Power & Market
In the “crypto” world, there are theorists mistakenly applying Irving Fisher’s equation of exchange without knowledge of Austrian critiques of the idea. Understanding why Austrian economists are critical of MV = PT might help these theorists avoid these errors in reasoning. (These theorists include Kyle Samani, Chris Burniske, and Vitalik Buterin among others, hereafter referred to as "crypto velocity theorists.")
Quick Overview of Terms in the Fisher Equation of Exchange
In the equation, M = the money supply, V = the velocity of money, or the average number of times a currency unit changes hands per year, P = the average price level of goods during the year, and T = an index of the real value of aggregate transactions. In the MV = PQ formulation, Q = an index of real expenditures and P × Q = nominal GDP.
How Are Crypto Velocity Theorists Misapplying the Theory?
Crypto velocity theorists seem to believe that the current structure of crypto tokens (non-bitcoin ones) has a velocity that is too high. They assert that somehow by using the protocol to force holding or "lock up" periods the velocity of the token can be slowed down, enabling more sustainable value capture for a crypto protocol. There are various "tokenomics" ideas being proposed to achieve this slowdown in velocity, such as profit share mechanisms, staking functions to lock up the token, or gamification to encourage holding.
But are these mechanisms sustainable in the longer term? Distinguished against these ideas is the simple concept of bitcoin, a token and monetary network created to replace fiat money. Bitcoin can justifiably hold a place in a person’s cash balance under a theory of speculative demand based on its monetary characteristics. In this case, the more relevant reference is Carl Menger and the argument around marketability or saleableness, not the quantity theory of money and associated equation of exchange.
How Do Prominent Austrian Economists Critique the Quantity Theory of Money?
Austrian economists reject the quantity theory of money, which is too mechanistically focused on the nominal quantity and not on real subjective valuations by individuals. Murray Rothbard and Joseph Salerno point out many problems.
In Man, Economy, and State, Rothbard points out a serious conceptual flaw:
At any one time there is a given total stock of the money commodity. This stock will, at any time, be owned by someone. It is therefore dangerously misleading to adopt the custom of American economists since Irving Fisher's day of treating money as somehow “circulating,”…There is, actually, no such thing as “circulation,” and there is no mysterious arena where money “moves.” At any one time all the money is owned by someone, i.e., rests in someone's cash balance.
In other words, Rothbard shows that velocity is a rather meaningless idea. Further, he points out that different goods cannot be meaningfully added together, demonstrating the absurdity of doing so:
How can 10 pounds of sugar be added to one hat or to one pound of butter, to arrive at T? Obviously, no such addition can be performed, and therefore Fisher's holistic T, the total physical quantity of all goods exchanged, is a meaningless concept and cannot be used in scientific analysis.
Joseph Salerno levels his own critique against the idea of the quantity theory of money also, identifying where it is vacuous in his article "A Simple Model of The Theory of Money Prices":
Let’s begin with the Quantity Equation as conventionally stated: MV = PQ. Our simple model above reveals that the real action is on the right side of the equation.…The mechanical passing of a specific sum of money from one hand to the next in exchange, that is, “spending,” is completely governed by the money price that has been antecedently established by the exchanging parties. Thus the money spent is merely an outcome of the pricing process and in no sense a causal factor. In other words, the aggregate flow of money spending is determined by the value of money and not the other way around.
Salerno demonstrates that individuals' subjective valuations drive prices all along, not the quantity of money in a mechanistic sense.
So, in the end, "Tokenomics" and attempting to "game" token velocity downward to satisfy an erroneous Fisher equation of exchange is misguided. We should aim to understand bitcoin and cryptocurrencies from an Austrian monetary theory standpoint. Menger's On The Origins of Money and Ammous Saifedean’s The Bitcoin Standard are more relevant places to begin. Saleableness is more important than velocity.
The world continues to process last week's missile strike killing of Iranian general Qassem Soleimani as President Donald Trump continues to rattle his favorite saber, Twitter, against threats of Iranian retaliation. Already the international response to Trump's military escalation, a decision categorized as “the most extreme response” by American military officials, has been strong. In its aftermath, members of the Iraqi parliament have called for the American military to be evicted from the country, while Europe and other traditional American allies have cautioned against any further escalation from the US.
