Proles versus Elites: the battle rages on!

It is true that egalitarianism has given room to all opinions, which include the delusions of grandeur of those who would have it otherwise. We all imagine ourselves as heralds of Truth and kings in palaces if given the chance. In our lives we wish for a chance to assume a greater role – an opportunity to prove us worthy and to demand sacrifices of ourselves. Yet every day drifts by just like the previous.

Therefore I would be glad to make a restatement on the monetary system and the banks that run it.

National debts are increasing all around the civilized world, as does our wealth. But in the end the money ends up in the hands of those who make good use of it. This is not because of the generosity of our bankers, but because people look out for themselves. Our banks merely supply the money, and it is the individual’s choice to take out the money. The money will come to those who invest it wisely, and therefore it is in the end a fair system. It will have winners and losers, yet that is due to the unequal distribution of our inherent flaws, and our system – if is to produce wealth – requires inequality to thrive.

Nobody ever took out any loan against his will, and therefore banks cannot be blamed for national debts. There is not a true problem with our monetary system, because by investing it carefully, as is inevitably done on a free market by people with the right entrepreneurial spirit, we will produce economic growth that expands faster than our debts. If people would only stop trying to imitate the idols they see on MTV and started paying their rent, there would have been no housing crisis to begin with.

All of the previous is, of course, a joke. And not because there is not a single grain of Truth in it whatsoever. It is because people are so easily cowed into following images of what they would want the world to look like, instead of what it actually is. Once one achieves a certain degree of eloquence and familiarity with a wide variety of philosophical, economic and political positions, any outlook becomes defensible. We could pick a niche, crawl into that, boost that rhetoric, grow stronger, enrich ourselves. A smart person would probably do that.

And I would have, had I not started my philosophical self-education by reading Plato’s Politeia, and thus my ultimate allegiance is to Truth.

When I approached at the scene of the Occupy Wall Street protest I was greeted by a young man whom I estimated to be about my own age. He stammered slightly yet spoke with an airy tone of voice. He was thin and wore a military coat. I had arrived simultaneously with an elderly professor and an art salesman whom I met on the spot.

“What can I do in my personal life to improve the situation?” the salesman asked.

“The world’s too big to change on your own.” the youngster in the military coat replied, who was a representative of the protest-site. “This demonstration must become a snowball-movement,” he added, “and as long as these people are here, and arrive here, it can become that.”

I recalled my discussion with the elderly professor, who had mentioned Keynes. I had told him that the Keynesian model of economics is a typical tool of the Socialist parties. After all, in times of crisis everyone is afraid to lose customers or to become unemployed. Therefore, if the state throws money at the mass, it’s a good thing, because it will prevent unemployment and will keep the economy running.

However when it’s time to cut cost again, to save money which can be spent later, the Keynesians are never anywhere to be found. Too busy preparing the next elections, most likely.

I pointed out this mechanism in Keynesian policy to my history teacher when I was fifteen years old. He refused to acknowledge it. I understood then that no matter how many arguments and facts one has to back himself up, there will always be those who can never bring themselves to face the Truth. They refuse to acknowledge it even when you poke them in the eye with it. I learned long ago that arguments do not suffice as weapons.

Of course it is true in many countries that, if your bank goes bankrupt, the state pays you a substantial contribution. You are ensured in that sense. But where does the state get this money to begin with? It is issued by banks. Which means that governments must pay interest over that money. There is a substantial difference between how a government gets money and how a bank gets money.

The monetary system allows for the following exploit: Bank A can bring one dollar to another bank, bank B, which can then legally borrow that money to others ten or even fourteen fold. Bank B can bring that money to bank C, and bank C can do the same again to bank A. By that time the money has increased without any actual product or service of value having been added to the world. Someone who calls himself a “Conservative,” would surely recognize that as an outrage. I am convinced that Socialists, and probably even Liberals, are uneasy with it as well. Especially if you consider that both Adam Smith and Karl Marx acknowledged that productive labor added services and goods to the world.

For Smith and for Capitalism in the true sense, hard work is worthy of good pay. You put a bit of yourself in your enterprise, by studying and working you develop yourself as a person. Your labor is a part of your craftsmanship, of your expertise, of your pride. And you may ask a substantial reward to acknowledge the worth of whatever you sell. My cousin is a carpenter, “I would never want to be a teacher if my pupils would be completely spoiled and ungrateful.” he told me once; “When I’m constructing an attic for a house, even when it’s freezing, I know what I’m working on. What I’m creating. I can see what my labor provides and does for the world. There’s honor in my work.”

