And so it’s on…
James Traub, at Foreign Policy.com, has called for the “elites to rise up against the ignorant masses.” In a spectacular display of the very ignorance against which he issues his call to arms, Traub shows how thoroughly infected the establishment is with their group-think. God forbid the ‘fist shaking’ rabble would actually think for themselves and effect an “utter repudiation of the bankers and economists and Western heads of state who warned voters against the dangers of a split with the European Union.” If there was a miscalculation on the part of David Cameron, it was “how utterly he misjudged his own people[‘s ability to think for themselves].”
Rise up against the ignorant masses? Be careful what you wish for, Mr. Traub… Your intellectual nakedness just might end up on full, public display.
The Foundational Issue: The Most Significant Unit of Society
Traub shows himself ignorant of both British and American history when he concludes: “[M]aybe we have become so inclined to celebrate the authenticity of all personal conviction that it is now elitist to believe in reason, expertise, and the lessons of history.”
Philosophically, ‘Scottish Common Sense Realism’ provides a framework for understanding how someone’s thinking would begin with ‘personal conviction’. This framework lies at the heart of the thinking of authors like John Locke, on whom Thomas Jefferson depended heavily when writing the Declaration of Independence.
Locke’s philosophy of government and economics expresses this framework and stands in stark contrast to that of Thomas Hobbes. Between the two of them we can drive the difference down to a single question: What is the most significant unit of society? The answer for those who would follow Hobbes is the State. For those who would follow Locke it would be the individual.
Money and Monetary Policy: The Scaffolding of Society
At the heart of debates over economics, then, lies the matter of money. If you are inclined to build on Hobbes’ premises, money is a tool of the State for ordering the affairs of society. If you build on Locke’s foundation, money is a utility contrived first by individuals to facilitate commerce. If we revisit the debate between Keynesian and Austrian economics, these two presumptions about the nature of money animate each philosophy. Keynes presumed an essentially Progressive, statist understanding of human government. His prescriptions for monetary policy follow quite logically.
The problem with Keynesian economics at this point in history (which Traub at least recognizes to be singular) is he could not have foreseen either the computer or how it has changed banking on the one hand and supply-chain management on the other. Neither could he have entertained the deployment of massive amounts of capital to essentially speculative financial products – most of which would have been illegal in his time. These two things have conspired to elevate what Keynes called the “Zero Level Boundary” to a point above zero where money has been made so cheap that the actual creation of new wealth (by improving things) cannot compete with speculation and stock buy-backs for available capital. Or in other words: when the chips are free, who wouldn't gamble?
But putting that otherwise necessary debate aside, Traub believes the elites are on the side of Madame History, so let’s consult with her.
The First and Second Bishops Wars (late 1630s - early 1640s) revolved around church order and leadership. Today it is hard to appreciate the degree to which social order broadly speaking depended on church order in this time. Charles I tried to enforce ecclesiastical uniformity throughout his kingdom, but the Scots were not having it. Charles assembled an army to impose his order despite difficulty raising the needed money. The First Bishops War resulted in further negotiations. The resulting repudiation of Anglican order resulted in the calling of a Parliament, which subsequently demanded redress for both ecclesiastical and economic (tax) grievances.
Charles responded by dissolving Parliament. This time, to raise the needed funds to pay his soldiers, he confiscated the gold held in the Royal Mint as a forced loan. This gold did not belong to the Crown but to English merchants. While the loans were paid back, as a result of this monetary impunity merchants began depositing their gold with trusted goldsmiths. They received a receipt in return.
These receipts then began to circulate in place of the gold as a medium of exchange for goods and services. The goldsmiths also realized that not all receipts would be presented for redemption at once and began issuing ‘extra’ receipts, lending them out at interest. ‘Fractional reserve banking’ was born and these receipts became a forerunner to paper money (e.g. the Federal Reserve Note).
There are two things about this history which are instructive for us today: The first is the confiscation of the money supply by a ‘sovereign’ to enforce his preferred order on society. Those who understand Hobbes’ philosophy also understand that a ‘sovereign’ need not be a monarch. A bureaucracy, or an assemblage of them such as the European Union, can wield the power of a sovereign just as can a monarch and its palace. And that bureaucratic sovereign can rule with the same impunity which eventually drove matters to the English Civil Wars. But that impunity is not possible without control of the money supply. Second, this history clearly validates the premise that money is (and always will be) first a utility contrived by individuals to engage in everyday commerce.
It also exposes the underlying problem of monetary policy we face today: It should be clear that those (Traub and his elites) who espouse a Hobbesian philosophy of government would view money as a tool of the State. Too bad history is not on their side. And those Traub so artfully calls ignorant ‘fist shakers’ – well, they just want their money back.
Money and ‘Globalization’
Traub believes ‘globalization’ to be the root of the problem and caricatures the ‘fist shakers’ as older, xenophobic rabble pining for the cultural homogeneity of the past. This is a convenient straw man, as it does not account for the underlying stream of Scottish Common Sense Realism that continues to animate the thinking of ordinary people and, rather inconveniently, undermines the superiority complex of the elites.
The arguments for globalization generally claim a net economic gain for ‘free trade’ agreements. But let’s look at the underlying data: First, these claims require that we treat all jobs alike. For those who work in close proximity to the money supply – controlled as it is by what I will call (deliberately evoking echoes of Dwight Eisenhower) the ‘political/financial complex’ – a service-sector job and a manufacturing job are counted the same. But when counted separately we see a dramatic shift away from manufacturing jobs toward lower paying, service-sector jobs. The problems with this are both social and economic.
