Liberty vs. Leviathan

Chronicling Liberty's battle against Leviathan

Fixed

Despite the fact that the fix has been in since the days of FDR, Bernanke’s press conference this week is a sure sign that Keynes is on the ropes.

And just in case you missed EconStories‘ “Fear the Boom and Bust” from last year…

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Easier and easier

Whether Obama or Bush,  Democrat or Republican, liberal or conservative, Ray Stevens cleverly illustrates the depravity and absurdity of those in DC who deign to rule us.

[HT to Steve]

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Your dollar

David Breuhan, money manager and author of Spread the Wealth, reminds us in “An Appeal to Reason” of the detriments and immorality of the inflation created by the policies of the Federal Reserve:

Since 1913, it has engaged in a deliberate policy of inflation- an expansion of the money supply that has resulted in precipitously rising prices. Inflation benefits debtors at the expense of creditors. It benefits those with market power who have the ability to increase prices without losing market share. Inflation destroys real capital and overstates profits. It encourages speculation and spending, at the expense of prudence and savings. Inflation discourages ownership and fosters renting, depriving people of private property and liberty. It hurts those on fixed incomes, especially the poor and middle class…

…There is no historical evidence that a nation which relies on the excess creation of money will benefit from long term prosperity. In actuality, the opposite occurs.

… and calls for Congressional action to

  • stop the Fed’s purchasing of Treasury debt
  • prohibit the Fed from setting interest rates
  • eliminate the Fed’s ability to implement inflationary policies

I have my doubts that this will occur but it would be a great first step that has been made more possible by the recent appointment of Ron Paul as Chairman of the Domestic Monetary Policy Subcommittee

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Insidious Inflation

In an essay published in 1942, Ludwig von Mises laments the public’s “widespread ignorance” of the social implications of inflation then proceeds to define and describe what those implications are. He explains the harm visited on creditors and points out that all of us, in one way or another, are creditors. He discusses the advantages and pitfalls of different hedging strategies. Moral and political effects are examined as are the downfalls of using inflation, as opposed to taxation, for government funding. All of these points are presented after describing three assumptions he makes of his readers; three assumptions that form the foundation of his discussion. The first being, that “everybody knows that inflation consists of a large increase in the available quantity of money and money substitutes such as bank credits.”  Secondly, that “everybody…knows that a general rise of prices and wages is the unavoidable and inescapable result of inflation.”  And finally, that “most people realize that when inflation is going on price control is a quite ineffective method of controlling prices and wages; at best, it is a temporary expedient to break or postpone the force of inflationary effects.”  The point to note is that Mises assumed the reader understood the definition of inflation; its genesis – an increase in the quantity of money; its effects – an increase in prices; and what would not work to squelch it – price controls.

Less than nine years later, Mises spoke out against the temptation and trend of governments to use inflation as a means of funding government expenditures. Contrary to his essay just described, he no longer assumed that the public knew the correct and traditional definition of inflation, in fact, quite the opposite. He states, “What makes it possible for a government to increase its funds by inflation is the ignorance of the public. The people must ignore the fact that the government has chosen inflation as a fiscal system and plans to go on with inflation endlessly. It must ascribe the general rise in prices to other causes than to the policy of the government and must assume that prices will drop again in a not-too-distant future.”  From this we see that in the span of less than nine years, Mises’s observation is that where in 1942 the public knew inflation was an increase in the money supply, in 1951 it did not; where in 1942 the public knew that price increases where the result of inflation, in 1951 it did not; and where in 1942 the public knew that in an inflation prices would continue to rise, in 1951 it did not. In fact, the assumption was that, somehow, prices would soon drop.

