Confidence in Government

"Confidence is everywhere the parent of despotism," said Jefferson in 1798.  "Free government is founded in jealousy, and not in confidence....  In matters of Power, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution."  Nearly a quarter of a century later, Jefferson could still be heard uttering the same warning:  "Is confidence or discretion, or is STRICT LIMIT, the principle of our Constitution?"  --Ron Paul.  The Revolution:  A Manifesto.  46

When I first read the introductory quotation from Ron Paul, it reminded me of my own personal experience being a member of a local government board of directors.  Although our board ran a local unit of government, it operated under two very specific pieces of provincial legislation.  Moreover, the unit that I was a part of had counterpart units in other cities and towns because most communities set up similar units.  I noticed two major problems with how our local unit was operated.  First, the board was seized by a small clique without any real opposite; the only opposite came from myself.  I, unfortunately was ignored and attacked because of my minority position as the lone dissenter.  Second, the small ruling clique, functioned with total discretion.  They acted as if no laws or regulations could tell them what to do.  For example, the law specifically states that written records and "books" were to be kept, but our board operated without written records.  Instead, we had "oral reports."   I was labelled and attacked because I did not blindly "trust" the "good intentions" of the self-imposed rulers.  "Good behavior" means apparently blindly accepting whatever one is told; "bad behavior" i.e., my behavior is asking for compliance with the written laws.  I actually exposed numerous violations of the laws but nobody ever listened to me.   

From my experience, I understand why Jefferson would want to "chain" the political leaders with the constitution.  I observed first hand what happens when you have an inexperienced board.  The leaders, or should I say, the self-imposed leaders, seize power and enslave everyone.  Then the rules are made up as we go along.  This why, for example, the rules kept changing.  Rules were made that clear violated provincial laws or at least violated the spirit of these laws.  It was obvious to me that an arbitrary government was at work.  The weak-willed board just rolled over and submitted.

The other symptom of the "discretionary" government problem that I noticed was the atmosphere of cover-up.  White wash any thing that is written down!  Don't use my name!  (It was a violation of the rules to actually mention the names of some of the directors because they didn't want anything they said recorded).  These types of rules effectively render everything a perpetual secret because they go against the whole idea of openness and transparency in government.  Secrecy becomes the new standard operating procedure.  In my specific case, this was implemented using the ruse of "hurt feelings."  If I were to be so bold as to question a director from the ruling clique about what they were doing in secret, then I would be told that I had hurt her feelings and therefore needed to apologize.  The fact remains that the ruling clique effectively ran the entire board in secret, met in secret, and never turned over their written paper minutes (because they never kept any).  So the "hurt feelings" excuse was just a cover for the ongoing secrecy and the secrecy was caused by the arbitrary "we can do whatever we want to" attitude of the ruling clique.

I also noticed that the rest of the board was much more inclined to attack me.  In fact, nobody every tried to hold the ruling clique accountable.  As a an excellent example, I read to the board a laundry list of laws, regulations, precedents on why a publicly funded local government unit is supposed to keep full and complete written records.  The idea of "oral reports," which of course were just another way to control the flow of information, is preposterous.  After being ridiculed with the preposterous argument that I wanted a stenographer (I never said such a thing; I just asked for full and complete records of all material facts--the ruling clique wouldn't even be honest enough to admit that they had weekly meetings in the summer but would rather say that they met once or twice to "discuss disasters"), the entire board voted to stop keeping written minutes of the activities of its various committees.  I, of course, was the lone dissenter.

What bothered me the most, is how the rest of the board just blindly took the word of a group that seized total power.  In fact, the ruling clique violated the rights of everyone on the board, yet nobody on the board would stand up for their individual rights.  I tried to stand up for both my own rights and for the rights of the other members of the board.  Surprisingly, I was painted as the bad guy; the rest of the board wanted to be enslaved.  They could care less that their rights were being trampled continuously.  They fell into the trap that Jefferson warned us about, namely, they just trusted and believed rulers.

From my experience, I learned that questioning rulers is a very dangerous thing to do.  Not only the ruling clique but also the rest of the "sheep" will attack you.  The ruling clique went so far as to have meetings and strategy sessions to try to have me thrown off the board.  The rest of the "sheep" would tag team me.  And so I was totally marginalized; hence, I could not run an effectively opposition campaign.  The dangers of arbitrary government are all too real to me.

