08/30/10 Baltimore, Maryland — The elites who are above the grip of the gluttonous taxes on ordinary income and estates in the United States have a huge vested interest in continuance of the fiat money system operated at the hands of a central bank, for it enables profit to uniquely accrue through appreciation rather than through income.
Furthermore borrowing against the buildup of wealth allows cash to be extracted without taxation.
The French wound up breaking and burning their printing presses on the 18th of February, 1796, at nine o’clock in the morning. They made a brief comeback, but the era ended shortly thereafter.
When Napoleon Bonaparte took over, government debt remained high and taxes could not be raised. When asked how he would pay for the expenses of government, including his army, he replied “I will pay cash (meaning specie) or pay nothing.” It took 40 years for the French economy to recover.
So what would the best solution for the United States be? Moving back to a simpler government organization, a fairer and less onerous tax mechanism, and a harder currency that must be settled up makes sense to me, but somehow these ideas are off the table in our national discussion.
Still, somehow we need to make good on the most essential of our promises: to depositors not offered safe banks, to the poorest of the elderly who need medical attention.
I have offered a solution that may be immoral, for it contemplates something akin to the French National Assembly’s first infusion of 400 million livres worth of assignats to accommodate those caught in the crosshairs of our collapsing socialist system.
Have I thus done what Google’s founders did when they were a party to Chinese oppression and censorship, justifying this by weighing evil on a scale? Perhaps. But this is why I simultaneously propose certain measures to remove us from this hell into which we placed ourselves.
We need to promise that never again will we let ourselves get this deeply into debt, confiscate the estates of the middle class, or let money supply growth outpace what is needed to maintain normal real economic growth.
Once enough money is printed to not let deposits fail, a gold-backed currency would fulfill this pledge. George Washington was right. We must settle up our accounts promptly. Quoth Shakespeare’s Polonius: “Neither a borrower nor a lender be.”
The cracks in the house that credit built, or houses that credit built if you prefer, are showing. This is a chance for a renewed national discussion of fundamental governmental banking principle; we should do everything we can to escape the folly of socialism and promote the reestablishment of a nation as Washington and his peers envisioned.
Regards,
Bill Baker,
for The Daily Reckoning
[Editor's note: This passage is reprinted from William W. Baker's book, Endless Money: The Moral Hazards of Socialism, with the permission of John Wiley & Sons, Inc (©2010). You can get your own copy of his book here.]
Bill Baker
Bill Baker is author of Endless Money: The Moral Hazards of Socialism and founder of the Conservative Economist web site. He developed the firms GARP Research & Securities Co. and Gaineswood Investment Management. Before this he was at Reich & Tang, Oppenheimer Funds, and Van Kampen American Capital. An Oppenheimer fund he managed was awarded a Morningstar five-star rating. Baker received his MBA from Dartmouth College and his bachelor in economics from the University of Pennsylvania. He is vice president and a trustee of Baltimore's Harbour League.
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I think the simplest solution is to mandate a balanced budget with no government credit allowed. With revenues exactly equal to expenditures, there would be no monetary inflation and control of prices would be an automatic function of the general marketplace.
Napoleon was one of the few warlords of history who actually maintained sound money. His economic policies in other respects did not work–they damaged French trade, and were even more harmful to Holland, Germany, Italy and Spain.
But Napoleon did not debase the currency–not even in the desperate crisis of 1814, when enemy armies were invading France from all points.
That’s one of the reasons why the French bourgeoisie, and rural landowners, both generally supported the Bonaparte regime.