Back at home, the domestic response has been predictable. Trump's actions have been largely defended by his party, and criticized by his opposition and a series of mealymouthed legal analysis from “experts” about the constitutionality of the attacks. The NPC-like script in responding to the attacks has been so on the nose that Vice President Mike Pence even tried to tie Soleimani to September 11 in a move that must have made Trump's attorney and frequent gaffe machine, Rudy Giuliani, proud.
While the return of the antiwar left is a refreshing change of pace from the Democrats' recent maneuvering of the party of military action against Russia and Syria, the beltway response is most useful in highlighting how unseriously America's capital takes the single most important matter in government: when and how to wage war.
After all, the same Democrats that have railed against Trump's “mental instability” and “temperament” have dutifully signed on to not only the president's military budgets, but his reauthorization of programs such as the Patriot Act. For years, the American left has been far more interested in disarming American citizens than it has been in restraining the executive branch's ability to wage war.
It is those same legal precedents established by President Barack Obama and passionately defended by former Secretary of State Hillary Clinton that bar the majority of the president's opposition from any meaningful and consistent argument against the legality of the Soleimani strike.
Similarly, the partisan hypocrisy from Republican cheerleaders is highlighted by their own opposition to Barack Obama's flirtation with escalating military conflict in Syria. With the exception of the most hawkish of Republican neocons, Republican leadership vocally criticized the idea of further expanding yet another military front. In the words of Senate leader Mitch McConnell:
A vital national security risk is clearly not at play, there are just too many unanswered questions about our long-term strategy in Syria … Either we will strike targets that threaten the stability of the regime — something the President says he does not intend to do — or we will execute a strike so narrow as to be a mere demonstration.
Will McConnell voice similar questions about the long term strategy in Iran, particularly in light of President Trump's post-strike statement that the attack was to “stop a war [not start one]”?
Of course not, because Congress has long since conceded its authority over war to the executive branch, and few congressmen are interested, or competent, enough, to debate matters of national security seriously, from either a geopolitical or constitutional perspective.
Trump's announcement that his tweets serve as an official “notification to the United States Congress” that a future potential strike from Iran will be responded to “quickly & fully strike back, & perhaps in a disproportionate manner,” is a fitting illustration of the serious extent to which Washington has relegated the limits of the commander in chief's ability to wage war.
If Democratic politicians were sincere in their concerns about Trump flexing the muscles Congress has given him, they would begin a concerted effort to restore the previous checks on war powers. A congressional declaration explicitly barring further action against Iran would be a start and a push by the House for the repeal of the fraudulent War Powers Act should be obvious starting points. If Democrats are truly concerned about Trump's “abuse of executive power,” which was the stated cause for House impeachment, then they should obviously be willing to make the case as it applies to Iran.
If Democrats fail to attempt any of these moves, it will be clear that their criticism of Trump's foreign policy is simply another example of toothless virtue signaling.
President Trump and his secretary of state, Mike Pompeo, told us the US had to assassinate Major General Qassim Soleimani last week because he was planning “imminent attacks” on US citizens. I don’t believe them.
Why not? Because Trump and the neocons — like Pompeo — have been lying about Iran for the past three years in an effort to whip up enough support for a US attack. From the phony justification to get out of the Iran nuclear deal to blaming Yemen on Iran, to blaming Iran for an attack on Saudi oil facilities, the US administration has fed us a steady stream of lies for three years, because they are obsessed with Iran.
And before Trump’s obsession with attacking Iran, the past four US administrations lied ceaselessly to bring about wars on Iraq, Afghanistan, Syria, Libya, Serbia, Somalia, and the list goes on.
At some point, when we’ve been lied to constantly and consistently for decades about a “threat” that we must “take out” with a military attack, there comes a time when we must assume they are lying until they provide rock-solid, irrefutable proof. Thus far they have provided nothing. So I don’t believe them.
President Trump has warned that his administration has already targeted fifty-two sites important to Iran and Iranian culture, and that the US will attack them if Iran retaliates for the assassination of General Soleimani. Because Iran has no capacity to attack the United States, Iran’s retaliation, if it comes, will likely be against US troops or US government officials stationed in or visiting the Middle East. I have a very easy solution for President Trump that will save the lives of American service-members and other US officials: just come home. There is absolutely no reason for US troops to be stationed throughout the Middle East to face increased risk of death for nothing.