That, in the end, comes much closer to the spirit of conservation. That’s what I told the professor too: “The media does its best to paint the protesters as crack-using hippies, ridiculing them and smiling at them. With this image the bourgeois go to work, so proud of their own industrious work ethic. But meanwhile captain finance-Capitalism is smiling at them, as they are gambling away with the money of their pensions. Any money given to Greece goes straight into the pockets of bankers, who will otherwise confiscate Greek properties. And if they do so, an economic recovery will be equally impossible.

The bottom line is that my generation will suffer for it, because when I work, the government subtracts money for pensions. But we’re dealing with a declining population, and the part that reproduces the fastest is the least industrious. So who is going to pay for my pension?”

As I asked myself these questions – and not because I’m ‘selfish’ but because I possess common sense – the words of Hady came vividly alive to me: It means nothing to salute a flag if that flag represents a dying society. Likewise, it’s a sign of poor health to be well-adjusted to a profoundly sick society. Or, the words of Brett Stevens: “In the time of universal decline treachery may not be what it appears.”

He was hit by that, the professor, when he heard it, and he showed me a part of an article: 

“An important part of our wealth is not owed to blood, sweat and tears – as it is supposed to be – but to debts,” says Edin Mujagic, monetary economist. Because to grow as fast as we did the past decennia, we had to spend large amounts of money. Very large amounts. We did not have that. But, no problem, because we found a solution; making debts. We agreed that the money that you spend now but in fact do not possess, can be paid back at any point in time. This can go well for a while, as long as you keep growing so that there comes a point in time when you will have the money. And it went well for a while. The biggest problem is that our monetary system became addicted to debt; because in order to make money to pay off our debts, we needed more money. This is where the banks come in, since for every bit of debt we owe to a bank, the bank is allowed to rent out more money, which gives us a chance to pay off our debts.”

However this means that the total debt always grows exponentially faster than anyone’s means to pay off that debt. I must stress this is not a conspiracy – this is something which spontaneously rose up because people recognized opportunities to game the system.

And now, our governments are trying to compete against that by creating a trust-funds that must ward off speculators. However we saw before that banks have ways of exchanging money through mutual promises to pay – which can legally be counted as owned capital. This is virtual capital that can increase infinitely without being tied up with anything substantial.

Yet the wealth of the world is tied up with physically limited labor and resources. A government gains money by either taking out credit from banks (thus increasing the total amount of interest which must be paid, which is debt) or by taxing property and services. Hence the money governments can extract is tied up with the physically limited world. Which means that the governments can’t compete against large-scale speculation. It’s a balloon that keeps flooding and nobody dares to puncture it. But everyone knows it will soon burst – they just don’t want to be around when it happens.

“Yeah but this must be some sophomore’s reasoning who’s been listening to liberal professors. So it can’t really be taken serious anyway. The methods that have been tried and tested for 300 years will surely prove that nothing is wrong with our monetary system.”

Except those were 300 years in which the West completely dominated the world and anyone who refused to play the game by their rules, excluded himself from taking any part in the wealth of nations. Let me just quote the words of Leo Strauss (a not so Liberal thinker):

“The West—in fact this country [United States] together with Great Britain and Germany—could have laid down the law for the rest of the earth without firing a shot. Surely for at least a century the West controlled the whole globe with ease.” – ‘Introduction’ to: The City and Man

I looked upon the prole-test and I saw an immigrant, it looked like he hadn’t slept for days, and had been stiff on speed. Some fat Bulgarian with a heavy accent and a safety-vest approached him and said: “I’m part of the protection here. Are you tired? Do you want to sleep? I’ll show you a tent please come along with me.” The immigrant followed him slowly with an absent gaze, while the Bulgarian pushed him on by pressing his hand into his lower back.

I saw a wanderer sleeping on a worn sofa, a bottle of vodka clutched firm in his hand. There were tiny specks of egg left in his beard.

“We’re democrats,” the young man in the military coat continued, “We don’t stand here because we’re looking for someone to blame. We’re here because we want to look at ourselves. We don’t want to put someone in charge. Because then we can all go home and blame someone else in case it doesn’t go as we expected.”

“You guys are trying to bring in too much stuff.” the art dealer retorted, “And you’re bringing in things that aren’t even relevant. At least not for the financial crisis. You want to solve hunger in Africa, you promulgate free love and romance, and you’ve put up anti-nazi signs. This all really has nothing to do with it – it’s distracting.”

“Yes it does,” the protester responded, “because banking is putting the world into a more competitive state. They’re withdrawing their money from the markets. They’re taking the humanity from our lives. If you want luxury, fine you have to work, I agree. But there should be a basic minimum for everyone. There shouldn’t have to be starvation on this planet.”

