The View From 1776

At his January 25, 2012, press conference, Federal Reserve Bank chairman Ben Bernanke stated that he expects the Fed to continue imposing near-zero interest rates well into 2014 on short-term Treasury securities.  In response, the stock market surged, despite expectations of generally lower corporate earnings and reduced consumer spending.  Loose credit and low interest rates usually facilitate stock market speculation.

However gratifying this may to individual investors and pension fund managers, it does little if anything to restore production of goods and services or to raise employment.  It also continues to penalize increased savings, which alone provides a stable, long-term platform for economic growth.  People living on fixed incomes have had their rates of income on saving chopped around 75% since the Fed first cut interest rates.

As Austrian school economists long have observed, central bank manipulation of interest rates and government deficit spending has an uneven impact on sectors of the economy.  When unemployment is high and people are yet freighted with excessive personal debt, consumer spending will be among the last sectors to increase.  Instead, deficit spending and loose money lead businessmen to over-invest in long term capital goods, because low interest cost for borrowed money makes even marginal investment projects appear profitable.  When business finally revives and costs, including interest rates, increase, those marginal projects collapse and push the economy into recession.

Such was the genesis and progress of the housing bubble and subprime mortgage securities. 

Contrary to the aggregate computer models of Keynesian economics, the economy as a whole never has been controllable via government stimulus spending. In fact, as reported recently, the 31% increase in business long-term investment over recent months has been largely concentrated in labor-saving equipment, which ironically adds to unemployment or postpones new hiring.

The collapse of Solyndra and Kodak’s bankruptcy filing illustrate the difference between a socialistic planned economy and capitalistic free enterprise.  Under state planning, uneconomic companies can be created and failing ones propped up by the state.  Under free enterprise, only companies that have a good chance of prospering will be bankrolled by investors, and those that don’t prosper will be left to fail.

Kodak for generations was an international icon of private technological success.  Solyndra never even got off the ground.

In the first decades of the 19th century, when the doctrines of socialism were being codified, the concept of social engineering emerged.  Belief in the possibility and effectiveness of a planned economy is the central economic doctrine of liberal-progressive-socialism.  Presumably disinterested, state-appointed managers would do a better job delivering a more abundant supply of socially useful goods and services than putatively greedy, profit-oriented businessmen.

President Obama’s administration is firmly rooted in that early socialistic vision, modified by Lenin’s Gosplan 5-year programs.  Examples are take-over and re-structuring of the banking system and imposing a car czar and labor union ownership on General Motors. 

Obama’s penchant for socialistic state planning is particularly evident in federal financing for economically unsustainable “green” energy companies, none of which could survive without direct subsidies, tax breaks, and punitive regulation of private business competitors.  More than $1.5 billion has been funneled down the rat hole of green energy projects, of which Solyndra is one of the more notorious.

Contrast Obama’s state-planning with a free-enterprise system in which companies must satisfy consumer desires, while supporting themselves and making sufficient profit to finance equipment replacement and growth.  State-planned investment is channeled by political favoritism for special-interest groups and by ideology disconnected from the real world.

Under our original constitutional government, individuals were permitted to keep as much as they could save from the fruits of their labors and to invest their savings in any way they chose.  Most people, having worked hard to save some money, are careful about where they invest it.  The intermediaries in which they invest their savings — banks, mutual funds, life insurance companies, and pension funds — have a fiduciary duty to invest their depositors’ funds in prudent business ventures that can be reasonably expected to grow and prosper. 

The critical point is that the capital necessary to start and to run a business is separated from the business people.  Businessmen want money to create or expand their ventures.  Lenders and investors want to lend money to businesses only when they can be reasonably sure of getting it repaid, plus a profit reflecting the risk incurred in lending and investing.  Capitalism thus has a built-in regulator, a system of internal checks and balances.

To get money, businesses must first convince hard-eyed lenders and investors that a market exists for their products and that they can satisfy that market’s demands.  Lenders and investors have strong incentives to avoid bad loans and investments: they lose their jobs and their own money if they don’t. 

In liberal mythology capital and business are lumped into one evil mass that is dominated by a single-minded lust to plunder society.  Liberal-progressives picture a massive power bloc called Big Business and The Rich who can do anything they want and can force you to buy their products, most of which liberals think are bad for you. 

In reality, you as a consumer are the final boss of every business.  If you and enough of your fellow consumers don’t like the company and don’t buy its products, the financial intermediaries stop funding it, and it goes out of business or declares bankruptcy.  That, unhappily, was Kodak’s fate.

Contrast this with liberal-progressive-socialism.  Businesses approved by the state-planners don’t have to compete with rival businesses to get funds.  They get funding directly from the National State, in accordance with a master plan for the economy. 

