front edge of his desk.  His smile slacks off.  He folds his arms against his chest.  He looks tired and it’s only late morning.

Your heart suddenly decides to go for a run.

“There’s an iron law of psychology that says when a person reaches a certain age he becomes incapable of changing his world view, no matter what evidence or argument is brought to bear against it.  All he can do is defend it.  To see it as wrong would be to see his whole life as wrong, and no person can tolerate that.  This applies even to mass murderers, I’m told.”

“That’s certainly true for many people,” you add.

“Maturity means never budging from your beliefs, apparently.  That’s very sad.”

“I imagine that’s mostly true.”  Having just said that you hurry to augment it.  “But I can think of a few exceptions.”

“People I might know?”

“Maybe.”

“Care to tell me about them?”

While I’m running? “Yes, of course.  Lionel Robbins wrote a free-market explanation of the Great Depression, then later repudiated his position when Keynes was the rage.  Antony Flew wrote a defense of atheism, then converted to theism late in life, though this is hotly disputed by some scholars who suspect the old man was exploited.  But these are exceptions.  Most people stop asking the big questions at some point, if they ever started.  Especially if they’ve built a lucrative career on it.”

The president stands up and starts to pace and talk, throwing you an occasional glance.

“That’s my point.  As president I’m committed to certain views.  My supporters would abandon me if I changed them.  Jack Kennedy said all the right words during his campaign, and the military machine was pleased.  Then he started down a different path, and that’s what got him murdered.  Can you imagine a president in this age not wanting war?  We pledge allegiance to war, John, before we can ever run for office.  I know I did.”

You start to wonder if it was your wife who slipped you the pills or whatever spawned this . . . experience.  You don’t trust your thoughts, let alone your spoken words.  Your heart is at full sprint now.

“Why am I telling you all this?  You, who I don’t know.  Who didn’t even vote, much less vote for me.  You, part of the great unwashed, and me, on top of the world.”

“Fair question,” you manage.

“I’ll tell you.  We’re all destined to die, and I want a real legacy.  I want that legacy to match my conscience.  And my conscience is like anyone else’s.  I want to do the right thing.”

You nod in understanding, just to go along.

“It’s like having a goal of taking the prettiest girl in school to the senior prom.  You manage to convince her to go with you.  What a glorious moment!  But while you’re at the dance you realize neither one of you is having a good time.  That’s where I am now.  My prom is the presidency.”

“Okay.”

“I did this for appearances, to feel superior, just like the prom.  ‘Hey, I’m president of the country.  Who the hell are you?’  I’m expected to do this and that, but I don’t really want to.  And I’m going to stop.  I’m going to resign.  And I’m going to give as my reasons my opposition to war and the money machine that spreads war over the entire planet.”

You shift uncomfortably in your chair.  You clear your throat.

“I think the term I’m looking for is epiphany — an experience of sudden insight.”

Now you’re sure.  You’re sure none of this has any connection to reality.  You’re watching a movie brought to you by some hallucinogen.  You’ve never used drugs but heard they can create a different world for those who ingest them.  No sense fighting it.  You begin to relax a little.  You feel a smile cross your face.  You suddenly feel brave enough to speak.

“Mr. President, I know it’s early in the day, but let’s toast this epiphany of yours.  Can we order drinks?”

“Sure, John.  But don’t you want to know why I selected you to hear my confession?”

“Well . . . yes, yes, I was hoping . . . you’d get to that.”

“No offense, but you’re totally insignificant.  I can trust someone like you. If I should happen to change my mind, no one will believe you if you repeat everything I’ve said.  But I won’t change my mind.  Not only that, but you have idiotic, out-of-the-mainstream views that are completely at variance with mine.  Or they were.  John, listen to me.  I’m joining the loons, John.  I’m joining the loons.”

“Mr. President, would you understand if I told you I’m having . . . a little difficulty trying to believe all this?  I mean, all of it?  I should be in my office this morning finishing an article only my mother will read.  Instead, I’m sitting in the office of the president, listening to him tell me he hates his job and is going to resign.  Because he hates war and hates the Fed.”  

