Statism

Since the end of the 19th century with the return of neo-mercantilism, countries all over the world have adopted a religion of statism in the form of central planning. This form has diverse names. You can call it mixed economy, interventionism, corporatism, crony capitalism, or fascism if you want. Now that the results are becoming unpleasant, governments are looking for a scapegoat - free market capitalism. Most people are unaware that statism caused the existing global economic crisis with its programs of state welfare, state supported trade unions, state created business monopolies, and state inflated monetary supply.

Sources:

Faustino Ballve, Essentials of Economics

Gary North, Tentmakers

The Mont Pelerin Society

Wiser this Time

Monetary inflation is addictive both for governments and those who benefit from it. Once started, it is difficult to stop. Politicians and bankers may think that they are wiser this time not to repeat past mistake. 

In this article, I just want to introduce Andrew D. White's book published in 1896 describing the economic experience of France in the latter part of 18th century. In reading the first 10 pages of the book, you will have an overview of France's situation at that time and how both the leaders and the people thought that they were wiser than John Law's generation. 

Introducing Andrew D. White's ebook

Several days ago, I was thinking how I could use my time meaningfully particularly in my reading of Austrian economics. Among many topics, I selected to study the most researched one, inflation. And so I dug into the available literature provided by mises.org and came up with a list of more than a hundred ebooks in my bibliography. I started with Andrew D. White's Fiat Money Inflation in France: How it Came, What it Brought, and How it Ended. 

White's ebook has only 79 pages, but summarizing the ideas contained in it is still too big to digest for an average reader. So I decided to summarize it in bite-sized portion. The ideas in this article are taken from pages 1 to 10. In reading the first ten pages of the booklet, you will see an overview of economic condition of France in the latter part of 18th century. 

France in 1789

The year was 1789. Both the national leaders and the citizens of France were fully aware of the great dangers of increasing the money supply. The memory of economic ruin during John Law's era was still fresh in their mind. They still remembered the country's suffering about seventy years ago. 

The nation's leaders knew that once the increase of paper money was issued, it is like using an addictive drug that's difficult to stop. They were totally informed about the disastrous consequences of monetary inflation. Nevertheless, they still pursued the easy path to economic recovery despite their knowledge that their action would result to long-term destruction of wealth, reduction of the purchasing power of those who depend on fixed salary, of the emergence of professional "thieves", "a class of debauched speculators" (p.1), of stimulation to overproduce, of industries' depression afterwards, of the breakdown in the habit of saving, and of the appearance of political and social immorality (pp. 5-6). The nation experienced all these bitter consequences of increasing the money supply. However, they thought they were wiser after such experience, and they would never repeat the same mistake. They were deceived.

So in 1790, the government issued the release of "four hundred millions of livres in paper money" (p. 7). Everybody was happy with the immediate results of the injection of new money into the total money supply. ". . . the treasury was at once greatly relieved; a portion of the public debt was paid; creditors were encouraged; credit revived; ordinary expenses were met, . . . trade increased and all difficulties seemed to vanish." (p. 10). 

After five months of short-term celebration, economic uneasiness and distress reappeared. Instead of admitting that the issue of paper money five months earlier was a mistake, the French unanimously cried for another dosage of monetary inflation. The country was trapped, and it appeared that nothing could stop them down to the path of economic calamity. 

Governments Never Learn

The information provided by White in his booklet deserves wider audience so that discerning readers would take necessary action to protect themselves from economic catastrophe that would certainly result from the determined action of governments to inflate their nations' money supply. This concise information teaches that not only France of 18th century failed to learn the painful lesson from John Law's generation; similar scenario is happening in our time.

Politicians and mainstream economists ignore the warning coming from the Austrian school. They think they are wiser this time, and they will never repeat the same mistake committed by the French. 

Source:

White, A. D. (1896). Fiat money inflation in France: How it came, what it brought, and how it ended. New York: The Appleton and Company. 

Secretly Agreed, but Publicly Attacked

While reading Murray N. Rothbard's "Mystery of Banking," I stumbled with three curious paragraphs on pages 233-234 related to the creation of the Federal Reserve. It was stated that after a secret meeting at Jekyll Island, Georgia in December 1910 of most powerful banking personalities and came up with an agreement to pass a bill to create a central bank, two economists who helped in drafting the bill and the structure of the bank publicly opposed the bill they made. The question is why? Why after agreeing with the banking tycoons of that time in secret, these economists attacked the bill publicly?

Photo Credit: http://www.prophecyhour.com/2012/07/the-creature-from-jekyll-island-by-g.html

These are the three paragraphs:

"With intellectuals and politicians now sympathetic to a newly centralized statism, there was virtually no opposition to adopting the European system of central banking. The various shifts in plans and proposals reflected a jockeying for power among political and financial groups, eventually resolved in the Federal Reserve Act of 1913, which the Wilson administration pushed through Congress by a large majority."

"Amid all the maneuvering for power, perhaps the most interesting event was a secret summit meeting at Jekyll Island, Georgia in December 1910, at which top representatives of the procentral banking forces met to hammer out an agreement on the essential features of the new plan. The conferees consisted of Senator Nelson W. Aldrich (R., R.I.), a Rockefeller kinsman who had headed the pro-central banking studies of the Congressionally created National Monetary Commission; Frank A. Vanderlip of Rockefeller’s National City Bank; Paul M. Warburg, of the investment banking firm of Kuhn, Loeb & Co., who had emigrated from Germany to bring to the U.S. the blessings of central banking; Henry P. Davison, a partner of J.P. Morgan & Co.; and Charles Norton, of the Morgan-controlled First National Bank of New York. With such powerful interests as the Morgans, the Rockefellers, and Kuhn, Loeb in basic agreement on a new central bank, who could prevail against it?"

"One particularly ironic note is that two economists who played an especially important role in establishing the Federal Reserve System were highly conservative men who spent the rest of their lives attacking the Fed’s inflationary policies (though not, unfortunately, to the extent of repudiating their own roles in creating the Fed). These were University of Chicago professor J. Laurence Laughlin and his former student, then a professor at Washington & Lee University, H. Parker Willis. Laughlin and Willis played a large part, not only in the technical drafting of the bill and the Fed structure, but also as political propagandists for the new central bank."

Source:

Rothbard, M. N. (2008). The mystery of banking. Online. Available:

http://mises.org/Books/mysteryofbanking.pdf

Bureaucracy

In 1944, Ludwig von Mises wrote Bureaucracy arguing for a perspective to see the conflict between capitalism and socialism. He claimed that analyzing bureaucratism would provide the needed insight to indepthly study about this tension. To him, this was so important during his time. Amazingly, his message remains relevant especially in our days when we are now witnessing the realization of his foresight almost seven decades ago.

In the Preface of his book, he identified that that the major issue in today's social and political tensions is between freedom and statism (socialism) he saw that the role of the US is critical to determine the future of the world: "Our age has witnessed a triumphal advance of the socialist cause. . . America alone is still free to choose. And the decision of the American people will determine the outcome for the whole of mankind" (iii).