In the beginning there was Money.  Well, not exactly.  There was barter.  There was a high degree of vertical integration, which is a fancy way of saying if you wanted something back then, it was pretty much up to you to grow it or make it yourself.  What trade existed was largely between members of the tribe or village or group.  If some guy made a pretty cool hunting knife, and his wife was nagging him for a deer to butcher and eat, a trade of the knife for the deer (or parts of it) might take place.  Trading was simple, uncomplicated, and very very slow.  Life was brutal and short.  At the end of the day, when you had run out of you, you had also run out of future.  You aged quickly and died young.  When groups of nomads found a place to their liking, they sometimes stayed, settled in, and became agrarian.  Society became more complex, and slightly greater specialization of labor became possible.  One family could grow things from the soil; another could domesticate animals as a source of meat.  There was still no Money.

Trading in this primitive context was still taking place among the so-called Indians on this North American continent when the first Europeans arrived.  The native Americans were fascinated with some of the baubles brought over by the Europeans and willingly traded furs for them.  Eventually some commodities became so commonplace and essential to daily life in primitive societies that they took on new importance as a means of facilitating trade.  Salt, because it was needed by everyone for daily purposes, came to assume more importance as a form of “money” than it formerly had as just salt.  Since everyone had salt, and used salt, goods and services were traded using salt as the store of value and medium of exchange between trading partners.  The same was true of other things of universal value, including furs.  Because of their prized ornamental value and scarcity, gold and silver  became universally accepted as Money. 

The term store of value is very important.  Without some universally accepted warehouse of value that had been produced, all exchange was limited to what could be immediately produced and immediately consumed.  No long term planning was possible, and without long term planning, the Industrial Revolution with its complex machines and processes was impossible.  Modern society was impossible.  The invention of Money was a prerequisite to all the amenities of life as we know it.  Without the invention of Money, we would all still be primitives.  In spite of Rousseau’s idealization of the Noble Savage, the Garden of Eden it was not.  Man was the victim of ignorance, superstition, disease, and unmitigated natural disaster the likes of which are only occasionally experienced today in the poorest parts of the world.

In primitive society, wealth was limited to whatever a person could produce in a day, or a month, or a year of his own individual effort.  All other wealth was acquired by confiscating the values produced by others at the point of a spear, or in time, at the end of a gun.  All great monuments of history were made possible by the confiscation, not only of others wealth, including their grain, their herds, their tools, but also the confiscation of the people themselves, physically.  People became property, to be used and exploited by their conquerors.  When Rome was starving because of crop failure, their solution was to conquer Egypt with their legions, make that part of North Africa a vassal state and require them to ship their grain to Rome at prices Rome dictated.  You might say that Rome “nationalized” Egypt;  Cleopatra, in name at least, still “owned” the means of production, but the prices were dictated by Rome, her Master.  For a while, she was able to continue her pretense of being in charge of her country, of being Queen.  Then one day Caesar extended an invitation she could not refuse:  to come to Rome to visit, as his “guest”.  The dress code for the event was a little intimidating–naked, in shackles, to be paraded as the spoils of war through the crowds of Roman rabble and oglers, the nobility and the great unwashed.  Cleopatra committed suicide.

Rome, of course, did not invent slavery.  Man was a part of Nature, and you took what you wanted, if you could.  You formed groups and tribes for this purpose, for there was greater safety and strength in those groups and tribes.  There was no concept of the individual or individual rights; you were a member of your group, and your survival depended on that group.  If your group won, you confiscated the property of your rivals, including his children and women.  Anyone you had no use for, such as the old or the sick or the dangerous, you killed.  And of course, if your enemies prevailed, you shared the same fate. 

If you were successively victorious, you celebrated by building temples to the gods who had blessed you, or you worshipped the gods among you  Of course you also built monuments and palaces to your leaders and warriors, as totems to their greatness.  And if your civilization succumbed to a rival some time later, your enemy sat on your thrones and lived in your palaces that they acquired the same way you did–by force.  You supplicated your gods and you placated your gods, and you worshipped and obeyed your kings and princes as gods themselves, or the sons of the gods, or the direct representatives of the gods.  And sometimes the Great Leaders and Warriors had to share the power in an uneasy alliance with the Priests and Shamans who controlled and manipulated the fears and superstitions of the human herd, who provided opaque and inscrutable explanations for why things sometimes went wrong, who demanded sacrifices for the gods of both this world and the next.  It reminds us somewhat of the chief economists and central bankers  ’divining  the liver’ of the economy, reading the stars, making their prognostications and gobbledygook commentary about what it all means, and who also require sacrifices so that the gods may be propitiated.

There were two ways to acquire wealth; the tedious, slow way of trading successfully with others, or the riskier but faster way–to seize what others already had.  You could do this as a petty murderer; or as a tribal leader, a mass murderer if the occasion demanded it.  You could enslave others, or you could be enslaved by others.  The spoils went to the winner.  For those who chose the route of peaceful and voluntary trade with others, the advent of Money was an organic process that developed naturally as a more efficient way to trade.  It expanded the possibilities of what could be traded, as Money was a way to store value.  Money was a symbol of value that had been created and was warehoused somewhere else.  If on the other hand, you were a Ruler, Money facilitated the confiscation of the wealth of your subjects.  As a Ruler, you saw Money as nothing more than an extension of your right to plunder your subjects; if you insisted that your subjects pay their taxes to you in salt, or grain, or gold, you didn’t care what medium of exchange they used among themselves, as long as you controlled the form in which they paid you.  This became your Treasury.

As the Ruler, what did you need a Treasury for?  Well, your subjects didn’t always have the products or skills to do what you wanted.  So you had to bring people and products in from other places, and to do this you had to trade with them.  You could force your own subjects to engage in slave labor, but you could not do so with others outside your domain, for most likely they belonged to another Ruler, another Tyrant.  They were his property, not yours.  If the other people were accustomed to gold as a means of exchange, as you were, trading was simple.  If they did not use gold, trade quickly got more complicated.  Now there were two forms of money, your gold and whatever they were using.  A rate of exchange had to be negotiated.  If they were using salt, then you had to establish how much salt was equal to an ounce of gold.  Your joint answer to this question would become your exchange rate between two kinds of money.

You also need a Treasury to finance your wars.  You may have had your own troops, but many, if not most wars were fought with soldiers-for-hire, mercenaries.  Either way, they had to be paid.  If soldiers didn’t get paid, they and their families didn’t eat, and when people don’t eat, they get deeply unhappy.  Unpaid soldiers have a nasty habit of slipping away in the night and disappearing.  So they had to be paid, with Money that would be recognized and accepted by others with whom the soldiers would want to trade.  In ancient societies, soldiers were paid in coin.  When the Treasury of the Ruler was low, he would order his minions to shave slivers of metal off the coins, then melt the shavings down to forge new coins.  The coins of the realm tended to get smaller and smaller and people would notice and feel they were being defrauded.  And of course, they were.  By the Ruler, who was trying to expand his Money supply the only way he knew how.  When Rulers figured out alloys, they would instruct their keepers of the Treasury to mix base metals with the precious metal, again in an effort to take the existing amount of gold or silver and make it go farther by cheapening it.  When people felt they were being cheated, they demanded additional coins in payment to make up for the parts shaved off, or the new alloy coins.  They started making etched ridges along the circumference of the coins, so that if any shaving of the edges was attempted, they would know it because the ridges would be missing.  All through history people everywhere showed a basic desire to keep what was theirs, and all through history they tended to distrust their Rulers intentions with their money.  And with good reason.  The Rulers treatment of their Money was the equivalent of a cheating pair of scales.

Over the millenia, nothing has really changed very much.  With the advent of the printing press, it became a lot easier to steal from one’s subjects.  Until shortly after World War I, the currencies of the world’s governments continued to be pegged to gold as a means to facilitate trade between nations on an objective standard.  Because the rest of the modern world had been decimated by the ravages of what had come to be known as The Great War, the American dollar had become the currency of the world; in other words everyone was willing to be paid in American greenbacks because it was agreed that those dollars could be redeemed in gold on request from the American Federal Reserve, our central bank.  Because there was a steady loss of gold over the years from the American Treasury, President Nixon unilaterally decided to take the American dollar off the gold standard in 1971.  Confidence in the American dollar was waning, and foreigners wanted the gold instead.  Well, no more.  The Law of Unintended Consequences prevailed, as always.  In today’s world, when foreign governments acquire larger quantities of another nation’s currency than they are comfortable with, they sell the undesired currency on world markets.  You see, paper money, like gold, oil, cotton, grain, or cattle, can be sold in markets created specially for the purpose.  Currency is bought and sold on what is called a Foreign Exchange market, or FOREX for short.  Well, after Nixon took us off the gold standard, foreign governments rushed to get rid of their dollars by dumping them on the world market, exchanging dollars for other currencies then considered more valuable.  When there are more sellers than there are buyers, the price of a commodity goes down.  The dollar is a commodity, and the price of the dollar went down.  Now let’s make this next connection in a flying intuitive leap:  A paper dollar unattached to an objective gold standard has no value in and of itself.  It represents only the faith of the people who use it.  When it is obvious that governments are trying to unload a lot of dollars, it quickly erodes people’s confidence in that dollar.  When the confidence in the value of the dollar goes down, what the dollar is able to purchase goes down also.  When it takes more dollars to purchase the same item than it used to, you have inflation.  The same thing has happened as when an ancient Ruler mixed other metals with gold in order to create more of it.  The purchasing power of the unit of currency goes down when people don’t trust it; so they want more of it in payment than they used to.  Prices go up.  If you have the same quantity of a currency as you had before, but the purchasing power of that currency has done down, you have just become poorer, as surely as if someone had robbed you during the night.

When Rulers, or governments, for whatever reason, add to their Money supply, you have more money chasing the same goods, which means the purchasing power of the unit of currency goes down, which is just another way of saying the price went up.  The price is nothing more than how many units of currency are required to purchase an item, any item.

The American consumer nation became an empire of debt in order to pay for all the goodies it imported from foreign nations.  America paid those nations in dollars, and by 2001 almost 80% of all dollars in existence were held by foreigners according to Bonner and Wiggin in Financial Reckoning Day Fallout.  Under normal circumstances foreigners can get rid of dollars by buying American goods in return, and this keeps foreign currencies in balance.  That didn’t work because we were importing way more than we were exporting, so the imbalance grew.  Foreigners could have once again dumped their excess dollars on the foreign exchange market, which would have driven the value of the dollar down, which would have made foreign goods more expensive, and our exports cheaper.  That would have reduced demand for foreign goods, and reduced their sales to us.  They wanted to keep their factories going at full production, and that meant continuing to sell to America at maximum levels.  So instead, what did the foreigners holding excess dollars decide to do?  They decided to get rid of those dollars by buying up American assets, including businesses, real estate, and financial investments.

But the plot thickens.  At about the turn of the millenium, America was in the throes of a recession.  The Federal Reserve, determined to make this go away, decided to make credit cheaper by lowering interest rates to unheard of levels.  They wanted Americans to buy, and they figured the best way to do this was to make money cheap.  Cheap credit, combined with government incentives to lenders to make residential mortgages available to people unlikely to pay those mortgages, resulted in a lot of toxic mortgages out there.  Because money was cheap and easy, demand for residential real estate went through the roof, and that of course, caused the prices for that real estate to go through the roof as well.  So prices of real estate are spiraling up, money continues to be cheap and easy, there are a flood of unworthy mortgages.  Now for the rest of the story.  The flip side of cheap money is that lenders, who make their profits off of interest they charge, now have sharply reduced profit margins because their product, money, is too cheap!  They are practically giving it away!  What to do?  Simple:  slice and dice these toxic mortgages that everyone knows are going to result in default by the borrowers, repackage them, take them off the lenders hands, and sell them to ????  Why the foreigners who are holding more dollars than they know what to do with, and let them buy them at outrageous premiums!  And why would they do so?  Why, because the prices of real estate have been spiraling upward like the forced steam of a 19th century locomotive.

Now to put this in perspective, if you got a twenty-dollar bill from an ATM machine, and then went to the grocery store to make a purchase only to find your twenty-dollar bill is counterfeit, what would or could you do?  The bank won’t take it back, and the grocery store won’t accept it as payment.  The one last holding the counterfeit bill takes the hit.  That would be you.  You are out $20.  Unless of course you go up the street to McDonalds or Starbucks and use the same bill to make a purchase, and get change in non-counterfeit denominations.  You have successfully handed off your risk of loss to someone else.  This is what the lenders and Wall Street did with the toxic mortgages.  They pawned them off, at exorbitant profit to the first suckers they could find–the foreigners looking for a place to put their excess holdings of American dollars.  Foreigners such as foreign central banks, for example.

The rest, as they say, is history.  The bubble price level of real estate popped, the mortgages were much higher than the value of the properties that collateralized them, the foreign holders of these toxic repackages had a fit, American lenders who didn’t leave the party early enough got stuck with a lot of non-performing loans, which meant that they no longer had sufficient reserves on hand to cover their exposure to those bad loans (which meant they were insolvent and a prime target for a run on them by their depositors.)  Then there were the insurors of these toxic assets who were extremely overleveraged and ready to go under, starting with AIG.  The American government came to the rescue, and bailed out the banks, the insurors, the foreign central banks.  How did they pay for all this?  At the heart of it all is a defective product–the toxic mortgages and the packages they became a part of.  There is no market for mortgages worth 30% less than the homes that are the collateral.  And to make matters worse, the prices continue to drop, and no one really knows how to determine what these properties are worth, other than to put them out to sale in a market where no one is buying.  So the Federal Reserve decides to buy the toxic financial instruments at prices that are made up, pure fiction.  And the Fed buys these mortgages with more fiction, pretend money.  Money created by making  book entries in digital ledgers.  The banks receive the digital money, their reserves are stabilized, and they are removed from the Endangered Species list.

There is only one problem.  The Fed, when they came to save the day, expanded the money supply of the world’s largest debtor nation to a degree unprecedented in history.  The whole world’s financial system continues on life support, and the machine is making disturbing noises.  You see, there is one minor detail everyone seems to be forgetting.  There are only two ways to acquire wealth:  produce value, or steal the value produced by someone else.  This nation’s value comes from its manufacturing plants, research and development departments, its science labs and production facilities.  There are no current economic indicators that reliably tell us these numbers are improving.  So can we print our way to recovery and prosperity?  Ben Bernanke says we can.  Tim Geithner says we can.  The President says we can.  In time, all that wildly inflated Money supply is going to work its way out into the economy, which means the purchasing power of the dollar is going to drop.  When ordinary people sense in their gut that the value of their dollar is dropping, they will rush to get rid of their dollars, just like foreign governments did in the last ten years.  But who will take them?  As the floor drops out of the dollar, we will rush to spend them in the morning, because they will be worth less by the evening.