Consumers play no role at all in the process, since their product preferences have no effect (e.g., tungsten light bulbs).  Planners make all the decisions about what is produced, how much of it, and where it is to be delivered.  Grossly inefficient and outmoded business enterprises, for that reason, survive decade after decade in a socialist economy.

From 1917 until 1987, liberal-progressives in the United States praised the Soviet Union as a society in which every aspect of life was better for all citizens than in capitalist countries.  When the Soviet Union collapsed, all the world finally were compelled to swallow the plain facts: apart from military armaments, Soviet businesses were operating at below third-world levels of productivity and their depredations of the environment had been wrought on a colossal scale.  The average Soviet citizen had a lower standard of living than the poorest of American welfare dependents in the inner cities. 

The Democrat-Socialist Party has done its best to move us along the Soviet path, never losing blind faith that success is just a matter of sufficiently huge deficit spending.

An article on the Barron’s website tells the story.

On Borrowed Time
Heavy debt loads slow the U.S. economy now and pose threat to the future.

By RANDALL W. FORSYTH

Can a stimulant become a depressant? As with alcohol, government borrowing and spending initially can give a boost, but later becomes a drag. America has hit the downside of that progression.

So says Lacy H. Hunt, chief economist of Hoisington Investment Management (whose eponymous head, Van R. Hoisington, recently was interviewed in the print edition of Barron’s.) The deficits that had aimed to stave off a rerun of the Great Depression after the 2008 financial crisis now are having a depressing effect on the U.S. economy, Hunt contends.

Catching up with Hunt on the road after meetings with Hoisington clients, he expounded on his latest quarterly review, “High Debt Leads to Recession,” a conclusion that runs counter to economics as it is taught in most institutions of higher learning. For most of us who studied the conventional Keynesian economics as taught in the textbooks of Paul Samuelson and his successors, government spending “primes the pump,” to get money back into the economy after the flow of spending had been turned off by a private sector, which was intent on saving “too much.” As a result, resources sat idle, especially the unemployed. Borrowing and spending by government would expand national income by a multiple of its expenditures.

Actually, the opposite is happening. The multiplier from government spending is no better than zero, Hunt says on the basis of econometric evidence. If the economy is “shocked” with a deficit, gross domestic product will get a lift for three-to-five quarters. After 12 quarters, however, the original stimulus is spent, literally and figuratively. But the debt that was incurred to finance the spending remains, and has to be repaid, with interest. That requires a shift of assets from the private sector to the public sector.

Japan provides an example of this process. That nation’s government debt has expanded during its “lost decades” to 200% of GDP from 50%. Meanwhile, nominal GDP in yen terms is basically unchanged. In other words, Japan’s debt has quadrupled but has nothing to show for it—except higher interest costs, which has to come out of the private sector.

Hunt cites the now-familiar conclusion that debt-to-GDP ratios over 90% retard growth from economists Kenneth Rogoff and Carmen Reinhart, authors of the popular This Time is Different: Eight Centuries of Financial Folly, who also presented that conclusion in a 2010 National Bureau of Economic Research working paper, Growth in the Time of Debt.
Hunt also points to an even more exhaustive study on the effects of debt from Stephen G. Cecchetti, M. S Mohanty and Fabrizio Zampolli from the Bank for International Settlements, presented at the Federal Reserve’s Jackson Hole confab last year, The Real Effects of Debt , which takes into account the retarding effect of not only government but also corporate and household debt. Those imply “that the debt problems facing advanced economies are even worse than we thought,” especially when unfunded future liabilities in the form of promises given by governments in retirement and medical benefits are counted.

So, I asked Hunt, is there any way out of this apparent debt trap? Nothing that’s politically popular, he says. Without tackling the unfunded liabilities of Social Security and Medicare—which total some $59 trillion, dwarfing the U.S. bond debt of $15 trillion—there’s little if any anything that can be done. Federal outlays—which total 25% of GDP, unprecedented except in World War II—are headed to 40%, according to economist Barry Eichengreen of the University of California at Berkeley. Absent the political reforms needed to rein that percentage in, he writes, “The United States will suffer the kind of crisis that Europe experienced in 2010, but magnified,” Eichengreen writes.

The solution to the U.S. debt problem requires robust economic growth, not the downward spiral that Europe’s most indebted economies, such as Greece, now are experiencing. Government spending has negligible or negative long-term impact on growth, Hunt says, based on econometric evidence. So-called tax expenditures, the most prominent being the mortgage-interest deduction, do little if anything to spur growth. But changes in marginal tax rates have significant multiplier effects.