Economically, we become further and further removed from the creation of wealth. A manufacturing job is, by definition, a job in which raw materials – which by themselves would be useless – are turned into useful things. The difference between the value of that useful thing and the value of the underlying raw materials is what wealth is. A service sector job, on the other hand, merely provides a needed or desired service to a consumer and does not directly contribute to the creation of wealth.
As a result, socially, we become an economy of mansions, butlers and maids. What is especially maddening about this is it reflects the very income inequality we constantly hear about from the elites. But if equality were really what the elites were after, they would insist we bring the regular population back into closer proximity to the creation of wealth.
But this is not what is being demanded; the rabble is required to assent to the redistributionist wisdom of the elites who view government, and as a result money, in a way that is fundamentally opposite to the traditions of individual freedom which form the foundation of what it means to be American. The elites are fundamentally demanding sovereign control over the social order. Just as did King Charles I.
And the ‘fist shakers’ are saying no. Just as did the Scots and the English merchants after them.
Money and the ‘Fabrication of Reality’
Traub’s claim that the ‘nativist’ forces on the right – both on the matter of Brexit and here in the United States – are ‘fabricating reality’ is especially rich. The British population was apparently subject to lies about the dangers of immigration. Yet in Germany, a citizens’ group is using Google Maps to tag by location the instances of sexual crimes reported as being committed by migrants from the Middle East. With other parts of the ‘elite’ telling us that women claiming sexual abuse should be believed, Traub and his tribe have some explaining to do: Who, it might be asked, is doing the ‘fabricating’?
And that question only gets more pressing when we look at economic series here in the U.S.. Starting with unemployment: In the late 1970s the U.S. Congress was faced with the hot potato of high unemployment. Instead of making tough fiscal choices to keep the government from consuming resources which would have been more efficiently deployed by the private sector, they tossed the hot potato over to the Federal Reserve. The Humphrey-Hawkins Act of 1977 added “full employment” to the Federal Reserve’s original mandate of consumer price stability.
Now if we were to return to the calculation methodology for unemployment prior to the passage of Humphrey-Hawkins, and then plug in the data available from then until now, the utter failure of the Fed to foster full employment would become painfully obvious. But this would also mean Congress would have to come to terms with a simple fact: the Federal Reserve does not have – and has never had – the necessary tools to foster full employment. This has always been about Congress hiding from its fiscal responsibilities. And the ‘reality’ of employment in America has been ‘fabricated’ ever since by changing the calculation methodologies to hide the truth. Again, it must be asked, who is doing to fabricating?
Then we move to inflation. In the early 1990s the Clinton administration and the Republican Congress led by Newt Gingrich were faced – again – with having to make tough fiscal choices principally to keep Social Security solvent. And, again, they copped out. This time they decided to change the manner in which the Consumer Price Index was calculated in order to suppress the growth of government benefits and the costs of borrowing. It is important here to understand that interest rates are a function of the rate of inflation, which is reported as the Consumer Price Index. While that might seem arcane, the following is not: No one refinances a debt at a higher interest rate.
So, having copped out on making tough fiscal choices, Clinton-Gingrich sent us down an unsustainable path of borrowing to the point where the United States Treasury, after paying for government programs, does not have enough money to even make the ‘coupon payments’ (also known as interest) on its bonds, to say nothing of redeeming the maturing bonds – the very textbook definition of ‘bankrupt’. As a result, the reported rate of inflation has to be ‘fabricated’ to support ever-lower interest rates and the ‘debt ceiling’ constantly raised to enable serial refinancing of the national debt.
Thus something as fundamental to consumer prices as rent – which is rising at around eight percent a year – is not counted in the CPI. Prices such as food and energy – as if the consumer is not impacted by these either – are also not counted. The ‘experts’ Traub thinks so highly of tell us this is because of the ‘volatility’ of these prices. Yet even a rudimentary understanding of economics is enough to know that this same volatility is exactly the data which should be warning us of a problem with monetary policy. But Congress does not want to hear the truth, and so the elites must ‘fabricate reality’.
Be Careful What You Wish For
Traub’s call is for the ‘elites’ to rise up against the ‘ignorant masses’. Yes, indeed, please do. But be careful what you wish for. You just might discover that we are having the very same argument had between Thomas Jefferson and Alexander Hamilton at the beginning of the Republic. Consider the following comment from Jefferson, especially in light of the last financial crisis and its wave of foreclosures:
If the American People ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers occupied. The issuing power of money should be taken from the bankers and restored to Congress and the people to whom it belongs. I sincerely believe the banking institutions having the issuing power of money are more dangerous to liberty than standing armies.
What is happening today has been brewing for a long time. The elites will be exposed for their fabrication of reality and the Scottish Common Sense Realism that forms the philosophical foundation of the American idea of self-government will be vindicated. The British have struck the first blow in an epic battle that will return us to sound money and the creation of vast amounts of new wealth – and eventually to freedom itself over debt slavery.
And it will be this return to creating wealth measured by sound money that will return us to an economy where that wealth is broadly and justly enjoyed by a thriving and growing middle class who are actually making things again.
Once Upon a Time in America…Are you ready to turn back the clocks to the 1800s for up to three years?Our grandfathers and great-grandfathers were the last generation to practice the basic things that we call survival skills now. ….Watch this video and you will find many interesting things!