Will the government’s debts be honored?  Of course.  Everyone who is owed will be paid.  With currency devalued to a fraction of its face value when it was borrowed.  But who can argue?  Everyone can see the numbers printed on the paper.  We will all be poorer, except those favored few who are in on the insider trading, who get rid of their money first. 

The remainder of the burden will be borne by the taxpayer.  Isn’t it amazing how much better we can feel, knowing we are taxpayers and not slaves?  Would we ever agree to becoming slaves?  Of course not.  At exactly what point does a taxpayer subjected to Washington’s gang warfare become a servant of the State? 10%?  25%?  50%? 75%?  Are we perhaps like Cleopatra, passively accepting our vassal state, as long as we are allowed to pretend we are still a free people?  Do you think Cleopatra felt better knowing that her country’s production of grain was being confiscated for the ”good of society”, society as defined by her captors?  Roman society?  Like every other tyrant cum Benefactor in history, Cleopatra eventually got what she deserved, for she also was one of them.  She too had been one of the Gods. 

The claim of governments to control over money has no basis in nature or any rule of law recognizing individual rights and private property.  Statists all believe in the moral superiority of the collective; for them the sovereignty of the State trumps the sovereignty of the individual the State supposedly serves.  It is not hard to figure out which philosophy prevails in our culture.  The well funded collectives who contributed heavily to the campaigns of our politicians have been generously rewarded.   And what of the well-heeled financiers, bankers, stockholders and managers of the insurance companies, the foreign central bankers, and our own professional bureaucrats who created this problem?  They are the very ones selected to be bailed out or worse, chosen to correct it!

We, the individuals, the smallest and most unprotected “group” in the nation, will foot the bill.  Between inflation and taxation, dear Reader, it is our wealth that will be confiscated or destroyed.

Perhaps, like Cleopatra, we too have been given an invitation we cannot refuse.

The gods are still among us.

In case you don’t know, Robert Kiyosaki is the author of the Rich Dad series of books on financial literacy, and he and his beautiful wife Kim are the creators of the board game called Cash Flow, a marvelous financial learning tool for young and old alike.  I am a fan of Robert Kiyosaki.  I met him and his wife in a bar in Pittsburgh, PA.  They are very genuine, down-to-earth, and friendly people.  They are for-profit educators, and they clearly have a passion for their subject.  And yes, I really believe Robert’s story about his rich dad and his poor dad.  I don’t think Rich Dad is a figment of Kiyosaki’s imagination.  So I am a believer.  I don’t make statements like that very often.  I have something to say to Mr. Kiyosaki, a disagreement I want to air with him.

Dear Mr. Kiyosaki:

If you are reading this, you already know we are kindred spirits and I admire what you do and share your commitment to financial education.  In a recent article you wrote that some of your best financial advice is to not be average.  That comment was the source of considerable outrage on the part of your readers, judging by their comments.  Perhaps they wanted your message gift-wrapped in softer language, but I couldn’t agree with you more. 

Very few people truly comprehend the mind-numbing reach and power of their government, and its insatiable appetite for their earnings and its religious zeal to dumb them down and control their lives.  Therefore they do not understand how much the odds are stacked against them in their endeavor to break free from the rat race.  They do not understand that to be average is to have no chance.

Up until a few years ago, if you were to ask any young person on the streets of the European Union what he wanted to do when he was of age, a most likely response was ‘I want to move to America’.  In Europe it was hard to fail, but it was impossible to succeed in a big way.  Success as in break free, to rise above; to know that your life could embrace more than go to work to the same place at the same time and then come home to the telly at the end of the day, till the end of your days . . .   Success in Europe is measured by your ability to obtain employment with a large firm or the government, work as few hours a week, month and year as possible, protect prices and businesses mostly from themselves, and hope the rest of the world goes away. 

For over a century our intellectuals and thinkers have yearned to take us to the same place.  And our politicians don’t seem to care much one way or the other as long as they get to ride in the front of the wagon. . . . .whatever keeps their free ride intact.  These ideas and ideals have become firmly entrenched in our public school system, to say nothing of the Humanities Departments of our universities that promoted them.  America, like Europe before us, is being suffocated under a wet blanket of bad ideas and the false ideals of altruism and egalitarianism.  In our overweening and fanatical quest for equality, if we cannot bring the bottom up, we are committed to bringing the top down.  We have given up our freedoms in the name of ideas whose consequences we do not understand.  As George Orwell once said, “Some ideas are so preposterous only an intellectual could believe them.”  Until of course, they work their way into the culture at large and achieve acceptance by their sheer ubiquity and mindless repetition.  So yes, Mr. Kiyosaki, if we are average, we have no chance of breaking free. 

On the other hand, one man with courage constitutes a majority.  And this is where I disagree with you.  In your writings you always emphasize the value of cash flow.  I understand what you are saying, but I have observed even in playing your own game of Cash Flow that the only way to break out of the Rat Race is to hit it big with a lucky break,  which means either starting a business or buying an asset (real estate or stock) low and selling it high.  I think there were many, many people during the real estate bubble who were attempting to do just this; catch a wave in order to bootstrap themselves up.  A fortunate few did; most drowned.  The smart ones who caught a wave invested those gains in cash-flowing assets later to preserve their gains.  They knew enough to leave the party early and take their money with them.  In your own case, it would appear the wave you caught (or created) was your invention and successful promotion of your board games and your first book, Rich Dad Poor Dad.  Without knowing what to do with your ideas, your ride might have had very different results.

Luck does have a part to play.  Financial literacy has a part to play; you have to know enough to recognize a lucky break when one comes along, and some clue how to get up on your surf board and ride it.  Cash flow becomes your salvation later in the game, after you have gotten up. Courage matters; the courage to seize opportunities and build on them, or the courage to create opportunities where none appeared to exist.  There is risk involved, risk of failure, risk of drowning.  If you succeed in getting up, you may not change the world, but you can certainly change your life.  In that way you are the one person with courage who now constitutes a majority. 

Whether they succeeded or failed, I take my hat off to all those who tried.  And some of them now have the courage to dust themselves off and try again, a little smarter, and more aware of what they don’t know.  These ones are your, and my, best customers.  Let’s help them weigh the risks and direct their courage.  Let’s help them get up.  And sometimes that means they may find an undervalued asset that they need to buy low and sell high.  Financial literacy will help them get it right and know the risks.  I don’t think we should tell them to walk away from an opportunity.  They have to get up on their board before they can ride the wave of cash flow.  They have to establish reserves they don’t have in the present, and without reserves even a cash flowing asset can be a huge liability if anything goes wrong.  Yes, they are in a bad place and they are coming from behind, and yes, their chances of success are low.  Unless, of course, they’re not average.

Above all else, none of us can give up.  Without our dreams, we are nothing more than peasants under a new name.

I read your books, love your games, and I created the Greenville, SC Cash Flow Club.  I applaud your efforts and the way you lead the financial literacy parade.  If you send me your Fed-Ex-deliverable address, I will send you a coffee cup with a photo someone took of you, Kim, Tami, and I in Pittsburgh all those years ago.

Warm regards,

John Bechtel

The BIG BANKS, that is.  The Big Banks always win.  And Big Money.  R-e-a-l-l-y BIG Money always wins.  Money so big it moves around the globe swiftly and silently and at the speed of light, and you can’t even attach a name to its owners.  We’re not talking about the neighbor down the street with the new Mercedes that he is so proud of.  We are talking about money so big it can bring down governments, and prop up governments, dictate terms to governments.  We are not talking about the millionaire next door.  Nor am I talking about your lovely neighborhood bank, or even the biggest bank in your state.  I am talking about the people who decide which banks fail and which ones don’t.  I am talking about the people who allow some banks to fail so that  THEY can buy up the failed bank’s  assets with pennies on the dollar—oh, and that’s pennies on YOUR (tax) dollar, not THEIR dollar.  The politicians are their pawns, who are rewarded and punished according to their compliance and cooperation.  The only thing these people fear is, well, YOU.  You are part of the herd, and they fear the herd.  These people don’t like democracy, they don’t like the light, and they only pretend at transparency.

To read about what you can do NOW

to improve your financial literacy

and put money in your wallet

continue to the end of this article, or click here:

http://www.phoenixlogistical.com/education.html

Empires have always been about the control of the many by the few.  It was said that the sun never set on the British Empire, and the most amazing feat of the British Empire is that it controlled so much of the earth’s surface with the tiniest of military garrisons and outposts scattered around the globe.  In most of those places, if the local populace had risen up against them, the tiny British garrisons would easily have been overrun and sent packing.  They had the greatest navy in the history of the world, but no navy could have kept them safe everywhere, and especially inland.  The secret of their superiority was the quality of their information.  They knew the value of information; they knew that information was power.  The maintenance of power required keeping the masses in ignorance.  And as long as the masses could be fed, amused, and kept poor, nothing would ever change.  It was important to keep the masses poor, because that kept them too busy and too tired to interest themselves in anything other than the tyranny of survival.  And the purpose of empire was to extract wealth from far flung lands and bring it home to a privileged few.

For centuries there was a great diaspora, or scattering, of Islamic peoples throughout the Middle East, Central Asia, and the Pacific Basin.  These were all tribal peoples who constantly warred against each other and competed for resources.  Since they were largely theocracies, and ruled by their imams, muftis and caliphs, their religious differences (and there were many), resulted in religious wars among themselves.  Occasionally they would unite against a common enemy, and then break apart again to fight each other some more.  If they had ever succeeded in uniting themselves, they could probably have become a world power, but their greatest enemy was their own ignorance.  Most of the populations of these parts of the world were illiterate; they could not read, and they knew little or nothing about what went on beyond the borders of their village or province.  When power brokers sought greater hegemony in one of their regions, the source of their power was always control of the information that got to these people.  Control the information and you control the herd.  People only react to what they know, or what they think they know.

In this country the same applied to the black slaves.  It was a case of the many controlled by the few.  It was illegal in most areas of the south for a slave to be allowed to learn to read.  Education was the enemy.  Why?  Because information is power.  Control the information, and you control the herd. 

Now ask yourself who has been controlling the information in your life.  How much of it have you been carefully spoon fed by the power brokers who benefit by your compliance?  And how much of your own ignorance is of your choosing, because you either think you know more than you do, or you think what you don’t know doesn’t really matter anyway?  Do you have any idea of the awesome consequences of ignorance in this Information Age, when what you know is almost obsolete by the time you have digested it?  Believe me, dear Reader, I am NOT being condescending in asking these questions, but if you are not yet alarmed, you need to be.  You are living through the greatest crisis of the new millennium, and quite possibly the most critical tipping point in the history of mankind.  Our attitude has got to be that we can’t ever know enough, and we can’t stop learning, and we cannot possibly limit ourselves ideologically anymore.  This is no longer a liberal-conservative, Democrat-Republican, us-them issue.  This is about survival.  This is about information, and the control of information.

What do you really know about the world you live in?  And how much of what you have taken on faith is true?  Folks, we are IN the herd; we are part and parcel of the masses, and we have no chance of making informed decisions that will affect the rest of our lives, for ourselves and our families, if we go on assuming we are being taught what we need to know.  When have the Power Brokers of the Universe ever indulgently, and out of the goodness of their hearts committed themselves to real education of the masses and full transparency?  The higher you go in any power structure, the greater and thicker the walls of obfuscation and misinformation.  Power always works to perpetuate itself.  The few over the many.  And if you gain any temporary respite, any imagined breathing room, however brief, as you momentarily congratulate yourself that your group, your tribe, your ideology, rides triumphant, remember that the great lesson of history is that it will not last; that it is easier to get to the top than to stay there.  Once in front of the herd, you spend the rest of your existence trying not to be overrun by it.

Let’s take for example, what you think you know about the Federal Reserve.  It is NOT federal, it is NOT a bank, and it has NO reserves.  It is NOT American.  The Federal Reserve Banks are not banks.  And not all of the owners are American.  But they ARE some of the wealthiest people in the world.  So who are they, and who are they looking out for?  Not YOU.  You, dear Reader, only matter as a miniscule member of the herd.  The HERD matters.  The herd makes very rich people much richer.  Control the flow of the information to the herd, and the herd obeys.  You hear this, and you say, well, even if this is all true, this has no relevance to my life.  Therefore, So what??!!

Now let’s take another example.  AIG is an insurance company that insured swaps, which means that there was no money behind the insurance, which there would have to be by federal law if you called the transaction by its proper term:  insurance.  But call it a swap, and there is no cash behind the protection.  When the cards fold at the end of the hand, AIG has no money to honor the insurance that wasn’t really called insurance, and the very powerful creditors had to be paid.  Some of them were foreign banks.  About one year ago almost exactly, AIG posted a quarterly loss of over $60 billion.  You hear these numbers and they mean nothing to you, because they appear to have no relevance to life as you live it.  You say, So what??!!

You watch enraptured as the national debate on government healthcare rages on.  You hear statistics bandied about, but you also know that statistics serve their Masters, and you don’t always know who or what to believe.  The rant is deafening!  The conflicting ideologies are overwhelming.  All you want to do is stay alive and stay healthy.  Yes, you know everyone wants the same, but the chances are if someone is living next door to you without health insurance, you have probably not volunteered to pay his monthly premium for him, have you?  So at a micro-economic level you behave one way.  But in a macro-economic way, you have no problem with someone else paying his premium, do you?

But let’s get beyond the personal for a moment, and put on our educated hat for a moment.  We all understand about supply and demand, right?  At least if you’ve been reading this blog, you do.  We all know that the government subsidizes healthcare, and we all know that the existing subsidies, Medicare and Medicaid, as well as Social Security, are unfunded liabilities to the tune of $67 trillion dollars.  That means in the red, folks.  The mortgage is due and Momma has no money.  Okay, when something is free or almost free (subsidized), Demand grows and lines form.  If Supply was equal to Demand, prices might remain stable.  But unfortunately Supply is limited, largely due to mind-boggling regulation, which strangles the delivery system.  Same old story as starvation in the world; there is plenty of food to go around, but the delivery system organized by governments is routinely compromised.

The paper work becomes more important than the healthcare itself.  A year ago I had a personal experience with this phenomenon.  Shortly after major surgery, I accidentally fell out of my hospital bed.  I was on a morphine feed for pain, and I was hanging over the side of the bed with my head almost touching the floor, and my one arm was tangled up in the tubing connected to my arm.  Somehow through the post-operative fog I found and pushed the red Assistance Button and asked for help, and I was informed by the Shift Supervisor that they would get to me when they finished their reports.  Which they did—25 minutes later! 