The president laughs.  He understands.  “Yeah, this must be quite a shock to you.  Believe me, I’m serious.  And to prove it —“ He hustles behind his desk and pulls a sheet of paper from the drawer.  “— I want you to proof this letter for any clumsy wording or other violations of the English language.“

You take the paper.  It’s a signed resignation letter.   Signed by him.

You’re generally in good health, but you suddenly feel sharp pains in the area of your heart.  Running while sitting has been too much.  You double over, struggling for breath. 

The pain dissipates.  Your breathing recovers.  You read the letter, again and again.  You make your one comment.

“Mr. President, this is a suicide note.  They’ll do to you what they did to—“

“No, no, Kennedy didn’t resign.  If he had resigned he might’ve been spared.  I think I’ll be spared.  After a while I can hit the lecture circuit expressing my real views instead of what some fool puts on a teleprompter for this fool to read.”

“But you’re recommending no one replace you.  You want to leave the office vacant.”

“That’s right,” he said. 

A moment passes.  “That would be a legacy to be proud of.”

“I think so!”

“So you really don’t want me to replace Yellen?”

He throws his head back and laughs.  “Only if you want to resign with me.  That was a little dark humor on my part.”

“If I’d known you were going to do this, you would’ve had my vote in a heartbeat.”

“If I’d known I was going to do this — oh, how I wish I did!”

You and the about-to-be-former president laugh.

Is sound money an unsound idea?

Governments hate sound money.  Even worse, people hate sound money.  Governments hate it because it puts severe limits on what governments can do.  People hate it because it would mean taking responsibility for their own lives, relying on their resourcefulness instead of the government.  Sound money can’t be printed, and governments that can’t print can’t buy as many votes.  They tend to let the chips stay where they fall.

On a free market sound money is democracy in action. As Mises wrote, it is the most marketable commodity, as determined by market participants.  One of the reasons the market chose gold and silver as money was their limited supply, which is also the reason governments reject it.  People who allow their government to control the value of money, by controlling its supply, have surrendered their liberty.

I doubt that most people even know what sound money is.  Besides, they might retort, if there is such a thing as sound money, why is it so important?  Gold and silver are sound money?  We were plagued with Panics when gold was enthroned (forgetting that gold took the hit for fractional reserve banking).  And when recessions came, the economy languished because there was no printer of last resort to jump-start its productive engine (not admitting that printing created the problem in the first place).  The better people are proactive — they don’t like to sit and let matters take their course, as they did with 19th century crises.  Things are better today with a central bank ready to fend off catastrophe with liquidity injections.  Sometimes humongous injections.  Sound money is an unsound idea.  Gold is a barbarous relic, with the emphasis on barbarous.

Whether or not people accept sound money depends on whether or not they value liberty, defined here as “freedom from arbitrary or despotic control.”

When it all began

Archeological findings show us that people once lived much like wild animals, hunting and gathering their food.  When they discovered they could grow some of their food and domesticate certain plants and animals, they formed settlements.  Agriculture provided a surplus of food and allowed people to spend less time trying to feed themselves and more time working on other productive pursuits, thereby creating a diversification of labor.  With specialization came the opportunity to trade, beginning with barter and advancing to indirect exchange.  

All other discoveries that have raised our standard of living are contingent on the simple process of trading one good for another good that is highly liquid.  (Liquidity refers to a good’s marketability.)  With this eminently marketable good, it could be traded rather than consumed, and thus through successive trades individuals could acquire the goods they wanted that they couldn’t get through direct exchange.  Goods that became universally accepted in trade became known as money.  Only with the emergence of money could a division of labor develop to any great extent, enabling people to specialize in lines of production most suited to their skills, circumstances, or temperament.  Money made possible the advancement of civilization.

Looking back from our perch today we find something odd about this evolution from barter to money.  At no point was anyone able to exchange nothing for something — other than by cheating.  On the free market a person could not scoop up a handful of wet leaves, for example, call them federal reserve notes, and expect to trade them for a basket of eggs or admission to a stage play.  A trader had to bring something to market that people actually wanted, either consumption/capital goods or consumption goods that were also highly marketable.  People embraced the idea of money because it made them much wealthier: Unlike barter, they were no longer limited by a double coincidence of wants.  When gold and silver became universally adopted in the West, goods flowed across borders, hampered only by government policies.

