The Origins of the 2 Percent Inflation Target

The Origins of the 2 Percent Inflation Target

09/16/2020Robert Aro

Inflation targets are part and parcel of central banking policy, the Fed’s mandate centering around the 2 percent inflation target. But when was the last time anyone asked why a 2 percent inflation target?

To address this while avoiding potential "bias," we can look at history through the lens of one of the largest mainstream newspapers in the world, the New York Times. The following article takes us back to 2014 when the paper published "Of Kiwis and Currencies: How a 2% Inflation Target Became Global Economic Gospel."

It all started in 1989, when Don Brash, managing director of the New Zealand Kiwifruit Authority accepted the position of head of the Central Bank of New Zealand. Appearing to have no understanding of Austrian economics, he and his finance minister devised a plan to combat the surging price inflation of the '70s and '80s.

As fate would have it, Mr. Brash remembered the former finance minister telling the media he was “aiming for inflation of around zero to 1 percent.” Brash recalls that “it was almost a chance remark,” yet it sparked one of the most destructive policy decisions of all time, which has only worsened since. He admitted:

The figure was plucked out of the air to influence the public’s expectations.

Ultimately the bank settled on an "inflation target" between 0 and 2 percent. The announcement was considered a "radical idea" at the time, but lo and behold:

It created a kind of magic of its own. Merely by announcing its goals for inflation…New Zealand made that result a reality.

Of course, no proof has ever been offered of how an "inflation target" can be met simply by stating it as a goal. If it were that easy, the Fed would have met the target decades ago.

Luckily for Brash, inflation in New Zealand was 7.6 percent in 1989 when the target started and only 2 percent by the end of 1991. This bit of providence accelerated the idea as the head of the central bank

did a bit of a global campaigning, describing New Zealand’s success to his fellow central bankers at a conference in Jackson Hole, Wyoming.

Canada, Sweden, and Britain soon followed in New Zealand's footsteps and eventually even the Fed. Our fate was sealed on the whim of policymakers.

It was not without opposition, though, as there were some naysayers who believed that

A dollar today should have the same buying power as a dollar in a decade, or two or three.

However, the "alternate" view was that keeping inflation low could be dangerous. This was championed by an up and coming Fed governor, Janet Yellen, who expressed concern that zero inflation could "paralyze the economy," especially during economic downturns. In a 1996 July Federal Open Market Committee (FOMC) meeting she offered an idea to support targeting:

To my mind the most important argument for some low inflation rate, is the "greasing-the-wheels argument" on the grounds that a little inflation lowers unemployment by facilitating adjustments in relative pay in a world where individuals deeply dislike nominal pay cuts.

Here we see the “Phillips curve” argument that is used to justify inflation by linking it to unemployment. This is move that now, twenty-four years later, the Fed is shying away from by claiming that the “Phillips curve is flat”—in other words, it’s not working as planned. Or, as Fed vice chair Clarida expressed it, models of maximum employment "can be and have been wrong."

Adding to the prophetic quotes, Yellen said in 1996:

A little inflation permits real interest rates to become negative on the rare occasions when required to counter a recession. This could be important.

The rest, as they say, is history. In time, the idea of a 2 percent target became economic orthodoxy—so much so that former Fed vice chair and Princeton economist Alan Blinder declared that

Central bankers have invested a lot and established a great deal of credibility on their 2 percent inflation target, and I think they’re right to be very hesitant to give it up.

By choosing an inflation target of 2 percent, the field of economics spent several decades barely advancing. Instead, academics and planners remained preoccupied with manipulating the data and providing guidance fueled by a narrative that was plucked out of thin air, aided by catchy phrases such as "greasing the wheels," and propagated by outdated economic models like the Phillips curve. Sadly, with 2 percent inflation the conclusion came first, followed by the theory. Economic explanation was only needed to support the theory at all costs.

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The Billion Dollar Board

01/18/2022Robert Aro

The Federal Reserve currently has a board composed of five people. At $970 million spent on board expenditures in 2021, this equates to an average cost of $194 million per each Governor. Isn’t this completely incomprehensible, and something the mainstream media or Congress should inquire about next time they meet with the Fed?

Normally board expenses are allocated for coffee and donuts, maybe a luncheon; but at America’s central bank, there seems to be much more that has yet to surface. On Friday the Fed mentioned their board expenses in the press release regarding expenses and transfer to treasury for the year.

…$970 million for Board expenditures…

Audited financial statements won’t be complete for a few months. But if 2021 was anything like 2020 or 2019, the actual number will surpass $1 billion. Reason being, Board of Governors operating expenses are included with Currency Costs, as seen on the prior year’s statement. The figure was $1.78 billion.

There is a glaring problem here. Board of Governors operating expenses, like Currency Costs, have absolutely no further disclosure on the financial statements. Other than the auditor, members of the board, and whomever does the accounting, no one knows where the nearly $1 billion has been spent. It wouldn’t take much collusion if funds were allocated to buy a Ferrari or a few Bitcoins for a board member. Not to say this is what has happened, but if this did happen, the public would never know.

It really is the case of trusting the Fed. Yet nothing in the Fed’s history shows it can be trusted, with questionable trading activities being a recent example where their credibility was called into question.

Typically, important items are given notes at the back of the financial statements, where the figures are explained in greater detail. However, this is not the case with Board of Governor expenses. Anyone familiar with the audit process knows that a $970 million expense, for an entity holding assets approaching $9 trillion, likely means the board expenses are not considered a material line item. Meaning, the balance could go completely under the radar or hardly examined by the auditor.