One issue of concern for me is how exactly does Jefferson expect the constitutional "strict" limits to be enforced?  I tried to enforce the "strict" limits of the applicable provincial laws in my own particular situation but I failed lamentably.  In fact, my experience changed my total view on government.  I used to think that government was a good agent in society; government was a means to making a better world.  After seeing what I saw and after experiencing what I experienced, my view of government became much more negative.  If a small little local government agency with a budget of around $525,000 can be this corrupt, then I can only imagine the corruption in a government with billions or trillions of dollars in its budget.  It must be sheer hell to see the corruption that Dr. Paul has seen with all of the Washington lobbyists he has had to deal with over his long tenure in Congress.  Dr. Paul is in the same situation that I was in.  A small group runs the show.  In fact, that is to be expected.  It is called the Iron Law of Oligarchy, i.e., a small group will seize control of any organization.  Then, the rest of the group will sit on their hands and do nothing; they will not have the courage to "rock the boat."  And so people such as Dr. Paul and myself get marginalized.  So, I don't know how Jefferson's idea of binding politicians to the constitution will work.  It seems to me that politicians will always operate outside of their governing documents and do whatever they want to do.  Of course, they will never say that they are engaged in arbitrary government because, especially in the American case, arbitrary government carries the dangerous connotation of tyranny.  Most of the time they will say that they are engaged in "the public good."  This happened in my experience; the ruling clique had intentions that were only angelic.  The clique consisted of angels who were trying to implement their angelic policies, but were being delayed and harassed by me, the lone dissenter.  The arguments used against me were, of course, the same arguments used by every welfare statist in Western history.  So now we have a situation where a clique rules, hardly anybody objects, and to object renders to the objector the status of "bad person" who "hurts other peoples' feelings." 

Maybe the idea of constitutional restrictions on the operation of the government is an utopian idea?  Maybe I was naive for thinking that I could run a one-man crusade to get everybody else on the board to follow the provincial laws?  Maybe Jefferson is naive in thinking that the federal government could ever be bound by the chains of the constitution?  Maybe if the masses of people watched the government like a hawk then they could force the government to stay chained to the constitution?  But the reality is that most people would rather attend to their daily routine than spy continuously on the operations of their 3 or 4 different levels of government.  It is a gigantic task; I do not know how anyone--even someone totally dedicated to these issues--could come even remotely close to doing so.  I suppose that the ingredients needed to try to implement this Jeffersonian proposal would have to include organization of well funded watch dog groups and some way to get the masses to stop going along with the program i.e., to stop tacitly accepting the status quo.  How could I have gotten the rest of the board to stop going along with the dictates of the ruling clique?  How could I have persuaded them to stand up for their rights and to get them to help me in my drive to chain the clique down to provincial laws?  Or is this problem insoluble?  Will we always be stuck with ruling cliques because of the Iron Law of Oligarchy who then will continually break the chains of the constitution because hardly anybody will help enforce it?  Is the inevitable result of government then arbitrary rule?  Who then enforces the constitution?  Can a constitution really be enforced or is it the "blank paper" that Jefferson also worried about?

My conclusion is that I do not know.  I do not know how one can chain a government down to a constitution.  It seems to me that the people in power will always try to wiggle their way out from the chains of the constitution.  It is all I saw from my experience.  I tried to chain the clique down with X and they would wiggle out with Y.  I then tried Z to chain them down and they would wiggle out of the chains with A.  It became somewhat of a cat-and-mouse game.  Maybe that is as good as it can possible get?

Why Do the Wealthy Favor Inflation, Part 1

One intriguing aspect of both the Massachusetts Land Bank and other inflationary colonial schemes is that they were advocated and lobbied for by some of the wealthiest merchants and land speculators in the respective colonies.  Debtors benefit from inflation and creditors lose; realizing this fact, older historians assumed that debtors were largely poor agrarians and creditors were wealthy merchants and that therefore the former were the main sponsors of inflationary nostrums.  But, of course, there are no rigid "classes" of debtors and creditors; indeed, wealthy merchants and land speculators are often the heaviest debtors.  Later historians have demonstrated that members of the latter group were the major sponsors of inflationary paper money in the colonies.  --Ron Paul and Lewis Lehrman, The Case for Gold:  A Minority Report of the U. S. Gold Commission, 25

In the introductory quotation, Ron Paul and Lewis Lehrman address a common misconception over who benefits from a deliberate policy of monetary inflation.  At the root of this misunderstanding is the faulty assumption that debtors must be the poor starving masses and that the creditors must be a handful of rich businessmen and women.  The provenance of this misinterpretation can be traced back to ancient Athens.  During an interview with Professor Percy L. Greaves, Jr., Professor Dr. Ludwig von Mises mentions that the faulty assumption can be traced back to the ideas of Solon.  Mises tells Greaves, with regard to the faulty assumption above, that

this [i.e., the faulty assumption] was perfectly correct twenty-five hundred years ago in Athens, when the great statesman Solon exacted economic reforms cancelling public and private debts.  Solon had to deal with what we today call "social problems."  At that time the debtor was typically the poor man and the creditor was the rich man.  The rich people could save and increase their possessions by investing in real property, houses, businesses, forests, and other landed property.  For the masses of the people things were different.  Most of them couldn't save at all...

