Forbes Editor William Baldwin on a world drowning in debt
I have been swamped for the last couple of weeks since returning from Boston, but I am going to try to make time eventually to post more notes and pictures from Boston, as well as some more posts about economics (I still have more to share for the Carlos Lara lecture, from my talk at the TPA conference, from my talk tomorrow evening, and more). As I prepare for the talk tomorrow evening, which I will present to a church group with fellow economics enthusiast Peter Cook, I could not help but notice some good insights about debt from the latest issue off Forbes.The article is by editor William Baldwin (p. 14), and he states that the “world is drowning in debt” because we promote debt as a matter of public policy. Yes, the state actively coaxes its citizens to enslave themselves. He says, “Debtors get bailouts, handouts, and windfalls. People with clean balance sheets do not.” He lists four ways the state rewards debtors:
1) loan forgiveness (e.g., bailing out home buyers and banks, financed by taxes on the frugal; college loans forgiven by those who take public service jobs, according to Obama's policy; politically liberal urgings for forgiveness of debt to third-world countries, many of which are political dictatorships); 2) credit guarantees as a means of stimulating certain sectors (e.g., windmill farms), at the expense of credit allocated to conservatively-financed ventures; 3) the deduction for mortgage, student loan, and corporate interest, which Baldwin calls “the stupidest and most popular deduction in the tax code”; 4) inflation, which destroys the value of the dollar and allows debtors to pay their debts with Ben “helicopter” Bernanke’s “funny money.”
Debt is a central pillar for modern statist economics. The Fed and the banking establishment create money, ex nihilo, through its fiat powers and fractional reserve credit system. This is an assertion of sovereignty, an attempt to satisfy the covetousness and larceny in man's heart, by presumptively usurping God's singularly creative powers to create something out of nothing. We clamor for debt and lending, and when these grind to a halt -- whether for consumers, businesses, or statist establishments -- so does massive consumption and the illusion of prosperity and profit. We find out that we have received nothing for something, rather than something for nothing.
posted by C.S. Hayden @ 5:50 PM
9 Comments:
Caleb,
You frequently assert that the Fed usurps God's sovereignty by creating money ex nihilo. I'm sure I do not understand the rationale behind this assertion.
In the first place, I would deny that the Fed creates anything ex nihilo. The substance out of which they "create" money may be more ephemeral than most, but that does not make it ex nihilo. Every creative human endeavor mimics the creativity of God -- to one degree or another it makes something out of nothing -- so the "creativity" of the Fed in making money is really a non-issue... from my perspective.
Also, doesn't the Federal Reserve system operate under a charter from the federal government? If so, in what sense is the Fed usurping authority? I understand that it can be argued that the federal government does not possess constitutional authority to charter this institution, or to delegate its power to mint money; but that does not change the fact that the Federal Reserve does what it does under a grant of authority from the federal government -- whose authority is ordained by God. So I don't really understand the claim of usurpation. It would seem that you cannot deny the Fed's authority to establish monetary policy unless you first deny the federal government's authority to do the same.
Finally, I suspect your response might be based, at least in part, on a distinction between minting money and creating money. I don't know, but this distinction seems to me to make very little difference. Whether the government mints coin or prints "fiat money" is it not the market that ultimately establishes the value of the currency? The authorities can call a gold coin or a piece of paper "one dollar," but it is the farmer with his crop and the buyer with his dollars who together decide how many to exchange for how much. The government decision to call this or that "one dollar" is a fiat regardless of the species... is it not? And ultimately this fiat is irrelevant to the value of the dollar regardless of the species... or so it would seem to me.
Thanks for sharing your thoughts on these issues.
Hi Eric,
Thanks for your questions. Here are some explanations:
-Creating ex nihilo: this means "something from nothing." No human or institution can truly create "ex nihilo," for we are creatures subject to the time, space, and matter constraints of God's created universe. Only God transcends these limitations. However, the state (specifically, the Fed) tries to "create" value out of nothing through "fiat" money, which implies sovereignty that only God possesses. I agree with your denial that the state truly creates anything ex nihilo, and I don't see how man can mimic God's creativity, as such; rather, man's creativity is derivative and limited -- he cannot truly speak anything into existence. But if the Fed is not trying to usurp this power, what is the point of having the Fed to create fiat money? Why not simply finance the government and economy through real money, e.g., gold? The answer, of course, is that the state and the people want something for nothing. So, fiat money exists in a vain attempt to get something for nothing, i.e., value ex nihilo. Again, only God can provide this, so I maintain that fiat money is usurpatious of His sovereignty and bound to fail. Fiat money only redistributes in favor of counterfeiters (a.k.a., inflation-creating central banks) and their favored institutions such as the state and big banks (think: Goldman Sachs). Again, it gives us nothing for something when the system collapses.
