Wednesday, November 9, 2016

Why Trump and not Paul?

Donald Trump led a gut-level attack on the Establishment.  Listening to a Trump speech you didn’t learn economics or the philosophy of liberty; you only heard what you already knew: you were getting the shaft from the elites.  

Ron Paul understands liberty and how it relates to economics, especially monetary theory, and attempted to educate Americans on some important points.  Although his approach had strong appeal to young people it didn’t wake up enough older Americans to create a major movement.  

And that was our loss.  Is it too late?  Maybe not.

Ron Paul rightly made the Fed a campaign issue.  As I understand him, he sees the Federal Reserve as the institution most responsible for the decline of our civilization.  Aside from government itself, I agree.

Main Street people don’t understand the Federal Reserve.  They sometimes confuse it with the Treasury if they think about it at all.  They have no idea what the Fed really does, other than adjust interest rates somehow.  To them the Fed is a big black box, but evidently an important one.  The FOMC gets together every so often and issues statements that are meaningful to a handful of people.   It is Greek to the rest.    

This is one way the Fed protects itself.  If it were widely seen as a monopoly counterfeiter the legitimacy of government would collapse.

You don’t get big government without a means of funding it, and if you need money — lots of it — and have already raised taxes to their political limit, the government solution is to print it into existence.  Think of a child playing make-believe.      

Long ago government counterfeiting often meant debasing the monetary gold or silver by mixing it with less valuable metals, but the citizens who were forced to use it could easily tell a fake from the real thing.  They would hoard the latter and use them on the black market. 

With the invention of paper money the defense against bad money disappeared.  One bill looked the same as the next.  As the long as the paper was a substitute for a weight of gold or silver, though, people could always attempt to claim the coins the paper represented.  Fractional reserve banking made this impossible for every note holder and caused crises when depositors showed up asking for their gold, which the banks didn’t have.  

Bankers were not inclined to throw away a profitable practice like fractional reserve banking, even though it amounted to embezzlement.  The solution was a central bank, but Americans were distrustful of centralized institutions.  

In the U.S. big bankers got together and devised a central bank so named as to appear not to be a central bank: The Federal Reserve System.   It became law in 1913, along with the income tax amendment to the Constitution. 

As World War I proved conclusively, wars and welfare are much more affordable when governments can print the money for their undertaking. 

Under the new centralized system, the Fed coordinates member bank inflation, so that any one member can’t over-inflate and cause a run on its reserves.  

But there was still a problem: Every dollar still had to be redeemable in gold coin.  

In 1933 President Roosevelt solved the problem by criminalizing the possession of gold coins.  The floodgates were now open.   Government could expand as it saw fit by borrowing the money it needed from the counterfeiter around the corner.  After the 1930s Americans found their dollars gradually evaporating in purchasing power, as former Fed chief Alan Greenspan noted in 2002.   As Keynes had warned earlier it is an insidious system that few can diagnose.

Inflationary monetary policy became one of the twin fiscal engines driving pathological government expansion, the other being withholding.

Does Donald Trump understand any of this?  Does he care if he does?  Is he motivated to find out if he doesn’t?

If he’s concerned about the plight of the middle class, he should be.

I think Austrian economists are in a strong position to influence the president-elect.  Ron Paul and other Austrian economists forewarned the crash of 2007-2008.  The Keynesians remained blissfully ignorant.  The Austrians didn’t just predict it, they explained why it would happen in terms of the Austrian Business Cycle Theory.  

The Austrians also warned against government interference with the recovery.  Unsound institutions should be allowed to fail, regardless of size.    Genuine recovery arrives sooner.

As a model of how to proceed they pointed to the Depression of 1921 and to the hands-off approach during the 19th century.  

As a model of how not to proceed they referred to the Crash of 1929 and its long, bloody aftermath.  

And as a way of avoiding the business cycle altogether, they recommended removing the cause: Repeal of the Federal Reserve Act of 1913 and all legal tender laws.

This may be too much for any president, even a maverick like Donald Trump.  But he could take the first step by removing the Fed’s note-issuing monopoly.  Allow competition in money.  And may the best money win.


IMissLiberty said...

Campaign managers and politicians were in awe of Ron Paul's successful campaign. They envy him. Now, whenever I hear somebody mention The Fed or gold, I assume they're trying to imitate Dr. Paul. I don't assume they know what they're doing or are sincere.

Unknown said...

Rhetorical question really isn't it?? Ron Paul quite simply is an imbecile. I don't mean to be insulting, but the man is gormless. I remember hearing Noam Chomsky talk about this guy, and it was cringe worthy.

IMissLiberty said...

That's always the problem when you trust a third party's opinion. People have biases, and you're much better to go to the source directly. Ron Paul is not an imbecile, obviously. It's apparent when you listen to him directly, look at his careers, and hear from people who know him well. He consistently predicts the future, which is a sign of wisdom. In short, don't let yourself be used and misled by Chomsky.

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