New Jersey Survival

Ask yourself this question: was the housing price bubble, which has burst, caused by (a) a Fed policy of too much liquidity, which caused artificially low interest rates, which in turn caused a great deal of malinvestment, or (b) a Fed policy of too little liquidity which caused high interest rates and a credit-starved economy? If you chose answer b, congratulations, you may have a future as a celebrated author, historian, and Wall Street Journal commentator.

Answer b is a theme of a truly ridiculous article by John Steele Gordon in the October 10 issue of the Wall Street Journal online entitled “A Short Banking History of the United States.” The article is an attempt to defend the Fed, its founding father, Alexander Hamilton, and the regime that it finances. (Gordon is the author of a book entitled Hamilton’s Blessing which sings the praises of a large public debt, something that Hamilton himself called a “public blessing.”)

Rather than faulting the Fed for creating yet another boom-and-bust cycle, Gordon blames the current economic debacle on “the baleful influence of Thomas Jefferson.” Jefferson was the foremost opponent of a bank capitalized with tax dollars and operated by politicians and their appointees from the nation’s capital — Hamilton’s Bank of the United States (BUS), a precursor of the Fed. Thus, despite the fact that the real blame for the current economic crisis lies squarely in the lap of the Fed and its ideological underpinnings — particularly the legends and myths surrounding Hamilton — Gordon attempts to convince us that opposition to politicized, centralized banking is the real problem. Anyone who believes this could easily be persuaded that up is down, white is black, and day is night. The purpose of the Fed, according to Gordon, is to serve as a sort of a monetary benevolent despot: “To guard the money supply … regulating the economy thereby.”

Right-wing statists like Gordon, like left-wing statists, have adopted the custom of smearing Jefferson as a slave owner not so much because they are appalled that he owned slaves, but because their objective is to denigrate his laissez-faire/limited-government political philosophy. Gordon includes the Jefferson slavery smear in his article, but fails to mention that his hero Hamilton also owned “house slaves,” which were brought into his marriage by his wife Eliza; he once purchased six slaves at an auction; and he supported the return of runaway slaves to their “owners” under the Fugitive Slave Clause of the original Constitution.

Indeed, nearly all of the “first families” of the New York City of Hamilton’s time — his main social and political circle — were slave owners. As Hamilton biographer Ron Chernow has written, during Hamilton’s time, “New York City, in particular, was identified with slavery … and was linked [economically] through its sugar refineries in the West Indies” (where Hamilton was born and raised). By the late 1790s slaves were “regarded as status symbols” by the wealthiest New York families.

Gordon spreads several other falsehoods about Jefferson in the leading paragraphs of his article. This in itself is telling, for it shows that court historians like John Steele Gordon fully understand the importance of Hamilton’s statist political philosophy in propping up the Fed and the regime that it finances. Gordon claims that Jefferson, a lifelong businessman, “hated commerce,” “hated banks,” and “may not have understood the concept of central banking.” He also argues that Hamilton, by contrast, had a “profound understanding of markets” because he worked as a bookkeeper for British slave-owning sugar-plantation operators and exporters as a teenager on the Caribbean island of St. Croix. This is nonsense on stilts, as the philosopher Jeremy Bentham is supposed to have said with regard to another spurious claim.

What Jefferson opposed was Hamilton’s mercantilist policies of government-controlled banking, corporate welfare, protectionist tariffs, heavy excise taxation, excessive public debt, and other interventions. Unlike Hamilton, Jefferson had read and understood Adam Smith’s Wealth of Nations and his Theory of Moral Sentiments, as well as the work of David Ricardo, Jean-Baptiste Say (who Jefferson tried to get to join the faculty of the University of Virginia), Richard Cantillon, and other economic theorists of that era. Hamilton was ignorant of or ignored all of this. His major intellectual influence was a propagandist for the British mercantilist regime named Sir James Steuart.