Along with the development of civilization came its antithesis, the emergence of nation-states.  Warriors became rulers, imposing themselves on productive settlements.  Why work for a living when you can force others to work for you?  With the appropriate dressing, coercion could be made to seem like a pillar of civilization.  The world is a very dangerous place.  Farmers and cobblers need protection from invading warriors.  The ruling elite promises to provide that protection.  Their specialty is killing people.  Because that is their specialty they get to rule the farmers and cobblers.  They came to refer to themselves as civil government.

But there are problems.  Governments are supported by wealth extorted from the populace called taxes.  Taxation has always been unpopular.  When taxes get too high, the taxed try to evade them.  Sometimes they rebel.  Sometimes they are successful in their rebellion.  

Rulers don’t want a lot of trouble, so they began taxing indirectly, through the debasement of the coinage.  People saw that it was a cheat, but there was little they could do.  If they were caught hoarding less-debased coins, they often paid with their lives.

Eventually paper money began circulating as a more convenient substitute for vaulted coin money.  And almost immediately, bogus paper money circulated that passed for legitimate paper substitutes.  From the perspective of the issuers of paper money, this was truly a godsend.  Unlike adulterated coins, unbacked paper is identical in appearance to backed paper.  People could be easily duped.

The death of sound money

Through wars and financial crises, government was able to remove the backing from the paper altogether, leaving us with pure fiat currencies, inflatable at will — the will of the sovereign or its appointed central bank.  States crack down on any attempt to use something other than state legal tender.

In the West and especially in the United States we like to think of ourselves as mostly free, where the government serves the interests of the people somewhat.  We might expect a dictator to repress any attempt to use something other than the government’s money.  But what about democratic governments?   Did some economist discover a truth that happens to legitimize the activities of repressive governments?  Are we now subject to a scientific argument that says effectively that the more money we have the more prosperous we will be?  Is that why sound money is outlawed?

Close, but not quite.  No economist known by that title has stood for unlimited money creation, but almost all economists consider fiat money creation indispensable.  Hunter Lewis, in his How Much Money Does an Economy Need?, illustrates this point with a simple example taken from Milton Friedman:

Assume that the government decides to construct a road.  Rather than levy taxes to meet the expense, public officials simply start up the printing presses and run off some currency.  Everyone seems to benefit.  Workers get jobs.  The community gets a road.  No one had to pay for it.  It seems like “magic.” (pp. 31-32)

But magic of this sort is just sleight of hand.  It confuses money with wealth.  What really happens when money is printed and spent?  Someone is cheated.  History is replete with examples large and small, but one of the better known cases is the German hyperinflation of 1923, in which “millions of the hard-working, thrifty German people found that their life's savings would not buy a postage stamp.”  Lewis alludes to this problem with a simple illustration:

If you have four apples and a dollar, the dollar may help you price and trade the apples. But adding another dollar will not increase wealth; it will simply raise the price of the apples. To increase wealth, one must add an apple or some other commodity, product, or service.

It isn’t clear in this simple example what an additional dollar would do.  But in a real economy this is known as the Cantillon Effect, named for the 18th-century economist Richard Cantillon, who “posited that the original recipients of new money enjoy higher standards of living at the expense of later recipients.”  

This is not rocket science or even close to it.  But because the benefits of inflation are usually immediate, such as the new road and the jobs it creates, the downside is often overlooked — which in an extreme case is the collapse of the currency.

If we want to understand what government has done to our money,  there is no better place to start than by reading Murray Rothbard’s What Has Government Done to Our Money?  It is an intelligible read of only 100 pages.  The alternative to Rothbardian economics is to surrender control of money and banking to unelected experts who then must be trusted to keep the public's interest in mind as they manage the nation’s stock of money.  Experts not subject to the pressures of the market or the electorate, who are politically appointed, don’t work for the public.  It’s not the public who signs their paychecks.  

The flip side of a federal reserve note says In God We Trust.  The experts may or may not be trusting God, but the public is trusting the bureaucrats of the Federal Open Market Committee.  Under this committee’s guidance, the spread between the haves and have-nots has widened to the point where the poorest 23.3 million Americans earned 36% less than the richest 2,915 Americans in 2012. .

