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.