In our Ron Paul Liberty Report last week, we observed that the US attack on a senior Iranian military officer on Iraqi soil — over the objection of the Iraq government — would serve to finally unite the Iraqi factions against the United States. And so it has: on Sunday the Iraqi parliament voted to expel US troops from Iraqi soil. It may have been a nonbinding resolution, but there is no mistaking the sentiment. US troops are not wanted, and they are increasingly in danger. So why not listen to the Iraqi parliament?
Bring our troops home, close the US embassy in Baghdad — a symbol of our aggression — and let the people of the Middle East solve their own problems. Maintain a strong defense to protect the United States, but end this neocon pipe dream of ruling the world from the barrel of a gun. It does not work. It makes us poorer and more vulnerable to attack. It makes the elites of Washington rich while leaving working- and middle-class America with the bill. It engenders hatred and a desire for revenge among those who have fallen victim to US interventionist foreign policy. And it results in millions of innocents being killed overseas.
There is no benefit to the United States to trying to run the world. Such a foreign policy brings only bankruptcy — moral and financial. Tell Congress and the administration that for America’s sake we demand the return of US troops from the Middle East!
During the 2016 race, presidential candidate Gary Johnson was asked what action he would take in response to the refugee problem created by the destruction of the Syrian city of Aleppo.
In response, Johnson asked, "What is Aleppo?" Once prompted with enough reminders, Johnson was finally able to answer the question.
The exchange in itself, of course, was not sufficient to prove Johnson didn't know anything about the situation in Syria. In fact, Johnson gave a reasonably coherent answer about the Syrian situation once he figured out Aleppo is a Syrian city that at the time was central to the civil war in Syria.
Johnson's critics, however, used the gaffe to claim Johnson was clueless on foreign policy and ought to be disqualified as a viable candidate.
Johnson was never able to demonstrate any real competence on the issue for the duration of the campaign. In fact, he claimed it was a virtue to not know much about foreign policy:
"You know what? The fact that somebody can dot the Is and cross the Ts on a foreign leader or a geographic location, that then allows them to put our military in harm’s way," Johnson argued.
"We wonder why our men in service and women suffer from PTSD in the first place," he continued. "We elect people who can dot the Is and cross the Ts on these names and geographic locations as opposed to the underlying philosophy, which is, let’s stop getting involved in these regime changes."
Unfortunately, many of Johnson's defenders, plus many anti-interventionist libertarians, flocked to Johnson's defense, claiming it is indeed a good thing to not know anything about foreign policy or foreign regimes. This is a terrible take on foreign policy ignorance.
First of all, it's not apparent that ignorance of foreign policy necessarily leads one toward anti-interventionism. One example of this is the infamous poll showing that nearly one-third of Republican primary voters favored bombing "Agrabah" the fictional city featured in Aladdin. Apparently, many voters were willing to bomb a city even though they couldn't possibly have known anything about the city's actual location or the threat its residents posed. Now, it's possible this poll is bogus, but its plausibility suggests there is no reason to just assume that ignorance of foreigners leads one to assume they ought to be left alone. In fact, one 2018 study found that Americans who could locate North Korea on a map were more likely to support diplomacy than those who were ignorant of North Korea's location. So, while some people who know nothing abou the wider world are inclined to leave the wider world alone, an ignoramus might also just as easily come to the conclusion that most foreigners are barbarians in need of a good bombing. The latter idea is certainly the message most voters get in the media, day in and day out.
The idea that it's a good thing to not care about foreign countries would be fine if we lived in a world with no resident foreign-policy establishment in Washington. But that's not the world we live in.
One could imagine what that might look like, though: the new president arrives in DC, and he's the sole decision-maker in foreign policy. But since this new president doesn't care about foreign policy and knows nothing about it, American foreign policy wonks, military generals, and CIA agents all just sit on their hands, waiting for the president to give them something to do. But since the new president never gives these bureaucrats something to do, the foreign policy establishment all resigns and gets real jobs. The end.