Sound money would reverse this trend.  Read Rothbard to find out how.

What do you know about inflation?

We read about inflation not being a problem in today’s world, meaning that prices are not yet high enough to stir revolt among voters.  The word “inflation” is almost always taken to mean price inflation, at least since the end of World War II.  According to this view, inflation is well-contained if prices are relatively stable and low. Monetary inflation, or increases in the money supply, is generally ignored unless price inflation becomes an issue.  Yet we know that productivity and technological advancements can put downward pressure on prices, thereby masking the effects of money supply increases.  We also know that banks can go into protective mode and leave massive amounts of central bank money on their books rather than lending it out under the fractional reserve multiplier.  In such cases, low price inflation could mean a ticking time bomb rather than a measure of central bank brilliance.    

It wasn’t always easy to jack up the supply of money but the printing press and computers have changed that.  It thus became important for economists to distinguish between sound and unsound money, and the effects each had on the lives of the people who used them.  One touchstone of sound money was its resistance to being increased at will.   Another was its voluntary acceptance by the great majority of people who offer goods and services in trade.  Clearly, then, the federal reserve note and other fiat currencies are anything but sound.  About the only force keeping production in check is their price in terms of other currencies.  Given that all governments are addicted to the printing press, this is hardly reassuring.

It’s the height of irony that most people are obsessed with getting more money, yet almost none of them are concerned about its quality, how it is produced, and who produces it.  As long as it buys stuff, why should they care?  There’s a reason why they should care.  As Lew Rockwell has written, “How important is sound money? The whole of civilization depends on it.”  

With this in mind I’ve put together a little quiz to focus the reader’s attention on inflation. 

Given the sentence stem “Inflation is,” apply it to the statements that follow and decide if the completed sentence is correct or incorrect. 

Inflation is . . .

1.  A policy of money production that, when controlled by a central bank such as the Fed, assures a stable economy.

2.  A policy of credit expansion that is responsible for recurrent booms and busts

3.  A policy we can blame mostly on Democrats and their welfare recipients

4.  A policy we can blame mostly on Republicans and their welfare recipients

5.  A policy we can blame exclusively on the monopoly money producers, which in the U.S. is the Fed and the commercial banks.

6.  Nothing to worry about as long as Ron Paul is out of office

7.  An indispensable means of financing wars surreptitiously.

8.  counterfeiting by another name

9.  Nothing to worry about as long as we have real smart guys on the Federal Reserve Board formulating policy

10.  Taxation without legislation

11.  A subtle means of undermining the moral basis of society 

12.  Contrary to popular belief, a phenomenon that arose frequently in the 19th century because the U.S. was on a free market gold coin standard

13.  A phenomenon held in check by the constraints of production and redemption, as well as the market forces of supply and demand, under a free market gold coin standard

14.  A policy for sustainable economic growth, as long as it doesn’t get out of hand, i.e., is equivalent to the rate of growth of real GDP

15.  A regressive form of taxation

16.  The solution to preventing deflation, which is the number one monetary horror

17.  Usually defined as a rise in price of a basket of goods and services with the coincidental result that blame rests on those who raise prices

18.  “what happens when people increase the money supply by fraud, imposition, and breach of contract.”

19.  The means of avoiding economic crises

20.  The Federal Reserve policy that set the stage for the 1929 Crash and the depression that followed

21.  The massive asset purchase policy Ben Bernanke pursued vigorously to save the 10 biggest U.S. banks, which hold 77% of the assets of the banking industry. (paywall)

22.  A policy government pursued in the Great Depression, which lasted over a decade

23.  A policy government did not pursue in the 1920-21 Depression, which was over in less than two years. 

24.  A policy the Fed should have pursued in the wake of drastically falling prices of the early 1930s

25.  A nostrum the Fed did pursue in unprecedented fashion in a futile attempt to counteract the falling prices of the early 1930s

26.  Best controlled by government’s monopolistic control of money and the money supply, since democratic governments invariably act for the welfare of its citizens

27.  Best controlled by the voluntary exchange system of the free market, since individuals tend to look after their own welfare

28.  A requirement of an advanced economy fueled by fiat money

29.  An intervention into a market economy that is rejected by free market theory

30.  “An extension of the nominal quantity of any medium of exchange beyond the quantity that would have been produced on the free market.” [p. 85]

31.  Any increase in the economy’s supply of money, period

The Cure

This is the time of year when people make wishes.  They beseech mankind to end war, eliminate poverty, and cure dangerous diseases.  Almost no one does anything beyond making the wish or writing a check to some charity, but even that little bit makes them feel better.  

