He’s a good friend from Ireland. We often chat about various aspects of life, politics, family, religion, finances/economy or whatever happens to be on our minds. Lately, for obvious reasons, we’ve been chatting about the economy. This has been a very interesting challenge for me as I recognize more and more than we have much different perspectives in regards to government intrusion into economies. He is confident that the governments will pull it off simply because they have to. I see government action as irresponsible and akin to stealing from the poor, middle-class and even rich in order to line the pockets of the uber-rich.
As we were chatting I shared a list of quotes from some pretty sharp people. You can find the list and read some discussion on it here. Basically, these insiders and economists said that the euro is in trouble. They don’t see it getting better; indeed they state that it can’t get better. Kicking the can down the road just means that the can gets bigger and harder to pick up. I’ll provide two of the quotes here just to help with context.
#4 Stefan Homburg, the head of Germany’s Institute for Public Finance: “The euro is nearing its ugly end. A collapse of monetary union now appears unavoidable.”
#5 EU Parliament Member Nigel Farage: “I think the worst in the financial system is yet to come, a possible cataclysm and if that happens the gold price could go (higher) to a number that we simply cannot, at this moment, even imagine.”
As you can see, these guys aren’t calling for a cushy ride. And they’re no novices. My friend’s response to this was very revealing. I’ll paraphrase here.
Their belief in a breakup is misguided; at least wishful thinking on their part, at best. Ask yourself this question, “Do they stand to gain by a breakup?” The German economy would stall if they went back to marks. Their currency would be so highly valued as to make trading impossible for them.
So this is the talk of the streets in Ireland? I really don’t know. My friend is a pretty sharp guy, but this caught me by surprise. When I submitted that Ireland would be better off leaving the euro behind, he remarked the cost of exports to the euro would rise too high, stifling trade. When we discussed Italy he stated, “Italy will manage through because it will not be allowed to fail by others.” Then, after further discussion, he remarked, “The Chinese will not allow the euro to fail, as if it does they go after it.”
The web is spun, it seems. What ought to be has given way to what is, spawning the idea that it is what should be. I’ve said it before, and likely will again, “This is nuts.” As I shared with my friend, under the current system, the way it’s being managed, only the uber-rich benefit. Everyone else gets fleeced in order to prop up the elite, because they’re too big to fall. Of course, this is in the wake of statements by Dr. Philippa Malmgren, President and founder of Principalis Asset Management, “The Germans announce they are re-introducing the Deutschmark. They have already ordered the new currency and asked that the printers hurry up.” Such an event would sweep through the Eurozone like a tsunami, with economic repercussions beyond the ability of Another Joe to grasp.
I’ve pondered my discussions with my Irish friend often. What is the difference between our ideologies? Why are our economic philosophies so diverse? While I haven’t come up with an all inclusive answer, perhaps it’s apparent that his perspective fully embraces the keynesian economics of western (indeed, world) economics, while mine rebels against it. Keynes worked to destroy the old economic mantra that supply and demand would regulate the markets naturally. Instead he endorsed an economy controlled by imposing artificial demands and supplies through monetary, economic and even political policies. In particular, Keynes refuted Say’s Law of Markets. You can read much in regard to this from the pen of Ludwig von Mises himself, in an excellent article on Lord Keynes and Say’s Law. Even though it was written in 1950, it’s hardly outdated. That’s an interesting thing about the truth as it affects our lives, it never becomes irrelevant.
This quote from Mises is central to understanding the difference between Keynesian and Austrian economics (unless Another Joe missed this part of the learning curve – quite possible).
Commodities, says Say, are ultimately paid for not by money, but by other commodities. Money is merely the commonly used medium of exchange; it plays only an intermediary role. What the seller wants ultimately to receive in exchange for the commodities sold is other commodities.
As we discussed before, today’s fiat currencies aren’t really money. They are simply a medium of exchange. And this is only for so long as they are accepted for exchange purposes, since they have no intrinsic value. If they were constant in their representation value then they would be a good and reliable medium of exchange. However, since politicians and central bankers see fit to manipulate the economy through interest rates and printing presses, the value of fiat currency fluctuates and, eventually, depreciates to it’s intrinsic value (the paper it’s printed on).
