Huwebes, Setyembre 20, 2012
Miyerkules, Setyembre 12, 2012
Lunes, Setyembre 10, 2012
Ron Paul on "Gold and the Dollar"
This final article about the value of the US dollar serves as a transition to our next subject, the Gold Standard. This article is based on the speech of Congressman Ron Paul dated June 5, 2002. Compared with the previous two speeches on the same subject, we see here a progression in the way the value of the US dollar has been treated. Ron Paul indicated in July 20, 1979 speech that the US government was guilty of destroying the dollar. In September 6, 2001 speech, the Congressman reminded the US Congress of their constitutional responsibility to protect the dollar. After 9 months, this June 5, 2002 speech shows that the US Congress is not fulfilling its responsibility to protect the value of its own currency.
Reading the last speech, I keep on encountering familiar themes that have already been mentioned in previous speeches like the connection of the price of gold and the dollar, inflation, the loss of trust in the US dollar, social tensions, and the call to return to gold standard. This only shows that the call of Dr. Paul for change in monetary policy has been ignored even after several decades of admonishing the US Congress.
Instead of protecting the dollar, the Congress, says Dr. Paul, is either deliberately or by default promotes a monetary policy that erodes the value of the dollar. This erosion is dangerous not only to US economy, but also to world economy since the dollar is the reserve currency of the world.
Repeatedly and consistently, despite of the Congressman’s awareness that politicians dislike the limiting power inherent in a monetary connected to gold, he has kept on reminding the US Congress about its task to maintain a stable currency by attaching the dollar into gold once again. He believes that monetary history and economic laws show the value of a stable currency in maintaining a system of healthy economic growth and wealth preservation.
Personal Prayer
Creator of heaven and earth and the Ultimate Owner of all things, I pray that you remove whatever forces that exist in the US Congress that prevents reform of monetary policy leading to a sound, honest, and stable system of currency. Grant knowledge, courage, and tenacity for lawmakers and politicians working to see this change. Help us enjoy your gift of freedom through the Gospel of your Son. Help us live in peace and productivity.
Ron Paul on the Value of US Dollar
Eight years after President Nixon removed the connection of the US dollar from gold, Congressman Ron Paul delivered three speeches about the value of the US dollar. The first speech was given on July 20, 1979 admonishing the US government to stop the destruction of the value of the dollar. Two months after, on September 28, the second speech was delivered and it is about the connection of the changing prices between gold and the dollar. The last speech was given one month after, on October 17 and it concerns about the relationship between the dollar and inflation.
Stop Destroying the Dollar
Simply reading the first speech, one wonders why the Congressman was talking about the US government to stop destroying the dollar. If only an ordinary person is making this charge, people can easily dismiss it that the person talking is out of his mind. But it was an American Republican Congressman himself who upholds personal liberty, the US constitution, and the free market issuing this warning. The public is missing something important if we fail to grasp why the Republican Congressman was insisting that the US government is indeed destroying its own currency by increasing its supply. We are missing to see the implications of this act of dollar destruction on our personal and economic freedom.
The Gold Panic
The second speech about the relationship between the values of dollar and gold makes me think of the present trend among investing advisors counseling their clients to protect their wealth by buying gold. Good for those who have extra cash to follow such advice.
After reading the second speech, I realized that the gold panic has already started 33 years ago. I have no Internet access upon writing this article and therefore have no way to know the exact price of gold in 1979. The only data I have is that in 1995 the price of gold per ounce was $380.90 and the last time I checked its price two months ago was $1,615.00 per ounce. In other words, in 1979, the price of gold was far below $380.90 per ounce and yet there was already an indication of panic that time. The question is: if there was gold panic in 1979 when the price of gold was still very low, how people now ought to respond when the price of gold has already reached $1,615.00 per ounce? I am thinking that perhaps the conventional answer works within the span of 33 years that the gold panic that Ron Paul mentioned was somehow cooled down. Or maybe we are in the latter stage of that panic. Or perhaps, there are still other reasons. I do not know.
All I know is that the increasing price of gold is an indication of the declining value of the dollar resulting from its continuous creation out of thin air. Just a week ago, I read George Soros and central banks storing gold. One writer indicates that such action is a preparation for something big that is about to happen. For Ron Paul, such big shift is a sure sign that increasing number of people all over the world no longer trusts governments and fiat money. The only way to calm the panic is to stop printing fiat money and restore the official connection of the dollar to the gold once again.
Strong Dollar is a Deception
One month after that second speech, the Republican Congressman delivered another speech concerning the value of US dollar. In this speech, Dr. Paul exposed the prevailing deception reported in mainstream media that the dollar was getting stronger. It was a deception for the whole story was not told to the public and the basis measuring the strength of the dollar was misleading.
For Ron Paul, compared to other currencies, the dollar could appear strong simply because other countries were also inflating their money supply. Instead of using other currencies, Dr. Paul suggested two reliable tests to assess the strength of the dollar: in terms of its purchasing power and in relation to the price of gold.
Which of the two is telling the truth, the report of the mainstream media or the speech of Dr. Paul? Obviously, the two are not telling the same thing. Believing one would mean disregarding the other. Unfortunately, only few are able to see beyond the appearances of things due to absence of education in Austrian way of thinking.