At the end of his talk, Mises takes time to warn of a “…reprehensible, even dangerous, semantic confusion…” that has overtaken the use of the word “inflation”. No longer do people use it to refer to the increase in the quantity of money, but rather it is used to describe the consequence of inflation, the rise of prices. This confusion thus leads to an atmosphere where one is not able to discuss the cause of the rise in prices as there is no longer a term to describe the cause of the rise in prices.  Since it can not be discussed it can not be fought and those who claim to be fighting it, the government, are merely posing as inflation warriors, all the while only fighting the symptoms of inflation, not attacking “…the root of the evil”.

Ron Paul is not one who has been fooled.  In a statement given on the the House floor last year, Paul clearly strikes at ‘”the root of the evil” and makes clear to all who will hear the fate that awaits those who live in an inflationary economy:

…Inflation facilitates deficits, needless wars and excessive welfare spending.

Debasing a currency is counterfeiting. It steals value from every dollar earned or saved. It robs the people and makes them poorer. It is the enemy of the working man. Inflation is the most vicious and regressive of all forms of taxation. It transfers wealth from the middle-class to the privileged rich. The economic chaos that results from a policy of central bank inflation inevitably leads to political instability and violence. It’s an ancient tool of all authoritarians. Inflating is never a benefit to freedom loving people. It destroys prosperity and feeds the fires of war. It is responsible for recessions and depressions. It’s deceptive, addictive and causes delusions of grandeur with regards to wealth and knowledge. Wealth cannot be achieved by creating money by fiat. It instead destroys wealth and it rewards the special interests…

Inflation has been used to pay for all wars and empires. And they all end badly. Inflationism and corporatism engenders protectionism and trade wars. It prompts scapegoating: blaming foreigners, illegal immigrants, ethnic minorities, and too often freedom itself for the predictable events and suffering that result.

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Debauchery

Came across this gem in my reading this weekend…

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right.  There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

If you’ re guessing Ron Paul or some Tea Party “nut” you’d be wrong.

Read the rest of this entry »

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Happy Anniversary!

Today marks the four year anniversary of Ben Bernanke’s watch. How’s that printing press working out for you?

Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

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“A solution to our current crisis”

Letting Be is presented by LibertyisLearning and is an entry in The Fraser Institute Student Video Contest.  Win or lose, and I’m hoping for a win, LibertyisLearning has produced an excellent, clear and concise explanation of inflation, it’s cause, it’s symptoms and it’s effects.  The solution?  Watch and learn.

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Building houses on financial sand

The Foundation For Economic Education (FEE) presents The House That Uncle Sam Built, an excellent synopsis of the government’s role in the housing boom and bust.  Authors are Peter Boettke and Steve Horwitz of The Austrian Economists.  Editor is Lawrence Reed, President of FEE and President Emeritus of the Mackinac Center for Public Policy.

From the Introduction by John Allison, one of the few financial CEOs to run a profitable and sound business during the boom and take exception to the financial bailout during the bust in the fall of 2008.

This paper provides a “common sense” and understandable outline of fundamental causes and cures. The analysis is based on long proven economic laws. Despite the wishes and hopes of politicians, economic laws are just as immutable as the laws of physics. If you jump off a ten story building, hitting the ground will not be pleasant. If the Federal Reserve holds interest rates below the natural market rate by rapidly expanding the money supply (“printing” money) as Alan Greenspan did, individuals and businesses will make bad investment decisions and there will be negative consequences to our long term economic well-being. There are no free lunches.

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Say says it all

I’ve been reading A Treatise on Political Economy by Jean-Baptiste Say.  In a discussion on money and the “unfixing” of its value from silver Say notes (63) that at first the practice was opposed by the Law, saying, “Law strenuously opposed the innovation…”.  He continues, however, “…but principle was compelled to give way to power; and the crimes of power, when the consequences began to be felt, were confidently attributed to the fallacy of the principle.”

How’s that for a one sentence summary of 21st century political economy?

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What is inflation?

This very question came up in conversation on the sidelines of the soccer field this weekend.  Contrary to what most people think, it’s not a rise in prices.  The Classical Liberal has an excellent post answering the question, “What is Inflation?”

My own past posts on inflation can be found here.

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