What’s needed then, says Hunt, a comprehensive package of shared sacrifice along the lines of the Bowles-Simpson plan, which was unveiled a year ago and shelved. Since then, the U.S. has had a contrived crisis over the debt ceiling and a less-than-super committee that couldn’t make basic choices about spending. Hunt says his package would consist of cutbacks on government spending and tax expenditures, which slow growth, with stable or lower marginal tax rates. At minimum, stabilize policies so businesses can plan and invest and hire.
This dire long-term view of U.S. finances seems at odds with Hoisington’s continued position in the longest-term Treasury bonds. And those long Treasuries produced 30% total return in 2011. For the deflation pressures from various sources, including heavy U.S. total debt, Hunt looks for Treasury bond yields to fall still further, from just 3% currently. But, he adds, his firm is ready to switch tacks if and when debt problems push yields higher.

When the facts change, Hunt says Hoisington Investment Management’s portfolios will change, alluding to Keynes’s famous dictum. That may be the only thing on which Hunts agrees with Keynes.

The Fed failed completely to foresee the 2007-2008 housing meltdown and the collapse of the financial system.  The Fed failed completely to foresee the dot.com boom-and-burst that threw the economy into recession at the end of President Clinton’s tenure.  The Fed failed completely to foresee the stagflation of the 1970s (it was, in fact, proclaiming its success at fine-tuning the economy using Keynesian economic tactics).  The Fed pumped up the money supply sharply during the 1920s, failing completely to foresee the 1929 stock market crash and the Great Depression.

The following excerpts from an article in today’s Wall Street Journal bring us up to date on the dangerous folly of allowing the Fed to attempt management of the economy, particularly when it espouses the Keynesian belief that financing the government’s deficit spending will automatically end a recession without inflationary distortions to people’s standards of living.

Fed 2006 Transcript Highlights: Riding Housing Roller Coaster With Eyes Shut

Federal Reserve Chairman Ben Bernanke and most of his colleagues showed little concern when house prices started to decline in 2006, predicting “a soft landing” in the then-strong U.S. economy, transcripts from the central bank released Thursday show.

Bernanke, who took over from Alan Greenspan as Fed chairman in February 2006, is cautious in making forecasts about housing and the wider economy. But, together with then New York Fed chief Timothy Geither, he believes the slowdown in housing is healthy and likely to end well.

MAR. 27-28: In Bernanke’s first meeting as Fed chairman, housing looms as a risk, but officials haven’t grasped the severity of the threat. The Fed’s chief economist, David Stockton, offers some ominous warnings. “Right now, it feels a bit like riding a roller coaster with one’s eyes shut,” when discussing his forecast for a modest slowdown in housing. “We sense that we’re going over the top, but we just don’t know what lies below.” Later, he notes that housing is “the most salient risk” to the economy. “I just don’t know how to forecast those prices,” he says of housing prices.
“Again, I think we are unlikely to see growth being derailed by the housing market, but I do want us to be prepared for some quarter-to-quarter fluctuations,” Bernanke says. He identifies housing as a crucial issue, but adds that he agrees “with most of the commentary that the strong fundamentals support a relatively soft landing in housing.
Timothy Geithner, who is now Treasury Secretary and was then president of the Federal Reserve Bank of New York, doesn’t see the parallel risks building in the financial system. “Equity prices and credit spreads suggest considerable confidence in the prospect for growth,” he says. “Overall financial conditions seem pretty supportive of the expansion.”
In terms of policy, Bernanke picks up where predecessor Greenspan left off: with another quarter-point boost in interest rates, and a hint of more to come.
But he puts a modest stamp of his own on the Fed’s closely watched post-meeting statement, by including a more explicit view of where the nation’s economy is headed. The statement’s forecast that economic growth appears likely “to moderate to a more sustainable pace” may be an early, though small, sign of his efforts to make the central bank’s thinking more transparent.

MAY 10: Fed officials spend a lot of time discussing rising energy prices and risks to inflation and agree to raise short-term interest rates by 0.25%. Susan Bies, a Fed governor, tries to bring the discussion back to housing and her growing worries about mortgages. She looks enlightened in retrospect in a discussion about the risks that increasingly exotic mortgages pose to consumers and banks.
Bies points in particular to negative amortization loans, in which household loan balances get bigger and not smaller over time. “I just wonder about the consumer’s ability to absorb shocks,” she warns. “The buildup of home equity and the ability to borrow against it have helped individual homeowners when they have had layoffs, medical problems, divorces-all the things in life that create month-to-month problems for cash flow. With the growth of negative amortization, home equity is not being built up anymore.” She sums up with a ominous warning: “The growing ingenuity in the mortgage sector is making me more nervous as we go forward in this cycle, rather than comforted that we have learned a lesson. Some of the models the banks are using clearly were built in times of falling interest rates and rising housing prices. It is not clear what may happen when either of those trends turns around.”
Bernanke acknowledges the risks, but doesn’t sound overly worried: “So far we are seeing, at worst, an orderly decline in the housing market; but there is still, I think, a lot to be seen as to whether the housing market will decline slowly or more quickly. As I noted last time, some correction in this market is a healthy thing, and our goal should not be to try to prevent that correction but rather to ensure that the correction does not overly influence growth in the rest of the economy.”

