Monday, December 23, 2013

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.

Tuesday, December 17, 2013

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.




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