The present article intends to share about a US Congressional Record, "Paper Money and Tyranny" and to use the paper to reflect on Philippine situation. Though written in September 5, 2003, I see that its content remains relevant after 10 years.
Personal Observation in Social Network
Allow me to share first a personal observation in my involvement in some politically inclined Facebook groups. Cynicism is widespread. Debate concentrating on political personalities is still very strong, which to me is a major distraction. Most Filipino netizens advocate bigger government. Discussion on economic and monetary policies is almost absent.
I still believe in social change. Changing people's understanding about the basic role of the government is a good start. Focusing on economic and monetary policies instead of personalities will lead to a fresh understanding of Philippine reality.
Unfortunately, not many Filipinos today see the connection between our pressing economic problems and the absence of sound monetary policy. Furthermore, the discussion about political freedom and monetary policy is also largely missing.
The above scenario is understandable. The kind of economic perspective that is prevalent today fails to provide the necessary "lens" to see beyond the similarities of ultimate messages propagated by intellectuals coming from both the progressives and the "conservatives". In order to see beyond the mainstream conversation, a different approach to the study of economics is necessary. Both the Austrian school and libertarian philosophy provide such needed lens.
Introducing the Importance of Studying Economics
Ludwig von Mises, considered as a prominent personality in the Austrian school, argues that the study of "alternative" (real) economics is the primary civic duty of any responsible citizen (Human Action, 1998, p.874). Fulfilling this duty will enlighten the minds of the citizens about the pressing issues of today both nationally and globally. In fact, ignorance of this duty is the reason for the perpetuation of existing economic situation. But it is sad to say that for most Filipinos, the only civic duty they know is during time of political campaign and election.
Dr. Ron Paul believes in the importance that his mentor placed on the study of economics. In this Congressional Record, we will see how the libertarian Congressman expounded the meaning of money in relation to threefold issues - morality, politics and economics. I will just mention the moral and economic issues and skip the political issue for its content is directly applicable to American setting.
Money as a Moral Issue
Ron Paul wrote, "When money was sound, civilizations were found to be more prosperous and freedom thrived. The less free a society becomes, the greater the likelihood its money is being debased and the economic well-being of its citizens diminished." (Pillars of Prosperity, 2008, p.235). Based on this quotation, we can reflect on Philippine situation. Our economic situation is obvious. What is not obvious is the connection of our economic situation to existing monetary policy.
For Dr. Paul, the existing monetary system not only of the US but of the entire world can be appropriately qualified as "legal plunder". Printing of paper money, which in reality is the real meaning of inflation "is nothing more than a sinister and evil form of hidden taxation." (p.240). The Congressman further elaborates the nature of this plunder:
"This system of legalized plunder allows one group to benefit at the expense of another. An actual transfer of wealth goes from the poor and the middle class to those in privileged financial positions...The high cost of living and loss of jobs hits one segment of society, while in the early stages of inflation, the business class actually benefits from the easy credit. An astute stock investor or home builder can make millions in the boom phase of the business cycle, while the poor and those dependent on fixed incomes can't keep up with the rising cost of living." (p. 239).
If the analysis of Ron Paul is correct, do we now wonder why most Filipinos are poor? Popular rhetoric that we hear about the plight of the poor is usually blamed on big corporations. Most Filipinos fail to see the role of the government and monetary policy.
Money as an Economic Issue
Under this section, you will read the reason why the economic situation of the world is in a bad shape and the results of existing monetary system. Pinciples of sound money are not taught in schools and that is why many sincere politicians, bureaucrats and bankers strongly support the existing system for it is the only system they know. The outcomes of current monetary system include the following:
- Excessive debts
- Impoverishment of the middle class
- Short-term benefits for politicians, bankers and special interest groups
- And finally, collapse of monetary system
I encounter not a few remarks from Filipinos in social network saying that the issues surrounding the Federal Reserve, the status of the USD and other similar issues are purely American and have nothing to do with Philippine situation. This kind of mindset is due to the absence of understanding of the impact of US monetary policy on global economy. I suspect that most Filipinos do not see the significance of a very important date on global economy. August 15, 1971 was the day when President Nixon refused to honor the Bretton Woods and removed the last connection to sound money. Since that day, the entire world has been flooded by paper money, which in 2003 the libertarian physician foresaw that the world has seen "the beginning of the end of that system...tough times are ahead...for world economy." (p.246).
Today, there are mainstream economists who are now seeing what Dr. Paul saw 10 years ago. Many influential personalities are presently joining the voice of the libertarian politician in sounding the alarm.
The Strength of US Dollar
If it is really true that the USD is in critical situation today as Dr. Paul describes, why is it that the predicted collapse of USD is not happening and there are some indications that it's actually strengthening? Ron Paul mentioned 5 other factors that influence the value of USD aside from continuous printing:
- The strength of American economy
- Political stability
- Military power
- The benefit of USD as world reserve currency
- And weakness of other nations' economies and currencies
The first two are now under serious threats; the third factor though remains intact is now also seriously questioned; the fourth factor is now being challenged by the yuan; and I think only the last factor remains strong for other nations are also inflating their money supply. And Japan is the most notorious example.
Ron Paul is worried that nations would still not be able to identify the real source of the crisis as what happened in the 1930s. Central banking and fiat money escaped public scrutiny. Instead, free market capitalism was blamed. In the mind of Ron Paul there is no doubt that "the business cycle, the stagflation, the recessions, the depressions, and the inflations are not a result of capitalism and sound money, but rather are a direct result of paper money and a central bank that is incapable of managing it." (p. 245).
Dr. Paul could not see any way to avoid the approaching crisis. One way to minimize the difficulty is by repealing all legal tender laws. This is the way to limit the power of the government. To me, this appears to say that no solution is coming for I doubt if any nation would follow Dr. Paul's proposal.
Reference: Paul, Ron. (2008). Pillars of Prosperity: Free Markets, Honest Money, Private Property. Auburn, Alabama: Ludwig von Mises Institute.