-The Fed is a quasi-government agency that is also semi-private. It is a peculiar creature that resulted from the fascist melding of statist and corporate interests. Theologically, the Fed is usurpatious based on my explanation above regarding its attempts to give us something for nothing, i.e., create ex nihilo. Constitutionally, of course, the no-brainer answer is that the Federal government is never given the prerogative to establish "legal tender" laws (this belongs to the states, and legal tender cannot be anything but gold and silver; cf. Amendment X; Art. I, Sec. 8, Cl. 5; Art. I, Sec. 10; Cl. 1) or to "print" money. Also, it is helpful to note that modern views of so-called "monetary policy" were foreign to anything the founders intended. When they gave Congress the right to "regulate the value thereof," this does not mean inflating and deflating, but rather fixing the standards of (just/consistent) weights and measures. The Congress has no right to "print" money, establish legal tender laws, inflate and deflate; neither can it usurpatiously delegate any of this to the Fed.
-"Whether the government mints coin or prints "fiat money" is it not the market that ultimately establishes the value of the currency? . . . The government decision to call this or that "one dollar" is a fiat regardless of the species... is it not? And ultimately this fiat is irrelevant to the value of the dollar regardless of the species... or so it would seem to me."
Answer: although not necessarily the most authoritative source, a simple google search for "fiat money" yields the following from http://www.investorwords.com/1928/fiat_money.html:
Money which has no intrinsic value and cannot be redeemed for specie or any commodity, but is made legal tender through government decree. All modern paper currencies are fiat money, as are most modern coins. The value of fiat money depends on the strength of the issuing country's economy.
No need to quibble over semantics (e.g., the meaning of "fiat"), but note the distinction between specie-backed, market-based money vs. true "fiat money," enforced by statist "legal tender" decrees. The value is not set by the market, per se, but is dominated by the state (more specifically, the Fed) inflating/deflating at whim.
Another thing I meant to say regarding the Fed's "usurpation" -- regardless of what the Constitution says or any theological/philosophical assertion about creating things ex nihilo (or not), the Bible never gives the state the right to force us to accept its paper (or its chartered central bank's paper) as fiat money. I believe the state has a limited jurisdiction and is not sovereign or unlimited, any more than the family, church, or individual are unlimited. The state, no less than anyone or anything else, needs to abide within God's parameters. If not, again, it is usurpatious and tyrannical. One of the great battles of our time is the war between God's Kingdom and the satanic urge for domination and power encompassed in the messianic scientific-socialist state, of which fiat money and central banking is a prominent pillar.
Having just read the portions of the Constitution you referenced, I do not understand how you came to the conclusion presented; namely: “the Federal government is never given the prerogative to establish ‘legal tender’ laws (this belongs to the states, and legal tender cannot be anything but gold and silver…) or to ‘print’ money.” Article I, Sec. 8 specifically grants to Congress the power to “coin Money” and to “provide for the Punishment of counterfeiting the Securities and Coin of the United States.” There must be some nuance in what you mean by “’legal tender’ laws” because this segment of the Constitution appears to grant (usurp?) precisely that authority to the United States Congress. However, the Constitution also appears to concede that the States (and by extension, private entities) will establish various currencies, and in a free society it was assumed that they ought to have that prerogative. Article I, Sec. 10 only prohibits the States (the States, but not the United States) from establishing currencies in species other than gold and silver. Amendment X, of course, does not deal with this subject (or any other subject) directly. It reserves powers not delegated to the federal government to the States or to the people. I do not know how these portions of the Constitution can be construed so as to prohibit the United States from establishing legal tender laws. Neither do they appear to delegate that prerogative to the States. Nor do they appear to require an exclusive use of gold and silver as United States currency.
