ERGO
Bursting Bubbles
- Feb 24, 2012
- 354
- 42
- 16
Contrary to a widespread belief, socialism in the Soviet Union and Eastern Europe did not collapse because of the clever geostrategic maneuvers of the Reagan Administration. Neither did the East Bloc break up because its leaders were incompetents who put into practice the wrong plans. Particular politicians and policies East or West had next to nothing to do with it.
The East Bloc fell apart--and had to fall apart, no matter what anyone did--because of an obscure principle of economics known as "the impossibility of rational economic calculation under bureaucratic central planning". Socialism failed--and must always fail--because, without prices for goods and services generated by a free market, central planners cannot allocate resources and manpower intelligently. But central planners cannot allow a free market to set prices (otherwise there could be no central planning). In the long run, this self-imposed bureaucratic blindness to the real values of people and things results in monumental waste, the failure of central plans to deliver sound capital investments and advancing standards of living, and finally the collapse of those societies that allow politicians and bureaucrats, rather than free entrepreneurs and workers, to direct the course of economic affairs.
Although this principle had been recognized by other economists for almost a century theretofore, it received systematic exposition in Ludwig von Mises's seminal treatise, Socialism, first published in the 1920s. So, during the heyday of central planning from the 1920s to the 1980s, no one should have been unaware of the problem. Nonetheless, the political elite and the intelligentsiia ignored it, just about everywhere. In the Soviet Union and Eastern Europe, where Stalin and his successors imposed industrial-strength central planning through police-state terrorism and slave labor in the Gulag, the price was higher than in (say) the United States, to which Franklin D. Roosevelt was able to administer only a diluted dose of the same poison. But a price there was, paid as usual by common people.
Economic theory also teaches that any scheme of fiat currency and fractional-reserve central banking is just as inherently flawed, incapable of permanent existence, and inevitably doomed to disaster as all-around, full-blown socialism, because fractional-reserve central banking systematically subverts the free market's structure of prices through expansion of currency and credit--which results in redistribution of wealth, misallocation of scarce capital, and collapse in either depression or hyperinflation followed by depression. This is no new insight. The problems fractional-reserve banking causes were widely discussed in the 1800s; and the whole subject of political versus free-market money was exhaustively examined by Ludwig von Mises, in his treatise The Theory of Money and Credit, first published in the 1920s. (Probably the best book on this subject now available for the average reader is Murray Rothbard's The Mystery of Banking.) But, throughout the Western world during the 1900s and even unto the present moment, the political elite, high finance and big business, and their hired intelligentsiia have generally ignored these problems--doubtlessly because irredeemable currency and fractional-reserve central banking have served their short-term interests, and the costs of the system have always been paid by picking the pockets of the common man.
For this country's system of fractional-reserve central banking, though, Americans cannot blame some foreign dictator such as Stalin, but instead need to indict their own home-grown usurpers and tyrants: primarily, Presidents Woodrow Wilson (who signed the Federal Reserve Act in 1913), Franklin Roosevelt (who outlawed private possession of gold for use as currency in 1933-1934), and Lyndon Johnson (who repudiated the government's promise to redeem its paper currency in silver coin in 1967-1968). Some people also assign a large share of responsibility to Richard Nixon, who terminated redemption of Federal Reserve Notes in gold for foreign banks in 1971. This, however, is unfair. By "closing the gold window", Nixon extricated this country from an especially expensive variety of parasitism by the Federal Reserve System: its ability to prop up the value of Federal Reserve Notes by looting America's gold reserves. Indeed, such was Nixons legal duty. Because the Federal Reserve System as a whole is unconstitutional, paying out this nation's gold in redemption of Federal Reserve Notes is unconstitutional, too. (Nixon, of course, was far from being a constitutionalist. But, as folk wisdom teaches, "God writes straight with crooked lines".)