In the real world, though, when the president arrives in Washington, he's confronted with a huge cadre of foreign policy interventionists who want more war, more bombing, more invasions, and more sanctions against "rogue" foreign regimes. These people leak info to the press designed to stir up aggression against foreign states. Former generals and former CIA agents go on TV to talk up the need for another war. Members of Congress and various party hacks demand various interventions to suit their own ideology and the ideology of their constituents.
In order to counter this constant agitation for war, an anti-interventionist president would need to be able to explain to both the public and to policymakers why such-and-such invasion or such-and-such sanctions are a bad idea. Were this president to simply shrug and say, "Golly, I never heard of Syria before," agitators for more war and sanctions would be more likely to win over public opinion. And then the interventionists would be able to apply political pressure to the president until he changes his mind for either principled or cynical reasons.
After all, if the president doesn't know anything about the world outside the US, how does he know the interventionists are wrong? An ignorant man is an easily manipulated one.
This, of course, is why Ron Paul always remained very well informed on public policy and knew a lot about foreign affairs. Even his enemies admitted this. For example, in a column for The Hill, Brent Budowsky praised Paul's knowledge in order to condemn Johnson's ignorance:
The former Republican congressman from Texas always added depth, insight and ideas to presidential politics. Sometimes I might agree with Dr. Paul, other times not, but he was always informed and knowledgeable.
Had he become president, Paul would have likely been able to provide a much-needed voice of reason to foreign policy while explaining why his positions were prudent, even in a world where foreign-policy hawks were constantly agitating for more war.
Moreover, a sound foreign policy for the US would require more than just doing nothing. It would require active attempts to undo the status quo: to withdraw troops, to sign peace treaties, and to engage in diplomacy rather than stick with the way things are. In the world we live in, this sort of thing requires a lot more than just insisting that the US "do nothing." It requires slashing military budgets, opposing military "experts," and reining in the intelligence agencies. To pull this off, one needs to be able to rout the interventionists both administratively and in the court of public opinion. Being clueless about foreign policy would be a rather odd method of pursuing this goal.
In a recent lecture I gave at the Institute for Humane Studies, I examine claims that Smith would today be on the political left. I quote from Amartya Sen, Emma Rothschild, Samuel Fleischacker and others. Touched upon are issues of Smith on progressive taxation, poverty relief, work regulation, schooling, usury, and the third duty of the sovereign:
"The left Smithians have some good points ... but generally speaking, they're overplaying their hand."
We are repeatedly told that basic human rituals are falling by the wayside. Why don't we all sit down to dinner as a family anymore? Why don't we spend time with each other anymore? Why are we all sleep deprived?
Sometimes these problems are blamed on people spending too much time devoted to kids' intramural activities or other types of school- and recreation-based activities. Some analysts note people can't tear themselves away from their smart phones in order to go to bed at a decent hour.
But very often, we're told, this lack of time comes down to too much work. The articles covering these topics are full of anecdotal evidence of people with multiple jobs, long commutes, and crushing work responsibilities.
These problems no doubt afflict many people. They're certainly an issue for people at that state of life where couples have school-age children, and have a host of bills from many responsibilities that comes with raising a family.
But, the anecdotal evidence is contradicted by years of data showing people aren't nearly as hard pressed for a few free moments as is supposed.
Specifically, consider the 2019 Q1 data provided on media consumption by the Neilsen Company. According to their extensive sampling of TV, smart phone, and video game console users, American adults spend an average of four-and-a-half hours per day watching television. The spend an additional 54 minutes using TV-connected devices such as DVD players and video game consoles.
People over fifty watch the most television and generally consume the most screen-based media. People in the 50-64 age bracket watched nearly six hours of television, and spend an additional two hours and forty-seven minutes on smart phones. People in the over-65 category watched even more television than that.
Not surprisingly, people in the 18-34 age group consumed the least media overall, and also used televisions the least. Those people have younger children — which makes TV viewing harder — and may be spending more time outside the house with friends. In this group, people watched on average one hour and fifty-four minutes of television, but were on phone apps for three-and-a-half hours.
Across age groups, media consumption ranged from nine hours to nearly thirteen hours. Per day.
But to err on the conservative side, let's remove radio time — which could just be part of the daily commute — and "internet on a computer," which could be chores and work time. Even if we do this, we find Americans are on average watching videos, playing video games, and consuming media seven or eight hours per day.