As Murray Rothbard wrote in an article entitled “A Future of Peace and Capitalism,”

Jefferson was very precisely in favor of laissez-faire, or free-market, capitalism. And that was the real argument between [Hamilton and Jefferson]. It wasn’t really that Jefferson was against factories or industries per se; what he was against was coerced [economic] development, that is, taxing the farmers through tariffs and subsidies to build up industry artificially, which was essentially the Hamilton program. Jefferson … was a very learned person. He read Adam Smith, he read Ricardo, he was very familiar with laissez-faire classical economics. And so his economic program … was a very sophisticated application of classical economics to the American scene … classicists were also against tariffs, subsidies, and coerced economic development…. The Jeffersonian wing of the founding fathers was essentially free-market, laissez-faire capitalists.

Compared to Jefferson, Hamilton was an economic ignoramus. His reputation as some kind of financial genius has been greatly exaggerated and fabricated, as the great late-nineteenth-century Yale sociologist William Graham Sumner wrote in his 1905 biography of Hamilton. In his Report on Manufacturers, for example, Hamilton presented the cockeyed notion that international competition would cause higher prices and protectionism would cause lower prices by causing domestic producers to compete more vigorously with each other. History had proven this to be an absurd idea long before Hamilton’s time.

Hamilton also condemned transportation costs, calling them “an evil which ought to be minimized” through protectionism. Of course, transportation costs also affect interstate trade, but Hamilton never voiced his opposition to them in that context. Hamilton was such a mercantilist that he even argued in favor of “a monopoly of the domestic market” by banning all imports altogether. It is little wonder that William Graham Sumner referred to Hamilton’s Report on Manufactures as a mass of economic confusion, just the opposite of a “profound and practical understanding of markets.”

Jefferson was not the only prominent opponent of Hamilton’s scheme to establish a bank operated by politicians out of the nation’s capital. James Madison also opposed the First Bank of the United States (BUS). The Virginia Senator John Taylor was as learned on the subject of political economy as Jefferson was, and immediately recognized the danger of imitating the Bank of England as a financier of mercantilist subsidies. “What was it that drove our forefathers to this country?” he asked. “Was it not the ecclesiastical corps and perpetual monopolies of England and Scotland? Shall we suffer the same evils in this country?” Hamilton’s answer would have been “why yes, we shall, for it is the surest route to accumulate power and wealth for myself and my fellow Federalists.” As Gordon wrote, “Hamilton wanted to establish a central bank modeled on the Bank of England.”

John Steele Gordon’s “short history” of banking is completely filled with falsehoods. Throughout his article, he blames Jefferson’s opposition to central banking for economic problems that were in fact created by Hamilton’s Bank of the United States.

As Murray Rothbard wrote in A History of Money and Banking in the United States (p. 69), as soon as Hamilton’s bank was established it

promptly fulfilled its inflationary potential by issuing millions of dollars in paper money and demand deposits, pyramiding on top of $2 million in specie. The Bank … invested heavily in loans to the United States government…. The result of the outpouring of credit and paper money by the new bank of the United States was … in increase [in prices] of 72 percent [from 1791–1796].

The BUS charter was not renewed after its first twenty years. Gordon blames Jefferson for this, but the above-mentioned economic instability that was caused by the BUS surely played a role. (And I’m sure Jefferson would have been proud to accept the credit for the demise of the BUS.) The BUS was revived after the War of 1812 (in 1817) and it immediately “ran into grave difficulties through mismanagement, speculation, and fraud,” wrote James J. Kilpatrick in his book, The Sovereign States. Consequently, “a wave of hostility toward the Bank of the United States swept the country,” which eventually led to President Andrew Jackson’s veto of the bank rechartering bill.