JUNE 28-29: In summarizing Fed officials’ views, Bernanke notes how it’s getting more and more difficult to make forecasts, describing the economic situation as “exceptionally complicated.” Since housing is particularly hard to project, Bernanke calls it “an important risk and one that should lead us to be cautious in our policy decisions.”
The Fed raises interest rates to 5.25% from 5% at this meeting, the 17th increase in a row. But for the first time since it began raising rates from a low of 1% in June 2004, the Fed doesn’t explicitly say another rate increase was under consideration.
AUG. 8: Bernanke reminds his colleagues that the Fed has not been “terribly successful with soft landings” in the economy. Then he adds: “We have a chance to get one.” Janet Yellen, the Fed vice chairwoman who headed the San Francisco Fed in 2006, appears to be the most concerned about housing, warning that the housing slowdown could become an “unwelcome housing slump.” The central bank leaves rates unchanged at this meeting after two years of steady increases. Geithner wants to cite housing weakness as a factor, but the majority is against that.
SEP. 20: The Fed cites housing and energy declines in holding interest rates steady. However, chief economist Stockton says that the economy “bends but doesn’t break” under one Fed forecasting scenario of a housing slump. “So far the collateral damage from the downturn in housing has been limited, and for the most part, we expect it to remain that way, at least for a time,” he says. Bernanke notes there’s a split on how housing is viewed at the Fed, with some expecting a deep correction while others believe incomes and rates will support housing. Here’s how he sums it up: “the economy except for housing and autos is still pretty strong, and we do not yet see any significant spillover from housing.”
At points, some officials played down the housing and mortgage threats. “As one CEO told me, the only subject that has been more analyzed than the housing situation is the birth of Brad Pitt’s baby,” Dallas Fed president Richard Fisher said in the September meeting. “According to this view, if we have not discounted what has been happening in the housing market, we have been living on Mars, and I think that is an important point to take into account.”
Asked to comment Thursday, Mr. Fisher noted that he wasn’t dismissive of the threat. In that same September meeting, for instance, he noted that he was more pessimistic about the housing outlook than was the Fed’s economics staff in Washington. The previous month he noted that one homebuilder said the housing correction was the “roughest and most sudden” he had seen.

DEC. 12: The meeting that closes out the year sees policymakers showing little rising awareness of the storm coming their way. Indeed, much of the conversation officials have was about employment and inflation. Some of the evidence of rising weakness in housing was seen largely as a correction for past excess, rather than the genesis of the worst financial crisis since the Great Depression.
Boston Fed boss Cathy Minehan then observes her district was seeing a slowdown in housing, but she saw no great concern in this development. The Richmond Fed President Jeffrey Lacker notes a mixed housing picture: he doesn’t see any great catastrophe coming the sector’s way. Cleveland Fed leader Sandra Pianalto flags some borrowers’ increased difficulty in getting mortgages in her region. Then Fed Vice Chairman Donald Kohn says rising inventories in manufacturing was “a bit more troubling” than the cooling in housing activity he’d seen.
Fed Governor Bies once again looks ahead of the curve. She says “the amount of leverage in each housing deal may still need some correction going forward, and so we may see some slowdown in the volume of dollars that are funded through mortgage lending.” She also says that in markets there is a realization “that a lot of the private mortgages that have been securitized during the past few years really do have much more risk than the investors have been focusing on.”
Bernanke fails to see any major problem brewing in housing based on his comments in the transcripts, once again predicting a “soft landing” for the economy.

From the closing decades of the 19th century through mid-20th century, academics (who were heavily influenced by the socialistic materialism espoused in the great German universities, then regarded as the ultimate source of PhD degrees) taught a distorted version of American history.  That version centered around the false idea that the Declaration of Independence represented the egalitarian spirit of the French socialist revolution and that the Constitution was a reactionary effort to kill egalitarianism.  Notable among those academics were Vernon L. Parrington (Main Currents in American Thought) and Charles A. Beard (An Economic Interpretation of the Constitution of the United States).