Back to the principle:  Big jump in demand, restricted Supply = Prices Rise!  When prices rise, lines form, and service is rationed.  My point is, does a knowledge of economic principles help you to cut through all the ideological rhetoric and see things for what they are?  You still have to make a decision for yourself, but you can make a more informed decision.

Now we have been told that the government is not going to replace the insurance companies, but is going to compete with them.  Okay, let’s think about that.  Your family owns a small pizza shop on your street.  The government is going to open up a pizza shop across the street.  If you don’t make any money in your pizza shop, you can’t pay your bills and you have to close and go clean toilets for a living.  If the government pizza shop doesn’t make a profit, they go in the back and print money to pay the bills.  At the end of the day, you tell me who’s going to win and who’s going to lose.  But wait, it’s not that simple.  The government won’t lose.  Of course not.  But the insurance companies won’t lose either.  Why not?  Because they pay their politicians well, and they will be taken care of.  Who knows how, but they will.  So who loses?  You do, TWICE; you lose as a patient, and you lose as a taxpayer.  The government now controls your healthcare, and it controls your healthcare choices.  You have been dumbed down one further notch.  Congratulations.  To listen to the idiots in the media, we don’t really care, as long as we are all dumbed down equally.  After all, we are only members of the herd.  Do you think for a minute that our politicians and the money people behind them are going to be limited by the choices imposed on the rest of us??  Do you still say So what??

The relevance of economic issues is that over a period of time, you are becoming poor, and you will never know how it happened or who did it to you.  You will never see the face of the enemy.  Or if you do, it will be the face of a pseudo-enemy created especially for you.  Life will get harder and harder; you will work harder and harder for less and less.  You may still think of yourself as middle class, but you will live more and more of your life as the working poor.

This article is about why the Big Banks Always Win.  I digressed to give a number of examples of how all through history the many were controlled by the few, and this was accomplished by the control of information to the herd. My examples ranged from the hegemony of the British Empire, to the subjugation of Muslims by their own kind, to control of black slaves in America, to our own ignorance about the Fed, the bailout to AIG, to how our lack of understanding of economic principles in the current debate on healthcare in this country can come back to haunt us in the form of a lowered standard of living.   The first act of all Power Brokers is to control and manipulate the flow of information and disinformation. 

Only if  you can understand the link between raw power seeking and the control of information,  can you understand how Central Banks have been engaging in the greatest cash heists of all time, and yet it never gets mentioned in the history books.  As Adolf Hitler once said, history is written by the victors.  Or the Golden Rule, if you prefer:  He who has the gold, rules.

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So why do the Big Banks always win?

• Money came into existence organically, as a natural desire of humans to trade goods and services with each other.  The most tradable commodities began doing double duty as money.  Gold and silver came to be the global currency, because it was universally recognizable, divisible, portable, had high value to weight and volume, with continuity of value over time largely due to a relatively fixed supply.
• Governments of every description immediately moved to expropriate control of money as the most efficient way to extract wealth from their societies.  Each society developed their own coinage.
• Governments usually needed more money than they had, usually to finance their endless wars with each other.  They expanded their money supply by minting coins of the same size, weight, and appearance as the originals, but they debased their currency by adding “filler” base metals to make the gold and silver content go farther.
• Governments eventually linked their currencies to gold as a means to develop sensible exchange rates between their currencies and their trading partners.
• About 500 years ago fractional reserve banking came into existence, created by goldsmiths who learned they could charge interest on more gold than they actually had by expanding the money supply through warehouse receipts.  The more receipts accepted as the equivalent of gold, the greater the money supply.  The more receipts in circulation, the more interest accrued for the banks.  This accelerated trade, but it also became a license to steal for the banks.  Because under this system the bankers were earning interest on money that didn’t exist, they feared their depositors more than they feared bank robbers.  Banks borrowed from their depositors (repayable on demand) and then loaned this same money out by contract on long terms (months or years).  The banks borrowed short and loaned long.
• In 1913 The Federal Reserve was created, and the name adopted for it was an intentional misnomer designed to deceive people into thinking it was part of the government.  It was not; it was a cartel of banks patched together to pool the risk of runs on a bank.  Reserve requirements were set.  The big banks now had control of the nation’s money supply.  Since a nation’s entire economy is a function of Supply, Demand, and the Money Supply, the big banks now had their finger on the trigger of the Money Supply of the nation.  The government granted them this authority in exchange for an agreement that the new Fed would buy Treasury debt!!  Now the banks could create money at will, and move it into the economy through loans to borrowers, and they could earn interest on every dollar of that new money.  The government could print money at will also, by creating Treasury Bills and selling them to the Fed.  The Fed had a license to steal, and the Treasury had a license to spend.  A marriage made in heaven.  Without central banks, the modern welfare state would have been impossible.
• The Federal Reserve System is composed of 12 regional “banks” that are owned and controlled by other banks in each respective region;  a co-op arrangement of sorts.  The only one of these regional “banks” with any power is the Federal Reserve Bank of New York.  The Federal Reserve System has a Board of Governors  appointed by the President of the United States.  The great irony is that the Fed is an agency of banks, for banks, but when instituted was deliberately misrepresented as an institution subject to government authority to protect the public from Congress and those ‘rapacious commercial bankers’.  The voting public was duped, entirely.  Perhaps now you understand why I went to such great length in the introduction to this material to demonstrate that Power Brokers always begin with the control and manipulation of information and disinformation.  The creation of the Fed was a giant step away from a market economy and in the direction toward centralized, bureaucratic planning and control of the economy.  It was a giant step away from capitalism and towards a mixed economy (and only another half-step to socialism).
• In 1919 the United States decided against joining the League of Nations.    There was a global power vacuum, and Benjamin Strong, then President of the Federal Reserve Bank of New York joined forces with Montagu Norman, head of the central Bank of England, to create money at the Fed, some of which was loaned to European nations, especially Britain. We sent our dollars over through these loans, and then the recipient nations used these dollars to buy American goods from us, thus improving our exports.  At the time virtually all of these nations owed huge amounts of money to the U.S.  The European nations exported their goods to us, and we purchased their goods with dollars, and this gave them dollars with which to repay their debts to us.  It was a round-robin of moving dollars around the table, and it helped maintain the pretense that those nations were in fact going to repay us.  This situation had considerable similarities, IN REVERSE, to our relationship with China less than a hundred years later.
• In 1944 at Bretton Woods, Maine, the U.S. dollar became the reserve currency of the world.  This means that the dollar became the currency for all transactions and trade globally.  This also meant that the United States could borrow money anywhere in the world, in its own currency, which of course was an invitation to irresponsible borrowing, which we were quick to do during the sixties, when we borrowed to wage the Vietnam War and pay for Lyndon Johnson’s Great Society welfare programs simultaneously.  Our profligate increasing of the money supply plunged the world into inflation, and the system collapsed in 1971.
• In 1971 we went off the gold standard, and through the IMF and the World Bank, we pretty much took the rest of the world off the gold standard with us.  Since then the world has been on “floating” exchange rates between currencies, mostly controlled and manipulated by individual governments.  The dollar remained the reserve currency of the world, and our presses went into overtime, and have ever since.
• The United States has borrowed so much money in its own currency from creditor nations, that its ability to repay is being quietly challenged.  Behind the scenes, nations are looking for ways to move beyond the dollar as the world’s reserve currency.  It continues to inflate its money supply by staggering amounts, now borrowing from itself, by the Federal Reserve serving as the U.S. government’s lender of last resort.  The Fed is not the government; it is a cartel of the nation’s largest bankers.  At some point the question has to be asked, what happens when the Fed no longer is willing to loan to the U.S. government?  What happens when we have to print money to pay the interest on the money we just printed?  At the end of the day, the very super rich are ultranationals and they will preserve their own wealth before they will sacrifice it to this nations politicians.  At the moment it serves their purposes to create money and loan it, because they earn interest on every dollar loaned.  When they change their mind, we are looking at the end of the welfare system and the disintegration of our social fabric as we know it.

So why, dear patient Reader, are we not now experiencing hyperinflation, considering the massive inflating of our money supply?  The short, short answer is the effect of countervailing deflationary forces, all of which are holding our economy in the most precarious, nerve-wracking balance.  We are walking on a razors edge.  If we fall to one side, we will have a Depression that will eclipse the one in the 1930s and 40s.  If we fall to the other side, we will experience hyperinflation, probably Zimbabwe style.  Everyone, so far, is hanging together, because the global leaders know that if we go down, we take the world down with us.  No one wants that.  No one is foolish enough to even predict what that would look like.  All we know is that we don’t want to go there.  And in the meantime the rich nations of the earth are violating every common sense principle of economics in the hopes that if they do enough of the wrong thing, it will work this time.  Even though it has never worked before.

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* * * *

Mayer Amschel Rothschild, the godfather of modern banking, purportedly said “Give me control of a nations money supply and I care not who makes the laws.”  What did he mean by that?  Is it true?  Since the Federal Reserve Bank controls the money supply of the United States as the world’s largest and most influential Central Bank, does this mean that this institution is more powerful than Congress, more powerful than the Executive Branch of the government, that it operates above and beyond the control of the Republicans or Democrats?  Is the Federal Reserve above the law?  Was Rothschild right?  What exactly is the money supply, anyway?

Let’s begin at the beginning.  What is banking?  Before modern banking, virtually all trade was in the form of barter.  Barter only works when there is a double coincidence of wants, which means you have hot dogs for sale at the same time that I have lemonade for sale, and you happen to want my lemonade at exactly the same time that I have a craving for a hot dog.  We both want whatever commodity the other is selling at the same time.  Obviously, this kind of trade quickly becomes very cumbersome, slow, and difficult.  Eventually people found that certain commodities became so common, and so universally in demand, that they became more useful as a means of exchange than for their original value.  This is, for example, how salt came to be used as money.  Originally it was universally desired for its ability to season and preserve food.  People started using salt as a means of trading all other commodities, because they all knew that if they received payment in the form of salt, they could in turn use that same salt to trade with others.  Salt became more valuable as money than it was as just salt.

In time two precious metals replaced salt:  gold and silver.  They were used as money because they were universally in short supply, universally desired, they were portable, and they had high value for their volume and weight.  Gold and silver had to be mined from the ground, and there was no way any speculator was going to be able to mess with the “money supply” of the day by pumping large amounts of new gold or new silver into existing circulation.  These metals were too hard to find, too hard to dig out of the ground, too expensive and too labor intensive to extract from the soil for the money supply to expand unexpectedly or significantly.  The money supply in the form of all the gold and silver in circulation was stable and therefore not prone to change.  The purchasing power of an ounce of gold did not change much.

Because these metals were heavy, in time individuals became gold brokers:  that is, they stored the gold for others.  They would receive the gold, and write out a receipt to the owner of the gold.  The owner of the gold would then use that paper receipt in the same way he would have used the actual gold:  as money.  These gold brokers, also called goldsmiths, quickly learned that mostly the gold just sat in their warehouse collecting dust, and they decided they would write more receipts than they had gold.  In theory, each receipt they wrote could be redeemed at face value for real gold, and that was 100% true when they only wrote receipts at a 1 to 1 ratio for the gold.  When they wrote twice as many receipts as they had gold, they were counting on the high unlikelihood that the holders of both sets of receipts would attempt to redeem them at the same time on the same day.  Eventually they wrote more and more receipts for the same stockpile of gold.  Why would they do this?  Because they charged interest for the use of these receipts.  Now for a moment, just stop and think of the profit potential of this racket.  You own no gold.  You agree to warehouse someone else’s gold, and you give him a receipt.  Then nine more people come to you for a loan of x amount of gold, but you don’t give them gold, you give each of them another receipt.  All ten of those receipts now in circulation are acting as the same amount of money as the gold on deposit—multiplied by ten!!  You as the goldsmith have increased the money supply out of thin air!!  There are ten receipts floating around out there, each of them supposedly redeemable by the same brick of gold in your warehouse.  And the goldsmith is charging interest on all those pieces of paper, and he is counting on only one of the borrowers asking to redeem his receipt at a time.  And thus is born the fractional reserve system of banking.  At heart the system is based on fraud:  the banker (or goldsmith) is pretending that he has the full value of the paper he gives you available for redemption should you ask for it, when he knowingly has only a fraction of that amount available.  He is playing the odds at the margin, betting the future of his business on the odds that you will not ask for it all back at one time, or even at the same time as his other customers.

The money supply is the total number of receipts he has in circulation out there at any given time.  Now let’s fast forward to the current 21^st century.  You’ve already figured out that receipts have morphed into money, or currency.  Now all of a sudden, it becomes much easier to mess with the money supply, i.e. all the currency in circulation at any given moment.  How?  Well, since currency is no longer redeemable for precious metals, it is in effect anchored to nothing more than the willingness of the public to use it and accept it.  So if you want to increase the money supply, all you have to do is print more paper currency and slip it into circulation.  But in the digital age even that isn’t necessary.  Printing of currency is done to replace worn out currency, and other than that, printing is used only metaphorically to mean digits transmitted electronically; journal entries into a national bookkeeping system.

Central  Banks are created to facilitate the manipulation of the money supply in a nation.  The Central Bank is a consortium of the largest banks in a nation that acts like a cartel, like OPEC does for oil producing nations, and it acts as the lender of last resort for all the other banks in that nation.  It pools the national money supply, and makes funds available to its member banks as the need arises.  It is determined what the amount of reserves should be required for each dollar the member banks loan out.  Now let’s do some simple math.  If it helps, get out a piece of paper and a small calculator and follow me along here for a minute.  Suppose the Federal  Reserve loans $1,000,000 to a member bank, Bank A,  at its inter-bank interest rate (lower than the public rate).  Suppose also that Bank A is required to keep 10% of all deposits in reserve.  So it keeps $100,000, or 10% in reserve.  Bank A then loans out the balance of the $1,000,000, or $900,000 to a customer of the bank.  The customer takes the face amount of his new loan, or $900,000 and uses it to buy something from a supplier.  The supplier deposits the $900,000 in his bank, Bank B.  Bank B keeps 10% of that $900,000, or $90,000 on reserve, and loans out the balance of $810,000 to another of its customers.  Just keep doing this for fifteen consecutive transactions, and you will discover that the original $1,000,000 that the Federal Reserve loaned to Bank A has already become almost $8,000,000 in circulation, with over $200,000 of the original $1,000,000 available in the fifteenth bank!  Almost as if by magic, in just fifteen transactions, $1,000,000 has been multiplied to $8,000,000 in the money supply.

