The Twentieth Century: Political Leadership’s Century of Shame

www.CommonSenseUpdated.Com   Delivered to Ivy League Economics Club, Nov. 2008

by William B. Grant

 

 

 

I recently attended a seminar at the Ludwig von Mises Institute where we heard from recent presidential candidate Congressman Ron Paul and 17 other economists talk about money. One of the economists made the point that there has always been a debate between those who think that money should only serve as a neutral participant in exchanges and as a store of value. I’ll call them the neutral money role school economists. And those economists who believe that money should be used by government to help direct the economy whom I‘ll call the active role economists. One speaker said that when the main stream believes in a neutral role for money, the economists who believe in an active role are considered the kooks and when the main stream believes in an active role, the neutral role economists are considered the kooks. We of course are still in the latter phase and so I, and the 18 economists who spoke at this seminar, are today’s kooks. However, it is a changing. The seminar’s Master of Ceremonies, referring to the present financial crisis, got hearty approval when he opened the seminar with “We told you so!”

 

We were reminded by speaker after speaker that every “active role for money” experiment that we know about has always ended badly, with political and social turmoil as well as with economic adverse consequences. Hyper inflation in France and Germany brought Napoleon and Hitler to power. Former Soviet economist Dr. Yuri Maltsev reminded us that it was hyperinflation in Russia in World War 1 that enabled the Communists to come to power.

 

 

In the most enlightening overview economics paper which I have ever read, the economist Dr. Hans Herman Hoppe elegantly outlined the three things we should be looking for in an economic system. Test one: In this world, there is a limited supply of the goods and services which enable us to live above subsistence levels and we would therefore want a system which would result in the greatest amounts of such goods and services being produced. Test two: We would want a system which promotes the distribution of such goods and services with the least amount of violence. Test three: We would want a system which resulted in people sharing most equally in such goods and services.

 

Dr. Hoppe and I would agree on what that system is, i.e., capitalism, but I am going to give it a new name, IRVAsm: On all three tests, an economic system based on Individual Responsibility Voluntarily Assumed, IRVAsm, performs better than any other. I would like to hear IRVAsm pronounced IR VAhsm with the accent on the first syllable.

 

The opposite of IRVAsm would of course have to be Collective Responsibility Coercively Enforced or CRCEsm, pronounced KRe  SEsm with the accent on the first syllable. I am going to use those self defining names throughout this paper. By contrast, the word liberalism is not self defining and over the years has completely changed its meaning. The word Conservatism is likewise deficient. Conservative of what?  I don’t like the word “capitalism” because even the communists had capital.

 

Few would dispute the winner of Dr. Hoppe’s first test, productivity, i.e., IRVAsm. This was confirmed in the west in the eighteenth and nineteenth centuries with incredible improvement in living standards in those countries following IRVAsm and in the twentieth century in massive CRCEsm experiments in Communist China and Soviet Russia with their concomitant poverty.

 

IRVAsm also wins test two. Under IRVAsm, if you want more, produce more with which to trade with others. Under CRCEsm, if you want more, get the government under threat of violence to take more for you. CRCEsm’s contribution to the increase in violence in America will be expanded upon in this paper. 

 

The demonstrated superiority of IRVAsm when measured by test three takes some by surprise. owever, if you take out the timy number of entrepreneurs who H

 However, it you take out the Bill Gates at the fringe of the bell curve who enrich so many and share infinitesimally per benefited person but in total massively by what they have created, you have a much more flattened bell curve than say in the old Soviet Union where its managers, the members of the Communist party, even had their own stores from which the workers were precluded.  From my readings and from my experience in business and in local government, managers here in the United States historically have been paid less of a premium to what workers make than in more collectivized societies.  Logically, the more competition you have, the freer the labor market, the more you would

expect wages between managers and workers to tend to converge and so it should come as no surprise to an open minded person that even on Dr. Hoppe’s third test, equality of pay scales, hoppe’s third test, IRVAsm ranks superior to CREFsmIRVAsm beats out CRCEsm.

 

History has given us many examples of the truism that when government is responsible for coercively collecting and distributing goods and services, the bayonettors and their direct beneficiaries always end up with more than the bayonettees.

 

Americans essentially based their society on IRVAsm for the first 300 years after Europeans arrived in what later became the United States of America. I say 300 years because economically things did not change that much in 1776 or 1787. During the sixteen hundreds, things were in turmoil in England. A revolution was building there which ended in the beheading of the king. War on its own island only ended in 1745 with the battle of Colladen when the Scots were decisively defeated. It was only in the latter half of the seventeen hundreds that the English really set about trying to exercise some control over their American colonies and by then, it was too late. Building on an acceptance of a disseminated sharing of power brought with them from England (Magna Charta, key law cases, etc.), Americans had been refining the art of self government for 180 years prior to 1787. A most delightful summer can be spent by anyone who wants intelligently to provide input on where America should be going by reading the four volumes on our colonial history by Murray Rothbard entitled “Conceived in Liberty.”

 

By the early years of the twentieth century, after only 300 years operating under IRVAsm, America literally had emerged from log cabins to be the wealthiest country, measured both by Gross National Product and the more important Per Capita Income, of any major nation in the world!  An incredible miracle! A validation of the premise that freedom actually works better than coercion, that the economy is best directed by the buying decisions of consumers rather than by overseers even if those overseers are elected by the consumers.

 

I am going to share some of my personal observations, personal experiences and readings over the last 60 years which for me helped explain the change in direction taken by this country in the last century.. So bear with me as I share these vignettes. Laced together, I believe they help give credence to the recommendations made at the end of this paper.

 

 

If I take some extreme positions, forgive me based on my being a convert. Converts have difficulty making points that are sugar coated. I grew up in a home with a grandfather who was a socialist. This thinking was reinforced at an Ivy League college where much of the teaching is slanted towards socialism. When Goldwater talked about returning to a society based on individual responsibility, I recoiled and voted for Johnson. After personally observing the results of America moving towards ever more socialism, I now literally suffer nightmares at what my generation has done to America.

 

I have been asked by fellow IRVAsts if I ever stopped to think in my former life that socialism is at its core evil since it based on envy, coercion and stealing. While today I clearly see that it is, I have to admit that that thought never entered my mind.

 

Prior to WWII, a church in Montclair, NJ to which I belonged had sponsored a Boy Scout Troop.

Sadly, its Scout Master was killed in the US invasion of Italy. After the war, as a member of the church’s Board of Deacons and as an Eagle Scout, I volunteered to start the troop back up while we looked for a new Scout Master. Seven years later I was still its Scout Master.

 

Montclair is a town 14 miles west of New York City with a substantial African American Community. I decided to make the scout troop an integrated troop and was able to keep it so by recruiting alternately in predominately black and predominately white schools. As a single father with three little girls, this troop became my extended family. In addition to the weekly meetings, we had a monthly hike and I always brought along my young children as did many of the parents who accompanied us. After seven years, with respect to what is important, I came to the conclusion that there is only one difference between the races. It is called skin pigmentation. 

 

So how come with 13% of our population, 49% of the homicide victims in our country are black?

How come 71% of all children born to black mothers are born illegitimately, two and a half times the white percentage?  “This represents a dramatic change in American life.”  (Juan Williams in the WSJ, 6/14/08)  How come percentage wise black Americans are so disproportionately represented in our prisons? Studies have shown that having a father in the home drastically reduces your chance of going to prison and “is a ticket to middle class status” (Ibid) and escape from poverty. In 1960 those percentages for black Americans were not that much higher than for Caucasian Americans

 

Much has been written on how Federal programs contributed to the break up of families at the bottom of the economic ladder.  I am going to share my personal observations during this post WWII transition period.

 

In the early sixties, I was selling accounting systems to businesses throughout the inner cities of Greater New York: That is, Paterson and Newark and other business centers in New Jersey, 138^th St. in the Bronx, Bedford Stuyvesant in Brooklyn, etc.  In the early nineteen sixties, I would get a call saying “My accountant says I have to have your system but I am so busy. Can you come after I close up at night?” I would find myself at 11 o’clock at night under the Elevated in Bedford Stuyvesant, with the streets full of black shoppers in front of glass fronted stores. The store owner would turn the “Open” sign in the window around to “Closed” and I would spend a couple of hours showing him my system. I would leave several hours later and walk back to my car, perhaps several blocks away. By the end of the sixties, people who lived in the area would scurry off the streets at dusk to barricade themselves in their apartments and steel shutters would come down in front of all the store windows. What happened? The Great Society happened. Life in our inner cities was transformed from almost an Eden in comparison to something just short of a living hell. From the early sixties thru the seventies, responsibility was transferred from the individual (IRVAsm) to the state (CRCEsm) with catastrophic consequences. This shift undoubtedly contributed to the sixties riots in our inner cities.  And to the daily horror experienced by those living and working in our inner cities.