Ron Paul of the Future of the US Dollar
I am done with inflation. It is now time for me to study the value of US dollar from the speeches of Congressman Paul. The speeches are taken from Part 5 of the book, Pillars of Prosperity. There are actually 6 speeches concerning the value of the US dollar. I selected the longest one, which Dr. Paul delivered in February 15, 2006 at the US House of Congress. Its title is The End of Dollar Hegemony.
Meaning of Hegemony
I first encountered the word “hegemony” while taking my Ed. D. at AGST. Despite of repeated reading and listening, still I find it hard to remember the exact meaning of the term. When I encountered the word again in my study of Pillars of Prosperity, I tested my memory if I could still remember the meaning of the term.
Hegemony to me is a kind of unjust or oppressive mainstream practice or system that the victims of it delight in perpetuating. Then I checked the meaning of the term in the New International Webster’s Dictionary and Thesaurus. The definition given is “predominant influence of one state over others as in a league or alliance.” I forgot where my definition came from. It is obviously subjective, but I prefer it.
Concise Lecture on Monetary History
The Congressman’s speech on dollar hegemony centers on the future of US dollar. He was talking about the end of its hegemony. He did not specify the precise date that his foresight would take place. All we know is that after six years of delivering this speech, we are now nearer to see its fulfillment.
Dr. Paul did not use a crystal ball in his prediction. He is well-informed about the history of money, the power of the market, and the abuses of the governments once they gained monopoly over the money supply. He gave us a concise lecture on monetary history that includes taxes, inflation, fiat money, militarism, imperialism, moral decline, and the downfall of empires. In this piece of history, he narrated the transition from the “dollar diplomacy” during the time of William Taft in late 19th century to “dollar hegemony” in the second half of 20th century.
The Transition to Dollar Hegemony
I understand the “dollar diplomacy” as an attempt of the US to protect its commercial interests in the Far East and Latin America from European influence. The transition took place as new monetary policy was introduced and that the US dollar has also undertaken a radical change. Dr. Paul was referring to the printing of the US dollar since the creation of the Federal Reserve in 1913 and its separation from gold standard that started in 1971. Through these changes, the transition to “dollar hegemony” was achieved.
Another special arrangement that added dominance to the US dollar was the “agreement with OPEC to price oil in U.S. dollars exclusively for all worldwide transactions” (p. 261). The other side of this agreement was the maintenance of US military presence in the Persian Gulf to protect its own interests.
Depreciation, Loss of Trust and Use of Force
The Congressman mentioned other details exposing the distortions in the new economic and monetary systems resulting from dollar hegemony. However, the new systems were gradually eroding the value of the US dollar through the increasing quantity of money supply. As nations of the world would come to realize the decreasing value of the US dollar, we would also see the end of the dollar hegemony.
A typical and controversial example of this loss of trust in the US dollar was the decision of Saddam Hussein in November 2000 to demand Euros for his oil. Such decision was a threat to dollar supremacy. It is alarming that in the following year, 9/11 took place and the dominant rhetoric was about Saddam Hussein and the overthrow of his government. Seen from this perspective, it is logical to think that the war against Iraq was actually a war to maintain the supremacy of the US dollar. Dr. Paul shared similar stories concerning Venezuela’s and Iran’s loss of trust in the US dollar.
Using force to maintain the supremacy of US dollar, the real victims are unaware about the manner they financially support the perpetuation of these new systems. Dr. Paul explains the subtlety of the scheme:
“The license to create money out of thin air allows the bills to be paid through price inflation. American citizens, as well as average citizens of Japan, China, and other countries suffer from price inflation, which represents the ‘tax’ that pays the bills for our military adventures” (p. 267).
No wonder the people remains passive. This is not reported in mainstream media. Conventional education does not train us to think this way. And so the dollar hegemony continues to thrive through the use of force and US militarism in return depends on the ongoing supply of fiat currency. This connection between militarism and the US dollar is clearly expressed by Dr. Paul: “Ironically, dollar superiority depends on our strong military, and our strong military depends on the dollar” (p. 268).
Conclusion
The golden rule has been changed. For several decades, the US dollar has been considered the “new gold” and its printers have been making the rules. But the times are changing. The dominance of the US dollar is about to end. The free market will demand a return to monetary system based on honest money.
Huwebes, Setyembre 6, 2012
US Congressman Ron Paul on Inflation
After sharing my summaries of Parts 1 and 2 of Pillars of Prosperity, I decided to skip Parts 3 and 4 to directly deal with Part 5, which I think is the heart of the book and most relevant for our time. In Part 5, Dr. Paul discussed Money and Banking: Gold versus Fiat. I intend also to forego the remaining Parts of the book and thinking of studying the next book, The Case for Gold from my list of priority reading. However, I am still unsure about the direction of my mind. It still depends on my interest.
In studying Part 5, instead of following the usual order of topics as presented in the book, I am thinking of rearranging the topics on the basis of repeated subjects. I find at least 9 interesting subjects. They include inflation, the value of US dollar, gold standard, Federal Reserve, monetary policy, fiat money, economy, honest money, and tyranny.