“First of all,” I replied, “you need leadership. What I see around here is a bunch of people smoking pot, each on their own island with their own ideas. It’s a bundle of private opinions you’ve gathered here. This is anarchy. If you want the world to be serious about your message – and I see many civilized people have traveled here just because they’re worried about the financial prospect of our civilization – you need a concise message. But you have none. You have a bunch of hippies who are only here because they have nothing better to do. People are whimsical, they’ll say they agree with this protest, because protesting is part of their self-assembled identity. To counter that whimsicalness, you need leadership. You need some form of authority. A bunch of individualized isles is not going to create a snowball effect.”

I knew what those protesters wanted. In the bottom of their hearts they weren’t seriously concerned about government debts. What they wanted was a government to provide for them. A sort of nanny. They wouldn’t demand much of that nanny – all they wanted was a smoke a day and they’d be satisfied. A society where one might dream about ideals, virtues and goals and visions, as long as they could be kept to the private room. Other than that, invisible forces would make it very difficult for you to do anything outside of routine. But officially, you wouldn’t be forbidden to. The very way De Tocqueville imagined human Greatness would one day come to an end.

Parts: I II III IV

42 Comments

  1. Decimator says:

    I contend that unless we have a dramatic decrease in global populations, We will not ever gain a foot hold for the required changes. Nobody wants to be the bad guy and Tell these people they are mis-educated and out of touch. Unfortunately, that reduction will have to occur in a grotesque manner in order to achieve a cause and effect lesson. We here can recognize propaganda and dismiss it. Those at these protests live and breath propaganda. In six months to a year, they won’t even be bitching about what brought them to the protest to begin with. What has to be done is exactly what I/we don’t really believe in, when it comes to developing a health society. Ideally, I see that we need to use existing rules and laws to excite them into anger. Stir their anger until they become violent then justifiably, destroy them. My attitude would be different if I would have met anyone at our local occupy movement that could raise a unified argument. It all resembled children with behavioral disorders in that special class at any local school.

    There are times when very bad things have to be done for a greater good. We are fast approaching that time.

    1. A. Realist says:

      “There are times when very bad things have to be done for a greater good.”

      Well said, good sir. I must, because I am compelled by questions that also burn perforations in my soul, raise you in the extravagant heresy department. The times when bad things have to be done for a greater good is not fast approaching, it’s here. Even more controversially, it is always here. If the smarter and finer do not beat down the dumber and coarser, that latter group will overwhelm them with numbers and drown the civilization itself in mediocrity. The mediocrity then becomes rapacious even if through ahimsa and wages a coup d’etat through democracy, at which point that society is entirely doomed. The only question remaining is how we avert this process, and I think you have found our first viable answer.

    2. ryan says:

      man you can really say it, i agree! people talk about the national guard as if they were the lapdogs of the “bankers”, but that is what will be preventing the “pseudo”-protestors and their (perhaps unknown to the protestors) allies the mau mau underclass from enacting revenge fantasies on “priviledged” elites (a vague enough catagory to include the protestors themselves, which again reeks of liberal revolution)

  2. TStron says:

    I too think those protesters need leadership and a concise message. African starvation has nothing to do with what that protest is about. Or at least what it should be about. The behavior of many of those protesters make it really hard to take them seriously. If you really want to know what is at the heart of those protests (regardless of the other assholes taking the opportunity to insert their cause) I’ll refer you to a documentary called Inside Job.

    “If people would only stop trying to imitate the idols they see on MTV and started paying their rent, there would have been no housing crisis to begin with.”

    Greed, unrealistic expectations for living standards, ignorance, and a lack of responsibility on the part of the masses who took out home loans can certainly looked at as valid causes. But the corruption of the whole system is far and away the greater culprit.

    1. EvilBuzzard says:

      African starvation pften has nothing to do with the food supply. In the cases of Ethiopia and Somalia, famine was seen as an excellent tool to change the minds of dissenting groups of people. In Africa, unlike Chicago, IL, the dead no longer enjoy the right to vote.

      1. crow says:

        Now, a leftist would see that as outrageously unfair.
        Every dead person should be allowed a vote, in perpetuity, for the last party they voted for, while alive.
        It would be useful for offsetting the usually poor voter turnout.

        1. EvilBuzzard says:

          >>>>Every dead person should be allowed a vote,

          I’m tempted to tell the Leftist: “If you believe they should have rights, go marry one, or leave them your estate.”

  3. A. Realist says:

    “In the bottom of their hearts they weren’t seriously concerned about government debts. What they wanted was a government to provide for them. A sort of nanny. They wouldn’t demand much of that nanny – all they wanted was a smoke a day and they’d be satisfied.”

    Finally, an opinion that smacks of conservatism. After all that bother about how banks are exploiting us because they can loan money, and then what seemed like a stream of excuses for the malperformance of the masses, you have cut to the chase.