In 1817 the BUS quickly lent $23 million with a specie reserve of only $2.3 million. This flood of cheap credit created a brief economic boom, and then the inevitable bust, or depression, known at the time as the Panic of 1819. As Murray Rothbard wrote in The Panic of 1819, personal bankruptcies abounded, especially among farmers who had overextended themselves thanks to the BUS’s cheap credit; and there was for the first time large-scale unemployment in American cities, with manufacturing employment in Philadelphia falling from 9,700 employed persons in 1815 to only 2,100 in 1819. This was all Jefferson’s fault, says John Steele Gordon.

Another one of Gordon’s false claims is that “The Civil War ended … monetary chaos when Congress passed the National Bank Act,” which would become the state’s monopolistic monetary regime until the creation of the Fed in 1913. In reality, the so-called Independent Treasury System that existed from the early 1840s to 1863 was arguably the most stable monetary system in US history. Modern economic scholars have evaluated the Lincoln regime’s National Currency Acts and have arrived at the opposite conclusion of Gordon’s. In an article entitled “Money versus Credit Rationing: Evidence for the National Banking Era, 1880–1914″ (in Claudia Goldin, ed., Strategic Factors in Nineteenth-Century American Economic Growth) Michael Bordo, Anna Schwartz, and Peter Rappaport concluded that this Hamiltonian system “was characterized by monetary and cyclical instability, four banking panics, frequent stock market crashes, and other financial disturbances.”

Gordon notes that “inflation took off in the 1960s” but does not blame the actual cause of the inflation — the Fed and its legalized counterfeiting operations. He concludes by praising the regime’s current plans to nationalize the financial markets by assuming stock ownership in banks and appointing the US Treasury secretary as the nation’s first financial dictator. He thinks this will finally, at long last, achieve Hamilton’s dream of a “unified and coherent regulatory system free of undue political influence.”

Of course, no government institution in the history of the world has ever been free of political influence, due or undue. This is perhaps Gordon’s most spectacularly stupid remark.

“Unified” or centralized regulation of industry has long been a goal of statists who favor regulatory dictatorship as opposed to a governmental regime that delegates “too much” regulatory power. Gordon himself bemoans the “conflicting” regulations on the banking industry that have been imposed by the Fed, and the FDIC, FSLIC, SEC, and other federal regulators.

The system of financial regulatory dictatorship that Gordon praises, and which is about to be forced down the throats of the American public, has been tried before in other countries. During one of its own periodic financial crises, Italian government officials complained bitterly, as Gordon does, of regulation that has been “disorganic” and “case by case, as the need arises.” The Italian regime altered its regulatory system so that it could pursue “certain fixed objectives,” just as Gordon argues for a “unified and coherent regulatory system.” This highly centralized or even dictatorial regulatory system, the Italians argued, would supposedly “introduce order in the economic field” and achieve the goal of “unity of aim” with regard to government regulation of industry.

All of the words in quotation marks in the preceding paragraph, except for the last ones, are the words of Benito Mussolini. The “unity of aim” phrase was from Mussolini apologist/propagandist Fausto Pitigliani. There is, after all, a very keen similarity between Hamiltonian mercantilism — or an economy directed and controlled by government, supposedly “in the public interest” but in reality for the benefit of a privileged few — and the economic fascism of Italy (and Germany) of the 1920s and ’30s.

[VIEW THIS ARTICLE ONLINE]

_________________________

Thomas DiLorenzo is professor of economics at Loyola College and a member of the senior faculty of the Mises Institute.

The director who brought us blockbusters like The Sixth Sense and Signs has just released on DVD what critics derided as a flop. With 72 percent of critics hating it, M. Night Shyamalan’s The Happening was seen as the fall from grace of a 21st century Hitchcock. Considered eerie and arty, Shyamalan said that this time he just wanted to make a “B movie.” The critics took him at his word and panned it. But they missed the point: The Happening is a painful satire on a Western culture which has turned its back on new life by preventing or aborting the next generation, claiming population control as its justification.Some warnings. First, this film contains savage imagery. One after another characters commit suicide in bizarre and bloody ways. Unfortunately, it runs the danger of brutalising the audience it hopes to civilise. Second, this review, in order to rescue The Happening from its critics, contains numerous unapologetic spoilers—reader beware.