To provide the bird’s eye view of the location of Part 5 in the overall content of the book, allow me to share the 9 main parts of the book. Part 1 is about The Economics of a Free Society. Part 2 talks about Mises and Austrian Economics. We are finished with these two Parts. Part 3 deals with Reforming Social Security. Personally, I lack interest to read this part. I assume that most of its contents are directly applicable to American context. Part 4 is a pleasurable reading for me. It is about Giving Money Back to the Taxpayers. I just wish in my heart that we have a Filipino politician who has the knowledge and the courage to pass similar bills in the Philippine Congress. Part 6 is about Free Trade: Real versus Phony. This could be another interesting study for me after Part 5. Part 7 is about International Affairs. Part 8 deals with the role of the government in housing market and Part 9 ends with Spending, Taxes, and Regulations.
I want to start with inflation. And there are 6 relevant speeches dealing with this specific subject.
First and Second Speeches
In his first speech dated February 15, 1979, Dr. Paul described inflation as a “destructive process” that the members of the US Congress were not able to stop due to erroneous understanding of the term.
In October 17, 1979, the Congressman contradicted the popular opinion about the US dollar getting stronger. He argued on the contrary that the US dollar was actually getting weaker due to inflation.
Third and Fourth Speeches
After a month in November 16, Dr. Paul delivered two speeches at the US Congress about inflation. In his first speech, he followed up his previous argument that the erroneous concept about inflation resulted to inability to provide genuine monetary solution. He further argued that high interest rates and prices are actually results of inflation (increase in money supply) rather than the other way around.
His second speech provided a more elaborated exposition of economic issues surrounding inflation. His central argument is that only the government has the capability to create inflation. His points exposed the error of misleading the public as to the causes of inflation, explained the true nature of inflation and how does the government do it, proved that inflation is not a modern economic phenomenon, dismantled the false solution, and provided the genuine solution to inflation.
If people would just understand the dynamics of inflation as explained by the Congressman we would be more economically informed and more empowered to speak against the misdeeds of the government. And there is no better way to start this unlearning and relearning process than by identifying the real cause of inflation. According to the Austrian Congressman, shifting the blames to labor unions, businessmen, Arabs, and the consumers are inaccurate and misleading. It does not help in solving the problem.
The Cause of Inflation
Only the government is responsible for causing inflation by increasing the supply of money through the central bank and by monetizing debt. High prices are not the cause of inflation, but a result. Continuous increase of prices of both production and consumption goods is not the mistake of free market, but actually an act of the government. If free market really exists, falling prices is the natural result.
I find the explanation of Dr. Paul on the misleading causes of inflation very informative. I am tempted to quote in full his explanation on the subject for there is no better way to fully understand the subject than to read the very words of the author himself. Despite of the limitation of my words, I will try to restate as briefly as possible the Congressman’s explanation.
Blaming greedy businessmen as the cause of inflation is misleading for human nature remains basically the same today as in the past. If greed is the real reason, why the prices are not rising up to nth level? It is basically because of consumer sovereignty that businessmen who will do that will be punished by the market by putting them out of business.
Blaming labor union as the cause of inflation will also not stand. We were told that demand for higher salary result to increase in prices causing inflation. The truth is: salary increase demanded by labor union is far below in comparison to the rate of increase in money supply. Loss of the purchasing power of workers’ salary is the final outcome of such growth in money supply.
Blaming the Arabs for inflation is also misleading. It is public knowledge that the price of oil is constantly increasing. The Arabs want their oil to be paid in higher quantity of US dollars. Ron Paul’s comparison of America’s need of oil with that of Switzerland, West Germany, and Japan is enlightening. These three countries import all their oil while US only import about half of it. The question is: why despite of such great discrepancy in the need for oil importation the standard of living of US is much lower than the three countries? Ron Paul’s answer lies in the difference of inflation rate between the two cases.
The True Nature of Inflation
For Ron Paul, inflation is both a tax and a theft. As a tax it is “exceedingly unfair and regressive” (p. 110). Only few benefit from inflation and great number of people suffer from it. The sufferers are the laborers and savers. Those who benefit are “speculators, bureaucrats, and the special interests favored by the government” (ibid.).
Inflation too is a theft. It is a form of robbing the workers and savers of their hard-earned money. “Morally, inflation is not different from the private counterfeiter…fraudulently exchanging something worthless for something valuable” (p. 111).
Other social and economic consequences of inflation include generating mistrust, rising prices, bankruptcies, and increasing unemployment. The illusory short-term economic benefits of inflation are too cheap a price to pay for all the economic destructions it causes. People will be dissatisfied, irritable, and uncertain about their future. Instead of planning for their future and participating in a free economy, people not knowing that their economic freedom is taken away from them by means of inflation will just go with the flow in living a daily survival mode of life.
Inflation is not a Modern Phenomenon
Inflation is not a modern economic phenomenon. Ron Paul claimed that inflation existed as early as the Roman Empire. Other monetary historians would even go earlier than that period. In American history, the libertarian Congressman mentioned that inflation played a critical role both in the Revolutionary War and the Civil War.
Solution to Inflation
The conventional solution of price and wage control has been tried and proven a failure “for more than 4,000 years” (p. 112) for it only deals with the symptom and not the primary cause of inflation. The only solution to inflation is to stop printing paper money and return to sound money.
Fifth and Last Speeches
The fifth speech of the Congressman was delivered on December 12, 1979. Its title is Debasement. In the mind of Ron Paul, inflation is currency debasement. In turn, debasement is a process of destroying the US dollar and threatens personal liberty. Those who are responsible for debasing the US dollar are not the businessmen, labor union members, Arabs, and the consumers, but the US Congress, the Executive, and the Federal Reserve.