Of course, the $970 million is just one of the various costs required to run the Federal Reserve. Other notable expenses include:

$1.0 billion for the costs related to producing, issuing, and retiring currency… and $628 million to fund the operations of the Consumer Financial Protection Bureau.

And my personal favorite, to the stockholders of the America’s Central Bank:

Statutory dividends totaled $583 million in 2021.

This was only some of the costs. More will be offered upon release of the 2021 statements. Still, given the various opportunities members of Congress, or the media have to engage in public discourse over monetary policy, it would be nice if someone were to inquire just what exactly these board expenses are. Even worse, it would take nothing more than a small change to legislation or request by Congress to force the Fed to hand over their general ledger or other disclosure. There need be no requirement for any new public audit or other rigmarole. The Fed simply needs to provide the same information they give to the auditor (i.e., a general ledger, or a list of all the transactions that comprise the $970 million in expenses), and let the public look into the matter.

If the Fed is supposed to operate for the good of the public, or in the public’s interest, there should be no qualm granting the public access to such information. It is definitely not in the public’s interest to be left in the dark over such matters, especially when the public funds the Fed. For a trillion dollar entity with a currency monopoly of the USD, more should be done to find out what exactly it is they do with all this money, specifically, what exactly has the board bought for $970 million.

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Biden’s Fed Nominations

01/15/2022Robert Aro

Should sex or race play a role in hiring decisions at the Federal Reserve?

Consider the alleged problem in which the mainstream media, economists and Congress want your focus, courtesy of Reuters:

Currently, the Fed's board has only five members, all white and three of whom are men.

In 2022, one would think there’s something inherently wrong about this. The message being that if more women or persons of color were to helm America’s central bank, things would be better for the economy. The rationale behind the diversity push is not explained. The assumption is that a more (physically) diverse Fed is best.

How heavily diversity inclusion played into Biden’s nominations cannot be measured. He nominated three people; two being women, two African-American. If his nominations are confirmed:

Biden's picks would mean the seven-member Board of Governors would include four women, also a first.

Sharing his elation, Harvard economic professor Larry Katz said “it’s clearly a changing of the guard” and:

This is a "path-breaking new set of nominees who will bring important perspectives and representation to the board."

Meeting the candidates, there is former Fed Governor Sarah Bloom Raskin:

…who spent four years as a Fed governor before being tapped as a deputy Treasury secretary from 2014 to 2017, is expected to bring tougher oversight to bear on Wall Street…

Unlike Raskin, an already high ranking member of the system, the other two candidates are not. Lisa Cook is an economics professor from Michigan State and Philip Jefferson, a professor at Davidson College in North Carolina.

Cook has written extensively about the economic consequences of racial disparities and gender inequality, and growing up lived through the violence of school desegregation in the U.S. South. Jefferson has written extensively on wages, poverty and income distribution.

Whether by happenstance or grand design, the problem with emphasizing sex or race obscures the need to fill a board based on competencies.

If the Fed was composed of 4 women and 3 men, but they were schooled in the Neoclassical tradition, one could say they are diverse in appearance, but intellectually similar. This is problematic because without diversity of opinions or challenges to ideas, improvement to monetary policy cannot be expected. The belief that the Fed should manage the money supply and interest rates would continue to go unquestioned. The economic booms and busts this causes would continue indefinitely.

Contrast this to a homogenous board. A Fed composed of 7 women or men, or 7 whites or blacks, yet 3 were Austrian and 4 Neoclassical economists, would be an astounding difference. The public would be privy to one of the most splendid economic debates of all-time, even if only witnessed through interviews and meeting minutes. Nonetheless, there at least would exist the possibility that economic change could be realized from within.

Unfortunately, the importance of intellectual diversity garners little to no attention. The idea that even one person who possesses a basic understanding of the free market, liberty or freedom could ever be welcomed into the Board of Governors remains little more than an unattainable dream. Should the Federal Reserve have a 7 member board, hailing from 7 different races, yet none understand Austrian economics, then the next 100 years of monetary policy will look a lot like the last 100… or economic collapse will occur, whichever comes first.

 

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The Uniparty Can’t Solve Inflation. Here’s How Populists Can.

01/14/2022Tho Bishop

Price inflation is the highest its been since 1982. Real wages are plummeting. Joe Biden’s approval ratings are now on par with George W. Bush’s after both the Iraq War, the financial crisis, and eight years of Jon Stewart. This is with the benefit of Kim family–level devotion from the corporate press, Big Tech, and almost every pop culture figure.

In this case, correlation is causation. Inflation has now topped covid as the greatest concern of Americans.

As history shows, this shouldn’t be surprising. While modern politicians have bought into the myth that monetary policy is something that should be left to a technocratic elite, money issues have long been a motivating issue for populist causes. There is no more “kitchen table” issue than the daily reminder that your paycheck buys less than it did last year.

The political benefactors of inflation are obvious: anyone running against Joe Biden. Twenty twenty-two will be a year where many talentless Republican political consultants will be able to ride a red wave and claim a victory they will base an entire career around. Unfortunately, the Republican Party is as culpable in America’s inflationary crisis as Joe Biden. We will see if anyone in DC catches the irony when the majority of Republican senators end up endorsing another term for Jay Powell.

This gets to the core of the problem. As we see inflation rise as America’s most pressing political issue, we have a political system completely unprepared to deal with it.

After all, few in Washington even know what the underlying cause of inflation is. It’s not port capacity, and it’s not greedy corporations. It’s not simply about progressives’ aims to price out fossil fuels or the price tag of any one specific spending bill.

