U.S.A. Today ran an article in early October about runaway government debt. They claimed that American obligations and liabilities come to $473,456 per household. They stated that governments at all levels require $53 trillion immediately to repay debt and honor future benefits. An article in Human Events Magazine states, "we would need to have about $45 trillion in the bank today accruing interest in order to pay all the promises that have been made…"
Let’s face it, there’s no way that all these government promises can be kept. Both political parties just keep passing out subsidies and benefits to a growing horde of recipients. It’s the best way to get elected. Unfortunately, the amounts involved have become impossible. That’s why we must stay on the treadmill of money and credit inflation that leads to currency debasement and a dollar crisis. An economic disaster is inevitable.
However, Wall Street, Washington and the economists at the Central Bank don’t see it that way. They claim that everything is hunky dory. So, how can we ever dispute these so-called economic experts? We base our views on the writing of three giants of the last century; Ludwig von Mises, Henry Hazlitt and Leonard Read. You never hear of them in mainstream publications, and, except for a tiny contingent of free market advocates, they are long forgotten.
Leonard Read (1898-1983) founded the "Foundation for Economic Education." He wrote 29 books. In his biography, Mary Sennholz wrote that he "…rallied the demoralized and tired forces of individual freedom…" A half century ago Read could write, "Socialistic practices are now so ingrained in our thinking, so customary, so much a part of our mores, that we take them for granted."
Today’s scope and size of public housing, Medicare and government subsidies dwarfs anything in Leonard Read’s time. He, I’m sure, would argue that we have embraced socialism all the more. Leonard Read held vote-buying government programs in contempt. He wrote, "… statism is but socialized dishonesty; it is feathering the nests of some with feathers coercively plucked from others on the grand scale. There is no moral difference between the act of a pickpocket and the progressive income tax or any other social program." He explained, "That there is no greater dishonesty than man effecting his own private gains at the expense of others." Read argued, "That the practice of dishonesty is evil and that retribution follows the doing of evil. Every evil act commits us to its retribution."
He continued, "Does any able adult person ‘in need’ really benefit by living on the confiscated income of others? Does this ever improve his character or his mental and physical faculties? His growth? Does anyone ever benefit by the removal of self-responsibility?" He adds "To live on loot appears to be no further removed from evil than to take the loot." It should be plain to see "that the evil means of confiscating income must lead to an evil end to those who live on it."
Long ago he concluded, "We are now reaping the bitter harvest of the poisonous seed sowed intermittently during the past…we need only take our heads out of the sand to see clearly that interventionism not only has failed to provide the promised something-for-nothing, but has led to all sorts of undesirable consequences. Indeed, many are just beginning to realize that we are moving towards disaster even though we have been on a wrong heading for decades."
Ludwig von Mises (1881-1973) (pronounced Meesez) was born in the Austro-Hungarian empire. Hard money advocates and free market economists consider him to be the greatest economic thinker in history. He believed in limited government, the gold standard, sound money, capitalism and personal freedom.
Mises pointed out how central banking acts as an accomplice to government money expansion. In his great business cycle theory, he recognized that the market economy could not generate by itself a series of booms and busts. He fixed the blame on an outside factor – the habitual expansion of money and credit.
He argued that a credit-induced boom must eventually lead to a depression. He wrote, "The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market. But it could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit. It would lead to the crack-up boom and the breakdown of the whole monetary system."
He warned, "The credit expansion boom is built on the sands of banknotes and deposits. It must collapse." Mises further claimed that, "Expansion (of credit) squanders scarce factors of production by malinvestment and overconsumption." Malinvestment means building shopping centers rather than factories. Overconsumption means a borrowing and spending boom by consumers that depletes savings and reduces capital investment.
Mises was aware that a credit excess could spill over into stock and bond speculation. But even he would be surprised at today’s unprecedented level of credit-induced speculation. He would be depressed by the astonishing levels of public and private debt, government borrowing, central bank market interventions, trade deficits, non-bank credit growth, money velocity, over-consumption and foreign indebtedness. The magnitude of these excesses seemingly without penalties would appear to be rewriting the laws of economics as expressed by Mises. Trade deficits fail to harm the dollar. The stock market outperforms the economy. Capital gets used up by government and consumers at the expense of investment. Yet business hums along. Savings are depleted but interest rates stay low. The boom seems unending, the bust postponed indefinitely. Can these phenomena persist?
Absolutely not says Mises. "Credit expansion is not a nostrum to make people happy. The boom it engenders must inevitably lead to a debacle and unhappiness." He warns that, "Accidental, institutional, and psychological circumstances generally turn the outbreak of the crisis into a panic. The description of these awful events can be left to the historians. It is not…[our task]…to depict in detail the calamities of panicky days and weeks and to dwell upon their sometimes grotesque aspects."
"The final outcome of the credit expansion is general impoverishment. Some people may have increased their wealth; they did not let their reasoning be obfuscated by the mass hysteria, and took advantage in time of the opportunities offered by the mobility of the individual investor…but the immense majority must foot the bill for the malinvestments and the overconsumption of the boom episode."
Henry Hazlitt (1894-1993) befriended Ludwig von Mises when he fled the Nazis and came to New York from Switzerland. He became an important ally. Mr. Hazlitt was a famous columnist who wrote for the New York Times, the Wall Street Journal and Newsweek. His column was syndicated by the Los Angeles Times. He wrote many important books on free markets, literature, philosophy and economics.
Forty years ago he wrote in Newsweek, "The basic assumption of all governments today is that they not only have the right but the duty to tamper constantly with the national money. This is known as monetary management. They reject the only real solution (to sound money) – a return to a full international gold standard. They repeat the old charge that this was the system which broke down after WW I and led to the currency chaos of the ‘30s. The gold standard did not break down; it was deliberately abandoned and destroyed by monetary managers who wanted to dilute and inflate their national currencies, and who rightly recognized the gold standard as the great barrier to their plans. The reason governments are now opposed to a return to the full gold standard is that it would deprive them of their present powers to manage and expand – in brief, to inflate."
He added, "Once the idea is accepted that money is something whose supply is determined simply by the printing press, it becomes impossible for the politicians in power to resist the constant demands for further inflation." He continued, "The first requisite of a sound monetary system is that it put the least possible power over the quantity or quality of money in the hands of the politicians."
He advocated gold, "From a strictly economic point of view, buying gold in a major inflation and holding it probably presents the least risk of capital loss of any investment or speculation."
Mr. Hazlitt gave this warning. "If the welfarist-socialist-inflationist- trend of recent years continues in this country, the outlook is dark. It is a prospect of mounting taxation, snowballing expenditures, chronic deficits, a budget out of control, an accelerating rate of inflation of the kind endemic in Latin America, a collapse of the dollar and increasing world currency chaos…"
Some of these events have already come to pass and the rest will be forthcoming. You can choose to ignore the warnings of these great thinkers, but should you do so, you risk personal impoverishment. The ugly economic events we write about have been postponed by means that promise to make the eventual outcome much worse than it otherwise would have been. I urge you to rely on precious metals for up to 20% of your net worth. You cannot depend on the promises of Wall Street inflationists to protect your assets or you risk losing everything. Never underestimate the totality of chaos and betrayal that comes through currency debasement.