The final speech on inflation was given on March 6, 1980. In this speech, Dr. Paul clearly defines inflation as “the expansion of the supply of money and credit” (p. 115) and specifically identifies the US Congress as “guilty of this crime” (ibid.). As a result of this crime “hundreds of billions of dollars” have been stolen “from orphans and widows, from the aged and the poor, from the thrifty and hard working” (ibid.). The Congressman was calling for a “thorough cleaning” of the US Congress as taking the chance to prevent an economic disaster.
Conclusion
Personally, I find the six speeches very educational on this confusing subject of inflation. Dr. Paul’s speeches help me clarify the confusion in my mind. How I wish that increasing number of people will take time to attentively listen to the message of the Congressman. The future of freedom depends on this enlightenment.
Source: Paul, Ron. (2008). Pillars of Prosperity: Free Markets, Honest Money, Private Property. Auburn, Alabama: Ludwig von Mises Institute.
The Influence of the Austrian School in Ron Paul’s Political Career
After finishing our study of Part 1, The Economics of a Free Society, let us now proceed to Part 2, Mises and Austrian Economics – A Personal View. Allow me to divide this topic under two main points: a brief narrative of Ron Paul’s entrance into politics and an overview of key ideas in Austrian economics.
Brief Narrative of Dr. Paul’s Entrance into Politics
President Nixon’s interventionist economic policy in 1971 was the occasion that prompted Ron Paul to enter into politics. From the outset of his career, he already realized the difficulty of developing statesmanship among politicians due to pressure groups. He believes that the only way to develop statesmanship among politicians is by educating the public with Austrian ideas of personal liberty and free market. He describes his political career as primarily dedicated to this task of informing the public about the real issues in our time.
Dr. Paul’s introduction to Austrian economics was a result of his reading of F. A. Hayek’s “Road to Serfdom.” After reading this book, he decided to dig into the great literatures of the Austrian school. His journey into his new discovery equips him to see the discrepancy between the teaching of Austrian economics and mainstream society. All the more he saw the need to implement Austrian ideas through political action.
In addition to the message of Austrian economics, the men surrounding the Austrian school also made a lasting influence on Dr. Paul. His acquaintance with Leonard Read inspired him to be firm in his economic reforms. His friendship with Hans Sennholz and Murray Rothbard gave him firsthand knowledge about basic operation of the free market. Acquaintances with other Austrian economists encouraged him in his political career. Among them, it was the character of Ludwig von Mises, the leading Austrian economist himself who left a lasting impression on the Congressman. Dr. Paul saw Mises as a man of strong will, but tempered by a quiet spirit. The man is patient and determined despite of the changing and worsening political and economic climate of the time. All these influences prepared Dr. Paul in his entrance to politics and gave him the ability “to tolerate the daily circus” (p. 51) in US Congress.
Key Ideas in Austrian Economics
Among numerous ideas shared by Dr. Paul in his book, I find understanding five of them very beneficial to equip someone to distinguish between illusory and real economics. These ideas include the subjective theory of value, understanding money, business cycle, international politics, and natural rights.
Subjective Theory of Value
Understanding the subjective theory of value brings several advantages with it. Unfortunately, as to the date of the writing of the book, Ron Paul claimed that most members of the US Congress never heard of this theory and none really cared to know the relevance of this theory to contemporary affairs. But for the Tea Party Congressman, understanding the theory is basic for true reform. One will be equipped to see the real color of interventionists’ excuses. Citizens will grasp the free nature in determining the prices of goods, which is essential for the healthy operation of the market.
Sound Theory of Money
In addition to the subjective theory of value, Dr. Paul believes that “understanding money is the key to restoring a sound economy” (p. 55). In fact, following Mises, for Dr. Paul the money issue is beyond economics and touches even the political issues of the time. This makes basic understanding of money a necessity for a correct diagnosis of existing problems and in finding the right solution. Sadly, politicians due to ignorance of genuine free market ideas struggle to provide adequate explanation to the pressing issues of the day.
I think that the claim of Congressman Paul that Ludwig von Mises’ Theory of Money and Credit published in 1913 had answered the perplexing questions of the 20th century is also applicable in our time. Unfortunately, Mises’ answer had been ignored resulting to indescribable human suffering; and if our generation fails to learn from the past, we will experience similar or even worst calamities in the future.
There is no need for us to repeat similar mistake. Our primary advantage in comparison to the previous generation is the accessibility of information through the web. Personally, I find that understanding Mises’ theory of money is beneficial in three ways:
- It will train us to differentiate between fiat and commodity money
- It will also help us to comprehend the debate between the quantity and quality concepts of money, and
- It will enable us to see the economic advantages of the free market
1. Fiat and commodity money
In present day economics, the money we are using is not commodity money, but fiat money. The supplier of this money is none other than the state through the central bank. As history taught us well fiat money always self-destruct. The only remedy to avoid monetary destruction is to return to commodity money bringing back its control into the hands of the free market.
2. Quantity and quality concepts of money
Being aware of the issues surrounding the debate between the quantity and the quality concepts of money is another advantage that one could gain in studying Mises’ theory of money. Mainstream economists and politicians advocate the quantity theory of money. This theory teaches that economic growth is only possible through the increase in money supply. Studying Mises, Dr. Paul does not agree with this. Upholding the quantity concept of money is only appropriate for inflationist and those who do not understand Austrian concepts of value, price, and quality of money. Austrians argue that the government cannot enrich its citizens through inflating the money supply.