If I were to make a wish, I would wish for people to re-examine their state indoctrination — or as Ayn Rand used to put it, to check their premises.  War, poverty, and dangerous diseases can be overcome, and the means to their cure is right in front of us, which is why most people don’t see it.  Most people think the means to the cure is more and better government programs.  It is not more and better government programs.

What is the means?  Freedom.

Turn loose the ultimate resource, as Julian Simon termed it.  Let human ingenuity flourish.  Get the state out of our lives.  Get rid of the government bureaucracies that drain our wealth and sap our energy.  Get rid of the income tax, the federal reserve, get rid of the spooks and the growing police state.  We don’t need a monopoly enforcer of laws that violates property rights for the alleged purpose of defending property rights.  Repudiate egalitarianism.  The state’s imposition of favors means some group is forcibly sacrificed to provide those favors, on net.

Human freedom has never flourished under a state because a state by its nature is in the business of abridging that freedom for its own security.  Let the voluntary arrangements of the market be the expression of our release from domination.  Let the voluntary arrangements of the market select the medium we use to facilitate trade, which for centuries has been gold and silver coins.

Ron Paul calls for ending the Fed.  I like Ron Paul but we don’t need to end the Fed. It will die on its own without the support of the state.  So will every other state-privileged organization.  It took government as we’ve known it to create the Fed.  Let’s end government as we’ve known it so it can’t create a second Fed, as it did with the Bank of the United States.  Ending government as we’ve known it will put an end to the cartelized aspects of our economy.  No more protection from competitive forces.  Ending government as we’ve known it will put an end to the institution responsible for initiating war.  Ending the threats to our liberty is a matter of ending the predatory state.

Where is the evidence that the market cannot provide for all our needs, when providing for our wants and needs through voluntary exchange is exactly its nature?  Where is the proof that we need coercion to establish a free society?  Let adult humans act like grown-ups and take responsibility for their lives and the lives of their children, and if they choose to do so, responsibility for the lives of others who are incapacitated in some way.  The human spirit is self-interested but it is also highly charitable.

Traditional patriotism is allegiance to a state that has worked tirelessly over the years to take control of our lives in myriad ways, usually in the name of some high-sounding but corrupted virtue.  What is virtuous about pledging allegiance to our masters?  We do not want or need masters.  What do Marxists, socialists, Republicans, Democrats, Independents, Greens, and every other interventionist group have in common?  They all seek control of the state’s levers of power to force their views on the rest of us.  When we’re implored to be patriotic, we’re being urged to swear allegiance to those levers.  Allegiance to power is the only constant of our history, not some intransigent set of principles.  Let’s remove those levers.  Let’s resolve to deal with people voluntarily instead of through state force.

The cure to our problems is to eliminate that which prevents us from solving them.  The culprit is the state.  Let’s work to end it.

Merry Christmas and Happy Holidays!

P.S.  The title of this essay is a dedication to a good friend of mine.

Has the Fed made the world a safer place?

With the 100th anniversary of the Federal Reserve Act approaching libertarians will mark its passage as one of the darkest moments in U.S. history.  At least, Rothbardian libertarians will.  And what does this say about the rest of the population, most of whom couldn’t care less about monetary matters or what happened a century ago?  It says the state’s indoctrination efforts have been hugely successful.  

Since the victors in monetary matters are obviously not the Rothbardians, I decided to chat with someone from the winning side to try to improve my understanding of their position.  I managed to secure an interview with the author of the monetary classic, The Glorious Federal Reserve: How the Printing Press Has Saved Our Collective Hides.  Since his book is published under the pseudonym Jolly Roger, I refer to him by his pseudo-initials JR in what follows.