No, the cause of inflation is the arrogance of modern economic PhDs. It is the consequence of rendering money into a tool of the state, a power which has been abused to plunder from the people so that politicians can spend freely. It is an era of monetary hedonism, maintained by an institution that has for over a decade now consistently failed by its own measure. The fact this system has lasted fifty years is in large part because most of the world’s central banks have engaged in similar—if not even more reckless—policies to the Fed.

Ivy League universities are just as capable of infecting the world as any Chinese laboratory.

Unfortunately, the GOP has been defined by its complete disinterest in rooting out institutional malfeasance. Abolishing a federal agency is a bumper sticker Republicans use for a campaign fundraiser, not a political goal. Any attempts to push for any meaningful reform to the Federal Reserve will be treated as a threat to the entire global financial system, and Republicans will cave—just as they voted to bail out Mexico in the ’90s, just as they voted to bail out Wall Street in ’08, just as they repeatedly cave to debt ceilings and government shutdowns.

If there is no political solution to the Fed, does it mean there are no possible remedies to help protect average Americans from the inevitable monetary crisis?

No. The answer to America’s inflation issue is to empower citizens to save in alternative currencies. Just as Republicans have found school choice easier to push than abolishing the Department of Education, monetary choice offers a policy approach that doesn’t require an all-out assault on a powerful institution with a well-paid army of propagandists.

This approach to the Fed was something promoted strongly by Ron Paul during his congressional career. The most significant component of his Free Competition in Currency Act was the elimination of taxes on gold and silver—something that could be updated to include cryptocurrency. If the only major policy wins Republicans are capable of having in DC are tax cuts, these would technically qualify.

Abolishing these taxes would eliminate one of the state’s most powerful tools for forcing the dollar on its citizens. If Americans can freely move their wealth from the control of the Fed and into nonpolitical assets, they will have real protection against the long-term consequences of inflation. Even better, this will undermine Washington’s concerted efforts to weaponize the banking system against political dissidents.

Most importantly, though, it would be a tax cut that would immediately redistribute wealth away from Wall Street and into the pockets of average Americans. As such, it is an ideal policy aim for the growing populist Right.

After all, if the goal of a political movement is to oust a powerful cabal of neoliberal globalist oligarchs, success is going to depend on achieving political victories that don’t only weaken your enemies but enrich your allies. Progressives and authoritarians are overrepresented in the halls of an increasingly woke Wall Street, while regime skeptics are overrepresented in crypto and among those who buy gold.

As in the past, there is the opportunity for the current inflation crisis to radically transform American politics. As the nation continues to lose trust in institutions, and as a new generation of populist Republicans grow their numbers in the party, there is an opportunity to deliver a major blow against the financial class that has taken over the global economy.

Is the current generation of right-wing populists prepared to listen to Ron Paul and embrace a Rothbardian Right?

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End Legal Tender Laws

01/14/2022Patrick Barron

Mention the term "legal tender" in polite company and most people will resemble a deer in the headlights. In simple terms legal tender is a kind of money a creditor cannot refuse in discharge of a debt due to him in the money issued by government. This is a legal designation for government-issued money—usually fiat money, nowadays—with special status. And although legal tender laws do not force consumers and merchants to use the “official” money, this money comes to be highly favored. Thus, here in America we buy and sell using dollars. In the United Kingdom, the British Pound is legal tender. In Japan, it is the Yen. You get the idea. It isn't impossible to use monies other than legal tender, but using something else is often more akin to private, off the books, barter. For example, perhaps I want to buy my neighbor's used lawn mower. I have some British Pounds left over from my last trip. My neighbor is planning a trip to the UK. He agrees to sell me his used lawn mower for some of my British Pounds. However, my neighbor would still legally have to pay his taxes in dollars and his credits would likely still demand dollars. So, dollars will be preferred for nearly all transactions.

Now, all this may sound perfectly reasonable, but legal tender laws present a huge opportunity for those who monopolize its production to manipulate the currency, primarily to allow for increased government spending. Governments suck resources out of the economy by bypassing the natural constraints of seeking a tax increase, always politically unpopular, or borrowing honestly in the bond market, which will drive up interest rates. Government by the people is thwarted, and the increase in the money supply causes vast harm to the economy.

Why Repeal Legal Tender Laws?

Naturally, advocates of eliminating legal tender laws have an obligation to convince the public that it's the right thing to do. Why would any nation, especially the US, want to use any medium of exchange other than the dollar? Simply put, debasing the dollar allows government to steal from the people. The government prints money out of thin air to balance its ever expanding budget. This leads to vast and dire economic consequences, such as higher prices, boom/bust credit cycles, and transfers of wealth from the early receivers of the new money to the later receivers of the new money. This is the Cantillon Effect, as described by Emile Woolf in his latest essay.

The Path to a Better Money

The next question that the public may ask is what would replace the dollar. The answer is that the dollar would not necessarily be replaced, but it would have to compete for the public's patronage in a free monetary market. It would have to compete not only with other national currencies but also with recently created media of exchange, such as bitcoin and other cryptocurrencies. In addition, we would expect that commodities such as gold and silver would regain some significant part of the market, especially since these commodities have been used as media of exchange for thousands of years until the recent experiments with fiat national currencies protected by legal tender laws.

