Four Branches of Dysfunction in US Government, Part V

Dysfunction-Jct

By Mike Cronin

To recap the first three major strains of dysfunction in our government: Keeping the institution of slavery while proclaiming all men are created equal introduced the strain of accommodating hypocrisy in our national psyche right from the birth of the nation. Trying to maintain that contradiction led to the Civil War, which ended the chattel slavery of blacks…but the income tax, given its first trial run during the Civil War and made permanent in 1913, made all of us tax slaves to the government and thieves to our fellows.

The fourth major branch of dysfunction is currency debasement. Currency debasement is the act of reducing the value of money by increasing its supply. This can only be done with fiat currency, and usually by central, or national, banks, such as the US Federal Reserve.

So what is fiat currency, and why is currency debasement a dysfunction?

Fiat currency is money that has nothing backing it. US dollars used to be backed by gold. For a long time in this country, you could exchange a given amount of dollars for a given amount of gold, and the prices of goods and service remained relatively the same. A man from 1800 would not have been shocked by the prices in 1900. This is what the original meaning of the term “gold standard.” Our money was as good as gold.  Then, in 1913, the Federal Reserve was established, and it began manipulating the economy. In 1973, President Nixon dissolved the gold standard altogether, our money became mere paper, and the only thing backing it became faith.

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Once a currency becomes fiat, it is relatively easy for the central bank to manipulate the value of the money. Central banks ostensibly manipulate the currency to control inflation by “stimulating” the economy or changing interest rates, but the reality is that injecting additional money into the economy is the source of inflation. There are two aspects to inflation. When the newsies report inflation, they are usually talking about price inflation. When the Fed injects money into the economy (i.e. by stimulus, AKA quantitative easing), it is inflating the money supply. That is monetary inflation. Monetary inflation dilutes the value of the money already in existence, so merchants have to raise prices in order to receive the same value for their products. Monetary inflation is meant to control price inflation by “stimulating” consumption, but it actually causes price inflation because it makes our money worth less than it was before!

This leads to all kinds of trouble. First, just like income taxation, it concentrates power that should belong to the people into a few select hands, namely the operators of the central bank. (In the case of the US, it’s the board of the Federal Reserve). Second, when a powerful group like the Fed lowers the value of your money, it is, just like income taxation, using the force of government to take value from you. Third, if the central bank goes too far with its machinations, it will create hyperinflation. This is when the money loses value so fast that prices may rise weekly, daily, or even hourly.  The money literally becomes more valuable as fuel for the fireplace or as wallpaper than as currency. If it is still accepted, it will take a literal wheelbarrow full of cash to buy a loaf of bread.  Can this happen in the US? Consider:

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Four Branches of Dysfunction in US Government, Part I

civilwar

By Mike Cronin

Ronald Reagan once said that government is not the solution to our problems, government is the problem. What did he mean by that? After all, he was president at the time; surely he must have felt that at least some government is good and necessary. As I have expressed in previous posts, our government has become dysfunctional. Just as cancers are flawed cells that grow uncontrollably, consume resources, and displace healthy tissue, dysfunctional government supplants healthy government.  This is what Reagan was referring to.  How is our government dysfunctional? In my opinion, there are four major, interlocking branches of dysfunction: Slavery, war, confiscatory taxes, and currency debasement. In turn, these branches of dysfunction are fueled by ignorance and ambition to power.

Our government was established to protect our rights to life, liberty, and the pursuit of happiness, but dysfunction was present right from the start. The founders articulated the notion that all men are created equal – but they didn’t recognize slaves as wholly men. Slaves counted only as 3/5ths of a person. Our nation began its life trying to cope with a terrible cognitive dissonance and human injustice – one that would cause arguably the greatest existential crisis it has yet faced: the Civil War.

You might argue that the Civil War was about states’ rights, not slavery. Well, there was one “state right” in particular that the South’s economy relied on: slavery. The Southern States seceded in order to hang on to the institution of slavery, but President Lincoln would not tolerate the dissolution of the union, so the first dysfunction led to the second: war. While Lincoln is widely hailed as the Great Emancipator and one of our best presidents, he assumed virtually dictatorial powers during the war, and expressly violated the Constitution and the Bill of Rights, thus setting precedent to his successors that might wish to do the same. One example: Lincoln ordered two newspapers critical of him to be shut down and had their owners and editors arrested for disloyalty.

While the aftermath of the Civil War may have seen the restoration of the country and the abolition of one form of slavery, it did not absolve us of the original dissonance slavery caused. It took another hundred years before the law and most of the nation accepted the full humanity of blacks, but vestiges of racism still haunt us, and our presidents still exercise more power than the Constitution allots them.