In the film, people’s survival instinct is reversed by New England’s flora. As a defence against human overpopulation, plants are releasing an invisible neurotoxin which causes those who inhale it to kill themselves by the first available means. Lemmings throw themselves off cliffs in order to reduce their population. Population control advocates do not throw themselves over cliffs; they throw the next generation. One of the opening scenes of the film depicts a host of construction workers walking off the top of a 20-storey building like lemmings. The film shows citizens of the culture of death doing to themselves what they usually do to the next generation, especially the unborn.

High school biology teacher Elliot Moore (Mark Wahlberg) is married to the beautiful but sullen Alma (Zooey Deschanel), who is afraid to have children – like so many others. A young boy, with whom the couple flees from the happening, raises the topic. “Are ya married?… Yes….Got kids?… We’re waiting…. For what?… Huh?!… In marriage you gotta take responsibility.” Shocked, Elliot stops the conversation. But in the tender closing scene, shot from a great distance, the couple is celebrating a positive pregnancy test.

Population and reproduction are placed front and centre. In the opening scene Elliot is asking his students to employ the scientific method to discover why the US population of bees has dropped so dramatically. The students hypothesise. Disease? Parasites? Disorienting cell signals? Elliot counters, “but where are all the bee bodies?” Teacher and students ignore an obvious scientific answer: the bees are not reproducing. This “B movie” does not let the audience ignore the missing bodies of the stifled next generation.

Shyamalan weighs the pros and cons of modern science throughout the film. Scientists have an accurate theory about the plants. In grave danger, Elliot calms himself down with mantra-like recitation of the steps of scientific inquiry and comes to a shrewd idea for what to do next. Yet the film also questions whether a desire for comfort can obscure the lessons of science. Elliot’s best friend Julian, who teaches mathematics, decides to leave his daughter to go on a suicide rescue of his wife. Elliot asks Julian to give him some statistics to make Julian’s death wish make sense. Julian makes up some statistics and gives a bitter wink. In the next scene, Julian tries to calm down a fellow “rescuer” by asking her a math problem, explicitly saying that numbers and percentages help calm people down — in this case as they proceed (more calmly) to their deaths, using a number game concerning the mathematics behind the Malthus Curve. The implication is that science cannot teach values and that the science behind overpopulation theories is bogus.

The abandonment, rejection or replacement of children is a recurring trope in the film. In a reference to “green” population control advocates, two childless nursery owners refer to their plants as “their babies.” A bitter old woman has a life-sized and well-dressed baby-doll. When Elliot asks some paranoid hicks for food for his wife and a young girl and two young boys, they refuse. The boys, outraged by their callousness, try to kick in the door and are shotgunned through a window slat. The deaths of these two children are the only two that are not suicides.

Most of the suicides happen quickly and Shyamalan does not linger on them. But three stand out as particularly grotesque. All three victims are anonymous and their deaths represent various abortion techniques. In one, a man in the distance lies down in front of a vacuum mower, like a first trimester vacuum aspiration of a foetus. In another, lions tear a zookeeper limb from limb. The butchery is seen through a videophone, just as abortionists monitor dilatation and curettage with ultrasound. And finally, there is a close-up of a woman stabbing herself in the back side of the neck with a steel hair pin about ten inches long. This resembles a technique in which a foetus is partially birthed and stabbed in the back of the neck with long metal scissors. There is a suicide analogue for the abortion technique of each trimester. As I warned, The Happening may be subtle but it is also breathtakingly brutal.

Like most B-movies, The Happening ends happily. Elliot and Alma’s love has become a new human life. Shyamalan hints that science, love, and life will contradict and defeat the pseudo-science and selfishness of the culture of death. This brutal and subtle work of art is for those who can endure but not relish its violence.