3. Economic advantages of free market
Finally, sound theory of money will enable us to appreciate the real nature of free market. Studying it, the charge that the free market harms the working class will be found baseless. Instead, one will see that genuine free market terminates the struggle between the bourgeois and the proletariat, increases the number of the middle class, and improves people’s standard of living. All of these economic advantages are consequential realities in a society established on the basic foundation of personal liberty.
Business Cycle
Another central idea in the Austrian school of economics is the concept that the business cycle is brought about by inflating the money supply through the central bank. Dr. Paul asserts that almost all Washington politicians are unaware about this Austrian concept. As a result of such ignorance, political and economic inconsistencies afflict the statist policies aiming to solve the crisis. This holds true both for Republicans and Democrats.
No politician would dare claim that intentional decision has been made resulting to unemployment, rising prices, and lower standard of living. And yet these are the things happening in the economy. Another inconsistency is that all politicians claim to know the solution to business cycle and yet at the same time, they all agree that the cycle is an inherent flaw in capitalism. The outcome of this blindness is a solution that intensifies the crisis all the more.
The solution offered by Washington politicians is nothing but a strategy of increase spending out of the crisis. This is a foolish remedy for it fails to deal with the root cause and instead signals a new entrance into a far deeper and greater business cycle. The final result of this solution is the destruction of the system itself.
Congressman Ron Paul acquired his education into this matter through the works of Murray Rothbard and Hans Sennholz on 1930 Great Depression. From Austrian point of view, the way to stop the business cycle is to abolish central banking and fiat money and return to an honest monetary system. Since most people are really concerned about the economic situation of the world, I think Ron Paul’s challenge is applicable not only to Americans, but to all citizens of other countries as well.
“All people concerned with the suffering and degradation of unemployment should study the Austrian explanation of how distorted interest rates, malinvestment, skewed economic calculation, and preferential treatment for favored business and government constituencies, cause the crime of the business cycle” (p. 59).
International Politics
The continued existence of central banking and fiat money does not only cause the business cycle, but also generates international crises and war. For the Tea Party Congressman, a faulty monetary system is inseparable from issues related to foreign relations. He explains the nature of this connection by analyzing the impacts of economic interventionism.
Dr. Paul believes that economic interventionism breeds “excessive nationalism, protectionism, economic isolationism, militarism, and war” (p. 60). In order to perpetuate interventionism, an unlimited supply of fiat money is necessary. Without it, interventionism collapses.
Seen from this point of view, interventionism is a serious threat to personal liberty and the survival of present civilization. According to Ron Paul, Mises has already foreseen the future of such type of interventionism, which is heading towards a fascist government similar to Nazi Germany. Ron Paul was alarmed witnessing the signs of Mises’ prediction in contemporary America. His only hope was to reverse the tide before its final fulfillment. And the way to do this is to return to sound money and free market economy.
Ron Paul quotes Mises to describe the contrast between interventionism and the free market:
“While laissez faire eliminates the causes of international conflict, government interference with business and socialism creates conflicts for which no peaceful solution can be found” (p. 61).
Dr. Paul describes further the seriousness of present international tensions:
“The magnitude of these tensions is even greater than in the 1930s. International debt is deeper; the degree of worldwide inflation is more ominous….Gold has been ‘discredited’ by all governments. The engines of inflation throughout the world are running at full throttle, struggling to keep the debt pyramid from collapsing. True capital formation diminishes yearly. Military build-ups continue at unprecedented rates….All this insanity, of course, is financed through massive taxation and inflation borne by our taxpayers. Without fiat money, these wild schemes would be impossible” (p. 62).
Natural Rights
In reading this topic, I intentionally skip the Congressman’s explanation on “utilitarianism” and “conscription” for I find it philosophically difficult at this time. It is sufficient for me to know about the essential idea of liberalism [“that all men are created equal and endowed by their creator with certain unalienable rights” (p. 63)] and the advantages in upholding natural rights. I understand that for Dr. Paul, the concept of natural rights provides a necessary moral argument not only to win the debate over the socialist, but also to realize a peaceful society.
Conclusion: Three Relevant Quotes
I want to end this article with three relevant quotes taken from Dr. Paul’s book. I already included these quotations in my earlier articles. I found them first from LewRockwell.com and Ludwig von Mises.com. Despite of their familiarity, I still consider it appropriate to end this summary and reflection with great ideas from Ludwig von Mises himself.
“Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction. Therefore everyone, in his own interests, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us” (p. 65).“There is no means by which anyone can evade his personal responsibility. Whoever neglects to examine to the best of his abilities all the problems involved voluntarily surrenders his birthright to a self-appointed elite of supermen. In such vital matters blind reliance upon “experts” and uncritical acceptance of popular catchwords and prejudices is tantamount to the abandonment of self-determination and to yielding to other people’s domination. As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny is at stake” (pp. 65-66).“The flowering of human society depends on two factors: the intellectual power of outstanding men to conceive sound social and economic theories, and the ability of these or other men to make these ideologies palatable to the majority” (p.67).
Source: Paul, Ron. (2008). Pillars of Prosperity: Free Markets, Honest Money, Private Property. Auburn, Alabama: Ludwig von Mises Institute.
