Every now and then we get
some questions or comments to which we can respond. Oh, we don’t mean like the troll who, in
response to our comment about how it’s better that government should go to the
people for its money rather than the other way around, shrieked that there
should be no government at all, that it’s a thief, that anarchy is the only
ethical system!!!!!!!
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| This is called "missing the point about social justice. . . ." |
So, how do we get rid of
government and institute anarchy? Why .
. . we get organized, of course, overthrow the government, and have chaos until
somebody strong enough takes over and imposes his or her will on everybody else
. . . until they get organized to overthrow the dictator, institute their own
dictatorship, and the cycle continues.
Or (as we noted in
yesterday’s posting about flawed institutions) you get organized and carry out
acts of social justice designed to reform the flawed institutions and bring it
into material conformity with the natural law so that it once again meets human
wants and needs in a morally just manner.
No, the question we got for
today is related to the right way to
reform institutions, which must always be within just parameters. No one is permitted to do what is inherently
wrong even to bring about the best result in the world.
And the question? Our correspondent (the polite one) noted that
banks around the world have been withdrawing from the stimulus packages that
were implemented in reaction to the Global Financial Crisis. There are at least two signs of this: 1) the
increase in interest rates, and 2) the increase in tax rates and other forms of
payment to government, e.g., energy
prices where fuel is a State monopoly.
This is particularly the case in the countries around the Indian Ocean,
Australia, New Zealand, Japan, South Korea, and China. What are our thoughts on this subject?
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| Should the government control the economy? |
Right off the top of our
head, the first thing that occurs to us is to ask what governments are doing
setting interest rates, energy prices, or anything else that should be
determined by the market? And what is
the government doing owning fuel?
Now, obviously we’re not
going to agree with the troll who declared that all government should be
abolished, but the modern Nation State has
gotten a bit too big for its britches.
The solution is either to get a bigger pair of trousers (too expensive,
and simply continues the same mistake, only more so), or put the State on a
diet . . . so to speak.
In other words, the State is
a very useful, even essential tool, given that (as Aristotle said) “man is by
nature a political animal.” The problem
is that the State, by its nature, is
a monopoly. A particular state may (and
should) divide up functions so that the system of government has internal
controls (“checks and balances”), but the one single control that has the most
effect and is absolutely essential to the running of a just system is external:
control over the source of funding for government.
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| Henry Carter Adams (1851-1921) |
Any government that figures
out a way to finance its operations without taxation, first destroys the
sovereignty of its own people, and then its own sovereignty. As Henry C. Adams pointed out over a century
ago,
The facts
disclosed permit one to understand how deficit financiering, carried so far as
to result in an interchange of capital and credit between peoples of varying
grades of political advancement, must endanger the autonomy of weaker states
unable to meet their debt-payments. Provided only that the interests involved
are of sufficient importance to make diplomatic interference worth the while,
the claims allowed by international law will certainly be urged against the
delinquent states, and the citizens of such states may regard themselves
fortunate if they succeed in maintaining their political integrity. Henry C.
Adams, Public Debts, An Essay in the
Science of Finance. New York: D. Appleton and Company, 1898, 28-29.
Translation: debt slavery
applies to nations as well as individuals.
Sooner or later the bill comes due, and if the creditors aren’t paid,
they tend to “take steps” to ensure repayment.
Greece right now is the Poster Child for public fiscal irresponsibility,
but the debt that is swamping Greece is only different in degree, not in kind,
from that assumed by virtually every country on earth.
The fact is, any government
that floats debt to finance its operations endangers its own existence. The only good debt is one that is
“self-liquidating,” that is, consists of credit used to purchase capital that
pays for itself out of its own future profits.
Government debt is by nature “bad debt” because the loan proceeds are
spent on consumption, not investment, and the government can only retire debt
by soaking the taxpayer, or floating new debt that shifts the burden off on to
future generations.
And that’s the “good” kind of “bad debt,” or at least
the less harmful: government borrowings out of existing savings. What about when government actually creates
money by emitting bills of credit, and uses that to meet expenditures?
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| Richard III: got the government out of debt. |
In the first type of
government debt, how much the government can borrow is limited to the amount of
savings in the system . . . and then only if the owners of those savings agree
to lend the government the money. At one
time governments raised money by means of “forced loans” called “beneficia,”
that were usually just a polite way of confiscating money and not repaying it.
Want to know why Richard III
was so popular as king, despite what you might read in Shakespeare’s play? He repaid every penny of his brother’s forced
loans, and started working to rebuild the economy so the government could raise
enough revenue through taxes without borrowing.
The merchants of London and York loved him. The nobility who had to come up with the back
taxes they owed did not . . . so they backed Henry Tudor, “the Welsh Milksop,”
thinking they could control him . . . and found out they couldn’t. . . .
So what’s the bottom line
here? The same as we’ve been saying for
some time. The so-called “stimulus
packages” stimulated consumption, when (per Say’s Law of Markets) what they
should have been stimulating was production.
And not just any
production. The only way to get an
economy back on its feet is to make as many people as possible productive through
labor, capital, or (preferably) both.
And that means widespread ownership of the new capital financed with real “stimulus packages” consisting of
private sector loans extended to finance capital formation, not more government
debt to increase consumption without production.
Once that happens, government
won’t have to worry about raising interest rates, taxes, or having monopolies
to raise money. People will have
sufficient income to meet their own needs and to pay taxes, which won’t be as
high as a result of the shrinking of social welfare and transfer payments.
#30#