TAMPA, August 3, 2012 – “When I was your age, I went to the movies for a dime and bought a big bag of popcorn and a soda for a nickel.”
My father said that to me a hundred times when I used to pay $2.75 to go to the movies and another $1.25 for the popcorn and soda. For five generations, Americans have understood steadily rising prices as an immutable law of nature. Yet history shows that this just isn’t true.
The Federal Reserve of Minnesota publishes historical inflation figures on its website going back to 1800. The attached chart from that website shows annual inflation rates from 1800 through 2008. I added the last column to calculate the price movements of a basket of goods that cost $100 in 1800.
You don’t need a Ph.D. in finance for the numbers to jump off the page. The basket of goods that cost $100 in 1800 only cost $58.10 in 1913 (the year the Federal Reserve System was created). For that entire first full century of American history, steadily decreasing prices were something Americans took for granted.
In the ninety-nine years since the creation of the Federal Reserve System, that same basket of goods has risen to $1,265.14.
TAMPA, June 18 2012 – 218 years ago, George Washington signed the Jay Treaty, reestablishing economic relations with the British. Claiming that John Jay and the Federalist Party had sold America out to the British and betrayed France, Jefferson’s Republicans denounced Jay as a monarchist and a traitor.
His effigy was burned and one newspaper went so far as to print, “John Jay, ah! the arch traitor – seize him, drown him, burn him, flay him alive.”
Senator Rand Paul of Kentucky might know how Jay felt. Since endorsing Mitt Romney for president on June 7, Paul has endured a barrage of criticism from his father’s supporters and those who consider themselves part of the larger “liberty movement.”
There have even been a few death threats.
I spoke to Senator Paul last Thursday. He was understandably concerned by the more outlandish reactions, but put them in perspective.
“The people that are over the top and even making death threats on the internet, I hope they are not serious, but they are a small number of people making a disproportionate number of the comments. A lot of those people may not even vote or may not have voted for my father. They don’t represent the majority of the people that support what we’re fighting for.”
Overlooked during the controversy is Paul’s promise to his constituents to endorse the Republican nominee. Paul won a decisive victory in Kentucky with far more than Ron Paul supporters behind him. Without promising to endorse the nominee, Paul may have never even won the Republican nomination, much less become a U.S. Senator.
“I’ve said all along that I would endorse the Republican nominee. I made that promise during my own campaign, because it was a concern for many Republicans that my dad hadn’t endorsed the Republican nominee in the past. People should understand that it doesn’t mean that I’ve changed my philosophy or adopted anyone else’s.”
>”Once you admit that the individual is merely a means to serve the ends of the higher entity called society or the nation, most of those features of totalitarianism which horrify us follow of necessity.”
– F.A. Hayek, The Road to Serfdom (1944)
When Congressman Ron Paul proposed his bill to subject the Federal Reserve System to regular audits, it was no secret what his ultimate objective was. If there was any doubt, his subsequent book, End the Fed, eliminated it. Congressman Paul hoped to educate the public about just what the Federal Reserve does – transfer wealth. With regularly scheduled audits, average Americans would see that new money and credit created by the Fed in the form of loans makes its way quickly and consistently to Wall Street, defense contractors, and government agencies.
Meanwhile, people would slowly begin to catch on that this apparent act of magic was not without a cost; that in fact, they were bearing the cost themselves through the loss of their purchasing power due to inflation of the money supply. This could plausibly start a popular movement to do exactly what Paul has been calling for throughout his political career. The key to the strategy was to educate Americans on the principle at issue with the Federal Reserve.
The principle is each individual’s right to keep his own property, which the Fed is completely antagonistic to. The Federal Reserve System is an instrument of theft. Even if managed flawlessly (which it never has been) by its government-appointed central planners, the Fed would still accomplish every one of its goals by taking property from some people and giving it to others. It is no less a wealth redistribution scheme than Medicaid, food stamps, or Social Security. The only difference is a cosmetic one. Instead of clumsily removing dollars from Person A’s bank account and depositing them into Person B’s, as Congress does through taxation and appropriation, the Fed operates with a more graceful subtlety. It allows Person A to keep his dollars while merely creating new ones for Person B. However, Person B’s new purchasing power has not been created. It has been stolen from Person A, whose dollars are now worth something less than they were before the new dollars were printed.