    But you’re incorrect, I fear. These masses want a smoke-a-day now, but in a few years, they’ll want a house in the suburbs. As they age, they will want medical care. As they move up in the world, they will always want more. This is the nature of the beast, the human in its raw form.

    The worst of it is that despite all of these words, we are no closer to a solution. Capitalism, is it evil? As a man who has lived in the world, I would not say that it is, but I see how evils arise from it, sheerly through the lack of competent leadership to guide it. Well then, what should we do with all of these angry proles? You even note that they out-reproduce us. Are we just one futile war with hugely unbalanced odds short of population control?

    1. ryan says:

      its almost laughable the way this “movement” appeals to the youth of this (my) generation, and mr. marville is exactly right in his essay. the american youth of today has been mentally and spiritually castrated, they want to “defeat” finance-captialism, this logic is not original, self-realized or even self-conceived, it is just a repackaging of the same almost 150 year old arguement. at this point the youth are so unimformed it is quite easy (if you have ACTUALLY invested reflection into reading and study) to run circles around that very arguement, i say WHY NOT TRANSCEND CAPTIALISM ALL TOGETHER? i say why not toss away this materialist dialectic of exploitation and profit and merely appeal to rational understanding. explain to them that buisness is run for profit, just like hunting, the caveman spends time sharpening his axe and stalking his prey for PROFIT. how can individuals rally for the collectivisation of EFFORT? it is insane and stupid

        1. Spot on regarding the abandonment of tradition.

          It is one thing for somebody with an undergraduate degree in economics not to know any classical culture. It is something else entirely for a Professor in Economics to know very little about the history of his subject! The turn towards formalisation (and mathematical economics) that started in 1948 and was given shape by Paul Samuelson has meant that people (in economics and other social sciences) have been entirely cut off from all tradition and practical knowledge. So we are evidently doomed to painfully repeat many mistakes in order to regain insights that were known well to our forefathers.

          1. Ryan says:

            exactly, and the best part is they completely ignore “common sense” economics for all these “theories” which turn out in the end to have just about as much basis in reality as the works of st, thomas aquinas (not to bash catholicism here). “captialism” it seems to me, is becoming more and more a religion, run by a “theocracy” of economists who claim to understand HUMAN INTERACTION ON ALL LEVELS (something in the realm of demi-gods) and then can “simply” put it out in a simple “equation” for us. it seems to me, to reek of bullshit!

          2. A. Realist says:

            The true tragedy, it seems to me, is when an economic theory like capitalism is blamed for the excesses of our leadership. I do not recall where capitalism tells us to garnish our own profits in order to support a gigantic welfare state, education cum propaganda in schools, and the wide variety of government exercises in saving the foolish from the consequences of their own actions.

      1. A. Realist says:

        “the american youth of today has been mentally and spiritually castrated, they want to ‘defeat’ finance-captialism, this logic is not original, self-realized or even self-conceived, it is just a repackaging of the same almost 150 year old arguement.”

        Every generation has its symbol. The symbol I would choose for the youth of the 1980s-present is the Che Guevara tshirt, made by brown-skinned third world laborers for pennies a day, sold in Hot Topic stores, with the profits flowing to the shareholders of several mid-size corporations. Were I truly a good capitalist I would be at the protests selling these t-shirts, key rings, coffee mugs and “Rage Against the Machine” CDs, or would have my lackeys do it. There is profit even in a sea of idiots.

        1. Ryan says:

          exactly, its like a label that says, im pretending that im not a decadent, morally bankrupt imperial citizen of the “free trade” empire of americana. im pretending Im a rebel, even though my entire existence has been in the most wealthy and exploitative state of all time. the best part is it is falling apart and soon they (we) will have to stop pretending.

      2. crow says:

        Ryan gets it. So many don’t.
        Any business exists for the sole purpose of separating people from their money. Obvious, once you understand that, but not obvious at all until you do.
        The same could be said of government, at least a leftist one.
        Rapists, lawyers, muggers, burglars, dentists: all do what they do for profit. Only capitalists, however, are thought to be evil monsters for doing the very same thing.

    2. ferret says:

      “These masses want a smoke-a-day now”
      They could be wanting it at home as well. I believe these protests are well organized and planned. If it was a spontaneously started movement, we would know their leader, committee. Since the real masters remain in shadow, the situation might be worse than we think. For instance, it could be arranged by Obama to become next term president without election, and then a dictator. Is it possible?
      And was it just an incident this movement has completely wrong target or it was a deflecting trick?

      1. A. Realist says:

        “They could be wanting it at home as well.”

        An excellent point. The most fiscally efficient solution might be to bribe them with little packets of marihuana so they can occupy their couches. The word “occupy” grates on my ears because it is the antithesis of activity directed toward a goal. The mental image of a stoned hippie protesting from his couch helps to reconcile that incongruity. It could be said that Wall Street started by occupying their own homes, so it is time for retaliation.

