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Bad ideas
are sometimes the hardest
to de-throne.
It’s probably
accurate to say most people think of money as
the paper currency printed by governments. And it is money in the sense that it functions
as a medium of exchange, but is it
sound, is it vulnerable to
inflation? Its
very existence is evidence that it is, so
why are so many people reluctant to switch to a money that isn’t?
There any many myths surrounding hard money currencies,
and one of them is that money, both its nature and supply, is best left to the alleged guardian of our rights, the
state. The fact that money came into existence on the market
and its ultimate form and supply were determined by economic law, is disregarded. Money matters
belong to the state, because
the state, unlike the rest
of us, is in a position to remove
itself from market discipline.
Since the state is
necessary to our survival, the story goes, it cannot do its job unless it can control the growth of money.
Money therefore must be
of such a nature that its supply can
grow in accordance with
the orders of a state-appointed committee.
Even the classical
gold standard was under
control of the state. When that control proved too limited
for those eager for war, it was abandoned. The gold standard did
not fail.
States failed to keep
the gold standard.
When Keynes unloaded his General Theory
on the world in 1936 it was a manifesto of state economic law. Free market economists would critique
his work, but capitalism untethered scared the public.
After 1929 it became the devil in fine suits. The fact that even
top economists and industry
leaders failed to see the Crash coming was especially unnerving.
Unaware of Austrian trade cycle theory,
the public saw the market
as an alluring evil, drawing people into its clutches with promises of riches then suddenly stripping them of their wealth. Fear, then, and not ideological
persuasion, led them to reject the market as it existed in the 1920s, and along with it
any notion that the unhampered market was self-regulating.
Prior to U.S. entry into World War I, the government and its media allies worked hard trying to convince Americans that Germany was a threat to civilization itself. No such
effort was required to
scare them about the Depression. Unlike the Germans who were
“over there,” the Depression
was very painfully over here.
Robert Higgs’ outstanding book, Neither Liberty Nor Safety: Fear, Ideology, and the Growth of Government, underscores
the importance of widespread fear
for government growth. In his opening chapter, “Fear: The Foundation of Every Government’s
Power,” he contends
that, contrary to the
positions of Hume, Mises, Rothbard, and others, “public opinion is
not the bedrock of government. Public opinion rests
on something deeper and
more primordial: fear.” After the
Crash, the man in the street feared
the market, and the governments
of Hoover and FDR were eager
to oblige. Gold, by then, had been corrupted enough
to take the fall.
Whether the public still feared the market six years later was immaterial
because neither major
party offered a free market
candidate for election. But Franklin Roosevelt knew the importance of keeping
the public uneasy. In his State of the Union address
of 1936, he told listeners that “in thirty-four months we have built up new
instruments of public power. In the hands of a people's
Government this power is wholesome and proper.”
In hands under control of “an economic autocracy such power would provide shackles for the liberties of the people.” It’s difficult to believe Americans would fall for the notion of a wholesome
“people’s government,”
but the times were ripe for collectivist concepts as long as they
were served up properly. FDR
won re-election that year by a huge landslide.
It’s been said
that FDR “saved” capitalism by co-opting
the radical left into his New Deal.
Without FDR, in other
words, we would be living under full fascism instead of quasi-fascism. The free market
was still useful, especially the name, but only if government-appointed bureaucrats
regulated it, and never mind the
contradiction. Exactly which regulations were needed was a big unknown, but as a way of emphasizing the new in
New Deal, government would
experiment until it found the right combination.
How would they
know if the system of “rugged
individualism
” that favored the big guys was adequately
harnessed?
By looking at the economy. Every trouble spot, for the government,
acted like a magnet, the attraction of which
was in direct proportion to the potential
votes at stake.
The Highly Regulated “Free” Market
So successful were FDR and his successors in saving capitalism that finding something today that isn’t
taxed, regulated, subsidized, cartelized, forbidden, mandated, or bound like a mummy in endless red tape, is a near impossibility. We can get a feel
for the massive amount of regulations
the market is subjected to on the federal level alone by browsing the electronic version of the Code of Federal
Regulations, updated
daily by the Office of the Federal Register. Obama, as president,
has the whole economy in his hands. As
Higgs points out, with
passage of
the National Emergencies Act
(1976) and the International Emergency Economic Powers Act (1977), nearly all economic liberties in this country exist at the sufferance of the president. If he decides to take over the economy, he possesses
ample statutory power to do so.
[p. 132]
What was once an economy with a strong element of freedom has become an economy of rent-seeking special interests, or as Nock expressed it, people using politics to gain an
“uncompensated appropriation of wealth produced by others.”
In accordance with Garet
Garrett’s thesis of
a revolution within the form and the word, the old names have been quite useful for getting people to
look the wrong way, as we saw in
2008 when Bush announced he was “abandoning free market principles” to save the economy from collapse.
The “forgotten
man” of the Depression, whether
Sumner’s or FDR’s,
was fearful, and considering the intellectual ammunition at his disposal it’s easy to see why. But what can one say about today? Should people be fearful of the economic mess governments have created? Not necessarily. More people are beginning
to understand, if only vaguely, that “politics” has brought the
roof down, and that a sound
economy is impossible without something politically indifferent supporting it: sound money.
Austrian critics are debunking the claims about gold’s
role in the Great Depression,
pointing out that the straw-man gold exchange standard of the 1920s and early 1930s was another government solution destined to collapse. Ben Bernanke’s statement that
“the longer that a country remained committed to gold, the
deeper its depression and the later its recovery” is being seen
as grossly misleading, at best.
(Earlier in his commentary Bernanke explained that the gold standard of the 1920s was
a “reconstituted” version of the gold
standard that had endured prior to World War I. Abandoning a pseudo gold standard makes
sense only if an honest monetary system replaces
it. As it was, the country moved from one controlled system to
one much worse.)
Unlike the poor souls of the Depression era, anyone on planet earth who is
wired and can read English can access a vast literature
of economic theory and criticism. It would be impossible to deal with today’s misinformation without the many works of Austrian analysis, most of which are accessible to a lay
audience. In their
absence we could well be the hapless
captives of an FDR admirer like
Obama.
George
F. Smith
Read
his book : The Flight of the Barbarous Relic
Visit his website
Read
his blog
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