However, it is not for those hoping for a B-movie carnage flick. The Rotten Tomatoes website distils the critiques of 163 reviewers: “The Happening begins with promise, but unfortunately descends into an incoherent and unconvincing trifle.” The film begins with faltering marriage and a sea of suicidal death and ends with a happy pregnant couple full of life and love. By the critics’ logic, committing suicide is “promising” and loving new life is a “trifle.” No wonder the critics missed the point of this masterful film.

Matthew Mehan is US Contributing Editor for MercatorNet.

http://www.mercatornet.com/articles/view/a_crypto_culture_of_life_director/

It is 79 years since the Great Depression. Some fear that this week’s chaos in the financial world means that the curtains are rising on Great Depression II. I don’t have a crystal ball, but I’m sure the immediate future is grim. At the very least we are in for a long and deep recession and our medicine will be very bitter indeed.

Clearly the style of capitalism which has dominated world markets for the last 20 years or so is flatlining. The question now is whether it is worth resuscitating. The answer must be Yes – but only if we jettison the “greed is good” ideology made famous by the slimy character Gordon Gekko in the 1987 film Wall Street. That was a movie. In real life it was the philosophy of Nobel Prize-winning economist Milton Friedman.

Friedman was probably the greatest economist of the 20th century. He influenced Ronald Reagan in the US, Margaret Thatcher in the UK, Brian Mulroney in Canada, and Paul Keating in Australia and his ideas led to critical economic reform in each of their countries. These economies were made stronger by following much of Friedman’s economic rationalism.

But at the heart of Friedman’s thought was the idea that greed is good, that greed works because it drives people to succeed. The reality, as we can now see, is that greed, in its truest sense, does not work.

A deadly sin

I have no doubt that greed is the cause of the current crisis. It was the greed of those who took easy money to buy houses beyond their means and the greed of bankers who lent to people borrowing beyond their means. The depth of this depravity can be seen in the Wall Street bankers who were collecting salaries over US$100 million per year even as their banks were collapsing.

Right now, even as the dominoes fall, disciples of Friedman are still contending that the culprit is not capitalist greed but excessive government regulation. However, while poor legislation and regulation may have contributed to the subprime mortgage market crisis that sparked the conflagration, it is absurd to suggest that the solution is merely a less regulated market.

Friedmanistas claim that the US subprime mortgage crisis didn’t happen in markets like Australia and the EU because their consumers are more sophisticated. Nothing could be further from the truth. Australians and Europeans are not smarter; they were protected by more stringent regulatory frameworks. If foreign banks have been dragged into the American crisis, it was mainly because they had joined the orgy on Wall Street.

Less regulation may be a good thing; but good regulation trumps it any day. How many ordinary Americans have to lose their jobs and homes before the ideology of laissez-faire capitalism is finally debunked?

Greed needs to be kept in check. Governments the world over should take the matter of bank regulation more seriously. The US’s subprime mortgage mess was created by politicians pandering to the not-unreasonable desire of Americans to own their own homes. But Congressmen who are currently skewering greedy Wall Street bankers should have protected ordinary consumers aspiring to home ownership. Their negligence points to a failure of leadership that reaches to the very top of the American political totem pole.

Tough choices

So, should governments be putting together rescue packages like the US Federal Reserve’s US$800 billion one to save the banks? Aren’t these rescue packages throwing good money after bad? After all, it was bad, even unethical, business decisions that have sunk the biggest financial institutions. If only that money were available now to help the people who are losing their homes, who face unemployment and who need to feed and educate their children.

But leaving the financial institutions that created the mess to stew in their folly is not a solution.

The viability of the world’s banking system needs to be ensured. If the banking crisis gets worse and more banks go under, it will be harder for businesses, big and small, to expand. Markets — which ultimately thrive on confidence — will shrink. That will mean more job losses and more pain. It could bring the world to Great Depression II, complete with soup kitchens and Hoovervilles. Right now, not bailing out the banks and other financial institutions is unthinkable.

