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Showing posts from January, 2013

Thomas Paine on war, commerce, government, and paper money

Thomas Paine, born 276 years ago today in 1737, was a profoundly influential public figure and one of history’s most widely read authors.  John Adams is reputed to have said that without the pen of Paine, the sword of Washington would have been wielded in vain.  Yet Adams, like many others in the forefront of the political cataclysms of the late 18th century, loathed almost everything about Paine.  “The longer John Adams lived,” writes Harvard historian Jill LePore, “the more he hated Thomas Paine, and the more worthless he considered that seventy-seven-page pamphlet” Common Sense that sparked the American Revolution.

During the last years of Paine’s life, rabidly pro-British and firebrand journalist William Cobbett used his widely-read Porcupine’s Gazette to attack Paine on nearly every issue.  Quoting Cobbett in his biography of Paine, author Craig Nelson writes:
Whenever and wherever [Paine] breathes his last, he will excite neither sorrow nor compassion; no friendly hand will clos…

In counterfeiting we trust

If there is one central myth supporting the folly that passes for monetary policy and by extension fiscal policy, it would have to be the unchallenged assumption that money should be defined and controlled by government.  Given the role of money in the economy - that it is one-half of virtually every transaction - nothing has been more destructive to the well-being of most people than the government’s usurpation of money from the market.

Money was once the most marketable commodity (Ludwig von Mises, 1912).  Today, money is whatever the government says it is, and since 1933 in the U.S. it has been pieces of paper or their digital substitutes issued by the central bank and its members, the commercial banks. 

What’s wrong with having the government or its agent, the central bank, define money and regulate its supply, which in practice means regulating the rate at which the supply is increased?

First, the money is not theirs - it doesn’t belong to the government or the central bank.  Banks…

Lessons not learned from World War II

Policymakers today draw what they consider obvious conclusions from the Good War.   The New Deal had been chipping away at unemployment and the economy was recovering, but then Japan’s surprise attack provided the political means for allowing the government to shift gears.  Over the next four years the American economy got a heavy dose of Keynesianism, and the results prove the Keynesian case: GDP soared and unemployment all but disappeared.  Only in 1946 did official GDP take a beating, though surprisingly, given that the government fired roughly 20% of the labor force, the unemployment rate rose to only 3.8%.  (Five percent is considered normal for a healthy economy.)

Since Keynesianism has been validated under fire in the real world, its advocates tell us, it is altogether appropriate that government spend and inflate the economy back to prosperity today or any other time.

This is why Obama in 2009 came charging into office touting a big spending plan.  Mark Zandi, one of the archite…