History Rhyming: Gold, Government and Taxes

Society functions best when each individual minds his own business…literally. When concerns are local and governments miniscule — just doing modest things like protecting property rights and enforcing contracts — then things generally work out for the best. When governments get ambitious and each citizen seeks to have a say in what his neighbors are doing — often while seeking to get a cut of his neighbor’s income as well — then things start to fall apart.

It’s a story as old as human civilization. The humble village and modest republic eventually grows into a bumbling empire; death and taxes come along for the ride. We believe in the sovereignty of the individual over the state not because of slavish devotion to an ideal, but because it works best. We’re not ones to keep defending ideas that look good on paper, but ignore frivolous things like history, biology and reality.

Our job here is pretty straightforward; knowing that things tend to move away from their sustainable starts, we take stake in the opposite position when we see things heading toward extremes. A slight simplification of history would be to call it a series of stories in which over time otherwise rational individuals become dangerous mobs willing to plunder their neighbors, both foreign and domestic. We fully expect our society to follow suit and degenerate under the influence of growing government, growing debt, unbacked currency, interventionism, redistributive taxation and war. Does any of this sound familiar?

Our currency’s fiat status is old news; it’s been completely unfettered from the discipline of the gold standard for nearly forty years. A gold standard is one of the things that keep governments in check. Without it, governments tend to do really evil and stupid things…like setting up a central bank that creates “money” at will, simultaneously destroying the savings of the citizenry and subsidizing unproductive businesses, practices and people. OK, now this really is starting to sound familiar.

The bad news: Our currency is probably going to collapse completely and we are probably seeing the very first days of a very long, very severe economic depression. These things happen. They happen because people think that there is something magical about voting, that it can repeal the laws of physics and that despite the old adage, one really can get something for nothing. Or at least one can simply vote what’s in a neighbor’s pocket into one’s own. It’s like magic.

Before you know it, every humble republic gives way to a society of freeloaders, nannies, connivers and bums. One set of folks makes lifelong careers out of telling independent adults what to do with the fruits of their labor. And each person in the populace expects to get at least a few things at the expense of some other portion of the populace: Housing, healthcare, food… And they don’t stop at trying to pick each other’s pockets either. At fairly regular intervals a nation will cast a covetous eye abroad at another nation’s bounty.

It’s entirely natural for people to want more than they currently have…but actually believing one can have as much as one wants is a fantasy for children…actually trying to take as much as one wants is the province of criminals. Governments by their nature result from and promote this sort of infantile banditry.

That’s why we love gold so much…and why we hate taxes. Gold enforces a rigorous standard. Gold keeps governments from quietly stealing from individuals through inflation…and what they can’t steal they can’t use to finance invasions and land grabs. And what they don’t tax they can’t idiotically redistribute.

This country’s founders got it as right as any human beings ever could and the Constitution they produced indeed resulted in the most perfect union. We wish that document hadn’t been continually ignored almost immediately thereafter.

Just a few years after the founding of the Republic, the new federal government assumed the states’ debt from the Revolutionary War. Taxes were needed to pay this debt. Alexander Hamilton convinced Congress to approve a tax on whiskey, which had become the de facto currency for western settlers. These settlers were perennially short on cash, but long on grain that was very difficult to get to faraway markets over very poor roads. Fermenting and distilling the excess grain into portable spirits just made sense. These spirits became a medium of exchange along the frontier, in effect commodity money.

The whiskey tax led to protest and revolt. General Washington himself led the federal forces to Pittsburgh to suppress the rebellion. This was the very first time under the new United States Constitution that the federal government used military force to impose its will over U.S. citizens. You can see why we take inspiration from the rebellion’s name.

We’re not really counting on a taxpayer revolt this time around — as nice as that would be — and frankly we don’t expect things to work properly for very long even after they are set right. That’s just how it is. Nothing stays in whack. A nation, like the individual bipedal organisms that comprise it, moves from birth to a peak of vigor to frailty and senescence. Then it dies. Then something else comes along and goes through the steps again.

Just because the world gleefully marches into Hell on a regular basis doesn’t mean one should lose one’s bearings. In fact it’s vital for at least a few of us to be ready to put things back together after the mobs rip everything apart.

Whiskey & Gunpowder will merrily continue to explore the intersection of personal liberty, government, sound currency, commodities and encroaching commodity scarcity.  We hope you continue to join us as we wish for something better but plan for the worst.

Gary Gibson
Managing Editor, Whiskey & Gunpowder
November 21, 2008

The Daily Reckoning