In the case of the Federal Reserve, economic history all too strongly confirms economic theory. In 1913, the Federal Reserve's touts predicted that it would allow bankers and politicians to "manage" currency "scientifically", and thereby to end business cycles, eliminate inflation, and forefend depressions. Yet, the country soon suffered a sharp, albeit short depression in 1920-1921, followed by the horrendous collapses of the stock market and the banks in 1929-1933, and the Great Depression that festered for the remainder of the 1930s. And since World War II, Federal Reserve Notes have lost more than 90% of their purchasing power--which is a serious consequence of inflation by any reasonable standard.
Moreover, since 1933 the Federal Reserve System has been anything but strengthened, because every link between Federal Reserve Notes and gold or silver coin has been severed. Today, (in the words of former high-level banker John Exter) Federal Reserve Notes are an "I owe you nothing" currency. True, the Treasury and the banks will redeem Federal Reserve Notes for "lawful money"; and the Treasury must receive Federal Reserve Notes in payment of taxes. See Title 12, United States Code, Section 411. But the "lawful money" paid out consists only of base-metallic coins. See Title 31, United States Code, Section 5118(b, c). So redemption amounts to exchanging intrinsically valueless rag currency for almost valueless slugs. And a right to use Federal Reserve Notes to pay taxes is of dubious economic benefit to the taxpayer whose wealth is expropriated through that very payment.
Because Federal Reserve Notes are irredeemable in silver or gold, or any commodity other than the Treasurys base-metallic slugs (and even then at no permanently fixed ratio of exchange), their purchasing power in the free market ultimately depends upon public confidence--or, more realistically, public gullibility. That is, the Federal Reserve System is a confidence game, in both senses of that term. What should give every American pause is that the powers that be--who are most intimately acquainted with the problem because they are its cause and the reason it is not being solved--lack confidence themselves.
Rest can be read at:Edwin Vieira, Jr. -- Are Monetary & Banking Crises Inevitable in the Near Future?
[ame=http://www.youtube.com/watch?v=I7Utoxary2Q&feature=related]G. Edward Griffin The Dangerous Servant A Discourse on Government - YouTube[/ame]
[ame=http://www.youtube.com/watch?v=iYZM58dulPE]Money, Banking and the Federal Reserve - YouTube[/ame]
The East Bloc fell apart--and had to fall apart, no matter what anyone did--because of an obscure principle of economics known as "the impossibility of rational economic calculation under bureaucratic central planning". Socialism failed--and must always fail--because, without prices for goods and services generated by a free market, central planners cannot allocate resources and manpower intelligently. But central planners cannot allow a free market to set prices (otherwise there could be no central planning). In the long run, this self-imposed bureaucratic blindness to the real values of people and things results in monumental waste, the failure of central plans to deliver sound capital investments and advancing standards of living, and finally the collapse of those societies that allow politicians and bureaucrats, rather than free entrepreneurs and workers, to direct the course of economic affairs.
Although this principle had been recognized by other economists for almost a century theretofore, it received systematic exposition in Ludwig von Mises's seminal treatise, Socialism, first published in the 1920s. So, during the heyday of central planning from the 1920s to the 1980s, no one should have been unaware of the problem. Nonetheless, the political elite and the intelligentsiia ignored it, just about everywhere. In the Soviet Union and Eastern Europe, where Stalin and his successors imposed industrial-strength central planning through police-state terrorism and slave labor in the Gulag, the price was higher than in (say) the United States, to which Franklin D. Roosevelt was able to administer only a diluted dose of the same poison. But a price there was, paid as usual by common people.