Modern day capitalism may well be wanting. But – to paraphrase Winston Churchill’s description of democracy – it is the worst economic system except for all the others. The Great Depression played a part in the rise of communism, socialism, fascism and Nazism in the 1930s. That is, I am sure, not an outcome many would want from this crisis.

Saving the financial institutions that caused this crisis is the only way to keep the world from sliding into worse turmoil. But we have to learn from this calamity. Greed is not good. We need to inoculate our children against idolising Gordon Gekko. And we need to demand that governments regulate the markets more tightly . Capitalism works; but not when it is based on every man for himself. We need to find our way to a capitalism based on values and virtue.

Alistair Nicholas lives in Beijing where he runs a consultancy firm. He has been an economic researcher, political adviser, and Australian diplomat. In his consultancy he advises international corporations on business ethics and communications in China. He is the co-author of a study on the privatisation of welfare in Australia.

Caveat Emptor!     http://www.nakedcapitalism.com/

Local advocates for the disabled and elderly are urging state officials to pass a bill that would increase funding for statewide transportation programs facing budget cuts in January.Dottie Cullen, a Vineland resident who sits on the county’s Transportation Advisory Council, said Sunday that an imminent $60,000 cut to the county’s Cumberland Area Transit System, or CATS, will affect hundreds of local senior citizens and disabled people who use that service every day.

“It’s just unbelievable,” Cullen said. “We have people with disabilities who are productive citizens. Our drivers get up at five in the morning, pick them up, take them to work, to dialysis, doctors, counselors, everything. Sure, I know the economy is bad. We all know it. But in this country, we shouldn’t have to beg.”

The program is funded entirely through the Casino Revenue Fund, which allocates 7.5 percent of its annual revenue to fund transportation programs across the state. Since decreased casino revenue has translated into decreased funding, a bill working its way through the Legislature, A-2046 and S-1830, would increase the funding percentage by one point, to 8.5 percent.

Misono Miller, executive director of the Cumberland County Office of Aging and Disabled, said Sunday that the small boost would be enough to hold off a transportation catastrophe.

“That increase would probably reinstate most of the reductions in all the counties,” Miller said. “It would prevent a major crisis that transportation systems are facing in New Jersey.”The $60,000 loss, Miller said, makes up about 11 percent of the CATS 2008 budget. It will translate, however, into two eliminated positions, one of which would have to be a driver.

Theresa Van Sant, project director for the CATS service, said the system makes 500 to 700 trips per day, averaging about 130,000 per year. The loss of those two positions, Van Sant added, would be keenly felt by the system’s users.

Both Miller and Van Sant added that rising gas prices have also become a source of concern for CATS.

“I think the gas costs have doubled in the past two years, and there’s a serious situation in how to maintain systems operations without any disruption,” Miller said.

According to Cullen, the bills being considered by the Legislature have been floating around in Trenton for a number of years, ever since transportation officials suspected that the 7.5 percent Casino Revenue Fund allocation would eventually become insufficient.

In the state Senate, the bill has moved somewhat briskly, and was referred June 9 to the Budget and Appropriations Committee. In the Assembly however, it has lagged in a tourism and gaming committee, where it was sent in June after being introduced in February.

Cullen said she has threatened lawmakers with organizing a march in Trenton, akin to the ones farmers held in April when they protested at the Statehouse in their tractors. For this issue, Cullen said, maybe she’ll invite all her disabled and wheelchair-bound friends to gather in Trenton.

“County transportation is a critical need,” she said, adding that she felt it saved her life after her stroke 10 years ago. “People don’t realize. Here in this country, we shouldn’t have to beg. I don’t know really what else to tell you. These are people who need to go to dialysis to survive.”

E-mail John Martins:

JMartins@pressofac.com