But here is the real crux of the matter for me... If “fiat money” is defined as money with “no intrinsic value,” does that not make gold a form of fiat money? Does gold have intrinsic value? For that matter does anything have intrinsic value? Is it not true that the market value of any material item (including gold) is ultimately determined by fluctuations in human appetite? Gold is different from paper in that it has a far more substantial market value as a commodity than paper has. (In fact, ironically enough, once you print on it for use as currency, the value of paper as a commodity is undoubtedly diminished.) This difference in relative commodity values is significant, as it would make it harder for the government to regulate the value of gold currency as opposed to regulating the value of paper currency. That makes gold superior to paper in the minds of many, and inferior to others. But the greater value of gold does not take it out of the “fiat” category. Governments can and will regulate the supply of gold in the economy when it is functioning as currency. More importantly, when and where gold is the currency of commerce, governments typically reserve to themselves exclusively the (fiat) authority to mint coin. In other words, the gold coin bearing the image assigned by the government is currency, not because it is gold, but because the government says so.
Here is my reasoning concerning legal tender laws: the Tenth Amendment explicitly says anything not delegated to the Federal government or prohibited to the states is reserved to the states. Article 1, Section 10, says the states must not make anything legal tender except gold and silver. I repeat: NO WHERE is the Federal Government given explicit delegation of power to establish legal tender laws. Article 1, Section 8 does not do it. Nor does it grant Congress power to "print money." Your understanding of Federalism is different from mine, perhaps? To be very clear, here is my understanding: if a power is not delegated to the United States by the Constitution, it is not permitted to the Federal Government and is reserved to the states. Because the Constitution does not grant the Federal Government the right to make legal tender laws, but it does grant (actually, restricts, which is an implicit limited grant) the states to do so, the states may do so but the Federal Government may not. And nowhere, ever, is anything but gold and silver to be legal tender, based on this line of reasoning.
I agree with the subjective theory of value, so as I stated, that definition of "fiat money" is probably not the best from an authoritative standpoint. I actually agree somewhat with where you are going in the second paragraph, viz., I don't think that governments should have a monopoly on money, and I definitely don't think any civil governments should make a currency legal tender, i.e., forcing it to be accepted as payment for all debts, public and private. (This is a philosophical position, not based on the Constitution.) I think this should be reserved to the market; for all I care, people should be able to use seashells as money (i.e., a store owner could post a say saying, "no currency but seashells accepted here"). But I do maintain that there is a difference between a government monopoly gold standard, as opposed to a government monopoly on paper printing. There is a massive difference, regardless of your semantics about "fiat" money. In the one case, the government takes something valued by the market (gold) and makes it legal tender; the market decides the purchasing power of the commodity. In the other case (fiat money, strictly speaking), the state creates the so-called "money" out of thin air. See, there's a pretty big difference here, right?
I don't know if we have a different understanding of federalism. (That may turn out to be the case, but at this point it seems to be a rather uncharitable interpretation of what I wrote.) I think, rather, we have a different understanding of what the Constitution is permitting when it specifically grants to the Congress in Article I, Section 8 the authority "To coin Money" and to "regulate the Value thereof." I would probably tend to see that as a specific, explicit delegation to Congress of the authority to write legal tender laws. On the other hand, to the extent such laws prohibit the States from issuing currencies (if that is the case), I would see that as unconstitutional. When the Constitution explicitly prohibits States from issuing currencies in specie other than gold and silver, it implicitly grants their authority to issue currency.
As I said before there is a significant difference between gold and paper. It is a difference that makes paper currency far more susceptible to manipulation than gold currency would be. But it is not a difference in the nature or essence of the thing. It is not as though the Federal Reserve could legitimately avoid this charge of ex nihilo usurpation if it suddenly changed to a gold standard. On that issue I believe your quarrel is probably not with the Fed (even though it seems to be the chief target of your verbal assaults). Instead your quarrel is really with the Constitution, which explicitly authorizes the issuance of fiat money by the government. Such money would naturally become a monopoly currency, even if the government did not mandate its acceptance (in much the same manner as this "public option" health insurance will naturally develop into a monopoly in the health insurance market).
Thanks for the comments, Eric. My intention was not to be uncharitable, as I was simply pointing out a potential difference between us -- not even asserting that "I'm right, you're wrong," etc. But your further explanation helps me better understand where you're coming from.
There's a ton more history that addresses these questions about the Constitution, legal tender laws, paper money, gold, and so forth, which would be interesting to study and discuss sometime.
Your welcome... Thanks, again, for sharing your thoughts.
Hmm, not sure why it took a week for that last one to show up, Eric. I thought I had allowed that one before now. Oh well.
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