Pillars of Prosperity – The Alleged Failure of Capitalism
Description: This is the third topic under The Economics of a Free Society. I think the central argument of the author is that capitalism does not exist in a society that breeds inflationism, interventionism, and corporatism.
Blaming the dead for the crimes of the living and blaming the victim for the misdeeds of the villain are uncommon themes even in film making and book writing. Basic morality would denounce such transgression as utterly corrupt and wicked. Unfortunately, a parallel scenario is allowed in current economic situation either due to ignorance or due to a collective ideology whose loyal advocates are willing to employ whatever means necessary to accomplish their heart’s desire.
In July 9, 2002, Congressman Ron Paul discredited in his speech at the US Congress the alleged “crimes” of capitalism. In that year, blaming capitalism for economic problems was considered politically correct. If that was the case 10 years ago, it is not surprising to read that hatred against capitalism have continually increased most especially after the 2008 economic crisis.
The prevailing dominant social themes advanced by the mainstream media since that time are the failure of capitalism and the need for a greater government regulation. This is unfortunate for this would mean not a rosy future for the advocates of personal liberty and the free market.
The only way to reverse this erroneous trend is through genuine education. People need to know what is really going on in global economy. Listening to the message of the Tea Party Congressman and other Austrian economists is the path to this kind of education.
In his speech, Dr. Paul claims that there is nothing new with the erroneous identification of the source of economic woes. Similar story happened in the 1930s. The greed of capitalist and businessmen was blamed for economic depression. This erroneous mindset needs to be corrected to avoid further economic destruction. If not, wealth that the free market created in the first place will be finally destroyed.
Dr. Paul identified two primary causes for the present hatred against capitalism. One is ignorance. And two is the natural limitation imposed by sound economic principles inherent in capitalism. Government leaders do not want this limitation.
Dr. Paul argued that capitalism should not be blamed for present economic sufferings. Despite of mainstream propaganda that the excesses of capitalism are to be blamed, careful and closer analysis of economic situation leading to the crisis would lack sufficient basis to identify capitalism as the source of economic crisis. Instead, another political and economic system would emerge as primarily responsible for the crisis.
How could a non-existent capitalism cause economic destruction? The basic economic prerequisites for the existence of capitalism are largely missing in our existing economic condition. Honest money does not exist. Voluntary contracts and natural interest rates are also lacking. What we have are fiat money and credit expansion by a central bank. Capitalism does not exist.
Dr. Paul describes such absence of capitalism.
“It’s not capitalism when the system is plagued with incomprehensible rules regarding mergers, acquisitions, and stock sales, along with wage controls, price controls, protectionism, corporate subsidies, international management of trade, complex and punishing corporate taxes, privileged government contracts to the military-industrial complex, and a foreign policy controlled by corporate interests and overseas investments. Add to this centralized federal mismanagement of farming, education, medicine, insurance, banking and welfare. This is not capitalism!” (p. 43).
The economic system causing repeated economic crisis is appropriately identified as “interventionist-planned economy.” Its other designations are “Keynesian inflationism,” “interventionism,” and “corporatism.” After identifying the real culprit, Congressman Paul admonished the US Congress to investigate the process of wealth destruction caused by the existing monetary system. This investigation is critical to put a stop to popular economic solution and to apply genuine solution that will restore capitalism back with all its creative energies.
Popular economic solution coming from “interventionist-planned economy” will certainly aggravate the existing economic crisis. This includes the following measures:
- Increase spending
- Increase debt
- Increase easy credit
- Distortion of interest rates
- More government regulation, and
- More foreign intervention
On the other hand, genuine economic solution coming from free market capitalism consists of the subsequent concrete actions:
- A return to gold standard
- Cut spending
- Reduction of income taxes
- Removal of taxes from savings, dividends, and capital gains
- Decrease in government regulation
- Discontinuation of special-interest subsidies
- Cessation of protectionist measures
- Change in foreign policy, and
- Bringing the US soldiers back to their families
Free market capitalism cannot exist in an atmosphere of inflationism, interventionism, and corporatism. The alleged “crimes” of capitalism are baseless and a fabrication of the proponents of collectivist ideology to continually mislead the public about what is really going on. Your primary responsibility is to study the message of Austrian economists.
Source: Paul, Ron. (2008). Pillars of Prosperity: Free Markets, Honest Money, Private Property. Auburn, Alabama: Ludwig von Mises Institute.
Pillars of Prosperity – An Assessment of the Condition of US Republic
This is the second sub-section of The Economics of a Free Society. I understand that the central argument under this heading is that in order to grasp the economics of a free society, one must first study the condition of the US Republic. To my mind, the study of the condition of US Republic will also help us understand the situation of the world. And since US economy is central in this study, the present economic situation of the world will also be illumined through a closer assessment of the US Republic.
In my brief period of studying Austrian economics, I came to a conclusion that despite the present economic situation of the world, US economy remains closely associated with global economy. And also, despite the reports of the bad refutation of US dollar due to Federal Reserve increasing the money supply, still the US currency remains the reserve currency of the world.
Due to this association, it is vital to the health of global economy to take a closer look at the general condition of the US Republic. The knowledge of this condition must shape public opinion in order to exert pressure on responsible policy makers to address any discovered political and economic fallacies in the land.
