The Elite? Who Needs ‘Em?

The reaction of most people to the push to impose greater government regulations and control over derivatives is, "It's about time." What it may be time for, however, is second thoughts. The most common understanding of the role of the State today is that not only is it the institution designed as a very specialized and very powerful tool to safeguard the common good — equality of opportunity to develop as a human being — but that it is also responsible for each person's individual good as well, or what we develop into: equality of results.

In economic terms, safeguarding the common good is necessarily limited to establishing and maintaining the juridical order (i.e., passing and enforcing good laws), policing abuses, and in general providing a "level playing field." Financially this means setting the standards for and regulating the currency. It is not the State's role to create money, but to regulate the creation of money — a different task entirely.

Further, contrary to the claims of John Maynard Keynes, the State does not have the right to change or dictate the terms of contracts between private individuals. The State may be called upon to settle a difference of opinion over the terms of a contract, or to enforce compliance, but it cannot interfere in a contract between two or more people when the matter is not illegal.

The problem is that both our leaders and our fellow citizens have come to accept Keynes's view of private property (and thus money and contracts) without question, and, apparently, without realizing the implications of that acceptance. Consider, for example, Keynes's brief précis of money and contract law:

It is a peculiar characteristic of money contracts that it is the State or Community not only which enforces delivery, but also which decides what it is that must be delivered as a lawful or customary discharge of a contract which has been concluded in terms of the money-of-account. The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time — when, that is to say, it claims the right to re-edit the dictionary. This right is claimed by all modern States and has been so claimed for some four thousand years at least. It is when this stage in the evolution of Money has been reached that Knapp's Chartalism — the doctrine that money is peculiarly a creation of the State — is fully realized. (John Maynard Keynes, A Treatise on Money, Volume I: The Pure Theory of Money. New York: Harcourt, Brace and Company, 1930, 4.)

Most people will miss the fact that all contracts involve "money," if we take the proper understanding of "money" as the medium of exchange by means of which debts are settled and the present value of existing and future marketable goods and services is stored. By claiming that the State has the right to set the terms of all contracts involving money, Keynes was effectively claiming a right on the part of the State to control all contracts. This claim — if true — means that two natural rights, liberty (free association) and private property, have been abolished, and all through State control of money and credit. In this we see the logical fulfillment of what Pope Pius XI observed in the 1930s, when he warned in Quadragesimo Anno (“On the Restructuring of the Social Order”), 1931,

105. In the first place, it is obvious that not only is wealth concentrated in our times but an immense power and despotic economic dictatorship is consolidated in the hands of a few, who often are not owners but only the trustees and managing directors of invested funds which they administer according to their own arbitrary will and pleasure.

106. This dictatorship is being most forcibly exercised by those who, since they hold the money and completely control it, control credit also and rule the lending of money. Hence they regulate the flow, so to speak, of the life-blood whereby the entire economic system lives, and have so firmly in their grasp the soul, as it were, of economic life that no one can breathe against their will.

The new derivatives regulations being pushed through the Congress ("Finance Overhaul Casts Long Shadow on the Plains," Wall Street Journal, 07/14/10, A1, A16) is, given a sound understanding of money, credit, and private property, a vast expansion of the role of government into the financial sector. This is not to say that regulations aren't needed. To be both sound and effective, however, the regulations should consist of internal control measures implemented by the design of the financial system — the social order — itself and embody proper separation of function, not be imposed by the proliferation of external controls.

The manner in which the effective systemic, internal controls, such as Glass-Steagall, were repealed and replaced with ineffective external controls is symptomatic of the rapid growth of an unfortunate elitism directly opposed to the Just Third Way. In the same edition of the Wall Street Journal in which the article complaining about State interference in the financial markets appeared, the opposite page carried an adulatory review of Thomas Hobbes's 1651 opus ("Real Government Efficiency," ibid., A17), Leviathan. Leviathan, as we've pointed out a number of times on this blog, is generally considered the philosophical justification for totalitarian socialism. Hobbes described an ideal State in which the sovereign — a divine right ruler — was the effective owner of everything, and all freedom of association was abolished. Centuries later, Walter Bagehot would cite Hobbes approvingly in The English Constitution (1867), a blueprint for how the financial elite should run a country.

Unless the United States (to say nothing of the rest of the world) adopts the Just Third Way to counter the rising tide of elitism in all its forms, social, political, and — above all — economic — at the earliest possible date, the economy will implode as the first step in an overall systemic collapse. The world looked to fascism to restore order in the 1930s after the Great War and the Great Depression. It didn't work then, however, and it won't work now.

Yesterday our comment was a dismissive remark about the rich, and how, although we don't need them, we can all get along together if the rich have no objections to our joining the club. We cannot say the same about elitism. We can't join the club, because the club would then cease to be. We can only say, with much more force than yesterday's casual observation, "The elite? Who needs them? Really."

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