Economic theory also teaches that any scheme of fiat currency and fractional-reserve central banking is just as inherently flawed, incapable of permanent existence, and inevitably doomed to disaster as all-around, full-blown socialism, because fractional-reserve central banking systematically subverts the free market's structure of prices through expansion of currency and credit--which results in redistribution of wealth, misallocation of scarce capital, and collapse in either depression or hyperinflation followed by depression. This is no new insight. The problems fractional-reserve banking causes were widely discussed in the 1800s; and the whole subject of political versus free-market money was exhaustively examined by Ludwig von Mises, in his treatise The Theory of Money and Credit, first published in the 1920s. (Probably the best book on this subject now available for the average reader is Murray Rothbard's The Mystery of Banking.) But, throughout the Western world during the 1900s and even unto the present moment, the political elite, high finance and big business, and their hired intelligentsiia have generally ignored these problems--doubtlessly because irredeemable currency and fractional-reserve central banking have served their short-term interests, and the costs of the system have always been paid by picking the pockets of the common man.
For this country's system of fractional-reserve central banking, though, Americans cannot blame some foreign dictator such as Stalin, but instead need to indict their own home-grown usurpers and tyrants: primarily, Presidents Woodrow Wilson (who signed the Federal Reserve Act in 1913), Franklin Roosevelt (who outlawed private possession of gold for use as currency in 1933-1934), and Lyndon Johnson (who repudiated the government's promise to redeem its paper currency in silver coin in 1967-1968). Some people also assign a large share of responsibility to Richard Nixon, who terminated redemption of Federal Reserve Notes in gold for foreign banks in 1971. This, however, is unfair. By "closing the gold window", Nixon extricated this country from an especially expensive variety of parasitism by the Federal Reserve System: its ability to prop up the value of Federal Reserve Notes by looting America's gold reserves. Indeed, such was Nixons legal duty. Because the Federal Reserve System as a whole is unconstitutional, paying out this nation's gold in redemption of Federal Reserve Notes is unconstitutional, too. (Nixon, of course, was far from being a constitutionalist. But, as folk wisdom teaches, "God writes straight with crooked lines".)
In the case of the Federal Reserve, economic history all too strongly confirms economic theory. In 1913, the Federal Reserve's touts predicted that it would allow bankers and politicians to "manage" currency "scientifically", and thereby to end business cycles, eliminate inflation, and forefend depressions. Yet, the country soon suffered a sharp, albeit short depression in 1920-1921, followed by the horrendous collapses of the stock market and the banks in 1929-1933, and the Great Depression that festered for the remainder of the 1930s. And since World War II, Federal Reserve Notes have lost more than 90% of their purchasing power--which is a serious consequence of inflation by any reasonable standard.
Moreover, since 1933 the Federal Reserve System has been anything but strengthened, because every link between Federal Reserve Notes and gold or silver coin has been severed. Today, (in the words of former high-level banker John Exter) Federal Reserve Notes are an "I owe you nothing" currency. True, the Treasury and the banks will redeem Federal Reserve Notes for "lawful money"; and the Treasury must receive Federal Reserve Notes in payment of taxes. See Title 12, United States Code, Section 411. But the "lawful money" paid out consists only of base-metallic coins. See Title 31, United States Code, Section 5118(b, c). So redemption amounts to exchanging intrinsically valueless rag currency for almost valueless slugs. And a right to use Federal Reserve Notes to pay taxes is of dubious economic benefit to the taxpayer whose wealth is expropriated through that very payment.
Because Federal Reserve Notes are irredeemable in silver or gold, or any commodity other than the Treasurys base-metallic slugs (and even then at no permanently fixed ratio of exchange), their purchasing power in the free market ultimately depends upon public confidence--or, more realistically, public gullibility. That is, the Federal Reserve System is a confidence game, in both senses of that term. What should give every American pause is that the powers that be--who are most intimately acquainted with the problem because they are its cause and the reason it is not being solved--lack confidence themselves.
Rest can be read at:Edwin Vieira, Jr. -- Are Monetary & Banking Crises Inevitable in the Near Future?
[ame=http://www.youtube.com/watch?v=I7Utoxary2Q&feature=related]G. Edward Griffin The Dangerous Servant A Discourse on Government - YouTube[/ame]
[ame=http://www.youtube.com/watch?v=iYZM58dulPE]Money, Banking and the Federal Reserve - YouTube[/ame]
