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Saturday, February 25, 2012


Pillars of Prosperity - Dr. Ron Paul

The Economics of a Free Society

These selections lay out my views of the proper role of government, namely that it should serve only to protect the life and property of its citizens. I respect the Constitution not because of a nostalgic attachment to an anachronistic document, but because the Founders knew the danger in allowing government to overstep its legitimate functions. It is unfortunate that many Americans today don’t understand the Founders’ wisdom in framing our government on the principles of federalism and republicanism—as opposed to “democracy.” A free society can only work when its members agree that there are certain things left to the discretion of individuals—no matter what a temporary majority might think. In practice this means the government must respect private property and the rule of law, or what is also called free market capitalism.

Current Political Philosophies’ Errors to Result in Political and Economic Crisis
Congressional Record—U.S. House of Representatives September 20, 1984
Mr. Speaker, I have a deep concern for the direction in which our country is going. I have expressed this concern by pointing out the political and economic contradictions that surround us and have suggested that these contradictions merely are manifestations of philosophic errors made by our intellectual leaders.
Although the country currently is more or less in a euphoric mood, I am convinced the errors we are making today will eventually result in a severe political and economic crisis.
I don’t believe anyone precisely knows the future, yet we all make projections as to our expectations. It’s impossible to know exact events and their timing but trends are known to us and certain policies do have specific consequences. Economically definable laws do exist and cannot be repealed. For what it’s worth, I would like to make a few comments about what we can expect if our current beliefs about government’s role are not changed. The odds of a significant change in attitude occurring in Washington in the near future are utterly remote. Repealing the wel- fare-warfare state may be popular with a growing number of frustrated American citizens, but that attitude is not yet reflected in Washington. The constituency for the monolithic state is alive and well in the U.S. Congress. When disagreement exists in areas such as welfare versus warfare, the poor versus the rich, labor versus business, compromise is always reached and both sides receive an increase in funding. This is a policy of utter folly and is tragically locked in place.
Government is literally out of control. Spending, taxes, regulations, monetary inflation, invasion of our privacy, welfarism to both the rich and the poor, military spending, and foreign adventurism around the world will one day precipitate a crisis that will truly test our will to live in a free society. If government were not so much out of control, would not the most conservative President of the last 50 years be able to do something about the runaway deficits? The deficits have tragically only gotten very much worse under Reagan. All the problems we face, high interest rates, inflation, deficits, vicious business cycles with accelerating unemployment are serious problems indeed, but the real threat under the conditions to come will be the potential loss of our personal liberty. Without liberty, prosperity is lost and equality of poverty prevails.
We have a cancer in the land—the malignant growth of big government—and we can ignore it, treating only the symptoms, hoping they are not reliable signs that a horrible disease has struck our nation. But if we do, we are treating our problems as some foolishly deny the early signs of cancer, by taking aspirin and hop- ing the pain to be only that of inconvenience and that the symptoms will go away in the morning. Instead, the pain gets worse requiring more and more narcotics to numb the pain. Magic cures are sought and tried. Although big government is the disease, attempts to solve all the problems by making government even bigger and more intrusive in our lives are continually tried. This will soon end. We cannot forever ignore the root causes. It’s highly unlikely that we’ll reach the 1990s without a convulsion of our economic or political system.
Although nothing goes up or down in a straight line, we can be sure the long term will bring us ever-increasing interest rates— higher with each cycle and over 20 percent before this cycle completes itself in 1986 or 1987. Without the introduction of a commodity money, one with quality—as well as limitation on its quantity—we will never see the return of long-term fixed low interest rates. The reform will come eventually, if we’re to continue to have even a relatively free society. I just hope we don’t wait too long.