So why would anyone want to expand the money supply?  Politicians do, in order to create inflation.  Inflation is increasing the money supply in order to reduce the purchasing power of the currency, in our illustration, the dollar.  This is called intentionally debasing the currency.  When you have more money chasing the same amount of goods and services available for exchange, the price of the goods and services goes up.  Which is another way of saying it now takes more of the currency to purchase the same thing.  This is good for debtors, and bad for creditors.  Why?  The debts the debtor owes are being paid back with dollars that have less purchasing power.  The creditor gets the face amount of his principal back, but those dollars now have less purchasing power than when he loaned them out.  Suppose that creditor loaned out those funds at 5% interest, but they are repaid to him with 7% less purchasing power.  That lender will soon be out of business.  He has lost money.

Now, who is the biggest debtor you can think of?  Come on now, try hard, it will come to you.  Yes!  The U.S. government.  As the theory went, it never mattered how much money the government borrowed, as long as it borrowed from its own citizens.  But if that government paid its own citizens back with intentionally devalued currency, it actually committed an act of fraud against its own citizens, did it not?  It picked their pockets without a vote.  If a political party raised taxes by an equivalent amount, it would be summarily voted out of office.  But when the Federal Reserve Bank does the dirty work for them, through the back door, financially illiterate people just shrug their shoulders; what can anyone do about inflation?  It’s probably those greedy businessmen raising prices to improve their profits!

But wait a minute, you say!  Stop!  The government hasn’t been just borrowing from its own citizens.  It’s been borrowing from foreign nations and global investment funds.  In fact it has borrowed so much from these foreigners that many of them have doubts about the ability of the U.S. government to ever repay them, even with devalued currency.  They have stopped buying U.S. government debt.  So let’s see, now.  The citizens of the country aren’t buying much of the government debt; the foreign governments have stopped buying U.S. government debt; our government is running out of potential lenders.  Who can it borrow from next?  Ah, they found a creative answer:  the U.S. government will go to their lender of last resort, and borrow from them.  Who is that?  You guessed it:  the Federal Reserve Bank.  How does the U.S. government borrow from the Fed?  The U.S. government borrows money by selling Treasury Bonds, which are nothing more than a government-issued I.O.U.  A Treasury bond, also called a T-bill, is a debt instrument, a promise to repay at some future time.  When no one else wants to buy them, the government sells them to the Fed.  In buying the bonds, the Fed gives the Treasury money to spend, which puts it into the money supply of the nation.  And when you increase the money supply by $1,000,000, in the fractional reserve banking system, after only fifteen transactions, with a 10% reserve requirement, that money has been multiplied by a factor of 8, with money still working in the system.  What happens when you inflate the money supply by hundreds of billions, or trillions, as has been happening in the last 24 months?

So the Fed creates money out of thin air, gives it to the government, which puts it into circulation into the economy in an effort to jump start the economy.  So where’s the inflation that should be there?  Prices are holding their own or even going down slightly.  What’s going on?

I’m going to address this and other questions in my next article, but in conclusion of this one, I want to paint a mental image for you.  The U.S. government isn’t the only nation in this poker game.  All of them are on board.  As one of our original patriots said in a totally different context, “We’ll all hang together, or we’ll each hang separately.”  No one wants to be left out of this poker game.  All of the currencies of the world are tied to the dollar, and have been for over forty years.  Most of the rich countries and many of the emerging nations have invested heavily in U.S. debt; so much so that if the U.S. decides to default, it can take the global financial system down with it.  So as the U.S. goes, so goes the world.

Now picture a large room with many tables and poker players, all engrossed in the Global Poker Playoffs.  Every player acts civilly, but every player ultimately seeks to trump all the others.  About a dozen or so of the players have nuclear weapons strapped to their belts, and the weapons are hot.  Nerves are raw.  Every player in the room knows that he is playing with the entire wealth of his family and tribe back home, and he knows he dare not come home empty handed.  His life might depend on it, and certainly his stature in his community, his personal economic future.  His family would share in his economic loss and disgrace.  In the center of the room is the largest table, with the biggest players.  The playing is intense, and the bidding escalates.  No one calls, no one dares to call, and the chips pile up in huge piles on the table.  Everyone is starting to question what resources lie behind those chips, and everyone knows what the risks are if a player isn’t good for his bets.  Everyone knows everyone else is bluffing, but no one dares to call, because everyone has overplayed his hand.  Suddenly the unthinkable happens.  Someone bumps the table; piles of chips fall over, spilling into each other, rolling towards the edge of the table.  Players start grabbing for the most valuable chips at the margins, upsetting the entire table.  Nervous hands move quickly towards their belts, chaos breaks out in the room, some run for the exits . . .

Here we go with the vocabulary thing again.  I promise to make this easier than your last root canal.  The Federal Reserve Bank is a central bank.  Central banks are created to control and manipulate the money supply.  The money supply is the aggregate total of all the money in circulation in an economy.  It is often referred to in the media and the industry as M.  Controlling the money supply frees governments from the responsibility of living within their means.  It makes it possible for them to counterfeit money.  All governments have laws making counterfeiting their currency illegal.  That is because all governments have a monopoly on counterfeiting and do not tolerate competition in the business.

Governments counterfeit money in the exact same way all counterfeiters do; they print it, and slip it into circulation into the economy.  They spend it.  They spend more money than the economy produces because they do not want to live within their means.  They do not want to live within their means because they use money to buy votes.  They give out goodies in return for favors; favors in the form of legislation that promotes the welfare of one group over another group; favors that line their individual pockets, reward their friends, punish their enemies, and above all, favors that get them re-elected.

Other reasons are given, of course, for the existence of the Fed.  But it is axiomatic that all governments seek continual expansion of their powers, and control of the public purse and the power to tax is the Holy Grail for power seekers.  The founding fathers of this country feared government more than anything, and the Constitution they framed was to protect us, not from foreigners, and not from each other, so much as from our elected government itself.  The debates about economic policies are a sideshow and a distraction; the main event is the relentless expansion of executive power and the quiet transfer, not only of wealth, but of personal liberties as well.  Without economic freedom based on individual rights, private property, and the right to keep and dispose of our earnings as we choose, there is no freedom at all.

Governments, all governments, do not really favor free markets, because in a free market you decide the winners and losers in trade, and the winners are those who produce what you want to buy at prices you are willing to pay.  You vote constantly with your wallet.  Losers go to government and ask them for favors, such as passing trade restrictions on those competitors who are better or smarter or faster than they are at producing what you want.  When legislators grant those favors, they expect favors in return.  This is called cronyism.  Cronyism is a form of corruption. Corruption on a massive scale, such as we see now, is the first sign of internal decay and the beginning of the end of empire.  America is an empire in late stages of such decay.  When trade is made possible primarily by permission, or political pull, resources cease to be allocated efficiently.  Those with get-up-and-go get up and go.  Bottom line:  trade and wealth goes to wherever it finds the most freedom to seek its own advantage.

Governments all prefer a command-and-control economy rather than a market economy.  In a market economy, the decisions are made at the bottom, by the millions of consumers.  The consumer is sovereign.  The consumer is boss.  In a command-and-control economy, the decisions are made at the top.    Who do you think does the commanding and controlling?  You are so very, very smart.  Yes, the politicians do, and the bureaucrats and regulators they appoint.  In a command-and-control economy, the government is sovereign.  Usually the ultimate goal of a command-and-control economy is, well, you guessed it—control.  Of you, the consumer.  To what end?  The accumulation of power and privilege.  To line pockets, enrich the ruling class, and permit the ideologically driven to save the world.  To save you.  Even from yourself.  They know best.

Command-and-control economies prefer big. Big what?  Big Corporations, Big Unions, Big Institutions, Big Media.  Why?  Big is easier to control.  You call in all the bosses of Big and you tell them what to do.  You threaten them with a Big stick.  And you promise them carrots if they deliver.  Then the government lets Big do their job for them.  Big collects the taxes for government, and performs countless other administrative duties free of charge for the government.

If Big Corporations do their bidding, laws are passed, manipulated, or enforced selectively to help Big Corporations succeed over their more able competitors.  When Corporations fail and would otherwise go out of business, government bails them out with taxpayer money.  This rewards Big Corporations for their generous campaign support, and it also rewards Big Unions by keeping their overpriced labor untouched.  In other words, government makes sure that no real solutions are put in place, that nothing substantive is changed, but that the inefficient and ineffective and incompetent are allowed to continue on as before, sustained by the public purse where the public has already rejected them at the cash register. Government grants monopolies to some winners, and it throws up bureaucratic hurdles to newcomers as protection bought by Big Corporations.  It investigates some Big Corporations in order to benefit other Big Corporations.  It extorts money from all business, large and small.  It decides winners and losers. This is called corruption.

All Big Corporations began as small business that began with drive and new ideas.  They flourished and grew and became Big.  Then they seek to keep other small businesses from competing with them.  They do this by going to government for protection.  The free market cannot be trusted.  Consumers might decide to buy the newer, better idea.  So government doesn’t want to kill small business, but it would prefer to decide which small businesses get to join the Big country club.

Big Unions are expected to tell their memberships how to vote, and to turn out massive campaign support when it is needed. In return, Big Unions get legislation passed that makes it easier for them to organize people into unions who don’t really want to be in a union.  Big Unions get favorable treatment by government agencies that control labor and management disputes.  Big Unions in turn can control or influence which Big Corporations get Government contracts. This is called corruption.

Big Media is rewarded with inside information, direct access to important people, scoops that improve ratings, and higher ratings bring in higher advertising revenues. Big Media can also be rewarded by legislation that tends to bring the Internet, or the power of millions, under closer government control.  Big Media is the propaganda arm of government, and the primary purveyor and amplifier of bad philosophy from the Humanities departments of our mainstream universities. 

Hiding in those hallowed halls are generations of resentful and envious intellectuals who yearn for a return to the Old European model of society where the bespectacled and leather-elbowed writers and philosophers garner the same reverence as the greedy money grubbers, the shop keepers, the retailers, the industrialists.  These intellectuals resent having only the same vote as the ordinary, unscrubbed mechanic or factory worker who could not possibly recognize or appreciate the superior intrinsic value of the intellectual author whose books gather dust in the publishers’ warehouses while trashy romance novels make their authors wealthy. They pride themselves on their spiritual elitism.  According to them, the only useful social purpose for the materialistic captains of industry is to create wealth that can be transferred (plundered) by those who court government’s favor.  The universities (Big Institutions) have cranked out generations of teachers, artists, writers, philosophers, and intellectuals wholly indoctrinated in a bias of anti-capitalism, which is nothing more than our unfettered freedom to trade as we please, with whom we please, each of us seeking our own interests.  As George Orwell said once, some ideas are so preposterous only an intellectual could believe them.

Part of Big Media’s role in assisting government is to confuse language, to expropriate legitimate terms and concepts and then skillfully change their usage to mean the exact opposite of the original definition.  Through the skillful use of propaganda, society has been revolutionized without firing a shot.  The Revolution is over, and we didn’t even notice there was one.  For the record, we lost.  Sometime during the night our servants became our Masters.  Free enterprise has become a euphemism for trade by permission.

Big Institutions obtain subsidies and grants that keep them in existence, even when no one really knows anymore why they should exist.  Because if they were truly necessary, surely the free market consisting of the rest of us, would support them as being in our own best interests.  Government subsidizes and controls what we would not pay for, precisely because we would not pay for it.  The government doesn’t think we know enough, that we are not sophisticated enough, to make those choices.  Government will spend our money for us.  And many times government doesn’t really care about whether something is a good choice or not; they simply have friends to reward and favors to repay.  This is called corruption.

Public education is a gigantic institution, funded by tax dollars, and mandatory.  Even if you have no children, you are going to pay taxes to support it.  Government controls the unions that control the teachers; therefore government controls the indoctrination and world view of our children.  It is also by means of this monopoly on education that toxic ideas are spread throughout the culture.  Government controls, and everything, every meaningful transaction, is subjected to influence and infinite subtle forms of bribery. This is called corruption.

When poor decisions happen, Big has a meeting:  Big Government, Big Corporations, Big Media, Big Institutions, Big Unions, and they decide who will be blamed, and who the winners and who the losers will be.  All solutions will of course include a further expansion of government influence, power, and intrusion into the marketplace.  The marketplace, folks, is a euphemism for us.

How does government do all this; how does government get all this past us, the voters?  The first rule of thumb is the artful use of propaganda.  Regardless of the controversy, it is better to unify everything into one common enemy, one Devil.  For Hitler, it was the Jews.  In our nation, it is business, always portrayed as greed personified.  Except in certain useful instances, it is not necessary to get too specific.  It is not necessary to label any business in particular, but rather to attack an amorphous, gray, ambiguous entity such as greed and business in general.  You see, government has a love/hate relationship with business.  The government wants control of business, but it doesn’t want business to go out of business, at least not most of them.  If business goes away, there is nothing to plunder, nothing to expropriate, to tax or seize.  Occasionally some Big Corporation, very often in bed with government, is caught in some behavior so outrageous that it causes a public outcry, and then of course there needs to be a “public hanging” to satisfy the mob.  And those members of government that were involved backpeddle as quickly as possible so as not to be fatally associated with the errant business entity.  If you think I am exaggerating the extent to which the elites of our culture endorse an anti-business animus, ask yourself, when a businessman plays a significant character in the movies, how does Hollywood typically cast his character?  And when events conspire to reveal corporate excesses, such as in our present time when so many on Wall St. were taking hundreds of millions of dollars in bonuses even as they squandered other people’s fortunes, how much exposure is given by Big Media and Big Institutions to the complicity of government in such shenanigans?  Barely a word.  Were it not for the Internet, how many of us would know the rest of the story??

Then there is divide and conquer. Encourage group thinking, and then pit one group against another group, and let human nature take over.  This is where the R word has been so effective:  disagree with proposed legislation and you are labeled as racist.  Government-sponsored racism is everywhere, and for a very good reason.  Divide and conquer.  Pit every man against every other man.  And then play the paternal role of Benevolent Referee.  The government is here to help!

Maximize the formula of concentrated benefits, dispersed cost. Those voters who stand to gain the most will work hardest to get a law passed; and the cost will be dispersed over a much larger group.  If a given piece of legislation will provide a benefit of $10 to Group A, but will cost everyone else only 1/100 of a cent, no one blinks and lets it pass. Government promotes  democracy, which is nothing grander than gang warfare, and weakens the Constitution which champions individual rights (the smallest group, and obviously the only group without a lobbyist to buy protection for it), the only real rights that cannot morally be voted away by any majority. 

