Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 51
Government--Business "Partnerships"
The "partnership of government and business" is a
new term for an old, old condition.
We often fail to realize that the point of much of Big Government is
precisely to set up such
"partnerships," for the benefit of both government and business, or
rather, of certain business
firms and groups that happen to be in political favor.
We all know, for example, that "mercantilism," the
economic system of Western Europe
from the sixteenth through the eighteenth centuries, was a system of
Big Government, of high
taxes, large bureaucracy, and massive controls of trade and industry.
But what we tend to ignore
is that the point of many of these controls was to tax and restrict
consumers and most merchants
and manufacturers in order to grant monopolies, cartels, and subsides
to favored groups.
The king of England, for example, might confer upon
John Jones a monopoly of the
production of sale of all playing cards, or of salt, in the kingdom.
This would mean that anyone
else trying to produce cards or salt in competition with Jones would be
an outlaw, that is, in
effect, would be shot in order to preserve Jones's monopoly.
Jones either received this grant of monopoly
because he was a particular favorite or, say,
a cousin, of the king, or because he paid for a certain number of years
for the monopoly grant by
giving the king what was in effect the discounted sum of expected
future returns from that
privilege. Kings in that early modern period, as in the case of all
governments in any and all
times, were chronically short
of money, and the sale of monopoly privilege was a
favorite form of raising funds.
A common form of sale of privilege, especially
hated by the public, was "tax farming."
Here, the king would, in effect, "privatize" the collection of taxes by
selling, "farming out," the
right to collect taxes in the kingdom for a given number of years.
Think about it: how would we
like it if, for example, the federal government abandoned the IRS, and
sold, or farmed out, the
right to collect income taxes for a certain number of years to, say,
IBM or General Dynamics? Do
we want taxes to be collected with the efficiency
of private enterprise?
Considering that IBM or General Dynamics would have
paid handsomely in advance for
the privilege, these firms would have the economic incentive to be
ruthless in collecting taxes.
Can you imagine how much we would hate these corporations? We then have
an idea of how
much the general public hated the tax farmers, who did not even enjoy
the mystique of
sovereignty or kingship in the minds of the masses.
In our enthusiasms for privatization, by the way,
we should stop and think whether we
would want certain government functions to be
privatized, and conducted efficiently. Would it
really have been better, for example, if the Nazis had farmed out
Auschwitz or Belsen to Krupp
or I.G. Farben?
The United States began as a far freer country than
any in Europe; for we began in
rebellion against the controls, monopoly privileges, and taxes of
mercantilist Britain.
Unfortunately, we started catching up to Europe during the Civil War.
During that terrible
fratricidal conflict, the Lincoln administration, seeing that the
Democratic party in Congress was
decimated by the secession of the Southern states, seized the
opportunity to push the program of
statism and Big Government that the Republican Party, and its
predecessor, the Whigs, had long
cherished.
For we must realize that the Democratic party,
throughout the nineteenth century, was the
party of laissez-faire, the party of separation of the government, and
especially the federal
government, from the economy and from virtually everything else. The
Whig-Republican party
was the party of the "American System," of the partnership of
government and business.
Under cover of the Civil War, then, the Lincoln
Administration pushed through the
following radical economic changes: a high protective tariff on
imports; high federal excise taxes
on liquor and tobacco (which they regarded as "sin taxes"); massive
subsidies to newly
established transcontinental railroads, in money per mile of
construction and in enormous grants
of land all this fueled by a system of naked corruption; federal income
tax; the abolition of the
gold standard and the issue of irredeemable fiat money ("greenbacks")
to
pay for the war effort;
and a quasi-nationalization of the previous relatively free banking
system, in the form of the
National Banking System established in acts of 1863 and 1864.
In this way, the system of minimal government, free
trade, no excise taxes, a gold
standard, and more or less free banking of the 1840s and 1850s was
replaced by its opposite. And
these changes were largely permanent. The tariffs and excise taxes
remained; the orgy of
subsidies to uneconomic and overbuilt transcontinental railroads was
ended only with their
collapse in the Panic of 1873, but the effects lingered on in the
secular decline of the railroads
during the 20th century. It took a Supreme Court decision to declare
the income tax
unconstitutional (later reversed by the 16th Amendment); it took
fourteen years after the end of
the war to return to the gold standard.
And we were never able to shed the National Banking
System, in which a few "national
banks" chartered by the federal government were the only banks
permitted to issue notes. All the
private, state-charted banks, had to keep deposited with the national
banks permitting them to
pyramid inflationary credit on top of those national banks. The
national banks kept their reserves
in government bonds, which they inflated on top
of.
The chief architect of this system was Jay Cooke,
long-time financial patron of the
corrupt career of Republican Ohio politician Salmon P. Chase. When
Chase became Secretary of
the Treasury under Lincoln, he promptly appointed his patron Cooke
monopoly underwriter of all
government bonds issued during the war. Cook, who became a
multi-millionaire investment
banker from this monopoly grant and became dubbed "the Tycoon," added
greatly to his boodle
by lobbying for the National Banking Act, which provided a built-in
market for his bonds, since
the national
banks could inflate credit by multiple amounts on top of the
bonds.
The National Banking Act, by design, was a halfway
house to central banking, and by the
time of the Progressive Era after the turn of the twentieth century,
the failings of the system
enabled the establishment to push through the Federal Reserve System as
part of the general
system of neo-mercantilism, cartelization, and partnership of
government and industry, imposed
in that period. The Progressive Era, from 1900 through World War I,
reimposed the income tax,
federal, state, and local government regulations and cartels, central
banking, and finally a totally
collectivist "partnership" economy during the war. The stage was set
for the statist system we
know all too well.
The Bush administration carried on the old
Republican tradition: still raising taxes,
inflating, pushing a system of fiat paper money, expanding controls
over and through the Federal
Reserve System, and maneuvering to extend inflationary and regulatory
controls still further over
international currencies and goods.
The northeastern Republican establishment is still
cartelizing, controlling, regulating,
handing out contracts to business favorites, and bailing out beloved
crooks and losers. It is still
playing the old "partnership" game--and still, of course, at our
expense.
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