Alasdair Macleod of Goldmoney.com has explained why crypto currencies are not suitable as alternative mediums of exchange, although the distributed ledger technology may have applications in a sound monetary regime. Rather, it is most probable that gold and silver would regain their prominence. There is a reason that the term "gold standard" is still used when describing something that is of the highest quality. There are many advantages to gold as a medium of exchange, but the most important are its universal acceptance by people of every walk of life all over the world, the fact that it cannot be counterfeited, and that it is rare. Gold specie itself could be exchanged by private individuals to satisfy major purchases, but for every day transactions the public would find it advantageous to rely upon a trusted third party to safe keep the gold and make it redeemable upon demand through any of the modern methods of money transfer, such as paper check, paper certificates, and digital means. Of course, the government itself could offer "gold dollars." After all, it claims to have over eight thousand tons of gold in its vaults. But government's track record for issuing more receipts for real money, gold and/or silver, than it has in its vaults probably would preclude it from gaining the public's acceptance. More likely, major banks would issue their own gold backed money. The banks could gain acceptance in the market because they would be subject to ordinary commercial law that describes a "bailment." A bailment is a transaction in which someone takes custody but not ownership of a good for the benefit of another. When we take a suit to the dry cleaners, we have entered a bailment agreement. The dry cleaning establishment does not own our suit. It takes temporary custody of it. Likewise when we check a coat at the theater or restaurant. If the dry cleaning establishment sells our suit or the restaurant gives our coat to another party, we can sue for damages and possibly bring criminal charges. Therefore, one's gold dollar account at a major bank must be legally redeemable in specie upon demand. If the bank does not have the gold, the customer can take it to court on a charge of fraud. Even the bank officials and owners could be charged with a crime. Try doing this with the government!

The Consequences

Just as a better mousetrap drives less effective ones out of the market, better money will drive out bad money. Privately issued money will gain more acceptance over time as the public learns that it can trust the issuers not to issue more receipts than specie held in reserve. Not so with government money. Once the public's trust has been lost, it will be impossible for government to regain it in the face of honest competition. It is most likely that bank issued fiduciary media (technically the real "money" is gold or silver in its vault) will be used first for transactions among banks, bond merchants, and large companies. But over time the public will learn that modern electronic money transfer methods are just as reliable for retail use. Then we can expect competition by the big banks to spread rather quickly. Eventually, government's fiat money will be abandoned for whatever one can get in, say, gold backed Goldmoney.comDollars, CitibankDollars, BankAmeriDollars, DeutscheMarks, BarclayPounds, or the like.

The Necessity of Financial Truth

With the government no longer able to print money to satisfy its profligate spending, the reckoning will have arrived. Let us not believe that a reckoning is avoidable. It is not. Nor should we wish it to be. To continue to print money in massive amounts, as the government does now, will lead to a financial and economic collapse. Would we want our doctor to tell us that all is well when his tests say otherwise? Would we want him to recalibrate his thermometer, blood pressure gauges, etc. so that they gave false indications in order that we could continue an unhealthy lifestyle right up to the point of collapse? Of course not. Yet this is a consequence of fiat money; i.e., the true state of the nation's financial and economic health is hidden. On the other hand, sound money reveals the true state of our financial affairs, both private and public, so that we do not unwittingly destroy capital and/or make promises that cannot be met. Furthermore, let us not give false promises that everyone will be spared real hardship in a return to sound money. Those who have relied upon the government to pay their bills will find that not all bills will be paid as in the past.

Real statesmanship will be required to cut government spending and explain the reasons to the public. The real villains will not be those who pull the world back from the financial and economic precipice but those who spent us into this mess in the first place--the Keynesian economists, the Modern Monetary Theorists, the Socialists, and especially the feckless politicians who swallowed the impossible siren songs of these charlatans and forced them on the public in order to buy votes by promising the moon. Let us have the courage to demand the truth, no matter how unpalatable it may be. Eliminating legal tender laws will set the wheels of monetary and economic reform in motion.

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The Reds Are Right About Assange

The Chinese communists are hoisting the U.S. government on its own petard, at least with respect to Julian Assange, the Australian citizen who, with WikiLeaks, disclosed war crimes committed by the U.S. national-security establishment.

For decades stretching back to the Cold War, U.S. officials have reveled in leveling condemnations and criticisms of Red China for its human-rights abuses and denial of civil liberties.

What has always amazed me is that the Chinese haven’t responded by pointing out the rank hypocrisy of the U.S. government, given the horrific human-rights abuses and denial of civil liberties long exercised by the Pentagon, the CIA, and the NSA, especially with their assassination program, torture program, kidnapping program, indefinite detention, denial of speedy trial, denial of trial by jury, and secret mass surveillance.

That’s all changed with the case of Julian Assange. The Reds are no longer silent. They are going on the attack with condemnations and criticisms of the U.S. government with respect to Assange. 

Take, for example, this video presentation by Yonden Lhatoo, the chief news editor of the South China Morning Post. It is entitled “The Insufferable Hypocrisy of Western Governments Hell-Bent on Destroying Julian Assange.” It’s worth watching. Lhatoo skewers U.S. and British officials for their persecution, prosecution, and mistreatment of Assange for telling the truth about war crimes committed by the U.S. national-security state.

Now, mind you, as a Hong Kong media outlet, the South China Morning Post is not technically owned by Red China’s communist regime. But with the way things are going in Hong Kong, it is a virtual certainty that the Morning Post is being closely monitored, if not indirectly controlled, by the communist regime. In fact, according to Wikipedia, “Since the change of ownership in 2016, critics including The New York TimesDer Spiegel and The Atlantic have alleged that the paper is on a mission to promote China‘s soft power abroad. According to critics, it is moving away from independent journalism and pioneering a new form of ‘propaganda.’”