And finally, the ultimate government weapon:  culturally imposed altruism.  By “culturally imposed” I mean simply the prevailing philosophy in the culture.  Frame all legislation in terms of the right and moral thing to do for Group A, and call anyone who disagrees selfish.  In a culture that has been brainwashed for over a hundred years that our only purpose in living is to live for others, and not for ourselves, bring up the S word and all opposition runs for cover! 

Government utilizes the Big Media and Big Institutions (major universities very beholden to government for subsidy) to promote the idea that government has access to a very special kind of human being:  this phenomenon is smarter, better educated, and more intellectually agile than the people and businesses and institutions s/he controls and regulates.  This special form of human being is likewise wiser, more prescient, more inclined to take a long term view, and look out for your welfare better than anyone else.    And most important of all, this special human being is not selfish!  This special person is a paragon of virtue, incorruptible, devoid of ambition, immune to lust for power, sex, or money.  This special form of human being is here for you, and will always treat you like a customer, with respect, deference, and competence, because they know you have choices.  You could go elsewhere.  Who is this special form of human being?  Why, your government worker, your government bureaucrat, your friendly regulator.  And who do these enlightened human beings report to?  Why your elected officials, of course.  Thanks to bad philosophy in our universities and culture, government is granted a pervasive and benevolent benefit of a doubt; it is here to protect us, to look out for us.  Protect us from whom, from what?  From those avaricious, for-profit people.  Because they are selfish. 

Government is altruism at its finest.  Are they not committed to taking from those who produce, to distribute to those who do not?  How very Robin Hood-ish.  How very unselfish.  So now we have millions lined up outside Sherwood Forest, waiting for Robin Hood to show up.  No one wants to work in the fields any more; Robin Hood is taking from that wicked Sheriff of Nottingham, and is going to redistribute it to the rest of us.  All we have to do is wait in line.  Of course, in the fable, the Sheriff got rich by taking loot from others too, just like Robin Hood does.  What no one told us is that in Part II of the fable, Robin Hood becomes the next Sheriff of Nottingham.  He got to liking being in control of the transfer of wealth.

In our world of free trade, the rich are despoiled because they created wealth, not stole it.  We punish some for their virtues of innovation, industry, and thrift, and we reward others for their indolence and sloth.  Everyone except the producers gets something for nothing.  It is their right!  This is the Age of Entitlement.  Our Founding Fathers began this nation with a legacy from the Age of Enlightenment.  This is ideological corruption.

Now your elected officials at the federal level pass about 600-700 laws each session of Congress.  Do you really think your lawmakers read all that stuff?  If they did, they’d have no time to prepare for their next election campaign, which begins approximately 60 days after their last election.  There are hands to shake, babies to kiss, speeches to give, fundraisers to attend.  The business of democracy must go on!

So who do you think tells your lawmakers how to vote on all this legislation?  Their support staff and bureaucrats, that’s who.  And of course the phone calls from vested interests calling in their chips.  It’s payday, boys.  Here’s a little verbiage we want you to sneak into that Bill; here’s how we want you to vote.

Because government operates under the mantra of altruism, or unselfishness, and government officials pride themselves on the fact that they are not tainted by the dirty profit word, doublespeak and obfuscation become a professional responsibility.  Unions can never be painted as a business within a business with profit incentives, with its own leadership and management infrastructure, with their own “corporate” ambitions and perks;  unions can never be painted as what they frequently are, as paid thugs and shake-down artists that will rely on misrepresentation and lying; a protection racket that uses physical violence and intimidation when necessary to increase the all-important paying membership.  No, unions need to be portrayed as the unselfish champion of the common man, Joe SixPack, who is powerless to fight for his rights against the Leviathan of Big Business.  Little does Joe SixPack know that Big Union and Big Corporation have already cut a deal in the back room.

Teacher’s unions need to be portrayed as protecting the rights of the most underpaid professional class in America.  But who is going to champion the rights of the ones really without representation, the kids of our country who are graduating without a basic mastery of reading, writing, and the English language?  Ah, but take a stand against the all-powerful teachers unions, and you will be accused of throwing our education system to the wolves.  Our children are the real customers here, but let us not forget that when it comes to education, this is not market driven.  God forbid, put our children’s education in the hands of profit-seekers??!!  Why, some parents would selfishly want to put their children in the schools where they would get the best academic education (like our unselfish politicians??), instead of our centrally controlled and socially approved model of distribution!

Laws are enforced against businesses in order to protect the consumer from decisions he has already made!  He is not purchasing the higher priced union-manufactured product, and instead selfishly went for a cheaper, better quality product!  He doesn’t trust a certain bank because of foolish investment decisions it made, and therefore withdrew his money from that bank, causing it to become illiquid, but that bank needs to be saved where the market would have let it die twisting in the wind.  The bank will be propped up, and the government will protect it with guarantees, and it will protect the consumer from any of the banks future bad judgments by guaranteeing their deposits. So bankers can continue to take huge risks and consumers can be careless who they bank with.

The government is also busy looking out for the interests of all the displaced workers who are laid off, victims of downsizing by the brutal free market.  It therefore incurs a moral hazard in the form of those who are in no hurry to find replacement work, or get retrained in different vocations that are more in demand.  Since they cannot collect unemployment and work at smaller jobs in the meantime, the government creates a black market of under-the-table workers who pay no taxes.  My God, self-interest seems to be everywhere!  But please don’t think that self-interest has anything to do with politicians being concerned about the unemployed vote.  Our politicians are above self-interest.  They are here to serve their fellow man.  They are altruists.

Now assume for a moment, for the sake of argument, that our fearless leaders are far, far less than what they pretend to be; assume for the moment that their primary concern is not our welfare, but the perpetuation of the jobs and privilege paid by us, and assume for the moment that our servants have become our Masters.  And assume (correctly) that they print money when they want to spend more.  And assume that they use the vehicle of the Federal Reserve to make all this possible.  So what?  Didn’t we all enjoy our stimulus payments?  Did any one write their Congressman objecting and returning the check?  So what’s the problem?

Here’s the problem:  Our currency is the dollar.  The dollar works for us as currency only because we all accept it and are willing to use it.  No kidding.  It isn’t backed by anything.  Nothing.  Except your willingness to use it.  Savor that thought for a moment.

There is this thing called Supply and Demand.  When these two forces are more or less equal, prices are stable.  Every commodity in the world is subject to supply and demand.  This includes money, which is a commodity.   Anything bought and sold is subject to the Law of Supply and Demand.  If Supply of anything remains the same, but demand for it grows, the price goes up.  And vice versa.  The price is a symbol of the value of the item in demand.  When the price goes up, it means your unit of one dollar can buy less of the item.  Now get this:  we usually think of price as being attached to the item bought and sold, but the price is really a statement about your dollar:  a low “price” means your dollar buys more; a high “price” means your dollar buys less.  Makes sense so far, right?  Now suppose you have two widgets for sale in a room, and there is $10 available for those two widgets.  Your price per widget is going to be $5 each.  Now suppose we introduce another $30 into the room, for a total of $40 available for those two widgets.  The price is going to rise now to $20 per widget.  Did we get more value for our money?  No, we still only have two widgets.  So what changed?  The purchasing power of the dollar as the unit of exchange.  This is what happens when you print money.  It doesn’t matter who is doing the printing:  the Treasury or illegal counterfeiters.  When you introduce more money into the room (the economy) the purchasing power of your dollar goes down.  In the example above, your cost per widget went from $5 to $20, or an increase of 400%.  That’s called inflation. Were more widgets manufactured?  No.  The supply remained the same.  The purchasing power of your dollar went down.  You are now poorer.  It takes more dollars to buy the same thing. 

Not everyone gets hurt the same.  It takes a while for the new counterfeit money to work it’s way around the room, and it takes a while before the Seller of the widget realizes there’s more demand (in the form of more dollars) for his widgets.  It takes a while for the price of his widgets to move up.  The first people to use the new counterfeit money feel little impact; the purchasing power of the dollar hasn’t changed yet.  The ones who get hurt the most are those who saved a lot of dollars under their mattress, in their 401k, or anyone on a fixed income.  When they finally get around to spending their dollars, they are going to discover that the price of a widget went from $5 to $20.  Their dollars don’t go nearly as far as they used to.  This is how governments print money to steal from their savers.  It is a sneaky way of impoverishing your citizens, stealing their wealth and savings, and for the government at least, the best part is no one notices for a long time, no one understands that the government was the root cause, and therefore it doesn’t get voters riled up the way, say, higher taxes would.

Now let me emphasize one more time:  were more widgets manufactured in this example?  No.  Was the room (the economy) producing more?  No!  All that changed was that more money was introduced into the room.  Could you say that this economy was growing?  No!!  When you brought more money (counterfeit) into the room, did everyone feel richer? Yes, for a very short while.  But the new money was an illusion, and as soon as it worked its way into full circulation, everyone got poorer, because there was more money chasing the same two widgets for sale.  It just took more dollars to buy the same stuff.  This is like a great, global shell game.  Someone got cheated.  Can you figure out who?

The trickster, the one who controls the shell game, is the Federal Reserve.  And it serves its political Masters, for their political ends. 

Now, my fellow neophyte economists, can you guess what’s coming?  It’s a Category V tropical storm way out in the Atlantic, thousands of miles away.  It is ugly, ominous, foreboding, and its immediate direction is undetermined.  Once it moves there will be little time to prepare, and it will be vicious and destructive.  It’s target??  The dollar.  Trillions of fiat (counterfeit) dollars are being printed and introduced into the economy.  We are in uncharted financial territory.  What will happen when the impact of that new money is finally felt in the system?  Have you figured out what will have to happen to the dollar?  Production is stagnant and the money supply has been wildly inflated with printed money.  Can you connect those dots now?

Have you noticed the experts puzzled because after pumping this vast sum of newly printed money into our economy, everyone should feel better off, but doesn’t?  Have you noticed that the economy is supposedly improving, but production is not?  Do you remember what happened when you still only had two widgets in the room, but a lot more dollars introduced into the room to chase those two widgets?

The world has never seen a storm like this one.  It could bring a decaying empire to its knees; it could drastically lower the standard of living of the world’s greatest consumer nation; it could destabilize our social institutions; it could foster riots in the streets; it could induce our terrified citizens to quickly grant emergency powers to our government to restore order.  Would we ever find our way back to what we were?  Highly unlikely.  The problem is not the Chinese.  The problem is the weakness within; a viral infection of bad philosophy and bad ideas, ideas with consequences, ideas intended to dumb us down, curb our individualism, and foster the creation of an all-powerful nanny State that directs and controls all of our economic activity.  Who could possibly prefer such a government?  Some who feel safer in the middle of the herd; even if the herd is running over the edge of a cliff, they don’t seem to mind too much, as long as they’re in lots of company.  And the others, the really dangerous ones, are the ones who seek the power over the herd.   Greed and moral decay  turned us from a nation of Yankee ingenuity into a zombie State of  Welfare entitlements and Hollywood circuses.  And like the Roman Empire, our military legions are scattered worldwide trying to keep the barbarians from the gate.

It has been said that a people get the government they deserve.  It is easy for us to point the finger at some greedy business leaders,  incompetent bureaucrats, or power hungry politicians.  But weren’t we all glad to get something for nothing?  Weren’t we glad to be able to buy houses we couldn’t afford, with mortgages we never intended to pay (because we thought we knew we could sell the house quickly at an even more inflated price and walk away with quick money)?  And when the government promises free health care, or improved benefits, doesn’t that tickle our ears?  Who pays for this?  We benefit, someone else pays.  That works for us, right?  And when our government tells us they have figured out a way to pay for all this without going into even more debt, even though that same government already has about $67 trillion in existing unfunded liabilities and a 100% failure rate at living within its means we still believe them, right?  Why?  Because we want to believe them.  Because what’s wrong with a little something for nothing?  Do you hear anyone challenging universal health care on moral grounds?  Yes, I do know of such people.  For a powerful expose of the moral issues involved, go to  David Kelley‘s article Is There a Right to Healthcare? at http://www.atlassociety.org/showcontent.aspx?ct=14&h=53  For a courageous response to the question of why is healthcare different from other commodities essential to survival, such as, say, food, go to Bradley Doucet’s article here http://www.atlassociety.org/cth-43-2212-WOE-HealthFreedom.aspx.  Should the government take over the bakeries, and the distribution of bread, produce, and other food items essential to survival?  And finally, for an in-depth evaluation of both moral and practical issues, read an article by Clifford Asness, Health Care Mythology, at his website http://www.stumblingontruth.com/

We can debate practical aspects of any given issue till the cows come home, but in doing so we are missing the point.  Any time something is offered for nothing by a government, someone is being enslaved.  As novelist and philosopher Ayn Rand said once, free milk makes a slave of the milk man.  Any time something is offered for nothing by a government, the reach and power of that government is being expanded.  We are all so accustomed to our entitlements that we have forgotten to ask the really important questions.  Has it occurred to us that the redistribution of wealth and resources is only one part of the issue, the least important one, and that it masks a concerted and determined effort by some to totally change our form of government and increase and extend executive power and privilege into every nook and cranny of our lives?  We are a nation and a people that has lost its way because we have unwittingly bought into bad ideas and bad philosophy smuggled into our culture without our awareness.  The smugglers knew exactly what they were doing; we did not.  It’s time to wake up.  Not to change the world, but to change our individual lives.  If you are one of the ardent souls who has read this blog this far, then you will also want to read a truly excellent article documenting what I have written in this paragraph.  The article is called The Revolution Was, by Garet Garrett, written in 1938.  You can read it at http://www.rooseveltmyth.com/docs/The_Revolution_Was.html. 

All governments have an insatiable desire for more power.  That power is only possible by seizing control of economic activity within the country or empire.  Such governments achieve their control of the purse strings, and proceed to further enrich themselves by plundering their own citizens, and when there is nothing left to expropriate, they ration whatever is left of the nation’s wealth.  Governments do not produce wealth; they only plunder and ration.  Governments choose the winners and the losers.  Central banks, of which the Federal Reserve is the foremost example, are the tool governments use to manipulate the supply of money in the economy, increasing governments wealth by devaluing their own currencies.  Continued unabated, it spells the end of the middle class, the end of empire.  The only wealthy left standing are those handpicked by government.  After 300 years of capitalism, we are back full circle to Kings and serfs.  The barbarians weren’t the problem after all.  We did it to ourselves.