        1. ferret says:

          “The most fiscally efficient solution might be to bribe them with little packets of marihuana so they can occupy their couches”
          I’m in (I’ve never tried this stuff, so it would be educational for me) :)

    3. YT says:

      You are a tool, I’m afraid. Conservatism and ire against a corrupt financial oligarchy are not mutually exclusive and you could see that if you didn’t take your talking points from the propaganda wing of said oligarchy.

      Mr. Marville is also incorrect to think that fractional reserve lending in its current form is 300 years old. It is not. The fractional reserve part is as old as writing. Going a level deeper than that to why those fractions are supposed to work is fairly new.

      Capitalism is NOT taxpayers being forced to make connected banks whole. Capitalism is NOT those same banks using single-entry book keeping to create debt for the US treasury. Capitalism is NOT the US treasury (that’s you!) making garuntees for private debt because the debt insurers don’t want to honor their obligations. Capitalism is NOT connected banks buying default insurance against their own customers and then calling the loans.

      Mr. “Realist”, if you did anything remotely similar in your personal life you would be thrown in jail deservedly. Just because these OWS hippies are hippies does not mean they have zero valid points. Unfortunately, many of them are misguided (the real criminals aren’t traders. They dont have offices on wallstreet anymore) because the same criminals are contributors to these quasi-socialist causes to keep rubes like you from discerning any valid points. What they are doing isn’t socialism but its not capitalism either. The truth is, the tea-party and OWS have a lot in common but god forbid they ever figure that out or else the jig would be up for the powers that be.

      As odd as it may sound, this is just another repeat of similar fights that have taken place across millennia by the victims of the same scheme that keeps getting perpetrated on folks that just want to live their lives.

      1. Nicholas Marville says:

        The first bank that was officially allowed to do rent out more than it actually possessed was the Bank of England. It was created with the help of King William of Orange to gather more funds to use for his perpetual cold war against France and Louis XIV.

        1. YT says:

          And before that it was the gold smiths with their letters of deposit and before that it was the money changers Jesus got P.O.’ed with. Sure those weren’t “allowed” but it happened.

          Fractional reserve lending in and of itself is irrelevant (unless there’s a bank run). What is new here is that there is nothing intrinsic that backs the multiples of deposit other than promises of the IRS to tax you.

          The intrinsic backing used to cap the amount of money that could be in existence and hence could stem inflation. The fractional reserve lending only amplified the effects but is not the core problem.

          1. Nicholas Marville says:

            Also, there is in fact an anti-bank run law in place in the EU. However this received almost no attention.

  4. ferret says:

    “as is inevitably done on a free market by people with the right entrepreneurial spirit, we will produce economic growth that expands faster than our debts” The problem is that even in this case, the economic growth would result in production of some more bad quality products and services: that’s what the majority is happy with, only give them discount. There would be still no improvements in education, arts, music, culture. Harry Potter to start living in heavy hopeless dreams, and then smoking pot to ensure there will be no deviations. The situation will return as soon as there are no more “people with the right entrepreneurial spirit” left when generation changed: all are dreaming.

    The IQ statistics follow the normal (or bell, or Gaussian) distribution. That means, half of the population have IQ above 100. I believe, a lot of people with IQ below the average are also able to think rationally and have common sense. Only they need right ideas conveyed to them in a right fashion, most important, with the help of emotions. Common sense alone is not sufficient for that. But technically all is in our hands.

    1. EvilBuzzard says:

      It just requires simple, repetitive communication. The low-IQ, high-Common-Sense crowd doesn’t push around symbols very well. However, they get straight talk and make the ethically decent decision more often than the intellectual set would ever credit them for.

      1. The problem is our conflation with Cartesian Rationality with other concepts of Reason. Cardinal Newman’s understanding of reason was very much broader than mere rationality. But today all we have is ‘rationality’ and ‘common sense’, the danger of the latter being its unrefined nature and the ease with which it becomes confused with mere prejudice and sentiment. Reason, properly understood, is a very different thing.

        1. EvilBuzzard says:

          It becomes an old problem of doing the best you can with what you have. I’m never going to explain Integral Calculus to someone who never quite got the hang of the 2D-Distance Formula back in High School. It would be nice if he could know whether or not a a given function was analytic within a specified closed domain. It just won’t happen.

          It would be nice if everyone could operate on a higher plane of rationcination. But for some very decent and likeable human beings, that software never got included in their initial DNA drop.

      2. A. Realist says:

        “The low-IQ, high-Common-Sense crowd doesn’t push around symbols very well.”

        Neither does the high-IQ, high-Common-Sense crowd.