 

Don’t think of those homicide statistics as numbers. Think of them as tens of thousands of black mothers mourning their slain sons! Think of millions of young black American children growing up without a father in the house. And Black America is now in the third or fourth generation of such horror.

 

It was amazing how fast this happened. Before 1960, you had a vibrant private enterprise economy throughout the inner cities of metropolitan New York. This included a tremendous manufacturing presence. It was one of the largest in America. Many of these companies were my customers. In the nineteen seventies alone, New York City lost 500,000 manufacturing jobs. That’s 500,000 workers, 500,000 spouses and perhaps a million children adversely affected. I was talking to these entrepreneurs as they were preparing to move out of the area or just to close their doors. The complaints were always the same: suffocating regulations and “leading to bankruptcy” taxes. Real estate taxes in some areas were over 10%!  Can you imagine how the prospect of yearly paying a tax of 10% on any new efficiency promoting piece of machinery negatively impacted your decision as to whether such an investment, such a contribution towards making America richer, should be made by you?

 

Here is a vignette of the role the federal government was playing in all this. During the early seventies, I was a Commissioner in Montclair, NJ, a town only 14 miles west of New York City. As the director of the town’s Department of Public Works, I was negotiating with our garbage men whom we were then paying $12,000 a year, $9,000 in salary and $3,000 in benefits, a figure in today’s dollars of about $48.000. Under the Commission form of government in New Jersey, Commissioners had administrative as well as legislative responsibilities. There was an item in the paper that New York City was negotiating with its garbage men. I got one of the negotiators for the city on the phone and asked him what they were paying. The answer was $35,000 a year of which half was for salary and half for benefits. This was almost three times what we were paying.  I asked, “Don’t your voters object to this cost?”

 

His reply: “We don’t have to go to the voters in New York City for such raises. The Federal government covers the deficits in our major cities in the uniformed departments, i.e., police, fire, sanitation and transportation.” I asked him “What about the effect this has on the rest of your work force?” and he replied “This is a problem.” but I bet he was thinking that “We have al these manufacturing businesses in the outer burros that we can hit for such bloated salaries for the rest of our employees.”

 

This was before the City’s high taxes and regulations forced mass migration or destruction of so much of New York City’s manufacturing base.

 

Here is another vignette of just how great was the change: In the late fifties, I was a service station representative for Exxon. One Saturday morning, I drove to our company’s district office in an industrial area of Newark to pick up some point of sale material for my dealers. I took my three and four year old daughters with me. They asked if they could play outside while I went inside the building and since the area was deserted, I said yes. Five minutes later I came back outside but no daughters were in sight. However, there were railroad tracks down the middle of the street and there, coming toward me, was a locomotive. When the locomotive came beside me, it stopped and there staring down from the cab were my smiling daughters and the engineer. Can you imagine a father leaving his children outside in a city today? Can you imagine a locomotive engineer daring to pick up two little girls to ride in his locomotive?  I was in church recently and the two little girls of a woman with our musical group left the church on their own to look for their father who had taken his son, their brother, out to the men’s room.  I got up to follow them, apprehensive of two little girls being alone on a Sunday morning in a church courtyard! What a change for the worse.

 

This is not a personal experience but is a story which I read in a newspaper article which burned itself into my memory. A black mother in Chicago had six children. She called the eldest three who reached maturity before the sixties “my miracle children.” As I recall, one was a fireman, one a policeman and the third also was employed. Her youngest three who reached maturity during the sixties were psychological cripples with perhaps one in jail, one an addict and one an alcoholic. One of the “miracle” children said something to the effect that “for my younger siblings, there was just too much government money around coming from a myriad of programs. When I wanted money, I would go to the gas stations in the neighborhood and earn money by cleaning their bathrooms. This taught me responsibility and enabled me to escape the fate of my younger siblings.”

 

This lesson is I think a lot more important than the economic lesson. The economic lesson has been that the Great Society and subsequent programs have been economically counter productive for those at the lower end of the economic ladder. However, the psychological crippling, the mental suffering has been even worse for those so impacted.

 

It is a drastically different world, brought about all in one life time, a change that perversely permeates and adversely influences almost every aspect of our lives.

Austrian economists view Ludwig von Mises (1881 To 1973) is the economist who took all the various concepts advanced in prior centuries by market oriented economists and wove them together into a complete tapestry. It was Mises’ criticism of communism that proved to be the most prescient. In his 1920 essay “Economic Calculation in the Socialist Commonwealth,” Mises argued that “the socialist economy couldn’t properly be called an economy at all since the system provides no means for rationally allocating resources. It abolishes private property in capital goods, thereby eliminating the markets that produce prices with which to calculate profit and loss. The absence of rational economic calculation, and the institutional structures that undergird it, prevents any realistic assessment of the proper uses and opportunity costs and resource allocation options.”  Mises wrote, “As soon as one gives up the conception of a freely established monetary price for goods of a higher order (capital goods,) rational production becomes completely impossible. The central planners of an industrial economy will find themselves in a perpetual state of confusion and ignorance, groping in the dark.” (Mises’ quote courtesy Yuri Maltsev.)

The logic behind this prescient 1920 warning of future disaster for the Soviet Union could be applied just as well to a market economy where the central bank undermines the market’s ability to track costs. By facilitating banks’ ability to adulterate the money supply through a fractional reserve banking system, a central bank forces on businesses a constantly depreciating unit of money. It is like trying to measure when your ruler moves from 12 inches to the foot, to 14 inches to the foot, to 16 inches to the foot, etc. Central bankers, apparently illiterate in market experience, think a small annual dollop of inflation is desirable. It is not. 

Here is my ‘”on point” vignette on the subject. When I started my business in 1960, we priced 50 ledgers at $1.75 and 50 journals at $4.75. Prices had been relatively stable in the preceding years. When we raised the price of the ledgers and journals by a quarter, our phone rang off the hook. We had to justify to the caller why this increase was justified. A couple of decades later, we could raise the price by a couple of dollars and not hear a peep. The buyer presumably reasoned that while he or she should get a competitive quote or look for a substitute, it was just easier simply to raise their end prices and the depreciating dollar gave businesses this lazy out.

This thinking has to have infected every corporate buying decision.  It is frightening to think just how much this thinking has to have hurt America. . How much of our manufacturing base has it cost us?  How many Americans have lost their jobs as a consequence? This is another example of the counter productive effect of our fiat money creation enabling Federal Reserve System.

Here is a current example of how the lack of a stable monetary unit adversely affects everyday economic planning. I know someone who owns a lot in Sarasota, Florida which is leased to a car rental agency. The agency has asked for a rent abatement because of the present crisis. Because they have been good tenants, the lot owner wants to accommodate them but the lease agreement only provides for CPI protection. The SGS CPI (Shadow Government Statistics), http://www.shadowstats.com/alternate_da, which includes the items the cpi leaves out, is showing an inflation rate in excess of three times the cpi rate.  So the lot owner is in effect flying in the dark in assessing the extent of the future ramifications of the tenant’s request.

 

What Caused This Horror, These Homicides, These Fatherless Homes, omes, Homacidesomacides, fatherless Homes, ncarcerations?Homacides, Fatherless HomesThis Incarceration Explosion to the Highest Percentage in the World?

Our Roller Coaster Economy?

 

For the first roughly 300 years after Europeans landed in what is now the U.S., we took the IRVAstic values that had resulted in the advancements achieved in England and elsewhere and strengthened them.

 

One bedrock value was an acceptance of the sanctity of property rights. It was recognized that every man had property rights: Rights to the fruits of his own labor and rights to the physical things into which the fruit of his labor was converted.  This represented a strong moral code. There was an acceptance that no man had the right to steal another man’s property.