There has been so much debate about bank bailouts, and most people have nothing more than uninformed, generalized opinions on the subject, usually based on personal philosophies about the proper role of government in our nation’s economy. Bernanke and the Fed have maintained that the bailout was absolutely necessary in order to stop the economy from charging over a cliff. Is this what really happened? Or are the big banks an informal extension of the government already, and the taxpayers are routinely called upon to bail them out due to their poor business judgments? And if the latter is true, then surely such government “protection” creates a moral hazard in that the banks know  no matter how foolhardy or careless they may be,  when push comes to shove their survival is assured, i.e.  Big Business always gets saved by Big Government! Exactly how did the banks, particularly the Big Banks, get in so much trouble? How exactly was this related to the real estate bubble? Get part of the picture in this short video: Financial Literacy: When a Bank Collapses at http://www.youtube.com/watch?v=oG0ry145ymc.

As I have discussed in other posts, every good, service, and commodity has a value, and that value is denominated, or measured in terms of the national currency; in our case the value of anything is measured in dollars.  (Go to Billionaires Who Can’t Afford a Loaf of Bread:  http://www.youtube.com/watch?v=HGfsQimC0mw)  Even money has a value that fluctuates, and there are events that trigger changes in the value of money.  Money is measured by it’s purchasing power, and economists spell this with capital letters Purchasing Power (PP).  Money by itself has no value; it is only a symbol and a medium of exchange, so the real question is how much of anything can you exchange a dollar for??  I have covered what happens during a period of inflation, and the costs of everything as measured in dollars goes up, which means the value of the dollar (or its purchasing power) goes down.  People think they are better off with rising wages, but factoring in the decreased ability of those wages to purchase, they are actually worse off. 

Deflation is the opposite.  During a period of deflation there is not enough money in circulation to buy the goods and services available.  Ironically one of the reasons for this could be that the population is nervous about their financial future and they start saving their money instead of spending it.  The money is there, but it is not in circulation, because people (and companies) are not in a mood to take risks.  When people aren’t buying, companies lay off employees, which contributes to the overall feeling of insecurity.  Because people aren’t buying, companies slow down manufacturing, and the amount of product they keep in inventory in their warehouse and distribution centers goes down and is not replaced.  In order to improve sales, they lower prices.  Since wages are the price of labor, that means the wages gradually go down also.  That means there is less money to spend, and the cycle feeds on itself.  In this way an entire economy can implode on itself.

Something needs to be said about the effects of inflation and deflation on debt at this point.  During times of inflation, prices (including wages, the price of labor) are going up; the purchasing power of those dollars is going down.  If you owe fixed-interest debt during a period of inflation, your wages will inflate with the rest of the economy, but your debt, which is fixed by contract with your creditor, remains the same.  That means you will be paying your debt back with cheap dollars, dollars that are worth less than they were when you incurred the debt.  During inflation, debt can be your friend, and the enemy of your creditor.

During deflation, however, debt is your enemy.  Your debt is once again, fixed by contract to a certain amount of dollars, but your wages, along with the rest of the economy, are deflating, or going down.  Your debt can hang you during a time of deflation.

Hear more about this at  http://www.youtube.com/watch?v=a4qsy8n5DjI

At various times throughout history money, or currency, has been based on metals, usually silver or gold.  This created an objective value to the currency of the period.  A dollar, for example, was worth an ounce of gold, or 1/10 of an ounce of gold, or 1/20 of an ounce of gold.  Governments and rulers, who always want to spend more money than they take in, either for their own enrichment or in order to bribe voters, usually try to debase their currency.  Kings about once a generation used to re-mint their coins (paper currency wasn’t invented yet), using the need to have their own image on the coin as the excuse, and they would dilute the gold content by mixing other metals with the gold, or slightly downsize the coin itself, but calling it by the same name as its predecessor.  When governments became well established, they usually did a ‘bait and switch’ routine and substituted printed money for metal coin, and again called it by the same name attached to a unit of its metal predecessor.  So a gold dollar was now called a paper dollar, as if their value were the same!

Once governments discovered the delights of the printing press, they would print as much money as they felt they could slip past their gullible and unaware subjects.  Acceptance by the herd was essential, and when the debased currency was widely rejected, it was not uncommon for a ruler to create stiff penalties, including the death penalty, for not accepting the paper currency as legal tender.  The reason governments prefer to print money is first of all so they are not bound by the usual principles of fiscal discipline (Don’t spend more than you make) but also every time they print money, they are actually lowering the unit value of that currency, reducing its purchasing power.  They are actually picking the pockets of their citizens, especially the most conservative ones who save.  The money these citizens save will not buy as much when it is finally spent as it would have immediately upon their having received it.

When citizens get nervous about the stability of the banking system, their political system, or their own personal safety, they are inclined to buy gold.  Gold does not pay interest, and it is still only worth what a buyer is willing to pay for it, but because there is a fixed quantity of it at any given point in time, its value tends to be very stable.  This is why nervous people buy gold as a hedge against inflation.  Gold is not without risk, however.  At times when the madding crowd is enamored of another of its periodic manias, interest in gold will wane as the herd stampedes in a new direction.  When demand falls off, the price of gold drops, like anything else.  Even in times of rising price of gold, there is always the possibility of the government confiscating it (that has been done by OUR government, as well as many others.)  Ultimately the government has the guns, and whatever we have is pretty much by permission.  A democracy, as I have written many times, is no guarantee of anything more than mob rule.  All people, in any period of history, need protected most from those they elect over themselves.  Inevitably their public servants become their masters.  Even here, the freest nation on earth, the Constitution guaranteeing both individual rights and the limitation of government’s powers, has been under steady attack for well over a hundred years by many activists who resent its restrictions.  They want to harness the coercive power of government to an endless list of programs to protect us from ourselves, and of course, with them at the levers of distribution and power.

For a short video on how the price of gold is a measure of the mood of the mob, go to http://www.youtube.com/watch?v=yuDZQFPgXCw

The dirty secret of all governments is that contrary to popular opinion, they do not hate inflation.  All governmental corruption begins when they discover the power of the purse, and that they can use the public purse to perpetuate their power, privilege, and benefits.  Over time all legislators and power brokers arrogate to themselves the means to stay in office and the luxuries it affords at the general taxpayer’s expense.  So of course we hear how the purpose of the Federal Reserve and Congress is to maintain a strict control over inflation, that the Fed is independent of the government, and that it is immune to political influence.  At best this is a Trojan horse.  Inflation is the primary tool used by every government to live beyond its means, and by its “means” we mean its ability to tax.  For taxation is the Achilles heel of all governments, for carried to excess it inspires armed revolution and fall from power.  Governments raise taxes at their peril.  Inflation, however, is a hidden tax, for it is how the government spends and borrows beyond its ability to repay.  By printing money and increasing credit, thereby increasing the money supply, the government creates inflation.  How does this happen?

When there is X amount of money in circulation in an economy chasing Y amount of goods and services, and you increase X to 2X chasing the same Y amount of goods and services, you have increased demand for those goods and services, but you have not changed the supply of them.  When demand outstrips supply, the general price level rises.  The rise in prices is a result of manipulating the money supply, NOT by an increase in productivity.  In other words, the increase in the money supply is NOT the same thing as an increase in wealth.  It is an artificial increase that may give everyone a case of the warm fuzzies, until they realize their pockets have been picked while they were celebrating!  This is what happened in the last ten years during the “real estate bubble’.  Millions were celebrating their rapid rise in wealth, and we were saturated with boastful claims of “instant equity”.  What we had was hyperinflation of real estate prices but no increase in underlying wealth.  It was a bubble, and it contained only air, no wealth.  Taxing authorities were flush with new revenue from the inflated values of real estate, and the money poured in.  Politicians were ecstatic, and plans for distributing  the tax revenue to friends and benefactors proliferated.  Everyone was having a great time at the party.  The last ones to leave got stuck with the clean-up.  Governments went from riches to rags over night.  The Fed cranked up the printing presses as their only resort.  People weren’t spending, the taxable base was shriveling like a late-harvest grape in the hot sun, and governments everywhere started warning about necessary cut-backs in services.  And the homeowners, well they have inflated mortgages and inflated property taxes, and deflated value.  They were taxed all right, but by stealth.

If the government had tried, during the peak of the bubble, to raise comparable amounts of revenue through increases in taxation, there would have been riots in the streets.  But the inflation they created by expanding credit markets, was in fact a very clever, hidden tax.  Incredibly, the governments response to the crisis has been,  once again, to expand the money supply.  The inflationary impact of all the newly printed money they have injected into the system is muted, for the moment, by the lag in spending and the poor demand for goods.  But the expanded money supply is out there, lurking comfortably in the books of the banks afraid to acknowledge and write off all the toxic loans of the boom years.    The banks have used the money to shore up their sagging balance sheets, just in case, and the public has decided to save rather than spend.  The economy is lurching like a schizophrenic paranoid between euphoria and deep depression.  The surface temperature of the economy says we are recovering, but further analysis says the virus is still with us.  The government maintains,  like a modern gestalt therapist, that if we all believe we are well, we can transform belief into reality.  Therefore we all need to put on a happy face and spend, spend, spend our way out of the malaise.  The money supply is the lifeblood of our economy.  Believing that we are hoarding the money supply like bad children  the government has applied leeches to relieve the pressure, and to get the excess blood out and into circulation.  So it has borrowed and printed money for bailouts for banks and tax payers, cash for clunkers, and nationalizing whole industries.  Like a drunk conductor at the wheel of a runaway train, there is nothing that Big Government cannot do, cannot fix.  Why didn’t anyone ever think of this before—when there is a downturn due to previous bad policy, the solution is to print your way to prosperity.  Remember twenty years ago when it was “The economy, stupid!”; well, now its “The money supply, stupid!”

The good news is the bad news.  As the economy staggers uncertainly toward a seeming full recovery, the excess money that has been pumped into the system and has been lurking out of sight in the banks will finally have its much delayed impact when it finds its way into the economy.  The Fed operation was a success; unfortunately the patient died.  As the government lurches  madly between transfusions and leeches, between the silent killer of inflation and the bludgeon blows of direct taxation and deflation, eventually in frustration and exhaustion and confusion we will do what all very ill patients do–put our lives and our destinies in the hands of the doctor.  For after all, the doctor knows best, right?  And at the end of the day, there won’t even be any ambulance chasers to file malpractice lawsuits.  It’s illegal to sue your government.  Why?  For starters, they have the guns.

For a brief video on why inflation permits the government to “repay” the national debt at a huge discount, go to  http://www.youtube.com/watch?v=ov21dnYHjXE

One of the reasons why so few people show an interest in economics is that in today’s world the subject is complex and defies simplistic definitions.  But that is so true of much of our modern society.  It is not uncommon these days for older folks to refuse to learn e-mail and to shake their heads in wonderment at their grandchildren deftly manipulating electronic hand-held games totally beyond the grasp of their elders.  What IS of grave concern is the fact that the achievements of our scientists and engineers have aided and abetted the dumbing down of successive generations.  We have heard much of the income gaps in our society; we hear much less about the widening chasm between the educational level of the designers and engineers of our world and the end-users of our world.  Not to mention the grade inflation of our educational system.  Hence we sometimes find students in Advance Placement who still cannot read and write well.  I would be remiss in my duty to you, my reader, to imply that you can understand the economic world you live in without effort.  There are times when you will still have to reach for the dictionary, and hopefully you have several in your home, and even more hopefully, they are well worn and used!  Or more likely, you have an online dictionary marked as a favorite.  Even though I exert considerable effort to simplify and clarify an otherwise arcane and difficult subject, I would suspect that my articles have little appeal to those addicted to instant gratification.  I simply do not know how to reduce some concepts to a sound byte level.  Take for example, the concept of the money supply. 

The money supply is a very important concept with those entrusted with the well-being of our macro-economy (the BIG picture).  There are, for example, endless arguments among economists about what properly constitutes the money supply.  We’ll skip most of that stuff and stick to essentials.  Let’s start with the fact that in the profession and in the media, the money supply is referred to as M.  Yep, that’s it, M as in Mickey Mouse, Mars bars, or of course, M&Ms.  To me, the latter connotes Money and Masochism, which sort of go together.  Of course, economists talk of M1, M2, M1a, etc.  That is largely to impress us.  Or maybe to impress themselves.  It has absolutely no effect on the accuracy of their predictions.    But it seems to be a requirement imposed upon all financial advisors and analysts to use jargon composed of largely a minimum of four or more syllables per word to convince us that, like all priesthoods, they know what we cannot possible grasp with our feeble minds.  But let us bravely press on . . .

The money supply is important, because money is a commodity like everything else, and is therefore subject to the laws of supply and demand.  You no doubt have a firm handle on the concept of money supply in your micro-economy.  You hopefully know how much money is in your wallet, and in your checking account, and under your mattress.   You intuitively know how much money to count, and you intuitively know how liquid it is.  The green stuff in your wallet is very liquid; the money in your checking account is immediately accessible through your debit card, and the $100 Uncle Fred owes you, well, probably better not count that.   And you know you can’t touch that CD of yours for at least another 45 days without a severe penalty.  Not liquid.  You’ve got it.  You do know the importance of counting all this stuff, and on any given day you have a pretty good idea what’s there. 

You may have noticed that the money whips in and out of your wallet (and your life) pretty quickly.  That’s called the velocity of money.  If you think velocity isn’t important, think about how you’d feel if your employer delayed your paycheck a week or two—just because he wanted to slow time down a little.  Why does velocity matter to you?  Because you have bills to pay and commitments to keep, and time is of the essence.  You may have noticed that your creditors share this obsession of yours with time.  That’s another important concept, that there is a time value to money.  You’re getting it.  You’re almost an economist now!  Now have you ever wondered how many different people have used the same twenty dollar bill you just spent at the grocery store?  What does the grocery store do with it, and who gets it next, and how many times will it change hands over and over again in, say, the next week?  month?  year?  That twenty dollar bill is part of the money supply, and the speed with which it changes hands is called its velocity.  Economists try to total up all such money in circulation, and they try to predict the likeliest outcome if it grows or shrinks.

Just as with you, the money supply in the macro-economy changes with dizzying rapidity.  There are things that governments can do with the money supply that make it grow or shrink.   Governments and politicians think voters will love them more if they can control what an economy does, or at least make it look like they are controlling it.  Mostly they try to control what people think they are doing.  They get very good at taking the credit for good things that happen, and passing the buck on bad things that happen.  They practice looking statesman-like a lot.  After a while, people get to thinking that government people are responsible for everything, good and bad, that happens to them.  Politicians know this, and they don’t want to lose their jobs.  Because of their jobs they get invited to the best parties, and sometimes get free trips to strange places.  And they get great benefits.  Sometimes it frightens politicians that some of their voters might understand some of this economic stuff a little better than they do.  It doesn’t present well before the cameras.  Have you ever noticed how photogenic most of our politicians are?  We want our politicians to look statesman-like.  Even if they were a C- student in school. 