But we no longer live in Athens in the days of Solon.  Nor do we live under the conditions of the Middle Ages or of the sixteenth, seventeenth, and eighteenth centuries, when the poor people couldn't save.  Under capitalistic conditions the situation is very different.  (Ludwig von Mises, On Current Monetary Problems, Article #43 in Economic Freedom and Interventionism, 214, emphasis mine).

The same misconception over who is the creditor and who is the debtor and therefore the question of who benefits from inflation and who loses was picked up by Nazi propaganda.  In fact, this entire issue is at the core of one of the major Nazi party demands, namely the elimination of "interest slavery."  In a paper entitled On Some Atavistic Economic Ideas (Article #28 in Economic Freedom and Interventionism), Mises notices that "the most spectacular manifestation of the misinterpretation of the economic meaning of the present-day creditor-debtor nexus was provided by the program of the National-Socialist-German-Labor-Party, the Nazis" (153).  The Nazi propaganda, written by Gottfried Feder, called for the "destruction of interest slavery" in the unalterable party program.  However, just as the colonial Americans in Massachusetts were confused so too the Nazis were confused.  In fact, one of the voices of dissent against Hitler and the Nazi regime published an article entitled, "Do you, average reader, know that you are a creditor?"  To this observation, Mises notes, "the German voters who practically unanimously voted for Hitler certainly did not know it" (153).

At the core of the misconception, then, is to assume incorrectly that the masses of people are not savers.  The faulty assumption is to assume that the rich are the creditors and the poor are debtors.  As Mises stressed in the article On Some Atavistic Economic Ideas, "under the modern credit organization the more opulent strata are more often debtors than creditors" and "the common man is a creditor insofar as he has taken out insurance policies, has savings deposits with commercial banks and savings banks, owns bonds whether government issued or corporate, and is entitled to receive retirement and old age pensions" (153).

I should further emphasis that the properties of the "common man" who is also a "creditor" just happen to be the "perfect storm" scenario for being victimized by an inflationary policy.  At this point, the observation that the rich are trying to use inflation as a "bail out tool" so that they can reduce the burden of their debt should be obvious.  Inflation is just a way for the rich to avoid paying their debts to the savers, the "common man" on the street.  What makes this a "perfect storm" for hurting the common man, the saver, the creditor, is that the process of new money creation (i.e., the inflationary process) is rigged to transfer wealth from one group to another group.  The most vulnerable people in this process are the ones who are on fixed incomes.  As we shall see in a moment, these fixed income victims are perfectly described by Mises in the quotation above.

Murray N. Rothbard goes to the heart of this wealth-transfer problem of inflation, which is specifically designed to hurt the creditors and savers (i.e., the "common man") when he observes that

those who get the [newly created] money early in this ripple process benefit at the expense of those who get it late or not at all.  The first producers or holders of the new money will find their stock [of money] increasing before very many of their buying prices have risen.  But, as we go down the list, and more and more prices rise, the people who get the money at the end of the process find that they lose from the inflation.  Their buying prices have all risen before their own incomes have had a chance to benefit from the new money [so their "real" cash balances will fall; they have the same amount of money in dollars but with higher prices on most goods at the store, they can now buy fewer goods and services].  And some people will NEVER get the new money at all:  either because the ripple stopped, or because they have FIXED INCOMES--from salaries or bond yields, or as pensioners or holders of annuities.  (Murray N. Rothbard, the Mystery of Banking, 50, emphasis and square bracket clarifications are both mine)

In other words, the biggest victims of inflation are the savers, the people on fixed incomes and fixed salaries.  The biggest winners from an inflationary policy are then the people with large debts and the people who are the early receivers of the newly created money.  As we saw above, the largest debtors tend to be the wealthy; consequently, the indebted wealthy people are the first beneficiaries of an inflationary policy.  The inflation effectively "bails them out" from all of their debts.  The second major group to benefit from a deliberate policy of inflation is the early receiver group.  Who are the earlier receivers of the new money?  It turns out that they are usually a group of well connected big businesses too!  In Ludwig von Mises's 1919 book entitled Nation, State, and Economy:  Contributions to the Politics and History of Our Time, citing Auspitz and Lieben, Mises notes that "during the issue of notes, the additional means of circulation will be concentrated in the hands of a small fraction of the population, e.g., of the suppliers and producers of war materials" (130, emphasis mine).  Consequently, we see that the second major group to benefit from an inflationary policy is what today we might call the "military-industrial complex."  Therefore, the two groups who benefit from inflation are the military contractors and the heavily indebted corporations and wealthy individuals.  They benefit because they not only receive the new money at the earlier stages of the rippling effect but also engineer a reduction in the real costs of their debt.  In both cases, the "common man" or the saver is hurt.  The common man experiences not only a reduction in the real value of his savings (since he is a creditor) but also a penalty for being a later receiver of the new money (or in the extreme case because he never receives any of the new money; and so his real cash balances are severely depleted).