 

Accepting this moved mankind’s planning horizon out to decades rather than working with a horizon which is measured in days with the emphasis given as to how to get by until the next payday.  (Alex Morris: “A politician’s long term horizon is 10 days.”)  The reduction in time scales over the last century for everyone had a monumental counter productive impact on both the economy as a whole and how individuals lived their lives. This implosion of our time scale has had counter productive consequences for our nation and, more importantly, for the individual.

 

There has always been an acceptance that there would be anarchy and mayhem if individuals had the legal right to steal. Prior to the last century, there was an acceptance that individuals could not transfer to government rights that individuals did not possess.  Since individuals had no right to steal from other individuals, they had no right to transfer the right of theft to government.

 

This concept was enshrined in the common law under which the colonies operated, the law that the British immigrants to what is now the United States brought with them. This core principle of the Common Law was later enshrined in our Constitution drafted in the summer of 1787, continuing this core key stone of IRVAsm. The Constitution gave the Congress only enumerated powers and stealing from A to give to B was not one of those enumerated powers.

 

Then came the nineteen thirties and the oover/RooseveltHoover/Roosevelt Great Depression. This depression was set in motion by (1) the massive 60% increase (If you include life insurance cash balances - Rothbard) in the nineteen twenties in the money supply which was facilitated by our newly reincarnated central bank and by (2) the resulting misallocation of resources

 

Also contributing to the nineteen thirties depression were the Republican Congress’s Smoot Hawley tariff,  essentially isolating us economically from the rest of the world, Hoover’s tax increases, and Hoover’s and Roosevelt’s  efforts  to keep the market, including the market for people’s labor, from being cleared by price reductions. This depression was lengthened and deepened by Roosevelt’s myriad programs. Typical of Roosevelt’s hair brained ideas was getting the Congress to pass a law, the National Recovery Act or NRA, ordering all industries to cartelize to outlaw price competition. If you explained that to a twelve year old today, his or her logical question would have to be “Was the Federal government, were Roosevelt and the members of Congress imbeciles?” It is important that Americans always remember the NRA if they have a momentary hallucination that the Federal government can solve economic challenges. 

 

It is important to remember that most actions that the Federal government takes in the economic sphere are designed specifically to hamper the free market from doing what it would otherwise do trying to repair the harm that the government has previously caused.  

 

The track record of a government directed economy is terrible. We saw that in spades in the 70 plus year history of the Soviet Union and everywhere else where socialism has been tried. Under IRVAsm, America rose to enjoy one of the highest per capita incomes of any major nation. Government action designed to divert the free enterprise system from constantly purging mistakes and rewarding success is injurious to the financial well being of Americans. It was even more catastrophic to their non financial well being as reflected in the breakdown of the family and the tripling of the percentage of Americans incarcerated, This represents almost unimaginable horror.

 

That contrasts with the 300 years social and economic history of America prior to 1913 and the reincarnation of a central bank.  

 

We now have a financial crisis. At this point, it would seem well to introduce a short history of money.

 

Money grew out of the market as a way to facilitate exchanges when there was not “a coincidence of wants.”  The hunter may have wanted shoes but the one skilled in making shores may have been a vegetarian.  With money, they could still trade.  We have evidence of such trading using money going back to the first recorded writings. Von Mises wrote that the division of labor, people doing full time what they could do efficiently, was an important contribution to our having moved from subsistence living. Without money, you could not have a division of labor.

 

Money has taken many forms. At some points in our colonial period, tobacco was oover’s massive tax increase and the Congress’s theoover/Roosev

used in the south and dried fish in the north as money. There are a number of characteristics that experience over the millennia has identified as desirable in money.

 

In the transactions between willing sellers and willing buyers, you wanted money to play as neutral a role as possible and you wanted it to be a good store of value. To provide such a neutral transaction role, experience proved over many millennia that money should be a commodity which roughly cost as much to produce (its intrinsic value) as was its exchange value (its extrinsic value.)  This tended to produce a stable unit of measurement which enables participants in the market to make long time plans and, equally important, to compare alternate future uses of their resources without having to take into consideration the value of the money unit.

 

You would like a commodity that has a good shelf life, is easy to divide, whose quality can be determined with exactitude, and which has a high value per weight and volume. Over most of our recorded history, gold and silver eventually replaced all those other commodities as the money of choice.

 

Prior to the last century, there were only brief periods when we got away from commodity based money. To finance our break from England, our Congress authorized numbers to be printed on paper and called it money. After the war, those slips of paper with numbers on them gave rise to an expression which one used when you wanted to call something entirely worthless, i.e., “Not worth a Continental.”  There were other experiments with using something other than a commodity as money, something commonly called “fiat” money, but these experiments always ended badly.

 

Our founding fathers, having had personal experience with the pernicious consequences of a fiat money during the revolutionary war, specified in our constitution that the states and banks, at that time the issuers of money, could only use specie as money.

 

Just a few years later, during their revolution, the French also had a bad experience with using fiat money, money that was not based on a commodity.

 

Dr. Andrew D. White, founder of Cornell University, in his book entitled “Fiat Money Inflation in France” (available from The Foundation for Economic Education, Inc.,) described “that cancerous disease (inflation) which always follows large issues of irredeemable money” as “more permanently injurious to a nation than war, pestilence, or famine, a disease which has its roots far down in the whole system of irredeemable currency.”  “It stimulates overproduction at first” but “leaves every industry” prostrate afterwards. Inflation “breaks down thrift and develops political and social immorality.” This is a very, very strong indictment.

 

What causes inflation?  Nobel Prize winner in economics Milton Friedman has said, as have scores of other economists in similar statements, that “Inflation is a purely a monetary phenomenon.” What he meant by that is that if you take the amount of money and divide it by the amount of goods and services, you will come up with a price level. Increase your goods and services while holding the money supply constant and you are going to see a decrease in prices. This happened in America in the eighteen hundreds. Even without individuals earning more money themselves, individuals in America continued to live better and better. On the other hand, if you increase the amount of money without there being a corresponding increase in goods and services, prices are going to rise.

 

Businesses never cause inflation. If a car company raises the price of its car and John Doe buys one, the John Doe family will have less money for vacations, restaurant meals, and for sirloin meat. If the hotel, the restaurant, the beef seller wants some of the diminished money in John Doe’s hands as a result of his having paid more for the car, these sellers are going to have to cut their prices to get their share of the smaller amount of money still in John Doe’s hands. Thus, no inflation. Government and its monetary agents are the sole cause of inflation. If government attributes rising prices to greedy oil companies, farmers, etc., know that they are lying.

 

The brilliant economist Henry Hazlitt, author of “Economics in One Lesson” and many other masterpieces, wrote in his forward to Dr. White’s book: “the value of the monetary unit does not fall in exact proportion to the increase in the total quantity of money in circulation. When the quantity is at first increased, the individual eny Hazlitt (“author of “Economics in ne Lesson and many other masterpieces: “Theunit of money commonly loses its value much more slowly than the quantity of money increases. This means that more goods are bought with the increased money supply and we get the familiar stimulation of the first phase of an inflation.” We could call this Phase One. “But,” continued Hazlitt, “as the supply of money continues to be increased a fear begins to spread that there will be still further increases and a further decline is anticipated. The value of the monetary unit begins to fall faster than the supply is or can be increased.” At the end of this paper, I will be predicting the arrival of Phase Two.

 

According to Aubin Baltin, in 1967, 20 years before Alan Greenspan was appointed Governor of the Federal Reserve System, Greenspan is quoted as writing that “As the supply of money increases relative to the supply of tangible assets in the economy, prices must eventually rise. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.” A reporter asked Greenspan at his retirement what he would change in that earlier statement. Greenspan reportedly replied “Not a word.” 

 

A year earlier, according to Dr. Yuri Maltsev, Greenspan wrote that “An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire – that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.”

 

This is another proof of the truism “Power corrupts and absolute power corrupts absolutely.” In early 2006, Merryn Somerset Webb wrote in the London Sunday Times that “Greenspan has bequeathed his successor an almost inevitable crisis. His answer to every problem was to slash interest rates, making borrowing ultra cheap. The result is an America where everyone is in debt up to their ears. And they have fewer real assets than ever – real wages did not rise appreciably during the boom years. Greenspan has left the U.S. economy with vast and unsustainable imbalances.” The reporter quoting Webb in a “The Week, Feb. 10, 2006” article concluded “It’s going down and it’s not going to be pretty. Greenspan’s real legacy is still to come – when the housing bubble explodes and the U. S. economy comes crashing down.”

