In Shakespeare’s As You Like It, Duke Senior, his throne usurped, has been exiled into the Forest of Arden. Even so, life is not all bad he allows, for “sweet are the uses of adversity.” Duke Senior does not say he’s glad for adversity, but he would prefer to use his adverse circumstances wisely rather than to sit around complaining.
As a nation we can begin the process of using our adverse circumstances wisely. Government, at all levels, counts on the ignorance of the public in order to be able to continue their disastrous policies. Let us begin the process of remedying deficiencies in our own education. Monetary policy make headlines almost daily, and I urge everyone to read and study Murray Rothbard’s classic What Has Government Done to Our Money? This monograph is available online for a free download at the Ludwig von Mises Institute.
We are continually told the nonsense that the cure for the bursting of our credit bubble is an unprecedented flood of new money and credit. Can simply increasing the money supply cure our economic woes and restore prosperity? Common sense tells us that it cannot, and Murray Rothbard explains why:
When the supply of any other good increases, this increase confers a social benefit; it is a matter for general rejoicing. More consumer goods mean a higher standard of living for the public; more capital goods mean sustained and increased living standards in the future. The discovery of new, fertile land or natural resources also promises to add to living standards, present and future. But what about money? Does an addition to the money supply also benefit the public at large?…
Whereas new consumer or capital goods add to standards of living, new money only raises prices–i.e., dilutes its own purchasing power. The reason for this puzzle is that money is only useful for its exchange value. Other goods have various “real” utilities, so than an increase in their supply satisfies more consumer wants. Money has only utility for prospective exchange; its utility lies in its exchange value, or “purchasing power.” Our law—that an increase in money does not confer a social benefit—stems from its unique use as a medium of exchange.
Yes, it is true that prices for most goods are not rising right now, but they are not falling as rapidly as they would otherwise be falling. Government who purports to be an advocate of affordable housing is desperately trying to stop housing prices from deflating and, in the process, is keeping housing out the hands of those who were prudent savers. Chrysler cars will sell at some price—that price may be 50% or more off—but why is Chrysler any different than your local clothing store where clothing is being marked-down 80%? Eventually, because of excess money creation, we may get the worst of all worlds—depression followed by hyperinflation.
So why is the Fed doing what it is doing? If new money is not a cure, why pump up the money supply at all? The key to understanding the Fed’s actions is the fact that the new money is not distributed equally to all of us; and those who do get it do not receive it at the same time. Despite Ben Bernanke’s nickname of “Helicopter Ben”—derived from a famous speech he gave that the Fed could spread money around through a helicopter drop—the Fed would never spread money around by a helicopter drop. New money always goes to benefit the Fed’s politically connected cronies, and it is not distributed equally.
Who are these cronies? Consider this report from Associated Press: “Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year.” These banks have so far received $188 billion in taxpayer’s money. Among the other findings:
Lloyd Blankfein, president and chief executive officer of Goldman Sachs, took home nearly $54 million in compensation last year. John A. Thain, chief executive officer of Merrill Lynch, topped all corporate bank bosses with $83 million in earnings last year. J P Morgan Chase chairman James Dimon ran up a $211,182 private jet travel last year when his family lived in Chicago and he was commuting to New York. The company got $25 billion in bailout funds.
I could go on and on, but who is not getting the money? Probably those of us reading this blog post are not being bailed-out, but at least we have shelter and food. The LA Times recently reported on the growing homeless crisis in Los Angeles with poignant examples: “The father who pretends to work through the night at a computer at a 24-hour office supply center so his child can sleep safe and warm in a stroller…the mother who takes a baby to the emergency room at 11 p.m., knowing the odds are they won’t be called until morning and can pass the night in the waiting room.”
There are many more stories that appear every day, and they are heartbreaking. How can this be America? Trillions transferred from the middle class and poor to the incompetent, stupid, and criminal among the wealthy. I don’t believe in an Old Testament God that punishes nations and individuals for their misdeeds, but I do believe that individuals and nations that fall out of step with the principles of liberty suffer the natural consequences.
We all need to contribute in our own way to those who are suffering—direct contributions of food and clothing are important—but long-term, the only way out is education that corrects our mis-education. Please read What Has Government Done to Our Money?