Because academics of that era, just as is true today, favored the collectivism of the socialistic welfare state, they identified the 17th and 18th century Enlightenments exclusively with the socialistic French Revolution.

Robert Curry sets about dismantling that academic fraud.

Sorting out the Enlightenments
By Robert Curry

A Review of Gertrude Himmelfarb’s The Roads To Modernity: The British, French, And American Enlightenments (Knopf, 2004)

“Can you recommend a book that sorts out the various Enlightenments and makes it clear why I should care?”

The Roads To Modernity ought to be the perfect answer to that question.  As you might anticipate because of the author’s sterling reputation, where it is good it is very, very good indeed.  Unfortunately, although the author accomplishes the task brilliantly in two magnificent chapters, she also creates confusion in a third chapter.  Despite the problems with that third chapter, The Roads To Modernity remains the best answer to the question, and even the chapter that goes awry has much to recommend it to the alert reader.
The two outstanding chapters are the ones on the French and the American Enlightenments.  They are models of brevity, clarity, and scholarly command of the subject.  The French and the American Enlightenments are brought into sharp focus, and their profound differences are made clear.

Prof. Himmelfarb brilliantly contrasts the French Enlightenment, which she terms “the Ideology of Reason,” and the American Enlightenment, termed by her as “the Politics of Liberty:”

“The idea of liberty…did not elicit anything like the passion or commitment [from the French] that reason did. Nor did it inspire the philosophes to engage in a systematic analysis of the political and social institutions that would promote and protect liberty.”
This passage is an example of the book at its best.  The philosophes and the Founders were working in very different directions on very different projects.  These differences help explain the very different outcomes of the American and the French Revolutions.
Because the study of the Enlightenment has traditionally focused on France, these two chapters provide the interested reader with an opportunity to make a great leap forward not just in understanding the Enlightenments, but also in understanding America.  Many Americans who take a keen interest in American history do not realize how much America’s Founding was an Enlightenment project.  They are surprised to learn that The Declaration of Independence, the Constitution and The Federalist are among the greatest achievements of the Enlightenment.  Prof. Himmelfarb’s thoughtful analysis makes a powerful case for the historical significance and the uniqueness of the American Enlightenment.

Prof. Himmelfarb also ably demonstrates that the philosophes’ concept of reason explains their disdain for the common people.  Voltaire, for example, never concealed his disdain for the people, habitually referring to them as “la canaille” (the rabble), and Diderot wrote that “the common people are incredibly stupid.” The philosophes’ statements about their fellow citizens are very different from Jefferson’s ringing declaration that “all men are created equal…endowed by their Creator with certain unalienable Rights…” What made for this difference?  Prof. Himmelfarb correctly assigns the difference to the role of two Enlightenment conceptions, the moral sense and common sense.  Moral sense and common sense doctrines were central to the American Enlightenment and absent from the French Enlightenment:

“The moral sense and common sense…attributed to all individuals gave to all people, including the common people, a common humanity and a common fund of moral and social obligations.  The French idea of reason was not available to the common people and had no such moral or social component.”

Much ink has been spilled on the question of why the French and the American Revolutions had such different outcomes.  Here you have a key difference, stated with brilliant clarity.  The difference between the philosophes and the Founders is this: the primacy of reason versus the primacy of the moral sense and common sense.

However, always pairing the moral sense and common sense, as Prof. Himmelfarb very correctly does, raises a problem.  The moral sense and the common sense schools of philosophy are the two schools that make up the Scottish Enlightenment.  This is so well established that the heading for a chapter on the Scottish Enlightenment writes itself:  “The Moral Sense and Common Sense.” There is no need for the brilliant defense Prof. Himmelfarb provides for “the Ideology of Reason” as the proper heading for the French and for “the Politics of Liberty” as the proper one for the Americans.  Yet there is no chapter on the Scottish Enlightenment.  Instead, there is a single chapter combining the British and the Scottish Enlightenments under the single label of the British Enlightenment.

The Scottish Enlightenment was a response to developments in England.  As Isaac Kramnick wrote,

“The beginnings are marked in Britain by the Glorious Revolution in 1688…as well as by the writings of Locke and the publication in 1687 of Newton’s Principia.”

The Scots enthusiastically entered into the scientific project of the Enlightenment but they were alarmed and aroused by the Lockean one.  The moral sense and common sense schools of philosophy were their response to Locke.  In the words of Garry Wills:
“Man was seen, after Locke, as determined by the impact of pleasure and pain upon his senses.  [Thomas] Reid saw this as a challenge to the certainty of knowledge.  [Francis] Hutcheson saw it as a threat to the very possibility of virtue.”