Price inflation, although difficult to predict on a month-to- month or even year-to-year basis, will reach unbelievable heights in this decade. Currency destruction, through the insatiable desire to create massive new fiat monetary units, eventually brings higher prices. Wage and price controls will return regardless of whether a Republican or a Democrat occupies the White House. Free market rhetoric will do nothing to protect us from the pressure the admin- istration will receive to “do something,” even if it’s the wrong thing. Nixonian Keynesianism will continue to dominate, and abu- sive people-control in the form of wage, price, currency and credit controls will return, more vicious than ever before.
There will come a day that the world financiers will rush from dollars just as they have recently rushed into dollars, causing even worse chaos in the international financial markets. Without a sta- ble monetary unit, the speculation will continue and worsen. Overreaction is now becoming more commonplace, but this is a predictable consequence of a world gone mad with fiat currencies, debt creation, and overspending.
Massive debt liquidation will come. The early stages have already started. It will occur with old-fashioned defaults, threats of deflation, and further currency destruction through monetary inflation and liquidation of debt with a depreciating dollar. Whether or not the liquidating debt collapse will be dominated by deflation or inflation of the money supply is yet to be determined since that will depend on government actions and many market forces. An inflationary collapse is a more likely scenario—knowing the special interests, the Congress, the administration, and the cen- tral bankers’ unwillingness to face up to the reality of cutting spending, balancing the budget, and curtailing the supply of money. So in spite of all the tough talk, we can expect the Fed to accommodate and reverse any trend toward deflation.
Without a significant change in attitude by the American peo- ple and Congress as to the purpose of government, the choices are horrible; an inflationary collapse or a deflationary one. The form and timing of the collapse is yet to be determined; the event itself is certain. This crisis will come, as others have, because we refuse to face up to reality and live within our means.
The people’s insatiable appetite for the goods of life without providing a commensurate amount of work and effort needed to produce them (while demanding that politicians deliver the loot) guarantees the process will continue. But a penalty will have to be paid. That penalty—a major banking, currency, economic, and political crisis—will hit this nation and the western world, most likely before the 1990s.
The economic hardship, of which we had a taste in 1981 and 1982, will be much worse. That in itself is bad enough news, but historically, when a nation debauches its currency international trade breaks down—today 40 percent of international trade is car- ried out through barter—protectionist sentiments rise—as they have in Congress already—eliciting hostile feelings with our friends. Free trade alliances break down, breeding strong feelings of nationalism—all conditions that traditionally lead to war; a likely scenario for the 1990s, unless our economic policies and atti- tudes regarding government are quickly changed.
Many who concede we are moving in this direction of war, care- lessly believe that the lack of military spending is the problem and insist on new massive military spending as the solution. This only serves the inflationists, the internationalists, the banking elite, and industrialists who benefit from the massive manufacture of military weapons. It ignores the important fact that most military conflicts throughout history have been the consequence of economic events. Economic events, when combined with a foreign policy void of wis- dom and fraught with folly, sets the stage for needless war.
Conservatives are quick to correctly point out that guns don’t cause crime, criminals do, but fail to see that weapons, or the lack of massive weapons, don’t cause war, politicians’ bad policies do. This is a good reason why the current conservative administration should have stopped subsidizing trade and foreign assistance to the Soviet bloc nations and to Red China, which includes nuclear and military technology, instead of increasing it. This is sheer madness.
Massive military spending to stop the spread of communism, which our own taxpayers are also required to finance, contributes to the economic problem of deficits, inflation, and high interest rates. In addition it justifies, in the political world of compromise, increased domestic spending, higher deficits, accelerating inflation and higher interest rates—all compounding the economic prob- lems that started the trouble in the first place.
Depression and war are the needless consequences of politi- cians’ folly. They are prevented by limiting government power, not by expanding it. Today, campaign rhetoric is frequently heard about balanced budgets and reducing the size of the government; witness the success of conservatives in 1980; yet nothing ever hap- pens. The spending, the regulations, the taxing, and the deficits continue. Time is running short, the frustration running high. Hid- ing from reality won’t help; kidding ourselves won’t do. The sooner we admit, “you can’t get blood from a turnip,” the better off we’ll be.

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