Lhatoo points out that if Assange had been a Chinese citizen who had disclosed truthful evidence of war crimes committed by China, U.S. and British officials would be hailing him as a courageous hero, one who was deserving of the Nobel Prize. It is an excellent point, one that is indisputable. 

Sadly, what the Reds are saying about U.S. hypocrisy is absolutely correct. What amazes me is that they haven’t yet, as far as I know, pointed to the Pentagon/CIA torture and prison center at Guantanamo Bay, Cuba, which could easily have been modeled on similar structures in communist countries. 

It’s pretty sad when the communists are condemning and criticizing the U.S. government for hypocrisy when it comes to human-rights abuses and civil liberties. It’s even sadder when they are right, especially in the case of Julian Assange. 

Reprinted from Jacob Hornberger's Blog.

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Some Secession Basics

01/13/2022John M. Taylor

"If any State in the Union will declare that it prefers ‘separation’ over ‘union,’ "I have no hesitation in saying, 'let us separate.'" 1

~ Thomas Jefferson

In 1998, Russian Professor Igor Panarin, former KGB analyst, lecturer, and writer tied to Russia’s Foreign Ministry, predicted the economic and moral collapse of these United States, leading to eventual civil war and breakup by 2010. His predictions appeared in The Wall Street Journal and other publications. Of course, to this date, no such separation has come to pass. However, with the lingering 2020 election controversies (thousands of votes mysteriously appearing early on November 4th, hundreds signing sworn affidavits attesting to election fraud and the near impossibility that any of these accusations will ever be examined, questionable voting machines, etc.), various assaults on individual rights, increased centralization of government power, Marxist indoctrination within the education system, and other factors, some in Texas and other States have openly talked about secession.

After considerable bloodshed, the Thirteen Original Colonies seceded from the British Empire. Post-Revolutionary War, Britain and these “United States” signed the 1783 Treaty of Paris, which stated: “His Britannic Majesty acknowledges the said United States, viz., New Hampshire, Massachusetts Bay, Rhode Island and Providence Plantations, Connecticut, New York, New Jersey, Pennsylvania, Delaware, Virginia, North Carolina, South Carolina, and Georgia, to be free, sovereign, and independent States.”2 Furthermore, “In 1781, the original thirteen States entered into a ‘Confederation’, and drew up ‘Articles’, one of which said: ‘Each State retains its sovereignty, freedom and independence, and every power, jurisdiction, and right which is not by this Confederation expressly delegated to the United States.’”3The States have never relinquished their sovereignty.

Events of the 1800s included:

  • In 1803 the New England States threatened secession; the Louisiana Purchase was seen as a dilution of their power. Massachusetts Senator Thomas Pickering stated: “I rather anticipate a new Confederacy exempt from the corrupt influence of the aristocratic Democrats of the South…There will be a separation…”4
  • Largely due to dissatisfaction with the War of 1812, the New England States considered secession in 1814 during the Hartford Convention. Secession sentiments ebbed after American victory was assured.
  • The New England States mulled secession in 1845. “John Quincy Adams and fellow New Englanders so opposed the admission of Texas that they openly urged the withdrawal from the Union.”5 Again, they saw it as a dilution of power.
  • Seven Southern States seceded in 1860-1861. (The remainder seceded after Lincoln’s call for 75,000 troops to invade sovereign States.) They protested the North’s perversion of the U.S. Constitution, e.g., usurpation of Southern rights, slavery disagreements, and the punitive protectionist tariffs that supported Northern industry. The late Charles Adams explained: “When Southerners realized what they were up against with respect to a high tariff and a new Congress and Republican administration, only two courses of action seemed open to them–secession from the Union and a low tariff for the Confederate states.”6

The American Colonies and Southern States both had valid reasons to secede. As members of a voluntary compact, the Southern States had the best case; whereas, the American Colonies were one part of a vast Empire. Virginia, New York, and Rhode Island entered the Union under the proviso they could withdraw if it was in their best interests. From the 1788 Virginia Convention, we have the following: “We the delegates of the people of Virginia, duly elected in pursuance of a recommendation of the General Assembly and now met in Convention, having fully and freely investigated and discussed the proceedings of the Federal convention and being prepared as well as the most mature deliberation hath enabled us to decide thereon, do in the name and in behalf of the People of Virginia declare and make known that the powers granted under the Constitution, being derived from the People of the United States, may be resumed by them whensoever the same shall be perverted to their injury and oppression, and that every power not granted thereby remains with them and at their will.”7 New York and Rhode Island mirrored Virginia’s language: ”their conventions ordained the root principles on which the right was founded: ‘That all power is naturally vested in, and consequently derived from the people’: and ‘That the powers of government may be reassumed by the people whensoever it shall become necessary to their happiness.’”8

Even Lincoln, the extreme nationalist, commented on January 12, 1848: “Any people, anywhere, being inclined and having the power, have the right to rise up and shake off the existing government, and form a new one that suits them better. This is a most valuable, a most sacred right, a right which we hope and believe is to liberate the world.”9

If Panarin’s predictions eventually come to fruition, we must all hope that it is accomplished peacefully. After all, there is nothing more American than secession. 