And yet, media outlets and pundits are often telling us that ordinary people absolutely don't have time to prepare a meal or maintain friendships. Given the data here, I'm skeptical of these assertions.
Now, these are averages, so it may be that people are very squeezed for time during the week, but then consume enormous amounts of media on the weekends. Certainly, there are people out there who consume live sports programming virtually all day on Sunday during football seasons. But then that would imply these people at least have time to spend with friends and family on weekends.
But if people have more than seven hours per day on average to watch re-runs of Friends, watch in-depth analysis of NBA games, and fire up the Playstation, why can't they manage to get eight hours of sleep?
If this data is correct, then the anecdotal evidence just doesn't add up, and it's simply not the case that people don't have time to do anything other than work, eat some fast food, and then do it all over again.
This isn't to say that poverty doesn't exist or that everyone is more or less average. We've all encountered people who at least sometimes work multiple jobs or are pushed to their limits by family obligations, work, and medical problems.
But the statistical data on media consumption suggests this isn't the typical experience.
A few months ago, just after Boris Johnson had become Prime Minister, I wrote an article addressing the ongoing selection process for the next Governor of the Bank of England, in which I gave my prediction of who the top 5 most likely candidates might be.
Much has changed in the British political landscape since then, including the decision to hold a general election on 12th December. As a result, Chancellor of the Exchequer Sajid Javid has announced that he will not be making his selection for the next BoE Governor until after the election, to avoid compromising the Bank’s independence by announcing during a “politically sensitive” time.
However, an official shortlist has been delivered to the Treasury, and the 5 names “thought to be” on the shortlist, as reported by the Grauniad, are Andrew Bailey, Minouche Shafik, and Ben Broadbent (who were on my predicted shortlist) as well as Shriti Vadera and Jon Cunliffe (who were not).
I included Vadera as an “honourable mention” in my article, but am admittedly surprised she made it onto the official shortlist, given her reputed “fiery” management style and strong partisan links to the Labour Party. However, bearing in mind the government’s stated intention to make this a diverse hiring process, and their use of the headhunting firm Sapphire Partners which “specialises in diversity and placing women in top roles”, it makes sense that they would have wanted to include her, at least to avoid the shortlist being 80% pale, male, and frail.
Everyone seems to be surprised that former Reserve Bank of India Governor and central banking superstar Raghuram Rajan was not included on the list, having previously been second only to Andrew Bailey in the bookies’ estimations. It’s perfectly true, as has been pointed out, that his failure to be included on the shortlist (or even interviewed) doesn’t necessarily mean he’s out of the race; current Governor Mark Carney was not included in the shortlist to replace Mervyn King in 2013. However, I have long had my doubts about the likelihood of Rajan getting the job, mainly due to the simple fact that (through no fault of his own, mind you) he isn’t British. I imagine this wouldn’t be such an issue in normal circumstances, but current Governor Mark Carney is the first of the Bank’s 120 Governors to have been foreign, and his tenure has been marked by repeated accusations of insufficient familiarity with the British economy. So it’s easy to imagine the pressure that must exist to not give the job to a second full-blown foreigner in a row.
I say “full-blown” foreigner to distinguish Rajan from the person who I personally believe is most likely to get the job, Egyptian-born Nemat “Minouche” Shafik. As I mentioned in my original article, Shafik’s status as a woman of colour would tick all the diversity boxes the government could reasonably hope for, yet she has sufficient “insider status”, both within the British economy and the Bank of England itself, to shield her from the sort of criticism to which Rajan might be subjected, and to be a considerable advantage in its own right. Educated at Oxford and the London School of Economics (two damn fine institutions, in my own entirely unbiased opinion), Shafik is the current Director of the latter institution, and was formerly a Deputy Governor at the Bank of England, having sat on its rate-setting Monetary Policy Committee from mid-2014 to early-2017. During her tenure, Shafik typically voted with the rest of the MPC, making it difficult to isolate her personal views on monetary policy. The only factor I can imagine holding her back would be her reportedly difficult working relationship with current Governor Mark Carney. However, if I were a betting man the research for my original article would have led me to bet on Shafik, and that remains true now that the official shortlist is out.