Now let’s add another term to our economics vocabulary:  fractional reserve banking.  This means exactly what it looks like.  The banks are required to keep back, in reserve, a percentage of all the deposits they take in.  Banks make their money by taking other people’s money in, and then loaning it out with interest.  They are not allowed to loan everything out that they took in.  They have to keep part of it in the back room, out of use.  They know (most of the time) that everyone is not going to walk in and ask for all of their money at one time.  So if they keep 10% or so back, that is usually enough to cover the withdrawals by their depositors at any given time.  Not everyone who takes out a loan actually repays it.  Some default on their loans.  If someone defaults on a $10,000 loan, fractional reserve banking works in reverse.  That $10,000 belonged to depositors, and now that it is gone, it reduces the bank’s ability to loan by ten times that amount, or $100,000!  Remember all those foreclosures?  Those were all bad loans.  But the banks don’t want to write them off as bad loans on their books.  Each of those bad loans reduces the banks ability to loan by a multiple of ten!  As a matter of fact, when the bank adds up all the bad loans and multiplies by ten, it may discover it doesn’t have enough in reserve now to cover its good loans.  That means the bank is insolvent and by all rights should go out of business.

Those bad mortgages have collateral, the properties against which the money was borrowed.  But the market price of real estate has dropped precipitously, and the properties are now worth 1/4 or 1/3 less than what was borrowed in many cases.  No one really knows what those properties are worth until they are sold on the market.  Buyers and Sellers together set the price.  But once the property is sold, the bank has no choice but to use the sale price of the property as the number they have to use to determine how much money they lost on the loan.  If they loaned $100,000 against a property, and it sells for $60,000 at auction, the bank has to write off the difference, or $40,000.  That means the bank has to either shrink their outstanding loans by $400,000 (factor of ten), or they must increase their reserves by $40,000.  Since nobody knows how many bad loans are out there, and nobody knows how much money will be lost on each one of them, no one really knows how many banks, or which banks, will be insolvent and go out of business.  The government gave the banks (some banks) a lot of money, but the banks are keeping that money in the back room to add to their reserves.  That means they can’t use that money to increase lending.  And if the banks aren’t lending, credit is more or less frozen, and if businesses and households cannot borrow, the economy freezes up, unemployment goes up, and voters get very unhappy and nervous.

The banks, and the government, have found some solutions.  One is to deny.  They do this by simply changing their accounting rules.  Instead of calculating what the properties are  worth at current sale prices (called marking to market) they write down the loans based on these properties to an artifically selected number that is less painful than the market numbers.  In other words its a game called Pretend.  If we pretend we didn’t lose that much money, we didn’t.  And if we didn’t lose that much money, then our bank doesn’t have to raise our reserves quite so much.  Secondly, the government decides which banks get to go out of business.  Friends and big campaign contributors get special, preferential treatment.  Third, the government will buy the toxic assets (bad loans).  They will sell Treasury Notes (how the government borrows) and also print money to pay for the toxic assets.  The money that is printed increases the money supply.  As that new money finds its way into the economy, it grows through the fractional reserve system of banking.  Listen to an explanation of how that works here:  http://www.youtube.com/watch?v=d-vYzQvfAAs.

We are going to talk a lot more about the money supply,  because the Federal Reserve tries to control the economy by manipulating the money supply.

Financial Literacy: The Origins of Banking

Everything has a “trading value” and it is expressed as a price.  This includes the value of human labor, regardless of whether it is of the menial type, such as hammering nails, or intellectual labor, such as a performing rock star or a concert pianist or a novelist or a scientist.  The value of any given labor is determined by those who purchase the product of that labor, i.e. a newly constructed house, a repaired dishwasher, going to a movie, or a new prescription drug developed through scientific research.  The value of all labor is expressed as a price.  The price of labor is its compensation, whether in the form of hourly wages, salary, commissions, royalties, percentages of sales or profits, or whatever.

Even money has a value, and like every other traded commodity, the price of money fluctuates.  The reason for this is that money has no intrinsic value; it has no value in, and of, itself.  The only value of money is in its function as a medium of exchange.  The value of money is measured by its Purchasing Power (PP).  Obviously there is a big difference between a dollar that will buy you a whole loaf of bread and a dollar that will only buy you two slices of bread. 

The value of money, i.e. it’s Purchasing Power, goes down as prices go up.  Again, if the price of a loaf of bread went from $1 to $2, one dollar now only has the ability to purchase 1/2 loaf of bread.  This is called inflation.  Inflation debases, or reduces the Purchasing Power of the dollar.  When the price of labor inflates, wages go up, but the wage earners standard of living does not go up, because the Purchasing Power of every dollar of his wages went down.  Continually increasing wages is always a part of an overall inflationary spiral, where the price of everything goes up, and the value or purchasing power of the currency goes down.

The key to improving the overall standard of living is not by raising wages, but by raising productivity.  Then the cost of everything goes down in real terms, and every dollar trades for greater amounts of goods and services.  An increase in productivity results in raising the Purchasing Power of your dollar.  This is not inflation.  This is real growth.  Increases in productivity are achieved, not because people work harder, but because technology automates more and more activities.  Human labor is still required, but more goods are produced for every hour of input.

A grasp of this concept will help you to appreciate why government’s insistence on periodically raising the minimum wage does not improve anyone’s lot in life.  It temporarily and artificially inflates the price of labor without any matching rise in productivity.  It raises wages as measured in dollars, but without raising the Purchasing Power of those dollars, it only succeeds in devaluing or cheapening those dollars.  Minimum wage legislation is nothing more than a cheap, symbolic gesture to buy votes, and it contributes to an inflationary spiral.  Legislating an increase in the price of labor is no different than legislating a lower price of bread; they are efforts to force trading at fixed prices, rather than letting the prices fluctuate according to the agreements arranged between two or more free trading partners.  When governments attempt to force trading and fix prices, they create “black markets” which is where people do what they really want to do anyway.  When governments legislate minimum wages, one of the unanticipated results is frequently people buying and selling their time and services “under the table”.  This is a form of a “black market”.

So remember, when dollars go up, productivity must also go up, or your dollars become worth less in their ability to purchase.  How rich would you feel with a wheelbarrow load of dollars that didn’t have enough purchasing power to buy a single loaf of bread?  This type of thing has already happened!  Listen to it here http://www.youtube.com/watch?v=HGfsQimC0mw

Financial Literacy: The Money Supply and Inflation

I have defined money many times in articles on this blog.  Money includes currency; it is a means of exchange and it represents value outside of itself.  Money has no intrinsic value; its value is directly related to its general acceptance in the population.  Money is a means of measuring wealth, and a store of wealth, but it is not the wealth itself.  So what is wealth?  Wealth is personal, material property; wealth is accumulated income, earnings, savings (stored as money); wealth is income producing assets.  Wealth can be created, earned, dissipated, stored, inherited, accumulated, expropriated.  Wealth is always relative; when we say a person is wealthy, we mean in comparison to others.  A person on welfare in our society today often lives much, much better than the wealthiest of the so-called robber barons of 100 years ago.  How do we compare a poor household of today with a large flat-screen TV, numerous digital toys, e-mail, and air conditioning and a microwave with the rich of the 19th century who did not have indoor plumbing or telephones?  When we talk about eliminating poverty in today’s terms, we are using very, very relative terms. 

In any context, wealth represents a responsibility and potentially a burden; wealth requires action not only to earn, but also to preserve.  If a person’s wealth is greater than he is, he will lose it (or she, of course).  Wealth is created by work, primarily the use of one’s mind, and by good judgment.    When the mindless inherit wealth, unless there are appointed guardians of that wealth to protect them from their own foolishness, the wealth will diminish and eventually disappear.  The most important type of wealth, for the financially literate, is assets that produce income.  This is when your wealth is working for you.  Ultimately your wealth is measured in time, not money.  How long can you survive financially without working, without even getting out of bed in the morning (if you didn’t want to)?  Are you one-day wealthy, one month wealthy, one year wealthy, or the rest of your life wealthy?  Likewise, whenever the human mind devises a way to produce more goods and services that improve the human condition with less time and effort, wealth is created. Wealth and money are frequently confused, and those who cannot understand the difference are at a serious disadvantage in the competition for limited resources.  For a short video on why money is not wealth, go to:  http://www.youtube.com/watch?v=9iVebppIIFA

Financial Literacy: Good Money, Bad Money

Financial Literacy: How Big is a Trillion?

Financial Literacy: Your 401K and the Next Stock Market Crash

All knowledge is hierarchical, which means we learn in layers, and each layer is built on what went before it.  You have to learn the letters of the alphabet before you can grasp how they go together to make words, and you have to master the concept of words before you can formulate sentences.  The same principle is true of economics or financial literacy.  You have to master basic concepts before you can move on to more complex, higher intellectual planes.  So let’s take a few baby steps here, and make sure everyone has a grasp of the fundamentals.

 But before we begin, once again let’s deal with the issue of Why bother?  Economics is generally considered to be the dismal science, and even the briefest mention of the subject causes the eyes of most people to glaze over in disinterest.  Paradoxically, let them lack for money and they will riot in the streets, kill each other, and overthrow governments.  We are so accustomed to technological progress, and we have become so certain of its inevitability that we become intellectually lazy and expect things to happen today and tomorrow as they did yesterday.  We do not want to trouble our pretty little heads or interrupt our texting, youtubing, or endless chatter on social media to really learn what causes an economic chain of events.  So we blithely throw around terms such as money, markets, investing, supply and demand, or wealth without any comprehension of what those terms mean. 

We tell others we have a position on matters, such as ‘we are for free markets’ or we are ‘against bailouts’ without realizing that we are using labels as a substitute for thinking.  I do not write to tell you what you should think, or what positions you should adopt, or what conclusions you should draw.  I write to give you the tools with which to analyze and make your own judgments.  And I AM here to tell you that when the crowd is going North, you almost always want to look South.  But it takes more effort and learning to be an effective and intelligent contrarian.  Taking an opposition viewpoint without solid information is as ignorant as traveling with the herd and rivals adolescent behavior for conformity.

I have written repeatedly that money is NOT the same thing as wealth, and yet folks still don’t get it.  If you asked most anyone on the street, if they had one wish, what would it be, the answer for most would probably be “More money.”  They are equating money with wealth, and that is totally wrong.  As a matter of fact, if you make that mistake in your mind, you are going to make a lot of financial mistakes because of it.  Once again, money has no value in, and of, itself.  Money is a symbol, and it draws its value from what it symbolizes.  Money represents the use of the human mind to create value. 

What is value?  Something people will act upon to gain or keep.  If you value your car, you will change the oil and maintain proper air pressure in the tires.  If you value your house, you will mow the lawn.  If you value your spouse, you will show a sustained interest in him/her.  Value means there is a valuer.  Value is not an abstract concept; it implies there is someone who is doing the valuing. To value implies action.  Therefore different people will value things differently.  In any given society, people trade values, and they use some form of money as the medium of exchange.  There is no absolute, intrinsic, abstract value to anything.  The value is assigned by the person doing the valuing. 

A powerful speedboat may be worth $75,000 to you and of no value to me whatsoever.  For you, the speedboat may serve as a totem of your financial success, or it may help you attract the beautiful chicks.  For someone like me, who maybe has violent motion sickness, can’t swim, and is happily married, such a boat would represent a needless expense and headache to maintain.  So if I won the speedboat in a sweepstakes, its only value to me would be to trade it with someone for something else.  If we did that, we would, again, use money as the medium of exchange.  For me, money permitted me to exchange an asset, my speedboat, for someone else’s asset, and the transaction was made possible by our mutual acceptance of a currency. 

All assets are created, or enhanced, by the creative use of the human mind.  The asset itself is wealth, not the money you paid for it.  The money you paid for the asset is the numerical value you attached to that asset.  The production of that asset required raw materials, tools, a place to manufacture it, and people to perform the specialized functions to make it all happen.  Every single person involved was trading with everyone else, and in every case, the medium of exchange was some form of currency, or money.  The system of exchange only worked because everyone involved accepted the currency at the same face value.

Because people do not understand money, they are quite flippant about taking someone else’s money or about dictating to them how to dispose of it.  Because money represents the use of your strength, time, mind, and other resources to create something trade-able with others, your product, or what you trade, is your private property.  If you were a part of a team effort, which is most often the case, your particular contribution is also valued in currency, or money, in the form of a wage.  A wage is nothing more than a price for your labor.  The higher your skill level, or the rarer your particular knowledge, or even the value of who you know, the higher price you will be able to command in free trade with others.  To help you grasp this concept, remember that there would be no such thing as employers and employees were it not for government wanting employers to be their tax collectors and bookkeepers.  This is not a job employers ask for, nor do they get paid for it, but if they refuse to do it they go to jail.  If they had not been conscripted for compulsory bookkeeping service, employers and employees would be contracting with each other, and there would be no “class” issues or grave power issues.  They would be buying and selling to each other.  It is interesting to note that the IRS has detailed laws to make sure no one is illegally “contracting” with someone who “should” be labeled an employee, thereby shorting the tax man.

 Those who insist that there is a “fair” price to any form of human labor do not understand money or value.  Again, value is not intrinsic.  God doesn’t send down prices from heaven, but some think society should send them up from the bottom.  What creates the value of what you produce?  A valuer, also known as a Buyer.  A Buyer is someone who is going to take his own money (which represents the value of his creative effort trading with others) and exchange it with you for some service you will perform at your Buyer’s request.  The price will be determined between the two of you, and you will both have to come to an agreement on a number, and the medium of exchange will again, be currency, or money.  If you cannot come to an agreement, no exchange of values will take place.  Each of you will continue to seek other trading partners with whom you can exchange at a value more to your liking.  Who knows, at the end of the day you might come back together and make the deal of the morning work, because neither of you has been able to get the price you wanted.  Since you are both free to dispose of your effort, how can anyone say it was unfair?  To say one or the other should  have gotten a higher price is to deny the whole concept of value; that value is not assigned by some elite Know-it-All, but by Buyers.  And folks, some stuff never gets bought because there are no buyers at an asked-for price.  This is called the market, and the market can be humbling.  I may delude myself that I am a terrific writer, and I may further delude myself that I have just completed the next Nobel Prize for Literature.  When my novel bombs commercially, I may console myself by stating that the market obviously doesn’t appreciate true literature and good taste (which of course may be true), but the fact remains that I am going to be poor because good, bad, or indifferent, the valuers in my marketplace didn’t value my book enough to open their wallets and hand over their money in exchange for it.