 

In a recent talk to the Ivy League Club of Sarasota County, that county’s Superintendent of Education boasted about how they were preparing their students for today’s emerging technological jobs. Since the government took over education, we seem to have strayed from Oliver Wendell Holmes’s 1888 admonition that education should be directed not so much to the accumulation of facts but in training students how facts can be best used.  The present crisis represents an enormous indictment of our educational system. Case in point: Bob Woodward is a competent wordsmith and obviously bright. He exposed in his book “The Maestro” his historical and economic illiteracy and absence of intellectual curiosity. Is this illiteracy and absence of intellectual curiosity his fault or was it the fault of our educational system?   I think the latter. In his statements and actions since taking over the Fed, Bernanke likewise has displayed similar shortcomings which again I attribute to our flawed educational system, both at the secondary and college levels. 

 

I did not hear of a single main stream reporter or anchorman question during the recent discussion of the U.S. Treasury’s bank bail out whether a free enterprise alternative might be considered. That great humorist Will Rogers said some 80 years ago, “I enjoy reading the New York Times because it does not tax my mind because it only gives one side of every issue.” That of course could be said today for almost every newspaper and TV news cast. Again, you have to feel sorry for the reporters and TV newscasters. This limiting ones thinking to only one position has to have an atrophying effect on ones brain.

 

Honest money is a great restrictor of government power and frustrating to those who want to use government to shape the lives of a country’s citizens. Hamilton wanted to avoid the limitations on government enforced by honest money by forming a national bank which would facilitate banks’ ability to create credit out of thin air. This is the fractional reserve banking system.  You deposit $1000 at your bank and the bank loans out $5,000 hoping that the holders of the $4000 created out of the air by the bank would not all show up demanding the $4,000 be given them in cash but knowing that if they did, the national bank would be there to loan the bank the funds to cover this call for cash..  Jefferson was against setting up a national bank but Hamilton got his way. Jackson ran for president pledging to dissolve the national bank. Jackson won and the bank’s charter was not renewed, giving us almost 80 years of a stable currency and explosive economic growth. Then came 1913.

 

The dishonestly named Federal Reserve System, the Fed, was supposed to bring monetary stability. It was and is America’s Central Bank. It is of course not true that it is independent of Congress. Congress has ordered it to be responsible for not only the stability of the currency in which task it has miserably failed but also to be responsible for the economy. The profits that it enjoys after paying all its very high salaries are remitted annually to the U. S. government. With the farthest stretch of the imagination, that can not be interpreted as independence.  Since its incorporation in 1913, the dollar has lost 99% of its purchasing power. (Source: CPI statistics released by the US Department of Labor) In the roughly 80 years after President Jackson slew the Fed’s predecessor, except for the printing press financing of the Civil War, the dollar kept 100% of its purchasing power. 

 

On this criteria, monetary stability, we have to give Jefferson and Jackson a 100% grade for monetary stability during the roughly 80 years prior to the reincarnation in 1913 of a central bank, the Federal Reserve System, and Hamilton and the Fed a zero grade on monetary stability since 1913. On this count, its Congress assigned mandate to provide monetary stability, it has totally, miserably failed and should be closed on this count alone. Of course, much more serious has been its contribution to the roller coaster on which it has contributed to putting the economy and the resulting human hardships this has caused.

 

Sadly, Jackson must have used a metal stake to the heart of the Fed’s predecessor which he called “the monster.” Maybe if he had used a wooden stake, the bankers would not have been able to reincarnate the “monster,” a central bank, in 1913.

 

In the eighteen hundreds, our free enterprise systems went through some adjustments. Such adjustments are what enable capitalism to stay in balance and, more importantly, become ever more productive. What are behind these adjustments are the invisible hands Adam Smith identified in his Wealth of Nations.  Entrepreneurs who plan and operate poorly are punished and their assets are transferred to those entrepreneurs who plan and operate efficiently. This winnowing out takes place constantly which smoothes out the ups and downs. And resulted in the American people enjoying constantly increasing real incomes.  Whenever you hear someone warn of the danger of deflation, the falling of prices, you have an instant reading on the fact that the speaker is historically and economically illiterate. Moving prices are a sin qua non of a smoothly running IRVAsm economic system and dropping prices mean higher standards of living.

 

Perhaps the most important signal in keeping the economy in balance is the interest rate. In a free market, if entrepreneurs see a demand developing that requires them to make capital expenditures for new equipment to satisfy it, they have to encourage more savings to encourage people to invest in the future rather than spending the money for their present enjoyment. This encouragement comes in the form of higher interest rates.

 

High interest rates encourage real savings. Real savings are only possible when a nation’s total production in goods and service exceeds its total expenditures. 

 

We do not have real savings when they are created by banks whose fractional reserve banking is facilitated by the existence of a central bank.  Counterfeiting money produces no new tractors, oil refining cracking towers, etc.  When new money is created, you do not get a phone call from your bank saying “The banking industry has counterfeited an increase in the money supply and so don’t be surprised tomorrow when you access your bank balance to find out that it has been increased.” Rather, you will find over time that not only has your bank balance not been increased but its purchasing power has been decreased.

 

In addition to facilitating more fiat money through the factional reserve process, the Fed can itself increase the supply of fiat money. As stated by Steve n Horwitz in Free Market Money: A Key to Peace, “The administration’s outlawing of private gold holdings in 1934 and the Banking Act of 1935 created a variety of new federal interventions. The most notable was giving the Federal Reserve new powers to create money through bond purchases, an example of using the monetary system to provide resources for a growing state.” (By a growing state, he meant a growing government.)  Horowitz went on to write that with Nixon’s severing of the last tie of the dollar to gold in 1971, “the ever greater inflation and macro economic disorder that characterized the rest of the 1970s and ‘80s were no surprise.”

 

Von Mises has shown that such counterfeiting results in a wealth shift. Those getting access first to the newly counterfeited money are able to use it to buy assets before prices in general increase. Those who had bank balances before the counterfeiting find that what they have in the bank commands less in the way of assets. This wealth transfer was highlighted by Jack Welsh, the acknowledged extremely competent CEO. Welsh said something to the effect that “We feel we pay well our executives in the various components of GE which actually create things, like turbines, refrigerators, etc. But what they make compared to the investment bankers is chump change.” The investment bankers are the first to get their hands on this newly counterfeited money.

 

In a Wall Street Journal October 18^th article, interest rate guru James Grant wrote “Artificially low interest rates, imposed by the Federal Reserve  itself, were one cause of……. the tree house of leverage that is falling down on our heads today. America’s privileged place in the monetary world was – oddly enough - another. No gold standard checked the emission of new dollar bills during the quarter century on which the central bankers so pride themselves” In the same article, he wrote that “Destroying confidence is what governments do best.” and “Inflation and moral hazard led directly to  … (our problems) ….Yet, to cure what ails us, credit creation and the public guarantees of banking liabilities are today the policies today most favored.”

 

When Obama says he wants to get America moving again, he is presumably referring to the recent economically unsustainable period in which our government and our citizens, encouraged by government, lived in an unsustainable way beyond their means. Again, don’t blame Obama. The educational establishment has usurped from parents the responsibility of educating our citizenry and has done an abysmal job in the areas of history and economics.

 

Here is what Thomas Paine, author of “Common Sense,” said about fiat money in 1785:  Any assembly authorizing paper money “is guilty of a most presumptuous attempt at arbitrary power. There can be no such power in a republican government because with such issuance, the people will have no freedom and property no security.”

 

The emergence on the scene in 1913 of the Federal Reserve with its destabilizing influences made our legal tender laws particularly egregious. These are laws which forbid individuals the right to make agreements to be settled in any currency other than their country’s currency. Using a competitive commodity based currency such as gold is forbidden. Contracts which can be settled in other than the government’s fiat money are not enforceable in the government’s courts.