The only character on the list who I didn’t mention in my original article is Sir Jon Cunliffe, who is currently the Bank’s Deputy Governor for Financial Stability. Cunliffe has held a wide variety of senior civil service positions since 1990, and is currently on the Bank’s Financial Policy and Monetary Policy committees. He was educated at the University of Manchester, with his highest degree being a Master’s in English Literature, which, more than anything else, illustrates Britain’s unique status as a country where you can work in the financial sector with a degree in almost any subject. Cunliffe recently made headlines when he gave a speech arguing that low long-term interest rates put pressure on financial stability, and risk more severe downturns; a potentially welcome sentiment for Austrian ears.
When Mark Carney’s term as Governor comes to an end in late-January, the situation in British politics could potentially be very different: either the Conservatives will win the election and pass Johnson’s EU withdrawal bill, in which case Britain will be out of the EU by February, or Jeremy Corbyn will be Prime Minister, Brexit will be delayed (potentially indefinitely), and this shortlist of candidates might be re-thought or thrown out entirely. For the time being however, this shortlist provides an interesting insight into the priorities and policy goals of Britain’s government and central but doesn’t provide much hope for Austrians.
Denmark as a country in Europe with a population around 5.8 million people and with a GDP per capita of more than 60 thousand dollars. Since 1973, Denmark has been a part European Union, which at that time was called the "European Community." Despite being a part of EU, Denmark is not a part of Eurozone, and it looks like Denmark won't be joining any time soon.
The Voters Say No
According to the public opinion surveys in the European Union (research held in Spring 2018) only 29% of Danish responders were in favor of accepting the Euro as potential National currency. EU-wide, this number was 61%. The vast majority — 65 percent — of Danish responders were against monetary union. EU-wide, this number was 32 percent. The only area where the Danish are in line with European average is the 6% of respondents that do not have opinion on that topic.1
Moreover, in Danish modern history two referendums have taken place in regards to Euro implementation. The first referendum was held in June 2, 1992 and was a “proxy referendum.” The vote was for or against ratification of the Maastricht Treaty, which established the Economic and Monetary Union of the European Union. The idea of the Maastricht Treaty was minimally rejected by Danish voters — 50.7 percent of the voters were against while 49.3 percent where in favor. The rejected referendum had impacted further negotiations, leading to the Danish-government negotiating limitations on EU mandatesknown as the Danish Opt-outs. One of these opt-outs was the decision to not adopt the europ. In 2000, Danish voters voted on whether or not the country should join the euro zone or stay with its national currency the Danish krone. The measure was rejected by 53.2 percent of voters.
Why There is Opposition
One advantage to joiuning the euro zone would be a decrease of the interests rates on Danish government bonds, despite the fact that since 2014, the interest rate of 10 years government bond is below 1%. (Denmark’s government bonds are rated with rating AAA with stable outlook.)
On the other hand, a disadvantage of adopting the euro — as the voters see it — would be a loss of domestic control over monetary policy. However, under current policy, the independence of the Danish krone is only an illusion. Since 1982 ,the currency of Denmark has had fixed exchange rate with the German mark. When the mark was changed to the euro, the Danish central bank joined the ERM II (European Exchange Rate Mechanism). This mechanism fixes the currency exchange rate at 1 euro to 7.460 Danish krone with the possibility of fluctuation of 2.25 percent. Naturally, this limits the independence of the Danish central bank. Each deviation above or below 2.25 percent triggers intervention by the Danish Central Bank.
By the standards of the EU itself, Denmark is more than qualified to join the euro zone. All the criteria have been met, including the inflation rate, the size of the budget deficit, the Debt-to-GDP ratio, and more. But it looks like the Danish voters are not yet prepared to hand over control of monetary policy to the EU's central bankers.
- "Danish Central Bank Stumbles with Its Currency Peg to the Euro" by Uffe Merrild.
- "Whither the Euro?" by Hans Sennholz
- The Tragedy of the Euro by Philipp Bagus
- 1. "Standard Eurobarometer" Spring 2018, European Commission
The US federal government is divided up into a variety of institutions, with the three main "branches" of government designed to compete against each other. Theoretically, these three branches were initially thought to place checks on the other branches of government, thus minimizing abuses of power by the federal government overall.