In February 7, 2001, Dr. Ron Paul, the Tea Party Congressman, delivered a speech at the US House of Representatives assessing the condition of the US Republic. In this speech, he explored numerous critical issues that remain relevant up to the present time. He mentioned about the “Third Way,” the difficulty to spread the principles of genuine freedom, international military interventionism, inflation, social conflicts, illusory wealth, and basic morality.
The “Third Way”
Concerning the “Third Way,” Dr. Paul argued that it was actually a subtle propaganda to expand the power of the government by presenting before the public a “compromise” between the liberals and the conservatives. But as Dr. Paul correctly analyzed, in reality, the “Third Way” is not a compromise, but serves as propaganda to advance the agenda of the government at the expense of freedom and free market. It was in this regard that the Tea Party Congressman argued that no substantial philosophical difference exists between the Republicans and Democrats. Both parties never questioned the role of government and the impact of its expanding power on personal liberty and capitalism.
As popularly claimed, the “Third Way” is a bipartisan compromise that is less threatening and more acceptable to the people. But from a libertarian perspective, the “Third Way” is a more dangerous threat to personal freedom and free market. Dr. Paul claims that available alternatives offered to the public including the “Third Way” are no real alternatives. All the provided three alternatives are basically similar. They are simply three different versions of state interventionism.
The Difficulties in Propagating Freedom
It is ironic that a society built on the principles of freedom is now having difficulty to propagate personal liberty. Two major obstacles include the elites who benefit from state policies and the beneficiaries of welfare program. The recipients of welfare program may give a lip service to personal liberty, but will certainly oppose ideas that propose the removal of such government program. Most people think that both welfare and personal liberty can be maintained at the same time. The welfare program in this sense serves as a diversion from the real political and economic issues that confront not only the US but other parts of the world as well.
International Military Interventionism
International military interventionism is another distinguishing mark of the present condition of US Republic. A long list of just causes is used to justify foreign military intervention. In the old days, it was a campaign against communism. Now, the causes are multiplied and they include protection of oil supply, war on drugs, preserving global peace and order, and securing the objectives of foreign aid.
Commercial interests of the powerful few behind military interventionism remain unnoticed and never reported in mainstream media. What they feed us is the necessity of military interventionism to protect freedom and promote prosperity. But in reality, military interventionism undermines personal liberty, global peace, and economic prosperity.
Financial resources and lives are sacrificed on the altar of military aggression. This is a subtle contradiction that describes the present condition of US foreign military relation. Reality contradicts political rhetoric. The promised freedom and prosperity are actually deprived from the citizens while the powers that be reap the political and economic harvest.
Among the many just causes promoting military interventionism, the economic consequences of distributing foreign aid under the campaign of helping the poor of developing countries are almost invisible. In reality, foreign aid does not help the poor of developing countries. It only serves the interests of powerful foreign leaders. Add to it the fact that providing foreign aid is actually a process “of taking money from poor Americans and giving it to rich foreign leaders, with kickbacks to international corporations” like the WB, the IMF, the WTO, and the ICC (p.30). This is an invisible attack on the economic liberty of American taxpayers for such decision does not come from them, but always from global elites.
Inflation
Among the many features of the US Republic, none of them threatens its very foundation than inflation. As long as the US government has a legal control to increase its own money supply through the Federal Reserve, the welfare and warfare programs of the government will continue to increase. The only solution to the increasing power of the government and threat to personal liberty is to stop its control over the money supply and restore it back to the free market. Without this action, booms and busts, wealth transfer, and social conflicts will remain as ugly features of the socio-economic condition not only of the US, but of the world.
Basing on his economic insights, Dr. Paul reports that the decision of President Nixon in 1971 to separate the US dollar from gold was a great mistake in monetary history and unleashed financial chaos since that time. The combined efforts of all central banks of the world cannot prevent the coming economic catastrophe resulting from that great mistake.
Together with other Austrian economists, Congressman Paul describes inflation as an act of “counterfeiting” sound money. The law allows this act of “fraud” and “theft.” It is a legal way of robbing the people of the purchasing power of their money. Savers and laborers depending on fixed salaries are the real losers in this kind of financial system.
Social Conflicts
Inflation is a serious threat to the stability of society. Various types of social conflicts are inescapable consequences of inflation. Recession, unemployment, erosion of standard of living, and rising prices of both production and consumption goods are all connected to inflation. Dr. Paul even predicted that in severe inflation, the middle class would be wiped out.
Resulting from the disappearance of the middle class, social and political conflicts will appear as common. The Congressman already described in 2001 the appearance of “conflicts between classes, races, ethnic groups, and even generations” (p.33). Blaming will be rampant, but the general public as usual will be unable to identify the real culprit unless Austrian economics becomes part of mainstream consciousness.
Illusory Wealth
Another noticeable facet of the US Republic is the inability of the people to distinguish the difference between real and illusory wealth. I understand illusory wealth as a result of increasing the money supply at the expense of the free market, personal liberty, and economic freedom of the people. The fixed salary workers and savers are deprived of their monies’ worth through legal means.
Yes, it cannot be denied that the increase in the supply of money brings temporary prosperity. However, in reality, this temporal prosperity is but a dream for it is neither a result of entrepreneurial creativity nor an outcome of increase in production. Instead, it is built on the money supply injected by the Fed into the economy. Dr. Paul describes this illusory wealth.