Reid founded the common sense school and Hutcheson the moral sense school to meet the Lockean threat.  Subsequently, the Scots handed their twin doctrines on to the Americans who used them in their “systematic analysis of the political and social institutions that would promote and protect liberty.” The Scots had done the brilliant theoretical work that opened the way for the success of the Founders’ systematic analysis.  A chapter on the Scottish Enlightenment placed between a chapter on Locke and the British Enlightenment and the chapter on the American Enlightenment would have told that story quite clearly.  The design of the book makes clear that Prof. Himmelfarb wants to tell a different story. 

The chapter on the British Enlightenment is over three times as lengthy as either the chapter on the French or the one on the Americans.  Remarkably, there is a lengthy section in the British chapter in which Prof. Himmelfarb argues that Edmund Burke is an Enlightenment thinker, though she admits that he is generally assigned to the counter-Enlightenment.  Even more remarkably, there is an even lengthier section on Methodism.  These are not merely brief digressions.  The Burke and the Methodism sections taken together are much longer than either the chapter on the French or the chapter on the American Enlightenments. 

In light of the number of pages dedicated to Burke and to Methodism, the page count dedicated to Locke is especially and curiously meager.  The apparent justification for the minimal attention paid to Locke is that Prof. Himmelfarb chooses to downplay Locke’s significance.  In what is almost an aside, Prof. Himmelfarb denies Locke and Newton the role traditionally assigned to them: 

“John Locke and Isaac Newton are often designated as the fathers of the British Enlightenment.  I myself would give that distinction to the third Earl of Shaftesbury…”
This claim is more than audacious.  Locke and Newton are not just “often designated” as the men who fathered the Enlightenment.  On this point the French, the Scots and the Americans of the Enlightenment are in agreement. 

As a result of the diminished role of Locke and Newton, no attempt is made to represent for us how Newton’s scientific discoveries, Locke’s philosophical writings and the possibilities suggested by the Glorious Revolution’s limits on governmental power combined to open up the new vision for Western civilization that we call the Enlightenment.  For, of course, if Newton and Locke do not have a central role, there is no need for Prof. Himmelfarb to make that attempt.

But why choose Shaftesbury instead for the central role?  The answer to that question is made clear simply by continuing the sentence just quoted above:

“…I myself would give that distinction to the third Earl of Shaftesbury, who was also the father of the Scottish Enlightenment although he was neither Scottish nor a professor.”

If Shaftesbury is the father of both the British Enlightenment and the Scottish Enlightenment, then a single chapter combining those two Enlightenments under the single label of the British Enlightenment would make sense.  The need for a separate chapter on the Scottish Enlightenment is eliminated—but at what a cost!  The problems are not limited to denying Newton and Locke their iconic status.  Starting the Enlightenment with Shaftesbury instead of Locke has the additional problem that Shaftesbury’s purpose was to refute Locke.  Like the Scots, Shaftesbury was alarmed and aroused to action by Locke, though he was careful not to name Locke in print, perhaps for personal reasons.  (Locke had personally supervised Shaftesbury’s education as a boy.) In a famous letter to a friend, Shaftesbury made his view of Locke quite clear:
“ ’Twas Mr. Locke that struck at all fundamentals, threw all order and virtue out of the world…Virtue, according to Mr. Locke, has no other measure, law, or rule, than fashion and custom: morality, justice, equity, depend only on law and will….And thus neither right nor wrong, virtue nor vice are anything in themselves.”

Like Shaftesbury, the Scots took up the task of refuting Locke and finding philosophical foundations for moral judgments and for knowledge claims as well.  Therefore it seems appropriate to place Shaftesbury where the Scots always placed themselves, that is, as one of the many thinkers following on Locke.

We are now able to envision the remodeling of the Enlightenment carried out by Prof. Himmelfarb in the chapter on the British Enlightenment.  She has raised an interior wall that moves Newton and Locke to the periphery, and taken down other walls in order to send out large additions, one to house Edmund Burke and another vast wing to make a place for Methodism.  The result is certainly strange.  What can be the purpose of these drastic assaults on its venerable floor plan?  Prof. Himmelfarb has spoken movingly of her lifelong interest in Burke.  Perhaps this massive Enlightenment remodeling project can best be understood by noting that it makes it easier to find a place for Burke within it.  Certainly an Enlightenment that includes Methodism, keeps Locke and Newton in the background and mixes the Scots and the British together is one from which it would be more difficult to justify excluding Burke.