Me: What was wrong with the gold coin standard we had used for much of the 19th century and early 20th century?

JR: It was deeply flawed.  It was obviously flawed because of the destructive Panics that kept cropping up, such as the big one in 1907.

Me: So the solution was to . . .

JR: To provide a more elastic currency, as the law says.  Gold is not elastic because it can’t be created on demand.  Though more plentiful, silver fails the elasticity test too.  To eliminate the Panics, we needed money that can be created on the spot — out of thin air.  We needed the paper money already in use but without the gold or silver it stood for.

Me: Weren’t those paper bills promises for real money?

JR: You guys are so amusing. Money is what you use in exchange.  People were using paper bills in exchange.  Therefore, paper, not gold, was money.

Me: If paper was real money why did people hoard gold?

JR: As a friend once remarked people are dumb as hell.

Me: But even with gold and silver demonetized we still have crises.

JR: But we don’t have Panics!

Me: So we solved that problem by using money that stands for — what?

JR: Nothing.  But don’t get the wrong idea.  To make it work, money creation had to be assigned to a legal monopoly — a cartel.  That’s why government got involved.  The Fed needs guns and badges to make it a cartel, to give it teeth.  Only of course we never refer to it as a cartel or a monopoly because of the negative connotations those terms have.

Me: Yeah, it wouldn’t do to call a spade a spade, would it?  People flock to gold naturally, but to get them to use paper you had to put a gun to their heads.

JR:  A government gun.  There’s a big difference.  

Me: You took money out of the voluntary arena of the market and put it into the authoritarian hands of government.  To eliminate Panics, you claim.

JR: Like people everywhere, Americans need to be tricked for their own good.  Most people are idiots, and idiots vote.  The Fed exists independent of the voting public, thank goodness.  Not one in a million understands how it works, but what would you expect from idiots?  With trustworthy people in charge of money creation we can strengthen our economy without the shocking setbacks.

Me: So, the lesson here is, don’t trust gold, even if it did evolve from the free choices of individuals acting in their self-interest to facilitate trade?

JR: Right!  Instead, trust the country’s top experts with the exclusive power to create money, who, because they’re under scrutiny from government — the voice of the people — would never, ever exercise this power for any but the most scientific of reasons — even if sometimes they get the science wrong.  

Me:  The people being the idiots who elected the congressional watchdogs. 

JR:  Yes.

Me: And these unelected monetary experts would never, ever use this power to help their friends or to fund dubious government operations, such as foreign wars bearing no relation to national defense. . .  Hello? 

JR:  Okay, okay, so right off we did get involved in a European war that took the lives of over 100,000 young Americans, and yes, this new cartel — organization — did play a crucial role in making foreign intervention possible.  But those boys were shipped over there for a good cause.  They probably thought they had full, rich lives ahead of them but fortunately Wilson, Congress, and J. P. Morgan knew better.  The dead and maimed helped make the world a safer place, and for that we honor them.

Me: A safer place?  Let’s see, since World War I we’ve had the Russian Revolution, the rise of the Nazis, the Great Depression, World War Part II, Korea, Vietnam, etc., up to the Financial Crisis of 2007-2008.

JR: That’s the trouble with you right-wingers — you try to pin everything on the Fed or the government.  

Me: I always thought war was an act of government and financial crises were brought on by Fed monetary policy.

JR: Let me tell you, we’re certainly a lot safer now than our ancestors were a century ago.  A dollar today is about equivalent to a nickel in 1913.  Except for the early days of the Depression the Fed has steadfastly cheapened the dollar.  Scientifically, of course.

Me:  Help me out here — why does a depreciating dollar make us safer?

JR: Because falling prices means deflation, which as any trained economist will tell you is public enemy number one.  Take a look at 1913.  A dollar then would buy almost twice as much as a dollar in 1813.  What a nightmare!  Something had to be done.

Me:  So if the dollar I hold in my hand loses buying power that’s a good thing?

JR: In an aggregate sense, yes.  

Me: And where has that dollar’s buying power gone?

JR: To people who aren’t idiots.  Who know what to do with the money the idiots earn.

Me: Isn’t that theft?