        1. EvilBuzzard says:

          And not only that. The high-IQ crowd rarely has much in the way of ethical decency. Call it the Neitzsche legacy.

    2. Decimator says:

      Many of those 100+ I.Q. who lean in the direction of liberal, do it Because of its the “norm”. It didn’t require a vote. By not voting they simply went with the flow because “that’s what the people wanted anyway” It is time for those people to decide what side of the fence they’re going to settle on. We need to alienate the other side of the fence and let their self destruction begin. As it spills over we must come to bare with extreme prejudice.

      Conveying ideas needs to start with historical example from inception to failure. Over and over. Then they need to be asked what they are going to do to fix the problems. Those who answer,” I don’t know” are ready for education. After all, they’re go with the flow types anyway. The remainder are cognitive enough to be Liberal instigators.They are and always will be the people that play both ends to the middle. They are the true catalyst to the decay of a society. They are the people that tell everybody how bad they have it and who is at fault for it, while maintaining and growing wealth at the expense of both sides. (Jesse Jackson and Al Sharpton) Only by removing these kinds of people can true cause and effect be demonstrated. Now people can be motivated by what really matters to them, fear of loss and desire to gain. I have other acute ideas as to where to start. Prison systems and immigration would be very high on the list. My proposal would allow both to play directly on each other. While shocking those with the highest propensity to become a convict into obtaining from activity that gets them there.

  5. EvilBuzzard says:

    So did your prof ever take a semester of Calc? This Bravo Sierra will end here in about 7.1 years. Here is why…
    http://www.redstate.com/repair_man_jack/2011/11/14/the-calculus-of-deficit-spending/

  6. I have always found it puzzling how members of the mass educated classes rarely fail to have an opinion on, say brain surgery, or urban planning, yet rarely fail to have one on the economy. Indeed it is hardly an exaggeration to say that claiming not to have an opinion because of the great complexity of the subject is a rather effective way to communicate one’s ignorance and to bring into question one’s class credentials.

    This phenomenon is puzzling enough, but more surprising is when somebody from the right, writing from a perspective that pretends to pay homage to long-established tradition, and to the importance of clarity in thought and of reaching through the muddled superficial fog to grasp true reality, abandons such values when it comes to writing about the economy, and about monetary matters in particular.

    It would take a piece several times longer than the original to thoroughly refute some of the arguments that have been made, and I do not at this point have time to do so but I would note the following:-

    a) 2008 was a Panic – an episode that has shared features with many previous Panics in history, but also had unique aspects. It was the moment of discovery of the previous era of recklessness and, as with most such eras, the recklessness was associated, if not caused by, chronically loose monetary policy and was egged on by politicians who cared not for anything beyond their electoral term and knew only that the artificial prosperity was tremendously popular and could not be ended without short-term personal cost.

    Every bubble and episode of reckless lending in history has been associated with loose monetary policy, and this time was no exception. Money was very loose (interest rates too low) during the period of acute insanity (from 2003-2007) and chronic insanity (from 1987-2007). So it is utterly bizarre to discuss the topic without even mentioning monetary policy (or the importance of designing institutions such that one does not need to depend on a monetary policy).

    b) Since the Industrial Revolution, there have been long periods of prosperity alternating with long periods that are more sober. The transition from a period of tremendous prosperity to a darker period is often marked by a panic (as we saw, for example in 1873, where the Founders’ Panic in Vienna and the entire German-speking world triggered a very difficult period that was not really complete until the Weimar hyperinflation wiped out all debts some decades later). It is like the seasons of nature – without the bleak winter, one cannot have spring and summer. A traditionalist thinker ought surely to recognize this!

    c) There was plenty of private capital invested in layers of the capital structure that ought to have borne the losses. There was no need for the public sector to have bailed out the banks, on the whole. But there was an institutional weakness (and a lack of will to use emergency powers to override this institutional weakness) in that it was not possible to wipe out the corporate bondholders without forcing bankruptcy, and yet a bankruptcy would have destroyed the institution by triggering clauses in ISDA swap agreements that would have left the entire portfolio of the bank unhedged. They could have just used their emergency powers to say this does not constitute a trigger event for swaps. But in any case this was just the first real test for a new technology, and evidently the test brought out some rather sloppy management during the times of prosperity.

    d) The actual losses to the public purse from bailing out the banks in the US have not been enormous vs GDP. The institutions that everyone hates have mostly repaid TARP funds. Let us be clear in our thinking, and not count decreased tax revenue and increased welfare spending as somehow part of the cost of ‘bailouts’ since you did not count the increased net revenue from the prior artifical boom as a benefit of the bubble and even without lousy management of the banks no policymaker has the power to abandon the seasons of nature.