Whether or not the problems with the chapter entitled “the British Enlightenment” are the result of a special effort to re-make the British Enlightenment so that it is sufficiently capacious to contain comfortably Edmund Burke, the chapter has much to offer the reader who is alert to the actual historical sequence.  If you read the chapter carefully, you are positioned to find within it much of value and much to admire.  If your style of reading would allow you to do such a thing, I recommend that you consider reading the chapters on the French and the Americans first.  With those two chapters under your belt, and armed with an awareness that the moral sense and common sense are the handiwork of the Scots, while reading you may begin to perceive within this unwieldy chapter many of the elements of two brilliant chapters, one on the British Enlightenment and one on the Scottish Enlightenment.

Commentary on ‘The Inflation Nobody Knows’
By Robert Stapler

In ‘Understanding the Nature of Inflation’ proprietor Thomas Brewton argued few people really understand inflation (including many in high office), and it is this that leads to bad policy.   Commenter ‘J. Jay’ challenged Brewton, absurdly claiming there hasn’t been any inflation under Obama.  Besides being hopelessly muddled, J. Jay’s rebuke so completely misses Brewton’s point as to validate it (i.e., J. Jay doesn’t know much about inflation, so defends what are patently inflationary policies).   To be honest, I am neither economist nor financial-wizard sufficient to judge a policy is inflationary (in the long term), but I am enough of an [amateur] historian to see parallels with past inflationary policies and intelligent enough to do the necessary research a topic like this deserves before risking an opinion.   Despite the title, I did not get enough from the article with which to either contest or defend, so I did the rational thing – I sought out greater knowledge.    Specifically, I Googled “what is inflation”, plus the forms inflation might take besides the obvious one of ‘annualized consumer price comparisons’.
 
I began my quest with a search ( http://www.ask.com/web?q=what+is+inflation&qsrc=0&o=0&l=dir ) from which I reaped a large number of hits; of which, I read several, and herein present what I regard three of the best.   Wikipedia provides a good (if slanted) presentation comprehensible to anyone capable of understanding the basics http://www.ask.com/web?q=types+of+inflation&qsrc=0&o=0&l=dir  ).  While not as rigorous as scholarly sources, I regard this one accessible to the casual reader.   It also presents a background on a variety of views or ‘economic schools of thought’ regarding inflation all in one place; which is convenient.   A slightly more in-depth tutorial (Keynesian view) is given by Investopedia ( http://www.investopedia.com/university/inflation/inflation1.asp ).   While un-compelling (because it leaves out competing forms), it is written for the lay reader.   For a more expansive rendering, I submit Tom Au’s (The Daily Reckoning http://www.dailyreckoning.com.au/what-is-inflation/2007/06/15/ ) description of five types of inflation (commodity, wage, monetary, fiscal, & foreign-exchange); which pretty much explodes the notion inflation consists only of CPI, PCE and/or PPI models.  It also shows how inflation can grow over long periods ‘below the common radar’ (tsunami-like) before it wreaks havoc.    He also discussed the way government deliberately excludes certain commodities from its calculations precisely because it knows including those would yield a higher inflation statistic; proving reliance on government to report the effectiveness of its own policies is misplaced.   Finally, I submit John Williams’ hyperinflation report 2011 update (http://www.shadowstats.com/article/hyperinflation-special-report-2011.pdf ).   While Williams tends a bit to alarmism, he has invested enormous time and energy to this subject, and into making his site factually bullet-proof.  So, while I cannot fault his data, I don’t know I would so endorse his conclusions as to admit to panic.   I note Williams has been predicting economic crises (with minor variations) since 2004.  So, while the analysis is excellent, it is not a crystal ball, and ought not to be credited as such.   Overall, however, I find this site excellent at debunking myths and exposing the outright hoodwinking by our political-class.
 
Perhaps the most disturbing/confusing aspect of the current fiscal situation is our insolvency and its relation to money-supply versus GDP.   Most other aspects of inflation are comprehensible to lay folk, but money-supply is one subject area that apparently eludes even those classed as ‘professionals’ as is evidenced by widely conflicting opinions regarding its nature and what should/shouldn’t be counted in the M1, M2, M3 money-metrics.  Among the skeptical/alarm-bell camp I found the following explanation of money-supply, and why it portends calamity: http://nowandfutures.com/key_stats.html , http://www.marketskeptics.com/2009/03/fed-is-planning-15-fold-increase-in-us.html .   How far we should credit such alarmism, I am unequipped to say, but neither are those who naysay the deep hole we have plainly dug for ourselves.
 
