Claus Vogt | Wednesday, April 13, 2011
When the currency of great nations and unions sinks steadily in value — as we are seeing now with the once-mighty U.S. dollar and even the once-proud euro — one must step back from the day-to-day fray of financial markets and look at current events from a much broader, historical perspective.
What we see is a history littered with examples of horrendous crimes. But the biggest, the worst, and the most devastating have, almost without exception, been perpetrated in the name of the state.
It is this unmistakable conclusion that has led philosophers of freedom to adopt a healthy mistrust of government and its representatives.
Based on the most thorough analytical and empirical arguments, they see the government as the greatest threat to freedom, against which a society must protect itself at all costs, lest it degenerate into dictatorship.
The separation of powers is one such protective mechanism. But equally important is strict adherence to a currency that cannot be multiplied at will.
This is what forces governments to treat the nation’s finances in a responsible manner, while protecting the people from the greed of the politicians.
In principle, there are two ways freedom can be abolished and slavery introduced: Through revolution or evolution.
Investors are familiar with revolutions that have led to the rise of dictatorships. The communist revolutions, causing untold suffering and poverty across great swaths of the globe have, after all, only recently been consigned to history.
That is not the threat Western Civilization faces right now. Instead, the greater threat stems from an evolutionary process initiated long ago — a not-so-subtle, insidious progression in which the government spreads gradually like a cancerous tumor, increasingly limiting individual freedoms.
The decline in the U.S. dollar is the centerpiece of that trend. It not only threatens the freedom to spend. It also threatens a series of other freedoms.
Where did it begin? Many years and presidents ago.
For example, the administration of former president George W. Bush, despite all their rhetoric to the contrary, were, in fact, out-and-out Keynesians.
This is so obvious it should not even be worth mentioning. However, in the wake of the debt crisis, since the blame game and search for scapegoats is so ubiquitous, and since neoliberalism is first in the firing line, this observation is nonetheless necessary. It’s ironic that liberalism and free market philosophies are getting lynched, when the real culprit that deserves to stand trial is Keynesianism.
The key point here is not whether government intervention in the economy — including massive economic stimulus programs — are financed by deficits or not. We know that Keynes proposed that the government should accumulate reserves in good times so that it could afford to finance stimulus programs in bad times.
But because Keynes himself was, in large measure, a politician, it is inconceivable that even he considered the implementation of this proposal to be possible — let alone probable.
The interests of politicians who depend on votes are diametrically opposed to Keynes’s proposition of accumulating reserves in times of plenty. Voters almost invariably demand that surpluses be spent today — not in some elusive future.
To reveal a government’s hidden agenda — even behind its smokescreen of public relations — all that is typically required is to consider a few key variables: You can look at the trend in the government’s share of total economic activity, the amount of legislation passed or, more commonly, the level of national debt.
If each of these is expanding, you can be almost certain that the government is not pursuing a liberal agenda. It is immaterial what kind of rhetoric the government is deploying. Do not let them fool you. And don’t be hoodwinked by false critics, either. Judge both sides not by their words, but by their deeds.
Classical liberalism and the Austrian School of economics stand, as we do, for freedom of the individual — with no ifs or buts. Classical liberalism and the Austrian School are the offspring of unwavering philosophers of freedom.
And these are philosophers who think ideas through to their logical conclusion with inexorable consistency, even in circumstances in which others would prefer to take a more relaxed view — to further their career or to avoid established taboos.
It should therefore come as no surprise that thinkers of this provenance have no powerful friends. They are a thorn in the side of the powerful.
In The Denationalisation of Money, F.A. von Hayek sums it up as follows: “I fear that since ‘Keynesian’ propaganda has filtered through to the masses, has made inflation respectable and provided agitators with arguments which professional politicians are unable to refute, the only way to avoid being driven by continuing inflation into a controlled and directed economy, and [the only way to] ultimately save civilization, will be to deprive governments of their power over the supply of money.”
I agree. But some of the world’s most powerful men — controlling trillions of a nation’s money supply — do not. They run their money printing presses nonstop. They drive up the price of virtually every commodity under the sun. And they place their entire national economies at risk.
My advice: Extreme caution with U.S. dollar, long-term bonds. Look for opportunities to profit from the inevitable inflation.