The Economic Crisis is Only a Symptom
There are few economic problems that don’t originate in politics.
Originally, economics was known as political economy because the
early practitioners understood the importance of institutions on
economics. One of the early journals of economics was started in 1892
at the University of Chicago entitled The Journal of Political Economy. It is still one of the most prestigious journals in the field of economics.
Citizen faith in government has deteriorated recently as shown in virtually every political poll. Rasmussen
found: “…63% of likely voters believe, generally speaking, that it
would be better for the country if most incumbents in Congress were
defeated this November.” Gallup had the federal government ranking ahead of only socialism in terms of positive image:
know something is wrong. They know economic conditions have taken a
turn for the worse. They sense that they don’t matter much, at least in
the eyes of their government. Furthermore, many believe that government
is out of touch and corrupt. Politicians are viewed more as a ruling
class than representatives of the people.
is replete with examples of the rise and fall of empires. Is there some
mysterious, material force that produces “cycles of civilization?”
History seem to support such a contention, but coincidence and
correlation is not causation. Societies rise and fall as the result of
policies, laws, customs and traditions. Man creates the forces that
Over the centuries, brighter folks than our elected officials
experimented with virtually every combination and permutation of laws
and customs. Ideas that worked were adopted, while those that didn’t
were abandoned. It was in the context of this evolutionary cauldron
that “best practices” were discovered and civilizations advanced. Those
that abandoned “best practices” deteriorated.
learned Founders knew history and the nature of man. They created a
Constitution that represented 2,000 years of wisdom and experience.
Their remarkable achievement enabled a fledgling nation to rise quickly
to a world power with wealth, freedom and living standards that were
Now we appear to be on the downside of our historical run. An
enormous economic crisis engulfs our country and the world. Has our
time of leadership come and gone? What happened?
At the risk of appearing simplistic, I argue that the driving force
for our success was our conception of limited government. Our Founders
knew the tendency of rulers and constructed a framework designed to
protect citizens from government. This setting maximized individual
freedom, encouraged initiative and rewarded success.
Slowly but incessantly the remarkable document that was our
Constitution was weakened. Now, few politicians understand it; even
fewer believe it has any bearing. Politicians suffer from what
Friedrich Hayek termed “the fatal conceit.” As David Brooks described it:
In moments of government overconfidence, officials come
to see society not as a dynamic and complex organism, but as a machine,
which can be rebuilt. In such moments, governance and engineering merge
Constitution has been reduced to a quaint artifact of history. It no
longer provides protection from government. Politicians still take an
oath to uphold it. Yet that oath is little more than the tradition
associated with assuming office. Our Constitution’s role in government
appears to be no more important than the Queen is to England’s
Virtually everything that our Parliament of Whores has imposed over
the last century was rejected by our Founders. The Founders were not
“unjust” or “unfair” or “uncaring.” They were practical and refused to
adopt policies that history had shown harmful. While today’s
politicians cannot explain or account for the complex set of
traditions, customs, rules and laws that evolved over time, they
believe they can make changes that will be improvements. What hubris!
Hayek said: “The curious task of economics is to demonstrate to men
how little they really know about what they imagine they can design.”
Apparently he was wrong because our politicians have not learned from
their many failures. Greater intrusions into the economy and lives of
citizens continue at accelerating speed.
Our serious economic crisis can be attributed to the abandonment of
Constitutional principles that began long ago. Establishment of a
central bank was anathema to our Founding Fathers. Arguably the
establishment of the Federal Reserve in 1913 was unconstitutional.
Thomas Jefferson warned against empowering banks:
I believe that banking institutions are more dangerous
to our liberties than standing armies. Already they have raised up a
moneyed aristocracy that has set the Government at defiance. The
issuing power should be taken from the banks and restored to the people
to whom it properly belongs.
President Andrew Jackson concurred with Jefferson’s views:
The bold effort the present (central) bank had made to
control the government … are but premonitions of the fate that await
the American people should they be deluded into a perpetuation of this
institution or the establishment of another like it.
Ludwig von Mises
No serious economist can overlook the key role played by the Federal
Reserve in causing the current crisis. Nor can one overlook its
debauchery of the currency. One of its founding purposes was to protect
the value of the currency. Since its formation, the purchasing power of
the dollar has lost 96 percent. Most of that occurred after 1971 when
the country left the gold standard and the Fed was without limitations.
Government was generally precluded from entering the realm of
economic matters by the Constitution. Once that restriction was
ignored, there was no limit to the harm that could be inflicted.
Economics itself is a self-correcting system under most circumstances.
However, in a world where government is unconstrained, politicians see
every minor discomfort as an opportunity for an intervention and a
means to gain more power.
All intervention contravenes the corrective mechanism of markets,
generally worsening the original problem. This leads to demands for
additional political intervention. Each one worsens the problem and
weakens the economy’s ability to self-correct. Interventionism is not
self-sustaining as explained by Ludwig von Mises:
An essential point in the social philosophy of
interventionism is the existence of an inexhaustible fund which can be
squeezed forever. The whole system of interventionism collapses when
this fountain is drained off: The Santa Claus principle liquidates
biggest problems are in areas where government intervened years ago –
schools, health care, Social Security, the banking system, poverty, the
Post Office, Amtrak, etc. etc. No intervention has worked. All these
problems have grown worse. It is likely that Mises’ end of the Santa
principle is near.
Over time, government grew into a corrupt Leviathan. Once
politicians gained life and death power over the economy, their
decisions took on value. As Sheldon Richman
stated: “If there are no privileges to sell, there are no privileges
to buy.” Businesses don’t contribute to politicians out of admiration.
They do so as a means of survival, often under extortion-type
The elimination of Constitutional protections led to the demise of
free-market economics and the concentration of power at the Federal
level. A political oligarchy, willing to serve the highest bidders, now
runs the country. Recently the banking industry was their patron.
Our Founders were wise men who risked their lives to create this
country. Our current political representatives are arrogant,
unprincipled clowns in comparison. We must return to Constitutional
protections if we are to regain our way of life and preserve our
Prospects look dismal.
Monty Pelerin posted this today on American Thinker