 

Here is what Thomas Paine said in 1785 about legal tender laws: “The laws of a country ought to be the standard of equity and calculated to impress on the minds of the people the moral as well as the legal obligations of reciprocal justice. But tender laws of any kind operate to destroy morality and to dissolve by the pretense of law what ought to be the principle of law, i.e., to support reciprocal justice between man and man. The punishment of a legislator who would introduce a legal tender law ought to be death.”

 

I think it was Rothbard who said, “Money is important in the economy. It constitutes half of every transaction!” With government having usurped from the market the right to determine money’s value, it means that the government is represented in every financial transaction that takes place! It means that we have moved a long way from IRVAsm towards CRCEsm.  You can think of it this way: The government says to business: “We want you to continue to produce the miracle in the way of wealth that you have previously produced but we are going to put this blindfold over your eyes in the form of fiat money and below market interest rates.”  No wonder we have a crisis! But it represents a failure of CRCEsm, not IRVAsm!

 

We now have the credit market seizing up, a symptom of an economy out of synch. With the U.S. Treasury, the Congress and the Fed jack booting over the economy, is there any wonder the American public has moved to the sidelines to await what the final results will be of all these counterproductive moves?  Particularly destabilizing have been the statements by several congressmen that courts should be given the authority in home foreclosure cases to modify the principal balances and interest rates of the mortgages. A statement by Senator Glass quoted by Thomas Woods in his article “The Gold Robbery of 1933” is as valid today as it was when Glass said it in 1933.  

 

Roosevelt, like all the government entities are doing today, was massively interfering in the operation of the free market, all with horrific counter productive consequences. According to Dr. Woods, after Roosevelt forced all Americans to turn in their gold holdings and made it illegal for Americans to own gold, Roosevelt kept changing the dollar/gold conversion rate. He had confiscated the gold at $17/ once and then, after the government had the gold, kept raising that rate. In the midst of this economically unsettling environment, Senator Glass said that “The only private individual who would loan money on a farm mortgage today would be a lunatic in an insane asylum.” 

 

There was a headline in the Wall Street Journal a few years ago reading “The World Is Awash In Cash!” That wealth is going to stand on the sidelines until the American people reclaim from government control of the economy. We must always remember Senator Glass’ words: “The only private individual who would loan money on a farm mortgage today would be a lunatic in an insane asylum.” 

 

In an unhampered market, the free enterprise or IRVAsm system, through the interest rate and price messages it receives, performs almost miraculously in increasing all our wealth. However, we have to admit, not perfectly. The market expands and consolidates and sometime slightly retracts to meet the orders of the controlling buying public. So for the 80 years prior to the 1913 reincarnation of the monster, the Federal Reserve System, we have to give Jefferson and Jackson only a 95% grade. But again, we have to give Hamilton a zero percent grade for economic stability in the 85 years since 1913. The institution of Hamilton’s plan for an economy directed by a central bank has materially contributed to our ensuing economic roller coaster ride.

 

Robert Murphy in his article “The Great Bank Robbery of 2008” wrote that economists are having difficulty analyzing the consequences of the U.S. Treasury’s $700 billion plus bail out Amilton and his followers were able to get national banks

because they are trying to treat this as an addition to the credit market rather than as a crime scene. In very simple terms, this is a straight-up transfer of $700 billion – and counting – from the taxpayers to a few big financial institutions. The Paulson plan does not create wealth.” Wrote Murphy: “It is the crudest Keynesianism to view the Paulson Plan as an injection of capital or “liquidity.” That money has to come from somewhere. If it is taxed or borrowed, then it is just a shell game; the liquidity is drained from elsewhere, to be injected into Wall Street. Besides taxing or borrowing, the Federal Reserve can simply create the new money out of thin air, by engaging in open market operations. Yet even in this case, real wealth still hasn’t been created. “

 

Murphy ended his article with the statement that “Far from providing stability and confidence, the Fed, Treasury, and SEC’s recent moves ensured that US capital markets will now function with the same efficiency as public education in this country.”

 

I wonder how many of those fashioning the bail out were aware that Karl Marx proposed centralization of credit in the banks of the state. D. W. McKenzie wrote that Marx wanted to leave distribution in private hands but to control all capital investment to meet goals established by central planners. Since socialism can be defined by communal control of capital, McKenhzie wrote that Marx believed that socialism required state control of investment and finance.  Mises argued against such control of capital, attributing special significance to financial markets and private financial institutions. Mises predicted that socialist officials would not determine investment by rational calculations in terms of money but would be guided by political expediency. That last sentence is worthy of being read again.

 

One American economist warned in the good times back in 2006 that “the extent of our nation’s dependence on imports is simply without precedent in the annals of international finance. The flow of deficit financing capital is a reversal of the usual pattern with the flow now moving from poor to rich nations rather than the historical flow from rich to poor nations.“

 

Any long term plan for rescuing the economy from the mess that the Supreme Court, Treasury, the Fed and Congress has made of it will have to take into account this enormous, incoming flow of capital and even more important, recognize the changes that have helped bring it about if we are to avoid counter productive effects of protectionism further compounding our challenges. That pressure for protectionism which primarily came from the manufacturing sector in the nineteen thirties will now come from the service industries with factory sector employment now accounting for only 10% of the total today and with services accounting for 75% of that total.”

 

How did we get in this mess? If you wanted to assign blame, I would list first our Supreme Court.

In the nineteen thirties, the Supreme Court permitted the president and the congress to do things that previous courts had ruled unconstitutional. Key were their rulings that the Commerce Clause: trumped Enumerated Powers restrictions. Congress and the president were in effect told that in the economic sphere, they could do anything they wanted. I recommend “The Dirty Dozen” by Levy and Mellor which identifies the crucial cases.

 

An enormous hole was torn in our Constitution. And with the weapons for mischief represented by the reincarnation in 1913 of a central bank, the monster, and the passage in the same year of an income tax, the Congress and the president were free to move through this gigantic hole with enormous power.. And they did.

 

Once again, it was proven that “Power corrupts and absolute power corrupts absolutely.”  Hoover and Roosevelt and their congresses turned a recession into a major, unprecedented ten year long depression, ended only by WWII.

 

Foreign central banks could still demand gold for their dollar holdings in the nineteen sixties. If still true in the seventies, the outflow of gold could have forced the U. S. to start living within its means with respect to its balance of payments. Instead, Nixon stiffed the rest of the world, reneging on that promise in 1971 and, in doing so, removed that limit on irresponsible international spending.

 

Why didn’t the credit rating agencies blow the whistle? We have a credit rating oligopoly thanks to state and federal regulation According to a WSJ editorial, “a small handful of government approved credit rating agencies pass judgment on the risk for all  debt securities” and their “Assets deemed rock solid by the government’s favored risk experts have been proved nothing of the kind.” According to the WSJ editorial, “The most regulated institutions got into the most trouble with the less regulated institutions having had the fewest problems.”  This boils down to complacently believing that when the government is involved, all will be well. As we know, this is always, always untrue. The Community Reinvestment Act of 1977 compelled banks to make loans to sub prime borrowers. “Subprime” is a euphemism for borrowers with lousy credit. The two government sponsored be-mammoths, Fannie and Freddie, were ready to take these questionable loans off banks’ hands.  These questionable mortgages are what made up a great deal if not most of the mortgages that were securitized and sold by Wall Street.

 

Pierre Lemieux writes in “A crisis of Global Statism” that even before the crisis, the American mortgage market was a paragon of socialism, unparallel in any other Western country.” When Paulson said” “I don’t believe in raw capitalism without regulation,” he was restating what had been official government policy for over a century.  Lemieux advises us that “In addition to the counter productive results of all the regulation, Nobel prize winning economist Fredrich Hayek and his tutor, Ludwig von Mises, long warned  us of an impending disaster if money was continued to be pumped into the economy to prevent necessary adjustments, assuring a bigger crisis down the road.

 

Lememiux expresses the truism that “There is no inherent reason to trust the state to regulate efficiently. The state is made of men, politicians and bureaucrats, who respond to their own incentives and interests. If down the road, political gain can again be made by expanding mortgages and postponing a crisis to future politicians, that path will be pursued.”

 

You might be thinking, I am convinced that capitalism works better than socialism but we are now in a crisis. Don’t we have to depend on government when we have as big a crisis as they have now caused? We have some case studies that can help answer this question.