“Yes, the Fed does help to finance the welfare state. Yes, the Fed does come to the rescue when funds are needed to fight wars and for us to pay the cost of maintaining our empire. Yes, the Fed is able to stimulate the economy and help create what appear to be good times. But it’s all built on an illusion. Wealth cannot come from a printing press. Empires crumble and a price is eventually paid for arrogance toward others. And booms inevitably turn into busts” (pp. 26-27).
Basic Morality
It is alarming to observe that with the introduction of legal counterfeit in monetary system, a corresponding decline in basic morality is also taking place. Ron Paul was describing not only the widespread acceptance of abortion, but the legal use of taxpayers’ money to fund abortion. To him, such moral decline was considered preparatory to euthanasia. He accepts that in a free society, issues like these do not disappear. But instead of the state participating in undermining the value of life, it actually protects life.
Conclusion and Summary
There is a need to reverse the identified trends that describe the US Republic if the Americans do not wish to end with a fascist government. The increasing expansion of government’s power is contrary to the principles of a free society. The paragraph below offers a good summary:
“Our economic, military, and political power, second to none, has perpetuated a system of government no longer dependent on the principles that brought our Republic to greatness. Private property rights, sound money, and self-reliance have been eroded, and they have been replaced with welfarism, paper money, and collective management of property. The new system condones special-interest cronyism and rejects individualism, profits, and voluntary contracts. Concern for the future is real, because it’s unreasonable to believe that the prosperity and relative tranquility can be maintained with the current system. Not being concerned means that one must be content with the status quo and that current conditions can be maintained with no negative consequences. That, I maintain, is a dream” (p. 39).
A genuine alternative badly needed in our time includes the return to basic morality, space for the free market, restoration of honest money, living within the parameters of the Constitution, and the recovery of personal liberty.
Source: Paul, Ron. (2008). Pillars of Prosperity: Free Markets, Honest Money, Private Property. Auburn, Alabama: Ludwig von Mises Institute.
Pillars of Prosperity – Crisis Resulting from Faulty Political Ideas
Today, I decided to take a more focused direction in my personal study of Austrian economics. I want to come up with a basic understanding of monetary and economic theories. I made a list of my priority readings. I came up with seven books.
- Pillars of Prosperity by Ron Paul
- The Case for Gold by Ron Paul and Lewis Lehrman
- A History of Money and Banking in the United States by Murray N. Rothbard
- Theory of Money and Credit by Ludwig von Mises
- Inherit the Earth by Gary North
- Honest Money by Gary North, and
- Introduction to Christian Economics by Gary North
Let me start with Pillars of Prosperity. Part 1 talks about The Economics of a Free Society. I will begin with the first speech of the libertarian Congressman.
The economics of free society is suffering due to erroneous political ideas. This is the central message delivered by Congressman Ron Paul in September 20, 1984 at the U.S. House of Representatives.
Reading Ron Paul’s speech makes me wonder about two things – the widespread ignorance of the American public about the message of Ron Paul and the tenacity of the Congressman for the past 28 years.
The Republican Congressman rightly diagnosed that the prevailing contradictions both in the economic and political affairs of the United States springs from a faulty political philosophy that will sooner or later result into political and economic crisis. Ron Paul was right all throughout this time. He has already foreseen the 2008 crisis 24 years in advance though he did not know the precise date of the crisis.
For Dr. Ron Paul, the primary problem of the United States is the expanding power of the government through regulations, taxes, overspending, welfarism, invasion of privacy, military spending, and international adventurism. He saw this expanding power of government as the ultimate threat to individual freedom. The fiscal crisis is secondary; it is the threat to liberty that must be taken seriously.
Dr. Paul describes this big government as the “cancer” in the land. The problem in finding a remedy to this cancer is solved through bigger government. This kind of remedy will make the cancer more dangerous and deadly.
Concerning monetary situation, in the eyes of Congressman Paul, electing politicians into public office whatever party they belong to will never solve the crisis. He is never surprised about the instability and the crisis of the US dollar. He has foreseen it coming since 1984. He just does not know the precise form and date of the crisis, but there is no doubt in his mind about the certainty of its coming. He describes the character of this crisis as “a day that the world financiers will rush from dollars just as they have recently rushed into dollars, causing even worse chaos in the international financial markets” (p. 5).
One immediate consequence in the breakdown of the value of US dollar is failure in international trade. This has been proven repeatedly throughout history once a nation debased its own currency.
War is another result related to economic crisis. War benefits only the powers that be. Both economic depression and war are unnecessary outcomes of foolish decisions of politicians.
After describing the certain destination of a faulty idea of government, Dr. Paul claims that the only way to avert the crisis is to adopt a new attitude about the role of the government. Limited government is the solution. The government must keep away from the operation of the free market. The US government must stop intervening in the affairs of other nations.
The path to change is not easy. The public must be made aware about the existence and the influence of the shapers of public opinion. Seeing from this context, politicians are mere puppets.
Ideas are the primary weapons of libertarians to win this battle for limited government. Restoration of political and economic order is the immediate effect for having a limited government.
Congressman Paul offers six concrete proposals to cut the deficit. Among them are cutting budgets both for welfare and warfare, returning to sound money, and abolishing bank cartel. These are the tangible steps to bring freedom back to the people. The problem is big government and the restoration of freedom is the solution.
Source: Paul, Ron. (2008). Pillars of Prosperity: Free Markets, Honest Money, Private Property. Auburn, Alabama: Ludwig von Mises Institute.
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