It is no mistake that a state-controlled central bank with an exclusive monopoly was one of Karl Marx’s ten planks of the Communist Manifesto. A system in which people are forced to use a state-sponsored currency, manipulated by a central bank to transfer wealth in support of the goals of the state at the expense of the individual is a completely communist, collectivist idea. No matter which monetary policy is pursued, the existence of monetary policy is anti-capitalist and anti-freedom.
Sadly, that central point has been largely obscured due to the varied ideologies of the people that make up the coalition that Congressman Paul has put together. Instead of an indictment of the ongoing theft that central bank monetary policy represents, the focus has shifted exclusively to the money and credit created during and after the financial crisis of 2008. The newly proposed one-time audit will show that the funds were directed towards Wall Street banking giants and foreign central banks. Both then and now, the cries of “but what about average Americans?” can be heard from populists of every political persuasion. It is no longer a question of whether or not we should steal, but rather how we should split up the loot.
It is important to remember that even if 100% of the money and credit in question was instead directed to average Americans in danger of mortgage foreclosure, it would still be stealing. The purchasing power in question would still have been taken from Person A in order to be redistributed to the troubled borrowers. Moreover, it would be just as economically destructive, as all wealth redistribution by government ultimately is. The only distinction would be that a different special interest group would be benefitting at the expense of the rights of those victimized to underwrite them.
This dearth of principle is pervasive in political protest movements in America today. There are no end of demagogues calling up the ghosts of early American heroes of liberty; some even wearing three-cornered hats for effect. The Tea Party is one example. Certainly it is laudable that its members oppose “Obamacare,” but how many would show up for Tea Party rallies if opposition to Medicare was also part of the platform? In reality, the lion’s share of support for the so-called Tea Party comes from Medicare beneficiaries who object not to government-provided health care, but to the program that they benefit from being cut to fund a program for other people. They also largely support the forced redistribution of wealth from individuals to military contractors and the government in support of the United States’ worldwide military establishment, which they extol as if it weren’t also a massive government program.
It is a sobering reality that any real understanding of liberty has been completely eradicated in the minds of most Americans today. Instead, we have become a collection of special interest groups, all competing with each other politically for other people’s money. Our “progressive” education system has rendered most Americans completely incapable of conceiving that there is an alternative to a government-directed economy. When confronted with the bank bailouts of 2008, the universal, conditioned response was one of outrage that wealthy bankers were getting public funds and average American homeowners were not. The idea that it was a violation of the rights of those from whom the money was taken never entered into their minds.
Why would it? That principle had never been taught to them in school. It was not voiced in the media. No politician, conservative, liberal, or otherwise, articulated it at all. The closest thing to it was the “moral hazard” argument, that rewarding the people who caused the problem would only lead to further problems. However, this is a sound economic argument made from a collectivist perspective, based upon what might acheive the best aggregate results, rather than one based upon freedom or individual rights. That the economic analysis happens to be true in the case of the “moral hazard” argument only further obscures the fundamental principle that makes it true. One might conclude from this argument that central planning and wealth redistribution would be beneficial if the planning and redistribution were done more wisely. The moral hazard argument correctly points to a negative effect but distracts us from the underlying cause – the violation of individual rights. It is this underlying cause that is at the root of every societal problem facing America today.
All resistance to government wealth redistribution is a good thing, regardless of whether the motives of every protestor are completely “pure” as defined by political theorists. The one-time audit of the Fed will be helpful, even if it is motivated in large part by the politics of jealousy rather than principle. However, it is the job of everyone who believes in and yearns for freedom to point out early, often, and loudly that the central objection to the Fed should be that it steals in the first place, not to how it divides up the take. Once that distinction is clear in the minds of average Americans, it is a cure for virtually all of our afflictions of government.
© Thomas Mullen 2010