JR: When you steal from idiots it’s not theft.  It’s for their own good.  Besides, economics is not about individuals, it’s about aggregates.  Aggregate analysis shows that some inflation is necessary for a robust economy.  No real economist disputes this.

Me: It’s hard to see how the world is a safer place.  Since the Fed’s founding we’ve had perpetual war, steady inflation, stagflation, depressions, recessions, unemployment, bubbles—

JR: (Sighs) Look, the Fed wasn’t hatched at full maturity.  It takes time to get things right.  Consider what it has to deal with.  We know, for example, that there are unpredictable downsides to capitalism.  Inherent but mysterious flaws.  Keynes said that, so did Marx, and so do most economists who don’t have their head stuck up their behinds.  Remember this: The Fed is dealing with mysteries that are unsolvable.  Ask almost any professional monetary economist, most of whom are well-acquainted with the Fed, and he or she will tell you that as bad as things might get, they would be far worse without the Fed.  The Fed is there to rescue us.  Who in their right mind would not want the Fed on standby to pull the economy out of a disaster?

Me:  In the crisis of 2008 we saw the big guys get the bailout money, not the little guys.

JR: And as you well know, if the big guys sink the little guys go down with them.

Me: But the big guys wouldn’t be sinking if they didn’t practice fractional reserve banking.

JR: No fractional reserve banking!?  You Rothbardians . . . if banks didn't practice fractional reserve banking we’d be back in the Stone Age.

Me: Fractional reserve banking means promising two people the same dollar at the same time.  Not only is it a gross ethical violation, it creates booms leading to busts, as seen by bank runs and speculative excesses.  On these grounds fractional reserve banking is a fast-moving freight back to the Stone Age.

JR: If you were a banker you’d know better.  It’s only when fractional lending gets out of hand that the banks run into trouble.  That’s why we have the Fed, to make sure the banks don’t go under.  When banks go under depositors lose.  At least they did prior to the days of the FDIC.  Things are much better today.    

Me:  And the FDIC gets its money by selling Girl Scout cookies.  Nothing like moral hazard to ensure a sound banking system.

JR:  No one complains about the FDIC, except you guys.  

Me: The Fed is effectively stealing money from our bank accounts when it creates money.  It gives that money to the government so it can send our young people overseas to fight unnecessary wars, which are certainly profitable to some.  Since the wars create enemies, they serve as cover for a domestic police state.  Government also uses the money to buy votes without raising taxes.  I think the Fed is a dangerous racket that survives only because of public ignorance.

JR:  That’s why no one listens to you, my friend.

No money, no problem

Have you ever lusted for a Lamborghini?  I have.  Specifically, the Lamborghini Aventador LP 700-4 Roadster Convertible.  There’s only one thing stopping me from getting one.  

With options, it sells for just under half a million dollars.  That’s for a car, albeit a special car but by no means the most expensive.  If I wanted to I could try talking the company into producing another Lamborghini Veneno that sold for $4.5 million earlier this year.  Zero to 100 kph (0-62 mph) in 2.8 seconds. Of course one buys a Veneno for reasons other than low 0-60 times.  Yet I wonder how the owner of one would feel if he or she came up against, say, a Suzuki GSX-R1000 or a Kawasaki Ninja ZX-14R, both street-legal motorcycles that could blow the polish off a Veneno.  If you sink $4.5 million into your wheels and come up short against a machine costing 1/300th of yours but which still draws attention to its sound and looks, that’s not good. 

Lamborghini only made three Venenos, one in each color of the Italian flag.   They sold all three sight-unseen.  You billionaires will shrug at that, but I don’t. 

No money, no Veneno.  But wait—I don’t actually need to own $4.5 million, do I?  I could always try borrowing it.

I could talk to a bank loan officer, just to see the look on her face.  I bet at least one of us would laugh.  And of course even if she went insane and loaned me the money I still couldn’t convince Lamborghini to sell me a car.  

So, no money, no loan, no Lamborghini.  End of story.  I stick with my paid-for truck or some other bourgeois four-wheeler. 

Never say never

But I can’t quite give up.  I could sublimate the craving for automotive power into some other realm.  I decide to run for political office.  