 

The Second National Bank, predecessor of the Fed, did what all central banks do. It facilitated an increase in cash and credit with the inevitable large misallocations of capital. In 1839, prices fell by as large a percentage as they did in 1929. However, by 1839, President Jackson had let the central bank’s charter expire and thus there was no monster to bail out those entrepreneurs who had planned poorly. They suffered. However, the nation as a whole did not. In the following four years, in spite of these swooning market clearing price reductions, our nation’s gross national product actually increased!

 

In the nineteen twenties, the first decade after the Federal Reserve had been in existence, the nation’s money supply was increased by 60% if you include insurance policy cash balances. (Rothbard)  Again, there were massive misallocations of resources. In 1929 like in 1839, prices precipitously dropped. President Hoover and later president Franklin Roosevelt did all they could to keep the market from punishing those who had planned and acted imprudently thanks to the false signals initiated by the Federal Reserve. Unlike in 1839 when the government kept out of the market with incredibly beneficial results, in the four years following 1929, our government did not refrain from acting and our nation’s gross national product plummeted.  One out of five Americans found themselves without a job with the concomitant human suffering! 

 

So in good times and bad, the market works far better than government planning.  And how could it be otherwise? The market needs knowledge to operate efficiently. In America, that knowledge comes from the daily input of 300 million consumers as reflected in their buying decisions. What arrogance for 1000 or even ten thousand central planners to think that they have more knowledge than 300 million American consumers!

 

Environmental Damage And Human Suffering

 

Another counterproductive effect of the Congress’ efforts to improve our lives has been the colossal counterproductive environmental consequences they have had.  In the last years of the nineteenth century and early years of the twentieth, private enterprise built extremely efficient mass transit systems, both in our cities and with their surrounding suburbs. When I was a young man growing up in a western suburb of New York, most of our town’s workers commuted by train or bus each day into the city. Now, as a result of the cost of doing business in the city as mentioned previously in this paper, there is a heavy flow westward. In cars. To offices and factories on paved over farm land.

 

As business moved westward out of Chicago, their workers moved even further west, commuting back to what had been Chicago’s suburbs and covering some of America’s most productive farm land with sub divisions.

 

The social tragedy is that this move left those at the lower end of the economic scale stranded in the inner cities. Without jobs! With little hope!  Further, this move left America separated as it never had been in the past. With all the negatives that bodes to have for the future.

 

The final point I want to make before laying out my opinion as to what will be the guide points as the crisis deepens in the years immediately ahead is to talk about moral hazard. Jorg Guido Hulsmann in his article “The Political Economy of Moral Hazard” defines moral hazard as “the incentive of person A to use more resources than he otherwise would have used because he knows or believes he knows that someone else B  will provide some or all of these resources.. Hulsman writes that “A genuine moral-hazard problem appears if A has the possibility to use B’s resources against B’s will.” According to Hulsman, “Layman would call A’s incentives a temptation to steal while economists, ever wary of moralizing, have called this a moral hazard.”

 

In fashioning a replacement economic system for what now exists, moral hazard must constantly be kept in mind. Here is what Hulsman continued on the subject:

 

Fiat money creates moral hazard on the side of the money users – the citizens, the banks, and the governments – because they sooner or later come to realize that the masters of the printing press have the power to bail out virtually any bankrupt firm or government. Thus, they engage in reckless financial planning expecting that the monetary authorities will not allow a greet mass of reckless planners to go bankrupt. This speculation has been borne out by the last thirty years.

 

All contemporary fiat money systems are based on legal tender privileges. Paper money – as well as electronic money (central bank liquidity) – does not compete with other monetary products on the free market but is imposed. ……  This fact entails moral hazard on the greatest imaginable scale, both on the part of its producer and on the side of its users.

 

Fiat money provides moral hazard for the fiat money producer because he has the possibility of creating ex nihilo virtually any amount of money and thus, to buy virtually any amount of goods and services for sale with the only limit hyperinflation.

 

Financial bubbles are the unavoidable result of such a state of affairs. If more or less every major participant to the financial market is subject to moral hazard, then in due time even the smaller traders realize that the bigger fish play the moral hazard card, and thus they venture to set off on the same path.

 

This means that that the market participants sooner or later come to base their plans on the availability of a far greater quantity of goods and services than is available. In short, paper money by its simple existence produces error on a large scale.

 

As in other cases of interventionism-induced moral hazard, the negative effects of fiat money cannot be neutralized, avoided, or diminished through anticipations. And this means they can not be managed through the management of expectations.”

 

As mentioned previously, it is essential that in fashioning a replacement economic system to our present heavily socialistic system, at all points the potential impact of moral hazard must be taken into account.

 

What we have in the credit crunch is not a failure of capitalism, of IRVAsm, but another example of a failure by government in its attempts to direct the economy. With a horrendous cost in human suffering.

 

We now are presented with a choice. We can let ourselves sink into an economically poor CRCEst society or move the power back to the American people within an IRVAst based society.

 

What We Can Expect Over the Next Several Years by Extrapolating From Past History

 

I imagine that some of you are here because I promised to give you my best guess as to what economic developments would be over the next 4 or 5 years. This projection would have played out the same way if McCain rather than Obama had won the presidency.

 

I confess that I am following a template, that of the history of other countries and particularly that of Argentina. Argentina had one of the highest per incomes in the world prior to the ascension of the Perons. I have read that when a Broadway show wanted plausibly to feature an extremely wealthy young man, he was an Argentine, not an American. The source of their wealth: The free enterprise system and incredibly rich farm land.  Peron forced the farmers to sell to a government marketing board at below world prices and then proceeded to sell the food stuffs at world prices, using the profits to attempt to direct industrialization of the country. In the process, one of the largest bureaucracies per capita in the world was created, both at the national and state levels. A couple of decades later, the per capita income had been reduced from one of the highest to approaching the level of Bangladesh.

 

On the spiral downward, here are some of the things the government of Argentina did: 

            Price controls; defaulted on its national debt; seized dollar bank accounts;

Devalued the currency against foreign currencies, with its money creation caused hyperinflation, nationalized businesses, set confiscatory tax rates in the interest of fairness.

 

When Peronista Party president Nestor Kirchner hit a term limit, he ran his wife Christina Kirchner who continues Peronista policies. She has just sent to the Congress which is controlled by Peronista deputies a bill to expropriate all private pension funds. Think 401Ks. (WSJ Editorial)

 

Draconian policies have not been limited to Argentina. When England entered WWII, they made all Englishmen turn in their foreign stocks for British bonds. After the war, all the countries of Western Europe had exchange controls in place. Dollars were not available to their citizens for tourism.

 

We must remember what Hazlitt said about inflation. As the printing press goes into high gear, inflation does not immediately keep up with the increase in the money supply. However, as individuals grasp what is happening, the inflation exceeds what it would be if just applying the mathematical rate of money creation. Then it slips into hyperinflation. Whenever government has turned to making money by printing numbers on pieces of paper, it has always ended badly. Always.

 

So here we go with some number estimates:.

 

This year the inflation number which includes housing and energy will be around 13%. The money base has grown from approx. 200 billion to a trillion over the last 20 years. In the last couple of months, Treasury and the Fed have promised almost another 2 trillion in financing. The market will likely refuse to come up with that money and so they will have to resort to the printing press at least for a substantial part of it. The Federal deficit in the year ending September, 2009 is expected to reach a trillion dollars. So it is only by applying the economists’ delayed impact rule that we say inflation next year will be only around 20%. But the following year, double. So, 20% in 2009, 40 % in 2010, 80% in 2011 and slipping into hyper inflation in 2012. Those are my frightening best estimates.

 

I would anticipate foreign exchange controls to be imposed by the end of 2010. So if you want to do some foreign travel, I would advise not delaying the trip.

 

I would expect a repeat of President Roosevelt’s 1933 confiscation of all American citizen owned gold by the end of 2011 at the latest.

 

Price controls will come no later than the beginning of 2011. When shortages begin to appear, government will place overseers in every major company to make sure they are continuing to manufacture goods.  However, this has never worked efficiently and rationing will have to closely follow the imposition of price controls.

 

Industry will be left in private hands but they will be closely monitored as mentioned by on site overseers and all investment decisions and all control of capital will be under the control of the government. As mentioned, control of all capital investment decisions by government controlled banks was Karl Marx’s plan and we took a big step in that direction with the Treasury Department’s forced sale by banks of equity positions.