Things haven't really worked out that way. Thanks to the rise of political parties, coordination between the branches — along party lines — has often replaced competition between the branches. Moreover, as political parties vie for the a controlling majority in the various branches, they are loath to limit the power of these institutions lest these partisans limit their own power in the process. Nor do the different branches represent different socio-economic groups in the manner imagined by John Adams in his Defense of the Constitutions.
So weakened had this imagined separation of powers become by the time of the New Deal that Franklin Roosevelt asserted during the days of his court-packing scheme that the various branches of government existed to work together, rather than to mutually obstruct each other. In a 1937 "fireside chat," Roosevelt claimed the federal government is
a three-horse team provided by the Constitution to the American people so that their field might be plowed. The three horses are, of course, the three branches of government – the Congress, the Executive and the Courts. Two of the horses are pulling in unison today; the third is not.
FDR's point was that the Supreme Court was being obstructionist, and it ought to conform itself to the other two branches of government, since it was the duty of each branch to assist the other branches in "plowing the field."
The fact many people would find this theory remotely plausible speaks to the magnitude of the public's disregard for the notion the division of the federal government into branches was supposed to prevent government action, not facilitate it.
Not All Branches Are Equally Terrible
FDR, of course, is the poster child for claims the presidency has become lopsidedly more powerful than the other branches of government. Through the party structure, FDR was able to dominate Congress, and through the cult of personality that surrounded him, he was even able to intimidate the Supreme Court as well.
But FDR certainly isn't the only example of how the presidency has come to be the driver behind most of the federal government's worst abuses and usurpations of power.
For detailed accounts of these many crimes, the reader may consult Reassessing the Presidency, published by the Mises Institute in 2001.
In it, the authors explore how the presidency has greatly expanded its power at the expense of Congress (of, of course, ordinary Americans).
This has been made possible by both inaction and support from the other branches. For example, except in rare cases, the Supreme Court has tended to defer to the other branches of government — and especially the presidency — when the court perceived both of the other branches were unlikely to oppose the court's decisions on a topic.
Meanwhile, the Congress's danger has mostly manifested itself through inaction and through its deference to both the Presidency and the Supreme Court. Over the past century, Congress has repeatedly handed over its lawmaking authority to the executive branch and to a variety of independent regulatory agencies.
The Rise of the Fourth Branch
This capitulation to the presidency and the administrative state, however, has enabled what has become an essentially independent fourth branch of government. Yesterday, in an article titled "The Deep State: The Headless Fourth Branch of Government," I described how the regulatory and national-security agencies of the executive branch have evolved over the past century to become more or less autonomous in their own right.
These organizations are sometimes collectively called "the deep state," and their are characterized by a lack of responsiveness to the electorate or to any other branch of government.
Although the president is technically the head of these agencies, he can only count on cooperation if there is general agreement among the agencies' personnel that the president's agenda does not threaten them. In other words, the president can often count on cooperation from this deep state to expand the executive branch's power. These same agencies, however, tend to place insurmountable obstacles in the way of any president who might attempt to significantly curtail the powers of the federal bureaucracy.
While the president's formal power is certainly quite vast, the informal power of this permanent bureaucracy is much greater. The agency personnel can usually wait out any president, and if a president becomes too inconvenient, these same bureaucrats can engage in a variety of investigations, indictments, and leaks designed to undermine the president. What they do is often secret, protecting it from public scorn.
The fact many of these bureaucrats have tenured positions, and function largely in the shadows, increases their power further. Even enormous failures on their part — as evidenced in the failure to prevent 9/11, or to "win" the failed War on Drugs — only leads to even larger budgets and even broader prerogatives.
From Worst to Least-Awful
Since the New Deal, and especially since 9/11, I suggest this fourth branch of government has actually become the most dangerous one. Ranking the branches of government from the worst to least bad, it looks like this:
- The Permanent Administrative State
- The Presidency
- The Supreme Court
- The Congress
The bureaucracy, as we've seen, is dangerous largely because of its permanence and the lack of any means in ensuring accountability. While elected officials come and go, career bureaucrats (military and otherwise) are more or less permanent. Moreover, since the other branches depend on the bureaucracy to enforce the "rules," there is no means of enforcing accountability on the bureaucracy beyond the short term.