  • 1. Earl Starbuck, “Was Secession Treason?” [Quoted from an 1816 letter to William H. Crawford], Abbeville Institute Blog, September 18, 2020, at: https://www.abbevilleinstitute.org/was-secession-treason/.
  • 2. John S. Tilley, Facts the Historians Leave Out, Twenty-Second Printing (Nashville, Tennessee: Bill Coats, Ltd., 1991), 25-26.
  • 3. Ibid., 25.
  • 4. Ibid., 34.
  • 5. Ibid.
  • 6. Charles Adams, When in the Course of Human Events--Arguing the Case for Southern Secession, (Lanham, Maryland: Rowman & Littlefield Publishers, Inc., 2000), 81.
    [1] John Remington Graham, A Constitutional History of Secession, (Gretna, Louisiana: Pelican Publishing Company, 2002), 106.
  • 7. John Remington Graham, A Constitutional History of Secession, (Gretna, Louisiana: Pelican Publishing Company, 2002), 106.
  • 8. Ibid.
  • 9. Tilley, 32.
     
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Turkey’s Central Bank $10 Billion Accounting Trick

01/10/2022Robert Aro

Seems strange that as of December 30, 2021, Turkey’s central bank was carrying a loss of $5.2 billion USD; then on the last day of the year it miraculously made $10 billion, closing the year with a gain of $4.4 billion USD. Was it a lucky break or just an accounting trick?

As reported by AlJazeera:

The central bank declined to comment on the dramatic move on its balance sheet…

It’s unclear why they have yet to disclose the secret of their money-making strategy.

But if it’s any consolation:

Two officials familiar with the matter said it was in line with independent auditors’ accounting advice, but asked not to be identified because of the sensitivity of the matter.

It’s also unclear which accounting firm gave the advice. However, in 2020 a member firm of Ernst and Young signed off on the audited financial statements.

Nonetheless, the billion-dollar windfall could mean a lot for the Turkish treasury. According to the article:

In February, the Ministry of Treasury and Finance – as the central bank’s biggest stakeholder – will begin collecting much of that sum as dividends.

Unfortunately, all that glitters may not be gold, as the former deputy governor of the bank says:

...a possible explanation for the sizable overnight profit boost could lie in the sale of foreign-exchange reserves to the Treasury.

Which is strange because, if so:

The same amount of dollars would then have to be bought back to maintain the reserves level.

If the central bank made its profit from a sale to the treasury, but must buy back from the treasury, and even remit a dividend to the treasury, the economic benefits of the $10 billion become scarcely understood. Even worse, the central bank would have to acquire money from somewhere.

But what does it matter? It’s 2022. This may go down in history as the lost decade under lockdown where governments and their central banks did practically anything they wanted… No matter how blatant the lie, egregious the claim, or how much an economic policy goes against public interest, they face little to no consequences sans perhaps a little backlash on social media.

It’s important to look at other nations, such as Turkey, to see the effects of inflationism as a monetary policy, realizing how all sorts of economic schemes are nothing more than just that: schemes. The major component of these schemes requires increasing the amount of money and credit in circulation with the hope of leading to wealth creation.

Back at home, we too can blame the powers that be for spreading faulty economic ideas. But it’s not just coming from those at the top. CNBC reported a story where a restaurant owner from Denver started an online petition:

…calling for $2,000 per month in aid to every American during the pandemic.

As of today, over 3,000,000 Americans signed the petition. Feel free to join the cause here if you are so inclined.

Just remember, you can’t turn stones into bread. The road to prosperity is not created through accounting gimmicks, money creation schemes, stimulus checks, fluctuations in interest rates, changes to the money supply, nor any other monetary scheme. Whether policy decisions from the Turkish central bank, the Federal Reserve, Congress, or millions of Americans asking for government aid, these schemes ultimately fail. It seems like a lost art, but using labor to produce goods and services, or utilizing savings for capital investment remains the best ways in which wealth creation occurs.

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Power in the People, Not against the People

01/10/2022Gary Galles

2021 may have seen the greatest proliferation in American government command and control, with its corresponding constriction in liberty, in my lifetime. Power has become dramatically more centralized in the federal government--at the expense of individuals and their voluntary arrangements--with trillions of dollars of new programs and proposals (promoted as costless to Americans), expanded regulatory abuses, and breathtaking efforts at income redistribution nowhere authorized in the Constitution.

While the engorgement of our federal government already implemented or proposed is unprecedented, in part it follows much the same path as earlier episodes, such as FDR’s New Deal. That is why there is wisdom to be found from those who understood and opposed that accumulation of power into the hands of the government which took it out of individuals’ hands. Perhaps no one offers us more insight in this regard than Felix Morley, in his The Power in the People (1949).

Morley was a Rhodes Scholar, a Guggenheim Fellow, a Ph.D. from the Brookings Institution, a Pulitzer Prize winning editor of the Washington Post, President of Haverford College, and founder of Human Events, who has a journalism award named for him. James Person pointed out that he was “respected for his acumen and fairness by his peers across the political spectrum,” and reviewer Edith Hamilton termed The Power in the People “a remarkable book, nobly written and profoundly thought out.”

Morley’s key distinction there was between self-government and coercive government. As Leonard Liggio summarized it,

Morley based his distinction between Society and State on the origins of the words. Society is derived from the Latin socius, a companion. Society and association are rooted in the voluntarism of companionship…Morley continues on to the word State, which is rooted in involuntary or forced association. He sees the absence of free choice and free contract as the basis of the word status, from which state is derived.

When a new edition of The Power in the People was produced in 1972, 23 years after its first publication, it was reprinted without change. A dozen years later still, Sydney Mayers concluded, “Nor is any change required currently.” Consider how much the same is true today, at a time when self-government is certainly in rapid decline.