 

If nothing is done NOW to educate America about the path we are on, by the end of this road, Americans will be so morally bankrupted by the debilitating effect of living by stealing from their neighbors and by the destruction of self confidence by hyperinflation, that we will lack the moral courage to reject a complete transfer of individual responsibility to government. And we will meekly accept the drastically reduced living standards to which such supine behavior has reduced the Argentines. However, by constantly educating Americas during the next few years with the facts, giving them the history that will enable them to clearly see why we are on this downhill toboggan ride, there is a chance that Americans will again grasp control of their future by rejecting CRCEsm.

 

When the bankers decided that they were going to reincarnate the monster, a central bank, they knew that they had an enormous job. The American people mistrusted banks and they wanted no part of a central bank. So they had to lie. On November 22 1910, five bankers, a US Senator, an economist and a central bank technocrat decided to sneak away to fashion the secret plan on how best to reincarnate the monster. The latter, the technocrat, was Warburg who had recently arrived from Germany fully steeped in the workings of that country’s central bank. As an aside, the war profiteer Daddy War Bucks of Little Orphan Annie fame was supposed to be patterned after Warburg. They stole away from New Jersey in a private rail road car. When a reporter got wind of the trip, he was lied to that they were going on a duck hunting trip. In the week they spent on Jekyll Island, they fashioned their game plan. Warburg is reported to have said “Advance is possible only by outlining a tangible plan.” It is important that those who want to undue what this group started also have a specific plan to present to the American people.

 

The group on Jekyll Island decided that the American people would never just buy the imposition of a central bank and so they decided to hide what they were structuring, a central bank, by disingenuously calling it a Federal Reserve System and setting up offices around the country to disguise the fact that it would be controlled by Wall Street.  To further overcome any perception that this would be a Wall Street controlled institution, they formed the National Citizens League for the Creation of a Sound Banking System in Chicago rather than in New York to lobby for a central bank. Over a decade later, one of its members “frankly conceded that the Citizens League had been a propaganda organ of the nation’s bankers.”  (Rothbard: “A History of Money and Banking in the U.S.”)

 

In 1913, a year after Theodore Roosevelt had taken enough votes from Taft to enable Wilson to become president, we got the income tax, the direct election of US senators, thereby drastically diminishing the influence of the states on Washington, and the Federal Reserve System, America’s central bank. The later helped put our economy on a roller coaster. Ludwig von Mises, perhaps the most insightful economist who ever lived, put it succinctly this way in 1931:

 

“The appearance of periodically recurring economic crisis is the necessary consequences of repeatedly renewed attempts to reduce the “natural” rates of interest on the markets by means of a banking policy. The crisis will never disappear so long as men have not learned to avoid such pump-priming because an artificially stimulated boom must inevitably lead to crisis and depression. ….. All attempts to emerge from the crisis by new interventionist measures are completely misguided. There is only one way out of the crisis. Forget every attempt to prevent the impact of market prices on production. Give up the pursuit of policies which seek to establish interest rates, wage rtes and commodity prices different from those the market indicates.”

 

History has proved Mises right time after time. If government will just get out of the way, honest money will emerge facilitated by modern communication technology and assets will move from less capable to more capable hands. The country will go into economic upward orbit. However, this will happen only if every American reader of this paper dedicates himself or herself to being a proselytizer for freedom, for IRVAsm. We must always remember the normal human condition it serfdom, CRCEsm.

 

If you are interested in the history of this period, I recommend the book “The Secrets of the Federal Reserve.” The author names the names of the individuals who persuaded Theodore Roosevelt to run and financially supported him to take enough votes from Taft to enable Wilson to win and how these individuals were all connected to New York bankers. He also names the names of those involved in the Chicago “independent” effort to lobby for a central bank and how they too were financially supported by the bankers. It is a story of almost unimaginable deception. If you like stories involving deceit, you’ll love this story. It is the story of the Federal Reserve System.

 

AmendmentRepairs@tampabay.rr.co

The Way to Avoid the Argentine, the Zimbabwean, the American Nineteen Thirties & the German Nineteen Twenties Experiences.

 

The legislatures of two thirds of the states should call for an amendment or amendments to the US Constitution as permitted by Article V of the U.S. Constitution.. The initiation of the amendments by the state legislatures is recommended because it will be neigh impossible for the Congress to return to the states and the people the powers that it has usurped from the states over the years. This usurpation has of course been made possible by a handful of unelected jurists on the Supreme Court with the resulting incredible suffering by millions and millions of Americans.

 

One amendment should provide that “Neither the Congress, the Federal Executive Branch, the Federal courts nor any of their departments or Federally funded entities shall fund, issue orders with respect to, or adjudicate any matter relating to employment, health, or education. This provision shall not become effective until five years after the amendment’s passage to permit the states to pick up as many of the Federal government’s initiative stifling, financial burdens as they chose.”

 

This amendment will shift power back to the states. The financial discipline that will be on the states that is not on the Federal government is that they have to compete with other states and the Federal constitution forbids them to manufacture money. If Michigan abrogates to itself many of the debilitating, dehumanizing programs now financed by the Federal government and Michigan’s citizens end up with a per capita income half that of Florida, the citizens of Michigan will be encouraged to move towards righting that inequity. That is the miracle of freedom and competition.

 

The amendment shall further apply the same restriction on the Federal government of the United States that are in the existing restrictions on the states that are in Article II, Section 9 with respect to money and debts. The Amendment shall state something to the effect that “The United States Congress shall issue no legal tender laws and the United States’ courts and states’ laws with jurisdiction over any contested financial matter shall enforce payment in any medium specified in agreements between willing participants and shall not enforce any legal tender laws and neither the Congress nor any state shall pass any law impairing the Obligation of Contracts.”

 

Wages are of course in the end set by consumers, not by employees or employers. They are set by what consumers are willing to pay for workers’ contributions in the production of goods and services. Probably the most immoral and counter productive laws ever passed are those that in effect say “If your skills are not above what lawmakers say is the minimum wage permitted, it is illegal for you to work. Illegal to work! Monstrous! An amendment should provide that “No law or agreement shall be made by the United States or any State or any private entity or any sub entitles thereof establishing a minimum wage below which it is illegal to work.”

 

The banking industry is the most regulated industry in America. In what other industry can the government tell a business who their customers will be and what the credit terms will be in sales to such customers? When Congress says the present crisis is due to a failure of non regulation, it is akin to one of the lies that Hitler’s Minister of Propaganda told during Hitler’s rise to power. Goebbels maintained that if the lie is large enough, people will believe it. Congress apparently believes that Goebbels assertion.

 

History has given example after example of the danger of having bank and state acting together. I will leave it to the free market economists associated with the von Mises Institute to fashion the wording but there should be a an amendment mandating the separation of bank and state.

 

An oft retold truism is that “Every democracy must ultimately fail when people realize they can reach into the treasury and pay themselves.” That is why the founding fathers were so careful in framing a republic rather than a democracy. Central to this was that the United States government could never steal from A to give to B. The founding father assured this by specifying that the Federal government’s powers would only be those enumerated in the Constitution. Stealing was not one of those enumerated powers. Sadly, the Supreme Court tore an enormous hole in our constitution in the nineteen thirties when it said the “General Welfare” clause trumped the “Enumerated Powers” restrictions. This opened the door to the Congress taking from individuals so much of their economic freedom. (The Dirty Dozen” by Levy and Mellor)  If we drop from our consideration, Hitler, Stalin and Mao, can there be any other example of unelected men, our Supreme Court, causing so much suffering, so much horror and so quickly putting a nation hurtling towards the shackles of a complete, all powerful, autocratic government?  This must never be permitted to happen again. So much power to legislate must never again be given to five of nine unelected judges. There is a way this can be done.

 

To preclude our again having a constitution re writing Supreme Court, we must have an amendment creating a state empowered National Court which can review and overturn with a simple majority cases in which the Supreme Court takes it upon itself to rewrite the Constitution. The National Court could be made up of the Chief Justices of the State Supreme Courts of all the states and meet once each 10 years or on the call of the governors of 25% of the states to review Supreme Court case rulings.  The operational rules of the National Court could be left to the State Supreme Court justices to write. The states could put the creation of a National Court superior to the present U.S. Supreme Court in the constitutional amendment previously mentioned or put it in a separate constitutional amendment.

