May 14, 2009

Social Solidarity is Overrated

Daniel Larison has responded to my recent piece, ?A Hypocrisy That Can Win Again,? and made many points with which I agree?and some others that are useful in that they compel me to clarify my position. 

Writes Daniel,

[F]iscal responsibility and a tight monetary supply, to say nothing of reintroducing a currency backed by specie, have few or no constituencies behind them. If people voted their individual or household interests, such policies would in all likelihood never be accepted by very many. The trouble with these policies is that they are, in fact, sound and serve the common good and the well-being of the country, but they probably would inflict temporary hardships and would require some serious understanding of citizenship and social solidarity* to keep their effects from provoking a harsh backlash. To the extent that people do not vote their interests, but vote because of emotional and visceral responses to rhetoric and symbolism, such policies seem abstruse and irrelevant. It is important to understand that no matter how long one waits, and no matter how disastrous the crisis and the effects of the supposed remedies being used now, these are going to continue to be realities we have to face.

Daniel then goes on to say that a debtor regime ruling over a nation of debtors is probably the least likely political entity to make tough, responsible decisions regarding fiscal and monetary matters. (I?d add that inflation (money creation) is a debtor?s best friend, as it decreases the value of that which he must repay. For this reason (and others), I imagine that Washington will seek to wipe out its unfathomable 11 Trillion (and counting) in debt through the magic of Ben Bernanke?s printing press.) 

This being said, Daniel greatly overestimates the degree to which monetary issues are dependent upon ?social solidarity? or average citizens? feelings of citizenship and public responsibility. Indeed, I can?t think of a single point in world history when monetary policy was actually put to a popular vote. If foreign policy is the plaything of the elite that works at the State Department and writes op-eds for the Post (and thus something not subject to demographics), then monetary policy is the tool of the super-dooper, way-up-there, always unaccountable, often invisible Power Elite. The Emperors Nero and Constantine didn?t inform their citizens, not to mention inquire about their opinions on the matter, when they devalued the Aureus (which amounted to literally shaving off slivers from the gold sovereign.) More recently, when President Roosevelt ?restored hope? and all that jazz in his legendary ?100 Days,? he confiscated the public?s gold, made gold transactions illegal (setting a precedent for the violation of private contracts), and later devalued the currency all using the power of the executive order. In August of 1971, Richard Nixon announced as a fait accompli that he?d severed the dollar?s last connection to gold (closing the so-called international ?gold window?), and, again, didn?t ask what Congress or the People thought of his decision (though Tricky Dick did say that the suspension was only ?temporary??). 

The closest monetary policy ever got to the democratic process was probably the creation of the Federal Reserve System by Congress in 1913. But here again, real accountability was absent. As memorably recounted by G. Edward Griffin, the actual bill wasn?t drafted by congressmen but by Paul M. Warburg of Kuhn and Loeb, with the assistance of Benjamin Strong, a future Fed chairman, then working for JP Morgan.

I?d add that the Founding Fathers were hostile to British banking power, but they, too, didn?t want monetary and fiscal policy to be subject to Congress, not to mention ?social solidarity?; lest we forget, the people?s representatives are not authorized by the Constitution to issue paper currency. (As we all learned in school, those Dead White Guys were really undemocratic!)

Still, I do think that within my lifetime a day will come when most all major transactions will be conducted using a currency backed by a precious commodity. This will occur, however, not due to the good will of politicians or citizens, but because the fiat dollar system that?s been regnant since 1971 is going to descend into runaway inflation and eventually collapse. Since the financial crisis began, Beijing?which consistently purchases more than half of Washington?s annual debt and is sitting on a trillion in T-bills?has doubled its position in gold, and this move came on the heels of its replacement of much of its reserve greenbacks with physical copper in its national stash. China, which will be the most powerful nation-state in the world in the coming hundred years, and which will perhaps one day install the Yuan as the world?s reserve currency, is moving toward hard(er) money?and so will most everyone else, whether they want to or not. Yes, it?s true, building up a voting constituency in America for the gold standard and fiscal responsbility is nearly impossible (and though I?m enthusiastic about Ron Paul?s ?audit the Fed? bill, I have no illusions about the challenges its faces.) But regardless of politics, and regardless of the success of HR 1207, the Federal Reserve Note Era shall end due to the iron laws of economics.

Moving on. Daniel also mentions that Left-populists are the ones most likely to benefit electorally by a economic breakdown. This is sadly true: witness the triumph of the Green Party in Iceland and the rise of the world?s first openly lesbian prime minister. Back at home, I fear that unless we install a patriotic Cincinnatus of some kind, who?d be willing to make the tough decisions and institute some tough medicine, our future national leaders might look more like Lenin than Dennis Kucinich. This doesn?t mean, however, that it?s in the interest of the Alternative Right to ?save America? and try to prop up our phony economic system for a little bit longer, even if this were possible. We can gain, however, by establishing ourselves at the forefront of those warning Americans about their country?s bankruptcy and the illegitimacy of the current ?Left/Right? paradigm. 

There, of course, has never been any shortage of conservatives (and Marxists and religious fanatics) who yammer that the sky is going to fall. I?m not saying that. I am saying that in the near future we?re going to experience one of those geopolitical tumults and massive wealth re-distributions that have been going on since Alaric of the Visigoths set foot in Rome. As I wrote not too long ago,   

[I]f in the spring of 1914, a British pundit publicly opined that in 40 years the Pound Sterling would be devalued and lose its worldwide ?reserve currency? status, that the Empire would dissolve, and that the United Kingdom as a whole would be significantly poorer, onlookers would probably dismiss him as a crank, or perhaps even question his sanity. And yet, all these things would come to pass.

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