The View From 1776

The cornerstone of Western civilization, beginning with the Old Testament prophets and classical Greek philosophers, was the belief that human nature is constant, unchanging over the ages.  Liberal-progressive-socialist theory, inaugurated by French intellectuals before and after the bloody French Revolution of 1789, propounded the theory that human behavior can be controlled and changed by restructuring society.

In pre-French Revolutionary society, constancy of human nature meant that a good and just society depended upon every individual’s aligning himself with God-given natural law, intuited through religion and philosophy.  No matter whether the ruler was good or bad, every individual needed to do the right thing, to deal fairly with others, to aid widows, orphans, and others in need.  Every individual ultimately would be judged by his Maker.

Liberal-progressive-socialism, exemplified in psychology and the other so-called social sciences established by French intellectuals, hypothesizes in contrast that humans have no capacity to intuit a Divine Creator or a natural law imparted by His Mind, which created the universe.  Humans are just products of Darwinian evolution, beings whose fundamental characteristic is response to external agents of pleasure or pain.  Intellectuals therefore can manipulate evolution with laws and regulations to compel people in the mass to respond as the intellectuals intend.

The cornerstone question, then, is whether individuals can be relied upon to perceive their own best interests, or whether only Ivy League intellectuals and Democrat/Socialist Party politicians can know wherein lie the best interests of the masses, e.g., electric cars, shutting down industries that create jobs but emit CO2, and supporting mafia-style labor unions and “green” ventures.

If the Judeo-Christian Western civilizational paradigm is correct, government should encourage religion as the best means to impart individual morality and responsibility, and government should give maximum free rein to individual initiative and creativity.

If President Obama and his fellow liberal-progressive-socialists are correct, ultimately everyone should be employed by the government, because only government is able to improve peoples lives, only government perceives what is best for the masses, only government can protect helpless members of the mass from predations of capitalist businessmen.

Svetlana Kunin, who grew up under the liberal-progressive benevolence of the Soviet Union, explores the implications of those differing views in an op-ed piece appearing on the Investors’ Business Daily website.  Read Who Created Prosperity? Bureaucrats Or Individuals?

When our money supply growth exceeds the rate of increased production of real goods and services, the dollar is being debased.  Citizens pay for this with a cumulatively huge decrease in purchasing power of their earnings and savings.  This monetary inflation is an invisible tax increase imposed by the Federal government’s deficit spending to finance the ever-growing socialistic welfare state.

As recently as the 1950s, $35 would have bought an ounce of gold.  Since then the worth of the dollar has fallen so abysmally that, at yesterday’s closing, an ounce of gold would have required a buyer to pay $1,598.  In other words, the purchasing power of a dollar has depreciated 98% over the past 50 years.

When I got my first Wall Street job in 1958, my salary of $5,700 was well above national averages.  Most people earned less than $100 per week.  I could afford to pay Manhattan apartment rents, go to Broadway theatre performances or concerts, and otherwise have an active social life.  Today the same standard of living in New York City would require income well north of $100,000 for a single person.

That change was fueled by the Federal Reserve’s excessive fiat money creation.  One measure of this recklessness is the M3 money stock statistics, which the Fed discontinued in 2006.  The M3 money stock increased from approximately $300 billion in 1958 to approximately $10.2 trillion in 2006, an increase of 3,300%.  Quite obviously our real economic production of goods and service expanded at nowhere near that level.

The sixty-six years since the end of World War II started with the Bretton Woods pseudo gold standard (the so-called gold-exchange standard).  The money supply, lacking stabilization by a true gold standard, was continually increased at rates far above increases in real goods output, particularly to support the Treasury’s deficit financing of President Johnson’s Great Society.  With the flood of easy money in 1970 came PennCentral Railroad’s bankruptcy and the resulting collapse of the commercial paper market along with the commercial real estate boom and bust of the 1970s.  In 1971 President Nixon abandoned the gold-exchange standard and imposed price controls.  We were well on our way to the era of stagflation, with both the prime interest rate and the Consumer Price Index hitting 18% per annum.

In the first couple of years of the 1980s, Fed chairman Paul Volcker stopped the surge of inflation by sharply reducing the money supply.  His successors Alan Greenspan and Ben Bernanke, however, reverted to Keynesian easy money policy, which created the 1987 stock market crash, the 1990s dot.com implosion, and the residential real estate boom and collapse in 2007. 

Still believing that higher volumes of increasingly worthless dollars solves all economic problems, Bernanke’s Fed has massively increased the money supply.  The Consumer Price Index, which measures only a small slice of costs of living, is back up to a 3.5% rate of increase, roughly the same rate that inaugurated the 1970s stagflation.

For more regarding the nature and uneven effects of monetary inflation, read Krugman attacks Ron Paul, Austrian Economics.