 

Over the last election, I was exposed to the intensity with which so many Hispanic Americans have decided that they never want to assimilate. This un American desire, this unacceptable view point, this threat to America has to be met head on. There should be a provision in an amendment that “Neither the .U. S. Government, nor the States, nor any of their sub divisions and no private entity may write up any laws, rules, regulations, or instructions in any language but English.

 

Of course, the reason Hispanics never want to be assimilated is what they see as the state of the family in America. They arrive with intact families but soon face the horror unleashed by the Supreme Court in tearing the large holes in the constitution. These holes enabled the Congress to legalize A stealing from B. And this led directly to the social crisis we now face. I went to a family support foundation’s dinner where we were told that a significant percentage of the 9^th graders in Manatee County, Florida schools have already had sexual intercourse. In our CRCEsm society, many of the Hispanic young men join gangs with many ending up in jail. Is there any wonder the Hispanics want no part of such a society?

 

After approximately 300 years without an income tax here in what is now the United States, we passed the Fifteenth amendment to the constitution. This permitted Congress, once the Supreme Court had condoned it, to ignore property rights and steal from A to transfer wealth to B. This amendment shares with the creation of the Federal Reserve and the rulings of our Supreme Court the responsibility for undermining morality in America and bringing such horror to the families on the lower steps of the economic ladder. An amendment should provide that “The XVI amendment is hereby repealed and no capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” as was in the constitution as originally written

 

We  need to insist that congress keep its books on an accrual basis. It passed a law in the twenties requiring this but the congress has never followed this law. An amendment should require it.

 

For political reasons, an additional amendment or amendments should probably exempt social security and Medicare from the transfer of power to the states but have a provision directing the U.S. Government to phase out its dishonest, ponzi social security financing, directing the government on a phased in basis to put these programs on a funded, actuarially honest basis in such a way as to protect existing workers and retirees. And to hold private pensions to the same standard. (See the attached plan laid out by the Sarasota Economics Club.)

 

This social security rewriting amendment could be popularly called the Peter Peterson Amendment. Mr. Peterson, founder of I.O.U.S.A., chaired a meeting of the Fortune 500 Association. This is an association of presidents from America’s largest companies.

 

When addressing any problem, often the most difficult and critical task is to correctly state the question. Mr. Peterson was leading a discussion on how we address America’s present negative savings rate. He asked the key question: “How can we get Americans to save more?” Eurika! That is the question that has in it its own answer.

 

At present, there is a major disincentive to save. With its Ponzi retirement schemes, the Federal government is dishonestly assuring our young that their money will be there to cover their medical and retirement needs in their retirement years. And the Federal government dishonestly taxes 15.30% (up to the salary cap limit) of all salaries which it promptly takes for its current expenditures and replaces these funds with I.O.U.s which will have to be paid by tomorrows workers before their money can be repaid to today’s workers.

 

Dr. John Goodman in Hillsdale College’s “Imprimis” newsletter writes that “The Congressional Budget Office’s projections show that Medicare  and Medicare alone are going to crowd out everything else the federal government is doing by mid century. And that means everything.” Dr. Goodman continues that.  “Today’s teenagers are unlikely to receive medical care during retirement if they must rely on future taxpayers because taxpayers of the future are unlikely to be willing to be living in poverty in order to pay their elders’ medical bills.”  And of course this would hold for social security payments as well.

 

Not only is the Federal government dishonest in scarfing these social security deducted funds and spending them for its current needs but it has an additional negative consequence. It takes from today’s capital markets funds that today’s workers would otherwise have available to invest for their tomorrow’s needs.

 

America has achieved a higher standard of living for its people than any other major nation because we have put more capital behind workers than any other such nation. It is in providing capital to increase productivity that enables a country to raise the living standards of its citizens.

 

So the answer to Peter Peterson’s brilliant question, “How can we get America saving again,?” is that we must give our younger workers the opportunity to opt out of the Federal government’s Ponzi social security schemes. See attached paper on Social Security reform prepared by the Sarasota Economics Club for more details on why and how an honest plan can be phased in.

 

Obviously help is needed in wording the components of this amendment or amendments to repair our constitution from the damage done to it by successive Congresses and unelected judges. Anyone interested in working on this project is encouraged to put the above suggestions plus any additional repair work which is believe to be called for in legal form and email such drafts to AmendmentRepairs@tampabay..rr.com. A workable sized group chosen from those submitting such drafts will be convened to prepare the final version to be submitted to the legislatures of the fifty states for their consideration.

 

Conclusion

 

We have just come through our Century of Shame. Those of us who lived in this period should feel shame for failure to stop or even slow this drift to an autocratically directed nation, for this shift from IRVAsm to CRCEsm with its resultant explosion in individual suffering.  To atone for our guilt, I invite all to join in this effort to educate America to the eternal truth that man is either free or slave, that there is no middle ground, that we are always moving towards the one or the other.  Von Mises in his voluminous writings made this point time after time.

 

When hyperinflation hits, it will be too late to educate Americans why the hyperinflation is happening. The education must be given now. It won’t be believed now but at the time of crisis when the CRCEsts ask for complete submission, Americans will know that there is an alternative, IRVAsm, open to them. I invite you to be, at the very least, one of our educators!

 

It is important that we remember that we are in a lot more exposed situation today than we were in 1929 when we still had a manufacturing base, a more stable money, and were net creditors to the world rather than debtors.

 

Let me know any suggestions you might have as to what existing organization might be approached to help us refine the constitutional amendment and what organizations can help us build the educational organization that will result in our IRVAsm based constitutional amendment being adopted when we face  hyperinflation and enormous unemployment.

 

The Horizon

 

With modern communications enabling us to communicate with each other individually (the internet, ebank, ebay, Amazon and the other thousands of trading platforms), if our amendment(s) is adopted, we will have an explosion in wealth creation and incredible opportunities for all to earn their share of this newly created, actual massive wealth. The details of how that will come about will be determined by 300 million Americans operating independently. Freedom has always created such economic miracles. There is an enormous drone constituency in America which will be desperately fighting to prevent this shift of power back to individuals in their roles as producers and consumers. However, if freedom loving individuals will assume their responsibility and get this story out to America prior to the ultimate crisis, freedom, not serfdom, will carry the day at the point of ultimate crisis! So, the future is in your hands.

 

Here is a number I urge you to keep in mind to keep from getting discouraged as you do your part, as millions of Americans from whom you inherited your freedoms did before you, in putting America once again on an an IRVAst path. It is easy to get discouraged by the economic and historical illiteracy of the Woodwards, Pelosis, Waxmans and Reids but the overwhelming percentage of Americans know instinctively that they are on the wrong track. I heard IRVAstic Congressman Mike Pence say on TV that the phone calls, letters and emails received by members of congress against the 2008 $700 billion bail out were 100 to 1!

 

 

 

Disclaimer:

 

Other than the personal experiences cited herein, to my knowledge almost none of the statements made or conclusions reached herein were originated by me. They came from my readings. If you recognize an author of one of the statements that has not been acknowledged by me, please let me know so that I can acknowledge him or her.  The specific future estimate numbers and dates and prognostications included herein are mine alone and not those of any of the 18 economists I heard at the von Mises Institute or of any of the cited authors.

 

 

 

 

 

William B. Grant

  Email: grantwb@tampabay.rr.com

Wharton   ColSrHonorSoc.  Eagle Scout   Former  Scout Master,, Church Deacon, Coach

Former Town Chmn of Rep. Party & Commissioner, Montclair, NJ    Former Republican Candidate For Congress   

Founder NJ Chapt. TCC    94th%’tile LSAT      Former Member CNP     Naval Off.-Korean War    

Entrepreneur ‘60 to ‘89 (Largest of 450 Dis. ATofS of SBS, Inc.)   H.S. Class Agent   2006, Pres., Ivy League Club Sara. & Man Cties, Founder, Sarasota Economics Club    Agent, www.dubravushka.ok.ru     Conversational in French and Russian.    19 Years A Floridian

Republican Exec. Com. Representative for Manatee County’s  Dis 90      Coordinator, Man Cty Repub Com’s Minority Outreach Com.

 “All that is necessary for evil to triumph is for good people to do nothing.”