    e) The real losses to the public purse come from Fannie Mae and Freddie Mac (organizations that were also instrumental in inflating the bubble). If, sort of private companies, they were truly disgusting creatures with the worst traits of public and private entities. Many people warned about what they were doingm but politicians and the media did nothing. These losses are not the fault of those working at Goldman and Morgan Stanley.

    f) Bear markets bring sloppy thinking. As Professor Robert Higgs noted, a crisis of this sort brings out the crackpots; their solutions are partly implemented, which leads to real and lasting problems. It is ages before their solutions are torn up, and in the meantime lasting, irreparable damage is done. We on the right ought to take great pains not to be part of this sloppy thinking. A start would be to immerse oneself in the tradition of thinking on this field for some months, and only then to examine carefully the facts (rather than the media blah blah) to try to see what actually happened and avoid being distracted by the disgustingly shallow and fraudulent narratives that are in great oversupply amongst others. If we are to gain influence, we need to have exceptionally high standards for ourselves – higher than we have become accustomed to expect amongst our opposition.

    g) “However this means that the total debt always grows exponentially faster than anyone’s means to pay off that debt”. This is rather confused. For a period of twenty years (since 1987) chronically loose monetary policy led to an expansion in debt to a level that will be difficult to repay in real terms. But since the Fed was created, debt has never been repaid in real terms – we just inflate it away. Recently, inflation and growth have been weak. Perhaps this will continue to be the case, but I rather suspect not. If we end up with higher inflation and okay growth continued for some years then the picture as regards the burden of the debt will seem rather different. The main point is that it is hard to raise real interest rates to a very positive level (as happened in the early 80s), which means that the inflationary process – once started – has the potential to eventually (over the course of decades) get out of control.

    h) One really ought to distinguish between the situation in Europe and that in the US. In Europe the aggregate debt load is not too bad – it is just that the people with the assets (Northern Europeans) don’t want to continue to finance the people with the liabilities (periphery). It’s an intra-European political problem and given that the Germans are involved one should entirely expect them to be stubborn and slow in coming to a realization about how things actually are. In the US corporations are in very good shape; it is just households and the government that are not looking so good. And the government situation today is manageable – the question is more about future entitlements.

    i)” And now, our governments are trying to compete against that by creating a trust-funds that must ward off speculators”. I am sorry, but you are taking the narrative provided by those in power and treating it as a description of reality – it is the last kind of mistake I would expect or hope to see here. That is just a parallel of Nixon blaming the speculators for having to take the US off the gold standard. (I recommend watching the Youtube video of his announcement in which he did so). Nonsense! It was the French asking for their dollars in gold that forced him to act, but the policy of chronically refusing to choose between Guns and Butter and printing money that allowed the situation to get to that point! And today it is not speculators that are pushing up the cost of borrowing for Greece and Italy. I can assure you that speculative positions in those markets are vanishingly small. It is dopey German asset managers who have a load of peripheral debt they now wish they didn’t own that are reluctant to buy more at present yields that are responsible for pushing down prices.

    j) “However we saw before that banks have ways of exchanging money through mutual promises to pay – which can legally be counted as owned capital. This is virtual capital that can increase infinitely without being tied up with anything substantial.” This simply has no relation to economic reality whatsoever. Deposits and capital are entirely different things.

    k) “Yet the wealth of the world is tied up with physically limited labor and resources”. Whatever the merits of some of his other views, Julian Simon was right to point out that wealth comes from human ingenuity, creativity and organization and is in one sense unlimited. For example, being able to work from home not only leads to greater satisfaction (not reflected in the national statistics), but also leads to _less consumption_ of resources overall (even including the resources needed to build the relevant infrastructure).

    It’s true that over shorter periods of time there is a link between resource use and prosperity, but it would be a mistake to think that this holds in the longer term.

    l) “A government gains money by either taking out credit from banks (thus increasing the total amount of interest which must be paid, which is debt) or by taxing property and services. Hence the money governments can extract is tied up with the physically limited world. Which means that the governments can’t compete against large-scale speculation. It’s a balloon that keeps flooding and nobody dares to puncture it. But everyone knows it will soon burst – they just don’t want to be around when it happens.

    “Yeah but this must be some sophomore’s reasoning who’s been listening to liberal professors. So it can’t really be taken serious anyway. The methods that have been tried and tested for 300 years will surely prove that nothing is wrong with our monetary system.”

    Anything but the crackpot economics of the past century (and particularly of the period post 1948) shows that our monetary system is tremendously wrong. The temptation to debase fiat money means that its value always converges to its inner value – zero. But I suggest this is not a reason therefore to throw away the entire base of economic theory painfully developed over centuries in favour of fables that sound nice when one reads them on the internet.