Even the liberally slanted Wikipedia admits “high rates of inflation and hyperinflation are caused by an excessive growth of the money supply.”   If high-rates of money-supply-growth lead to hyperinflation and bureaucrats acknowledge having significantly increased this supply through taxing, spending, credit-schemes, borrowing and unbridled money printing, why does the government, liberal-media and Wikipedia go to such lengths downplaying any inflation whatsoever.  For example, the Wiki link above includes a graph ( http://en.wikipedia.org/wiki/File:US_Inflation.png ) implying inflation has gradually and greatly fallen (all but eliminated) over the past 100 years, even as it calculates a [higher than normal] 2010/2011 inflation rate of 4.28%.   This sleight of hand ignores any intelligent reader can readily calculate decadal, GDP adjusted rate of inflation has been relatively flat with inflation mostly increasing for her/him-self.   By failing to adjust for GDP, this chart hides what we observe independently, that prices are no less volatile than they were in 1910 and that, whereas we pay $2.00 for a loaf of bread, in 1910 our grandparents paid $0.10 for a similar loaf.   What this shows is the way inflation as oft expressed is misleading, and this is by design. In fairness, Wikipedia merely replicates what government presents in its official communiques; and, overall, spins perception leftward (unsurprising).
 
Before leaving this topic, I want to mention this is not the first time J. Jay has argued simplistic representations of inflation, nor the first time I and others have tried correcting his distortions, patiently explaining there is more to this inflation business than meets his eye.  But, J. Jay takes no notice, and blithely continues commenting on matters for which he is unequipped as though armed with ultimate truth as transcends mere fact.  In the comments section of Brewton’s ‘Government’s “Inflation” Boondoggle’ ( http://www.thomasbrewton.com/index.php/weblog/comments/2821/ ), I offered the following insight:
 
“CPI and PCE are not the only measures of inflation, despite they are the only measures government considers relevant.  ...  Inflation is an elastic measure easily manipulated to mislead, so any claim of ‘zero inflation’ is immediately suspect. ”
 
This is a simple, obvious truth anyone can observe, one that does not need a PhD in economics to quantify.   In the same commentary, I made the following additional, commonsense observation:
 
“One out of five Americans are [currently] out of work, many for so long they’ve given up; and for those inflation has little to do with metrics.  For those, hyper-inflation has simply and incontestably arrived because when you have nothing, inflation is infinite.”
 
We don’t need a government controlled statistic to see 401K’s have imploded, and for many months have fluttered between recovery and obliteration like a patient on life-support.  Nor do we need it to see there are more rather than fewer ‘bums’ standing at street-corners begging, or that some of these are so well-heeled (haven’t acquired the costume and cunning of long practice) as shocks us into realizing their poverty is unaccustomed.  Nor do we need it to see many a company is laying workers offs in the face of market instability, plunging sales, bankruptcy threats, and cash-flow issues.   Nor do we need it to understand something truly ‘fundamental’ is broken, and must be fixed if we are to recover.   J. Jay thinks because a loaf of bread cost $2 two years running that proves there isn’t any inflation, or is entirely in our heads; all the while ignoring other retail items have soared in price or fluctuate wildly (where before were highly stable).   Inflation doesn’t necessarily touch everyone equally or all at once.  In every recession there are always some who are insulated from its humbling effects (at least for a time).  As shown above, inflation approaches from below our radar (tsunami-like); and, it is only those who study the economy with a keen, skeptical eye or a view to particular markets who see its approach.   It may hit us in waves; crippling first one sector, then another, and another.  Just as with individuals, there are some sectors and certain jobs that are insulated from the general calamity.  Most notable among these is government. 
 
In this and other article response-sections, J. Jay consistently reveals he regards inflation non-existent so long as it does not touch him personally, does not exist so long as authoritative Democrats promise him otherwise, or does not so long as he can field a suspect statistic.   J. Jay honestly disbelieves the evidence of his eyes so long as the New York Times refutes inflation’s existence because his judgment is seriously compromised by slavish party fealty.   Possibly, J. Jay has one of those safe government jobs or belongs to a ruling-elite (e.g., minor local bureaucrat); and, this explains the disdainfully insular attitude.   So, while others are clearly reeling from the effects of the [non-existent] inflation, J. Jay blithely advises we pay it no mind.   So, ignore that charlatan behind the curtain – Oz (at least) is safe from the storm ragging outside its comforting walls.  Let them eat cake, eh, J. Jay?
 
Additional Reading: 
http://mises.org/books/inflation.pdf - Hazlit - ‘What You Should Know About Inflation’
http://mises.org/books/economicsofinflation.pdf - Brusciani-Turroni, ‘The Economics of Inflation’
 
Money Supply
http://mises.org/rothbard/austrianmoneysupply.pdf - Rothbard: definitions of money supply
http://mises.org/journals/qjae/pdf/qjae3_4_3.pdf - clarification on what is/isn’t counted in money-supply, and why
http://mises.org/rothbard/money.pdf - Rothbard: Austrian theory of money