I run on the slogan, “No money, no problem.”  In debates with my opponents I point out that John Maynard Keynes is the most influential economist in the world, and Keynes said money ideally should be interest-free to stimulate investment.  There were those who were upset with this simplistic interpretation, but since no one knows what Keynes meant the interpretation is up for grabs.  Assuming the economy is at less than full employment — and when is it not? — money should be available free of interest.  Interest meant capital was scarce but how preposterous is that when government is part of the picture.  “Let each become all he is capable of being,” I add, recalling a slogan from my college days.  

This sounds good to most ears.  My strongest supporters, most of whom are college-educated, consider this an enlightened position.  So do most trained economists, some of whom endorse me.  On election day I win by a landslide.

Years pass.  I write a book.  I go on TV talk shows every chance I get.  I don’t talk about Lamborghinis.   I talk about the economy and how accommodation is the key to making things better.  I make a name for myself.  My political party likes my prospects for the presidency.  So do other people not directly associated with politics, people with a large stake in the status quo.  People who could buy a Veneno with a nod of their head.  My enemies charge me with favoring unlimited government debt.  I reply with a crisp So What?  We’ve always had an astronomical debt, and it hasn’t hurt us.  What hurts us is thinking it will hurt us.  We keep our creditors happy, so why worry about debt?  We cannot be the country we are capable of being if we shun debt.

Commoners feel a little uneasy about embracing inconceivable levels of debt, but they’re in debt themselves and haven’t fallen off the planet yet, so they’re okay with it, sort of.  Any fears they have about the arrival of a reckoning day are soothed by government economists who tell them government debt is a good thing.

I run for the presidency.  It’s a tough campaign, full of the usual dirt, but I win.

I’ve become president of the United States and commander-in-chief of the armed forces.  Let me assure you — I have power, real power.  Keep your 0-60 times.  When I go places I travel on Air Force One.  Air Force One!  You don’t think about Lamborghinis or Kawasakis when you have a plush monster jet at your disposal.  Besides, I have other interests.

I want to leave a legacy.  I want to be remembered as a great president.

I’m comforted by the thought that the greatest presidents in U.S. history have been war presidents — Lincoln, Wilson, FDR.  I’m also comforted by the knowledge that they were complicit in getting the enemy to fire the first shot.  They knew war was good for the country even if the countrymen they represented strongly disagreed.  And there was one other advantage they had most people don’t acknowledge.

One day trouble erupts in some Asian backwater.  Few Americans have even heard of it but CIA agents stationed there tell me it’s a threat to national security.  I do the right thing and intervene — no boots on the ground, though.  Everything is done with drones.  

Our rival Russia gets upset.  President Buturovich issues ultimatums.  Who is he kidding?  The rest of the world, that’s who.  I give him a call.  We agree to have a limited war in a neutral theater.  Military people talk about theaters all the time.  

As soon as I hang up China gives me a call.  Those ingrates!  Those snoops!  They won’t let us have our war.  They’re threatening to stop loaning us back our dollars if we pursue a military option, as they put it.  Something about disrupting their markets. 

I tell them they can continue making iPhones.  Americans will buy them, even if a few Asians will be too busy dodging drones to stay in the market.  They grudgingly accept it.  I’ve got a legacy to pursue.  They understand.

I meet with my Treasury Secretary.  I appointed him.  We’re old pals.  I ask him what he thinks war with Russia will cost.  He wonders why I ask.  I tell him.  He resigns.  He doesn’t want that legacy.

I go to another friend and ask him if war without a tax increase is feasible.  He laughs.  He used to head the federal reserve bank of New York.  He’s an expert at arranging deals of any size.  He’s good friends with the Chairman of the Fed.  So I appoint him Treasury Secretary.  The two of them assure me there will be no monetary impediments to my plans.

How could there be?  It takes money to fight a war, and the Fed controls the money supply.  And I appoint the guy who runs the Fed.  Neat.

Then I think: I once had monetary impediments when I dreamed of buying a Lamborghini.  Insurmountable impediments.  No money, no Lamborghini.  

How different life is at the top.  I’ve got the Fed at my side.  I can join the other war presidents.  No money?  No problem.