    1. YT says:

      Cash repayment is not the whole story. The price of guaranteeing debt by the treasury has yet to be determined. More importantly, the discount window purchases and garbage collateral repos by the FED have a cost in buying power to anyone with a wage or savings. Of course, we’ll never know what really happened in that institution unless its picking through rubble in hindsight of a total collapse and revolution.

      There are very real costs to all the things that have been done, even if they look net positive for the taxpayer on a cash basis. You really have to look no further than the price of gas and food today vs. 2005 or 2006 compared with the “official” inflation numbers. Its easy to see something is very wrong with the narrative being fed to us but its hard to explain what exactly. Mainly because nobody has all the information.

  7. Oops – no time to proof read as it turned out to be a rather longer post than I intended originally. But the following sticks out – I meant to say that “I have always found it puzzling how members of the mass educated classes rarely _have_ an opinion on, say brain surgery, or urban planning, yet rarely fail to have one on the economy”.

    1. EvilBuzzard says:

      Simple.

      They don’t perform or need much brain surgery. They don’t design cities, but generally live in ones that are already fractured beyond much useful repair.

      They do, however, rise and fall along with the economic factors of a current time. They also notice this everytime they buy groceries or fill up their cars. At most, a grim reminder of economics is only 1 credit card bill away. It’s too much with us and forces us to have an opinion or suffer with our mouths shut.

      1. Evil – my original rather lengthy comment, to which this is the correction is stuck in moderation as I typed the email address wrong.

        I can understand why people would find the topic to be interesting. But is it not rather consistent with anti-egalitarian thought to recognize that peoples’ level of expertise in this matter is not equal? That somebody who has read a few blog posts and newspapers might at the very least usefully benefit from reading the classics in this subject before having great confidence in their own understandings? For it is easy to get carried away by the seductive fashions of our age, but at least the authors of old made different mistakes than we do today.

    2. Nicholas Marville says:

      Tell me about it – I just returned from a 9 hour straight political process on city planning. Anyway I am pleased to see that many people bothered to read the article and also created serious responses to it. A good old “Liberal” economist would say that any economic crisis is just like catching a serious cold – it will vanish in the end if you persevere and don’t panic. However our monetary system has gone vastly out of control since the Cold War era, and our entire financial empire is built upon debt that can fundamentally not be paid off. Few people considered it a problem, because nobody could touch the West. Today, there are other major players in the world and they draw their own conclusions.

      The following article (although I don’t agree entirely with the content) might also be of interest:

      http://www.spiegel.de/international/europe/0,1518,694226,00.html

      “The attack has been fended off. The markets are booming and the euro is rising. The protective shield that Europe’s politicians erected practically overnight to defend their besieged common currency appears to be working.”

      1. Thanks, Nicholas.

        One approach that I have found useful when reading work by newspaper articles or investment bank analysts is to look at a chart to figure out when the development in question began and look at the archives to see what they were saying at that point. Were they truly anticipating what was to come, or are they simply coming up with mere rationalizations to make sense of what has already occurred?

        There were an embarassing number of people in 2006 and 2007 saying that everything was just fantastic. Now, identifying a problem is different from knowing when it will burst into public consciousness and it might be unfair to ask of those who function only in the domain of rationality to be able to get the timing right. But they should at least have demonstrated good instincts – as right wingers we should ask ourselves not does this sound persuasive, but is the guy any good? Does he speak truth, or just tell people what they want to hear?

        1. Nicholas Marville says:

          You’re welcome.
          Yes is a very good strategy, looking at information asking yourself: “Under which historical/economic circumstances did that person/group begin to play that particular tune of the flute?” Also, they might just be lulling us to sleep, looking at their watch knowing that the situation is going to burst, but when that time comes they simply do not plan to be around. This is a very well known strategy in politics. For example, many Europeans, including the British, wanted to cut subsidies to French agriculture. Tony Blair started up negociations and the outcome was that a thorough budget review would be done. Everyone pleased. However when that time came Tony Blair was already back in Britain and the budget review never saw the light of day.

          1. As Bruce Charlton says, many people are not even _pretending_ to be honest. And yet we act as if we can trust them provided they maintain the illusion of being a respectable politician, journalist, scientist etc.

  8. Decimator says:

    Very nice point EvilBuzzard. “It just requires simple, repetitive communication. The low-IQ, high-Common-Sense crowd doesn’t push around symbols very well. However, they get straight talk and make the ethically decent decision more often than the intellectual set would ever credit them for.” We have to remove those who act as a catalyst in the current direction, otherwise we circle speak.

    1. But without a framework to consider this, how is one to distinguish between inarticulate good sense and mere sentiment and prejudice? Previously this would have been done by means of a chain of personal authority. I suppose it will not take twenty years to re-establish this way of governing once people awaken to its possibility.

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