Self-government and voluntary cooperation are the keys to America’s success

This Republic is grounded on the belief that the individual can govern himself. ...

The founders…frequently asserted that the primary purpose of government is to secure private property. ...

The American Republic was specifically designed to safeguard individual enterprise against the state.

The Constitution of the United States sets specific limits to the power of government so that the latter may not repress the individual.

The dominant emphasis was on self-government rather than on imposed government; on the development of Society, not on the aggrandizement of the State.

The individual…fulfills himself through voluntary co-operation in a free society. This… implies an instinctive hostility to the State…with a…tendency to assume the direction of all social functions.

In America the individual, retaining sovereignty, intended to fulfill his destiny through a free Society, holding the State in leash.

Any system of government cherishing the individual…should not impede their voluntary adjustment.

What we had is not what we have now

A government designed to encourage people to govern themselves is increasingly distorted in order to subject them to remote administrative dictation.

Americans have…largely ceased to reflect upon the implications of the unconditional surrender of power to political government…wholly contrary to the principles of the Republic.

The survival of the Republic is not endangered by weakness in the central government, but by popular pressure for its aggrandizement.

The development of the State has been that of constant aggrandizement…at the expense of Society and of the individuals who create Society.

State, in short, subjects people; whereas Society associates them voluntarily.

A government established to secure the blessings of liberty has actually produced… tyranny…[with] government in the hands of men willing to exploit ignorance in order to further the centralization of power.

Man…is now exchanging membership in Society for servitude to the State.

The issue stands out clearly. Shall man be subject to the authoritarian State or shall he restrain State powers to the minimum necessary for an orderly Society?

What we need to remember

The American tradition is…completely opposed to authoritarian government...the ‘Safety and Happiness’ of the governed takes precedence over every governmental prerogative and…deference is not necessarily owing to those temporarily in a position of political command.

State power, no matter how well disguised by seductive words, is in the last analysis always coercive physical power…and by its nature works ceaselessly to enlarge that power.

The distinguishing characteristic of American civilization is the subordination of centralized power on behalf of individual liberty.

Only one form of government can nurture liberty, and that is personal self-government.

The American theory is that every man has within him the potential to make a significant contribution of some kind to human welfare. Therefore every minority…must be protected against the ever-possible tyranny of mass opinion.

Enlargement of the area of State authority…contracts the condition of economic freedom …this false god over every form of social organism is enormous and devastating.

Social strength can be diminished by a constant centralization and enlargement of governmental functions, the great majority of which are unproductive and…weaken the economic basis by the cumulative effects of regulation and taxation.

Social legislation is a sign of retrogression, not progress.

That the State should solve, by necessarily coercive methods, any problem that individuals are capable of solving voluntarily, is…the essence of tyranny.

To transfer power to the State…serves only to monopolize power in wholly irresponsible hands.

The one enduring political folly is to concentrate in the hands of ambitious men power that they do not have the restraint to exercise wisely.

The most that any government can do is set people “at liberty.” The State can stabilize the condition of freedom, and that is its sole excuse for being…[but] men must develop their liberty from within. It cannot be doled out by government agencies.

Over 7 decades ago, Felix Morley said that “American political principles are now being aggressively challenged by the philosophy of government planning.” That challenge is vastly greater today. According to Joseph Stromberg, “Felix Morley…understood the old republic, the constitution, peace, and free markets, as well as their opposites, empire, lawless rule, war and generalized statism.” That is the understanding Americans need to rediscover to defend our liberty. And reading The Power in the People brings with it what Sydney Mayers called “an unusual privilege, the rare experience of enjoying brilliant literary style whilst absorbing education thanks to the author’s keen mind and dexterous pen.”

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Gordon is a Genius, and I am a Classical Liberal

01/10/2022Jim Fedako

David Gordon is a genius, a man whose intellectual abilities and output exceed mine. I make that claim without any sense of envy. I also claim our unequal conditions are beneficial to each other, and society in general. Because of these declarations, I am a classical liberal in the Misesian sense. Let me explain.

First, I need to define left and right as I see them. To do this, I paraphrase Paul Gottfried and delineate left and right in three aspects: artificial versus organic; egalitarian versus hierarchical; and international versus national.

To put the first divide into perspective, consider prohibition of alcohol in the early 1900s. A progressive on the left believed that without alcohol a New Soviet Man would arise. A man who no longer drank his wages, but instead spent his evenings writing poetry and taking his children to operas and symphonies. In contrast, a progressive on the right simply expected life to improve as families had their father’s beer money to use for more appropriate expenses, such as food and rent. Someone on the right would not expect a man’s essence to change, just his actions.1

A more recent example would be George W. Bush’s ownership society. This was a left progressive policy that expected a New Soviet Man to emerge as the keys to a home were turned over.

The next divide is a derivative of the first. Only an artificial construct could posit a world where all are equal in abilities and outcomes; a world where natural hierarchies do not arise. As if rearranging the means of production – property – could create a situation where my abilities equal David’s. More on this later.

The third and final divide is also a derivative of the first, an artificial notion that all groups and peoples agree on the very same means and ends. As if all necessarily share the same view of a good life and, hence, force is justified to instantiate that good life.

In the most general understanding, it is the appeal to the artificial that delineates the left and the right.

Based on the above, I am a man of the right. I neither believe in, nor appeal to, artificial constructs, I accept natural hierarchies and believe people tend to sort into groups with shared beliefs. However, being on the right does not necessarily make me a classical liberal.