Changing the way we think in regard to these things helps us to understand what true value is. Fiat currency is never truly valuable. It only represents true value insomuch as it can be exchanged for something with true, or intrinsic, value. One way of helping us to think in terms of real value is to consider transactions with fiat currency to actually be selling or buying that currency with items of real value. This is particularly helpful when pondering the dynamics of real money. Gold, for instance, is real money. If I give someone dollars for their gold then I’m actually selling my dollars, if we understand money rightly. In other words, as much as we can divorce dollars from our consideration of real value we can gain a better perspective of true value of assets. How much gold is your house worth? This represents trade between two items of true value. How many chickens your car’s worth provides a more accurate perspective of value than dollars can due to the fact that the value of chickens and cars is purely based on supply and demand. As Mises points out, “Every commodity produced is therefore a price, as it were, for other commodities produced.”
As Keynes attacked Say’s Law he brought to the fore what was at one time considered idiotic. Mises makes this point clear as well.
He [Say] proved his case, while his adversaries could not prove theirs. Henceforth, during the whole rest of the nineteenth century, the acknowledgment of the truth contained in Say’s Law was the distinctive mark of an economist. Those authors and politicians who made the alleged scarcity of money responsible for all ills and advocated inflation as the panacea were no longer considered economists but “monetary cranks.”
The struggle between the champions of sound money and the inflationists went on for many decades. But it was no longer considered a controversy between various schools of economists. It was viewed as a conflict between economists and anti-economists, between reasonable men and ignorant zealots. When all civilized countries had adopted the gold standard or the gold-exchange standard, the cause of inflation seemed to be lost forever.
A basic tenet of the old proponents of currency control is based on money supply. They proposed that more money, in the form of credit, needed to be pumped into the system in order to avoid depressions. This constant inflationary tactic, they claimed, would result in a more constant economy. History has proven, however, the exact opposite. As we are seeing today, “the recurrence of depressions of trade is caused by the repeated attempts to “stimulate” business through credit expansion.”
To be fair, Keynes didn’t really invent the current fiat systems. They were already in place and part of the practice of many governments of the world when he wrote on them. Rather, he solidified their practice in his work, unveiling a system that was much in practice, while defining it further. This, in a very real sense, gave the quasi-economists of his day common ground from which to pursue their destructive theories and practices.
What has been lost is the realization that a pure economy, controlled by supply and demand and saturated with entrepreneurs who must find a demand (or create one) and satisfy it in order to succeed, is the only economy that truly works consistently. It allows hard work and innovation to rise to the top while squashing irresponsibility and laziness. In other words, what really works is the opposite of what we see today.
If a large enough company is in trouble today then what do we see? We see the government take money from the tax payers in order to help the irresponsible company survive. Somehow, robbing from the poor (relatively) in order to pay the irresponsible rich is seen as a virtue in such a scheme (I am not saying that the “rich” are irresponsible, but merely providing a sub-category of the uber-rich). At the same time such a system as we have today rewards laziness with welfare systems of enablement that promote an entitlement and victim mentality among the poor. The inevitable result is that it becomes more and more difficult for the poor of our society to rise above their station as they become more and more indebted to their benefactors. This, in essence, becomes a type of monetary slavery. The middle-class and wealthy who see the writing on the wall will likely find a way of escape through expatriation or other means that Another Joe isn’t savvy enough to comprehend. And the uber-rich continue to build their wealth and control on the backs off all who remain.
My Irish friend believes in this system. I do not. It is with this in mind that Another Joe, a lower middle-class citizen, is considering his options. Finding the ability to work from another country would be helpful. This is becoming more and more common. Some have gone so far as to renounce their citizenship. That’s a tough decision that I cannot offer any insights on at this time. Maybe one day I’ll have a clearer picture on the implications involved. We’ll see. But for those who trust the system as my friend does, what does their future hold? Will they (we) become modern-day serfs, serving the whim of our masters? From one perspective, it seems inevitable. Yet, all things are possible. America rose on the backs of men fleeing the very tyranny we see propagated in our country today. Maybe such men can band together and bring about reformation here, or abroad.
To be clear, Another Joe doesn’t advocate violence or illegal usurpation of God ordained leadership (Romans 13). We are to obey the laws of the land. However, insofar as the laws allow us to speak up, disagree and seek to better our circumstances, it is our hope to give a voice of reason to those who read. Consider the times. Consider your options. Prepare accordingly.
There is a law we all will answer to though. For those who pursue their lives outside the law of God, they will answer to God’s law on their own merit on judgment day. For those who recognize God as the ultimate authority, we also recognize that we have broken His law and deserve His wrath for our rebellion. Our only hope, in light of our transgressions, is found in Jesus, the only One who has ever fulfilled God’s law. It is by His righteousness that believers are judged. And it is by His sacrifice we are spared what we rightfully deserve. That is no fiat system. It’s an amazing provision where serfs are made fellow heirs with the King of kings and Lord of lords. This is true, eternal, value. May we seize hold of the riches of Christ.