The Presidency, on the other hand, is dangerous for both administrative and political reasons. It can use hero worship and mass media to ram through legislation. The President can also issue executive orders, essentially creating new legislation without Congressional approval.
The problem with the Supreme Court stems largely from its exalted position in the minds of voters. Polls show Americans trust the "judicial branch" more than either the Presidency or Congress. Thus, when the Supreme Court hands down its decisions, these decrees are often considered to be indubitable fait accomplis. On the other hand, the court has no means of enforcing its decisions, lessening its de facto power.
And then there is the Congress — the least popular, least respected, and most disorganized branch of the federal government. This is the branch which has the least ability to capitalize on a cult of personality given its lack of any single established figurehead. Moreover, turnover in Congress is higher than most people think. Although some members of Congress serve for decades, most members have tenures that are much shorter. The average tenure for current members is 8.6 years in the House and 10.1 years in the Senate.This means many members of Congress come and go as quickly as the presidents.
But if we've determined which federal institutions are the worst, the question remains: so what?
Well, this sort of analysis may help us determine which side is the greater threat when observing conflicts within the federal government. It also helps us to see through the rhetoric of political parties who always insist attempts at limiting their guy's power is unconstitutional or inappropriate.
One example of this was Nancy Pelosi's diplomatic trip to Syria in 2007, during which the Speaker attempted to assert some Congressional control over the White House's foreign policy. Vice president Dick Cheney denounced the move, insisting "we don’t need 535 secretaries of state" and claiming Congress should defer to the president on all matters of foreign policy. Cheney, of course, was wrong, and it would be a good thing if Congress spent quite a bit more time "meddling" in the White House's foreign policy agenda. The proper view of this relationship between Congress and the White House, however, is often clouded by partisan loyalties.
On the other hand, during the Trump administration, we've seen the permanent bureaucracy assert itself in its attempts to undermine the presidency, and to protect the deep state's own interests. The House majority has been supportive of this for partisan reasons. But more fundamentally — as a recent New York Times article concludes — this has really been a conflict between the presidency and the deep state. Although the presidency's power is already bloated to dangerous levels, the power of the permanent administrative state is even greater, more unaccountable, and most dangerous of all.
Mere partisan analysis would impel us to overlook this, but by keeping an eye on the relative danger of each branch within the federal government, we may perhaps be more able to identify the worst of the bad guys in each new political controversy.
A state-owned cryptocurrency is, in itself, a contradiction in terms. The main reason why citizens want to use cryptocurrencies or gold is precisely to avoid the government or central bank monopoly of money.
For a currency to be a world reserve of value, widespread means of exchange and unit of measure, there are many things that need to happen, but the first pillar of a world reserve currency is stability and transparency.
China cannot disrupt the global monetary system and dethrone the US dollar when it has one of the world’s tightest capital control systems, a lack of separation of powers and weak transparency in its own financial system.
The U.S. dollar is the most traded currency in the world, and growing according to the Bank of International Settlement. The Yuan is 4% of the currency trade. This is because the financial balance of the US is the strongest, legal and investor security is one of the strongest in the world, and the currency and capital markets are open and transparent.
Unfortunately for China, the idea of a gold-backed cryptocurrency starts from the wrong premise. China’s own currency, the Yuan, is not backed by either global use nor gold. At all. China’s total gold reserves are less than 0.25% of its money supply. Many say that we do not know the real extent of China’s gold reserves. However, this goes back to my previous point. What confidence is the world going to have on a currency where the real level of gold reserves is simply a guess? Furthermore, why would any serious government under-report its gold reserves if it wants to be a safe haven, reserve status currency? It makes no sense.
The Yuan is as unsupported as any fiat currency, like the U.S. dollar, but much less traded and used as a store of value. As such, a cryptocurrency would not be backed by gold either. Even if the government said it was, and deployed all its reserves to the cryptocurrency, what confidence does the investor have that such backing will be guaranteed when the evidence is that even Chinese citizens have enormous limits to access their own savings in gold?
China’s gold reserves are an insignificant fraction of its money supply. Its biggest weakness comes from capital controls, lack of open and independent institutions safeguarding investors and constant intervention in its financial market.
China’s Yuan may become a world reserve currency one day. It will never happen while capital controls remain and legal-investor security is limited.