Classical Liberalism = Property

“The program of liberalism, therefore, if condensed into a single word, would have to read: property, that is, private ownership of the means of production (for in regard to commodities ready for consumption, private ownership is a matter of course and is not disputed even by the socialists and communists).” Mises, Liberalism

The artificial has no place in classical liberalism. Once artificial arrangements are considered, the evil of what Mises termed, the Fourier complex, arises. This is the belief that one’s failings in life are the result of the current structure of the means of production.

I cannot conceive of a different arrangement of property, absent violence, where my abilities would equal David’s. I will never equal David, our differences are God-given, not structural. I do not believe that under the socialist scheme, "the average human type will rise to the heights of an Aristotle, a Goethe, or a Marx. And above this ridge new peaks will rise.” So I do not allow myself (paraphrasing Mises) to be overwhelmed and seek refuge in the solace of the saving lie of antiliberalism and socialism. Instead, I accept and find comfort in our relative positions.

The benefit of interpersonal differences and hierarchies

I met David once, years ago – we only shook hands at a Mises event on Jekyll Island, so I know little of him in a personal sense. However, I see and read his intellectual output regularly. He is able to produce succinct and detailed reviews and articles that draw on multiple and varied sources. Sure, I could do that as well. But instead of struggling to produce, at best, one similar article per month, David appears to do two or more per week.

I am willing to accept that David may also exceed my abilities in other areas. While David writes on philosophy and political economy, I produce, inter alia, data flows and reports. It may be true that he could produce twice my output, should he take the time to learn the software tools, etc. However, if he focused on data and reports, leaving me to write in his field, much less would be produced in total.

In fact, such a situation would not be to my liking. I much rather read David’s eight or so articles per month and muse on his insights than struggle for 160 hours to produce just one of them. I am better off by even an absolute advantage in David’s favor – we all are.

Conclusion

Being a classical liberal and man of the right, I am able to withstand the siren’s song of envy that loops endlessly in the mainstream media, arts, politics, etc. In all things, being armed with the truth is the best defense. So, instead of championing the destruction of our society, we must stand against the current ideologies, allowing subsequent generations to enjoy the production that arises from ownership of property and self, even when the distribution of talents and outcomes is unequal.  

  • 1. As a classical liberal, I do not advocate prohibition. I am simply stating those on the left and right expected different outcomes. Certainly, prohibition was a policy failure and a violation of natural rights, and am application of force. However, no New Soviet Man arose due to prohibition. That is true in the US, as well as in the Soviet Union under Gorbachev.
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The Fed’s Triple Threat

01/07/2022Robert Aro

Mainstream economists and the media have a well-known love affair with using lighthearted words to describe policy decisions and economic concepts they find difficult to explain. CNBC uses the term triple threat to describe what was revealed in the December Federal Open Market Committee (FOMC) meeting this week. The triple threat would occur if the Fed were to:

...start raising interest rates and tapering bond buying, but also being prepared to engage in a[sic] high-level conversations about reducing holdings of Treasurys[sic] and mortgage-backed securities.

The mere mention of reducing the balance sheet should be enough to bring about this triple threat. But the world has been accustomed to easy money policies for a long time. The very conversation over reducing the Fed’s balance sheet could be enough to spook investors.

In another article on Friday, CNBC said it plainly:

It appears that the easy money train is going to come to a screeching halt this year.

The author still manages to see some light at the end of this tunnel, believing “the economy is strong,” and that Main Street (the real economy) will fare far better than Wall Street. He goes on to state:

If history is any guide — and it’s a very rough guide for our current circumstances — tighter monetary policies, especially when they are likely to be synchronized in much of the Western world, are likely to bring about that long-awaited 20% correction on Wall Street and in other financial markets around the globe. They may even bring full-fledged bear markets.

While Fed tightening could very well bring a correction, there is a disconnect between the real economy and the stock market. If the last two years are any guide, consider the increase in the cost of living, shortages of labor, goods and services, and overall lack of optimism, in the face of a perpetually increasing stock market. It’s clear most middle class Americans understand the disconnect between Main Street and Wall Street.

CNBC inadvertently raises an interesting question: is it possible Main Street could fare better than Wall Street if the Fed ultimately acts on its triple threat to raise rates, stopping new asset purchases then ultimately shrinking the balance sheet?

It’s difficult to fathom a future where the Fed exists and the average person fares better than both those on Wall Street or those closely connected to the Fed.

Whether it’s an increase in the Consumer Price Index (CPI) or in interest rates, the most vulnerable are invariably impacted at a greater proportion than the wealthy. Not everyone on Main Street, for example, can take advantage of low interest rates to invest in businesses or speculate on margin in their brokerage account. The increase in assets, such as homes, can hardly be a blessing for those who now must carry higher debt burdens at greater rates.

Should the stock market turn into a bear market, high net worth individuals would be best insulated from this as they are not normally reliant upon pension income nor social security. The wealthiest of society normally have brokers, money managers, access to better information and a wide diversification of assets. Many may find ways to even benefit from a stock market crash.

Not that the Fed should look to save Wall Street or Main Street. But it’s best to understand that a central bank does not serve the economy at large. It’s not a question regarding which pace or by how much the Fed should change rates or the balance sheet; rather, it’s the very existence of an entity having these abilities being the cause of our economic problems in the first place. No matter which way rates go and no matter the direction the balance sheet turns, and even if the triple threat of 2022 comes to fruition, Main Street will continue suffering due to policy interventions of the Federal Reserve.

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