Now in my example, the critics may differ from the public at large, and may give my book high praise.  As a matter of fact, I may actually win the Nobel Prize for Literature, but I am still very unhappy because once the prize money is gone, there is no ongoing commercial value to my book because the public ignorantly, and stubbornly, still refuses to buy it.  If my book is for sale for $30, and a bricklayer makes that same amount of money for one hour of masonry work, he may decide that a competing value would be more to his taste, perhaps a DVD of a new movie he wants to watch.  So he will trade his product (completed masonry work) for his movie instead of my literary masterpiece.

In a free market, there are always lots and lots of people unhappy with how well, or more likely, how poorly, they are trading.  They insist that there are intrinsic values that a market does not recognize; they believe in a value without a valuer.  Actually, what they believe in is not a free market, where everyone makes their own choices about their money (the symbol of what they worked to produce and trade).  Rather, they believe in forced trade, by coercion.  They don’t believe that what people earn really belongs to them; they subscribe to a form of altruism that in actual practice becomes slavery; they believe that what each earns according to their ability, belongs to others, according to their need.  In fact, everyone has become a slave to everyone else.  They therefore subscribe to a control economy where a group of Know-it-Alls can dictate value for everyone, and the result is price fixing.   So if I cannot sell my artistic product satisfactorily on the open market, because no one is particularly interested, or at least not at my price, the superior valuers can subsidize me through the National Endowment for the Arts.  This is using your money, taken by coercion, to pay me what you wouldn’t of your own free will.  Apparently only the superior valuers were able to identify the intrinsic value of my opus.  It was necessary to override the obvious poor taste of the bricklayer in the free market who wanted to watch a movie instead of buying my classic.

Price fixing, dear Reader, is all around you; you just don’t know it.  Minimum wage, for example, is a form of price fixing.  A wage is a price, and the government sets a price floor below which no trading for labor may take place.  Now obviously, this is not the same as a free market choice, because the price floor is only set because some folks, both Sellers and Buyers, absent the government’s involvement, would willingly trade below that price level in a free market.  The person selling their labor and skills in this transaction is the Seller, and the person acquiring their services and skills is the Buyer.  Why would anyone disagree with two people who voluntarily came to a trade agreement and price?  Only if they believed there was an intrinsic value that the free market would not recognize.  So government coercion is used to mandate a higher-than-market price.  If it weren’t higher than market, at least in some geographic areas, there would be no point to the legislation.  Interestingly, whenever you hear minimum wage legislation debated in Congress, you never hear the debate framed in moral terms, that it is price fixing, applying coercion to what otherwise would have been a free market transaction.  No, the debate is always limited to whether or not minimum wage legislation creates higher unemployment, jobs reduction, layoffs, etc.  What everyone is overlooking is that some people, the elite Know-it-Alls, believe they have a superior capacity to determine value than the individuals doing the trading.  And in so deciding, they have also de facto declared that the product of your time, energy, skills, and mind, are not your personal property to trade as you see fit, but subject to their superior valuing skills.  This is a control economy.

Another and very current example of government involvement in “free” markets is the issue of health care.  Legislation presently on the table for consideration will fix prices of services and some service providers.  As with the partially nationalized banking sector and automotive sector, the government will establish the permissible compensation of health care providers.  The first issue is, and the one most ignored, of course, Is health care a moral right, and on what basis?  Read Professor David Kelley’s answer here:   http://www.atlassociety.org/showcontent.aspx?ct=14&h=53.  For more information on the disinformation we are being fed on the subject, read Health Care Mythology by Clifford Asness, founding principal of AQR Capital Management here:  http://www.stumblingontruth.com/.  And finally, since the argument for government mandated health care is based on it being a survival issue, that begs the question of how is health care different from, say, food production, which is also a survival issue?  Should the government also fix the price of bread?  Or does it already?  Read an excellent response from Bradley Doucet here:  http://www.atlassociety.org/cth-43-2212-WOE-HealthFreedom.aspx.

Those who favor a control economy always see themselves as the elite valuers, or at least being prominent or influential in determining the final result.  They pride themselves in creating social justice, and their vehicle for fixing the world is your earnings.  They do not see your earnings as your property, to dispose of as you see fit, but rather as public, or community property, to be disposed of by the community, as vested in them, the valuers.  There are quite literally thousands and thousands of manifestations of this throughout our economy, which is known as a Mixed Economy.  It is halfway between capitalism and socialism, or as the Republicans dubbed it recently, compassionate capitalism.  I guess that equates with a compassionate plantation owner who is well intentioned towards his poor, ignorant slaves.  The Big Boss in the big, white, plantation house knows best for all of us.

Every control decision has unintended consequences, because there is no way to predict accurately how the herd will react, or what will stampede them in this direction or that direction.  Predicting human behavior is a lot like predicting the weather; there are too many variables to get very accurate about it.  In a free economy, you don’t have the burden of predicting; you simply allow people to trade on a voluntary basis and things take their course.  Control is not an issue.  On the other hand, in a control economy, every control requires even more controls.  Combine that with the fact that in a control economy, every decision becomes a political decision, every decision becomes subjected to competing gang warfare among the special interests, all of whom are being paid to obtain and/or peddle influence.

It is extremely difficult to create and preserve wealth when a substantial part of all your earnings are expropriated in the interests of social tinkering.  Wealth is created when money is re-invested in additional assets, aka land, manufacturing plants, machinery, R&D, skilled labor to produce further earnings.  It is this reinvestment of earnings, through money as the medium of exchange, that results in productivity growth, or higher Gross Domestic Product (GDP).  Only an increase in real GDP results in wealth.  Wealth is wealth; there are assets at work that produce an excess over expenses that are reinvested over and over again, that lift a society out of poverty.  No society in the history of the world has ever taxed its way to prosperity.  Some borrowing, and therefore credit, contributes to the growth of GDP:  borrowing for further investment.  Borrowing for consumption is digging a hole with a shovel.  When governments borrow heavily, as the United States government has been doing, they destroy wealth, because the government is now competing with all business for the limited supply of credit available; the more the government sucks up (by offering higher rates), the more expensive commercial credit becomes (or it becomes unavailable altogether).  That drives up the cost of doing business, reduces capital investment in business, and halts the growth of GDP in its tracks.  Printing money is not the same as creating wealth.  The problem with printing money is that it confuses money with wealth.  Wealth is investment in assets that create new and further wealth.  Sucking credit out of the economy by borrowing so much that government is now competing with business for available capital, and politicizing business decisions, is not a road to financial responsibility, and recovery; business quickly focus on political connections rather than efficiencies and higher productivity.  After all, at the end of the day, it will be government that will decide who gets to survive and who won’t.

Sometimes because of a government’s actions, the public loses all confidence in the currency of the country.  The currency in effect becomes worthless, quite literally not worth the paper it is written on.  In time this could be the price the United States will pay for its present political decisions.  We’ll see.  When governments succeed in destroying their currency because of ill-fated attempts at social engineering through a control economy, they usually see their only means of correcting their mess to be, of course, further controls.  In its final stages this often involves physical repression, incarceration, labor camps, torture and death.  Some countries, such as France, during their Revolution, declared that anyone who refused to conduct trade using the worthless currency of the day was to be subject to the death penalty!  I have always found it ironic that the motto of their Revolution, that culminated in the Reign of Terror with the tumbrels carrying many thousands to their death at the public guillotine, was none other than the eloquent “Liberty, Equality, Fraternity”.  No one seemed to realize that the first two were mutually exclusive; that everyone cannot be free, and still achieve equal results.  We are equal in our title to individual rights, but unequal in everything else.  Their experiment in social engineering led to the inevitable bloodbath that has been the hallmark of every experiment at State control.  But still we persist.  Surely we will get it right the next time!???

As always, thanks for visiting.  Subscribe on the right side of this page (FREE)  and become financially literate!  John Bechtel

Everyone out there is pursuing their own interests, and sometimes that will include attempts at separating you from your money.  If it is a voluntary trade between both parties, you both win.  If you do not understand what is going on, you will lose.  Knowledge is power, and ignorance is poverty.  You choose.

 We all live by trading with others.   Everyone is selling something.  For a long time we engaged in trade through barter.  One person raised chickens, another made furniture.  Barter became quite complicated because of what came to be called the double coincidence of wants.  In other words, if you raised chickens and I made wooden chairs, we could trade if you wanted chairs and I wanted chickens.  But what to do if either of us wanted something the other didn’t have?  Modern society and trade on a larger scale was not possible without a universal means of exchange.   Sometimes in ancient societies salt was used because everyone needed it to preserve their food.  So people would trade goods and services by using salt as a store of value.  Your chickens would be traded for X amount of salt, and my chairs would be traded for Y amount of salt, and we both could use the salt received to trade for any other commodities we needed to survive.  Salt represented, or was a symbol, of the value each of us brought to the exchange.  Salt became a primitive form of money.  Anything being traded could be redeemed in salt. 

As simple as this sounds, it is extremely important as one of the first building blocks of your knowledge of economics.  Money has no objective value in, and of, itself.  It is a symbol, and a store of value, and in trade is a medium of exchange.  Money’s usefulness to you is only  in its acceptance by all others as a reliable store of value.

Money is also referred to as currency.  In World War II prison camps, prisoners often wanted to trade with each other, and the one thing everyone wanted was tobacco.  So cigarettes became the money, or currency, used to facilitate trade.  Everything that was traded was worth so many cigarettes, or parts of cigarettes.  So cigarettes came to have two separate values; one as something to be smoked, and the other as a symbol of value to facilitate trade.  Anything being traded could be redeemed in cigarettes.  Interestingly, there was considerable disparity in the quality of the tobacco, so the prisoners would reserve the best tobacco for smoking, and would use the crap tobacco as their currency.  This illustrates another basic economic principle that we will return to later, and that is bad money will drive good money out of circulation. 

In time, paper currency was invented.  Originally the paper currency was redeemable for tangible items, usually precious metals.  In time paper money was detached from any tangible commodity, and became worth only what the trading public accepted it as being worth.  This kind of money is called fiat money.  There is nothing more behind it than the faith of its users.  The faith of the herd.  More on that later.

I am keeping things very simple as we move along, and we will build layers of knowledge quickly on prior information.  Just as you cannot learn Quantum Physics without prior understanding of calculus, you cannot understand M1, M2, and Quantitative Easing without understanding the concept of Money first.  (Caution:  I am not presenting the two Q words as equally credible!)  The articles I have already written were intended to help you grasp the important relationship between economics and liberty; that political philosophy and economic policy are always integrally related, and if you cannot understand their connection, you could wake up one day a slave without ever understanding what happened to you.  All power seeks its own expansion, and no one can take their freedom for granted.  

 The point of this blog site is not to encourage you to change the world or to become a political activist (unless that is your desire), but rather to improve your personal financial literacy and chances of success.   If you seek a quick, easy fix to all of your goals and problems, I suggest you abandon this website and continue watching the six o-clock news and the talking faces.  Very, very few of those people understand any more than you do, and are paid to read from their teleprompters and parrot the economic philosophies and indoctrination they received as the ‘wisdom from above’ in their university Humanties classes.  And even fewer of those people have any clue as to the origin of the intellectual ideas they absorb and repeat.  This tendency to accept ideology as a subsitute for thinking  is what I repeatedly refer to in these articles as herd mentality.  It is the desire to believe, the desire to be accepted, the desire to not have to think critically.

In another blog linked to this one, www.JohnBechtelBlog.com, I am publishing in serial form a book entitled  Passion, Power, and Panties—Confessions of a Businessman, wherein I describe being raised in an intellectually closed society where conformity was a requirement.  I describe the growing awareness  that my intellectual captivity was made possible only by my own complicity, that my chains were all paper chains.  My story would be no different than yours or anyone else’s were it not for what I learned when I left that cult-like society only to discover so much more of the same  everywhere else; what I came to describe as the triumph of ideology over rationality, or running with the herd. 

The purposes of institutional education are primarily to obtain your obedience, not your enlightenment.    Whoever controls the herd achieves either power or wealth, or both.  In free trade wealth is created; when personal wealth is expropriated by those who did not create it, it is plunder.     In free trade, the herd is often seduced into following charismatic salespeople who speak with great conviction, even certainty, about financial matters.  Listen to any economic commentator or stock broker for more than five minutes and ask yourself if their goal is to facilitate your education or to impress you with the complexity and opaqueness of the financial world, and to imply it is all something you cannot possibly grasp without their assistance?  The ultimate goal is to get you to accept their judgment as a substitute for your own, and to invalidate and subordinate your own thinking to theirs.  Whoever controls your mind controls your money.  Witness the millions who blindly follow self-professed market seers whose success rate at predicting markets is roughly equal to three chimpanzees pulling levers in answer to the same questions.   The success of these cons has nothing to do with whether you are rich or poor, traditionally well educated or not.  Remember that Bernie Madoff made his money off of the wealthy, not the poor; he apparently made his billions off of people we would assume should have known better, but didn’t.  The CEOs of hedge funds diverted many millions into their own pockets each year, even as their funds lost billions of dollars for their wealthy clients. I have no doubt that each of these guys could have buried us in jargon and economic obfuscation, because education was not their objective, sales of extremely profitable derivatives was. (The CEOs of the top 26 hedge funds made on average $363 million, each, in 2005).  People without money believe all their problems would be solved with money; people who acquire wealth discover a brand new problem—how to keep it.  If a person’s wealth is greater than they are, they will lose it. At any level of society, there is no substitute for financial literacy.  Trillions of dollars of wealth have evaporated in this country in the last two years because we believed our wealth was being managed by people looking out for our best interests.

The Government, of course, tells us that their regulators are there to protect us from these persuasive snake oil salesmen.  To take the Government at face value, one would have to believe that they have finally cornered the market on both brains and integrity, and one would also have to bestow on regulators a benevolence and unselfishness not to be found anywhere else.  Does history bear favorable witness to such claims?  Furthermore, the belief in Government as our “Protector” carries with it a moral hazard of implying that at last we can relax our guard, get lazy about becoming financially literate, and let Big Brother handle it for us.  If we forget that Government also has a monopoly on the use of force in our society, we grant Government increased powers at our peril.  The herd will scream Foul Play about the Patriot Act while we abide the nationalization of failed industries.  We are expected to believe that the choices of who is saved and who is allowed to fail has nothing to do with politics or returning election year favors.

It is time to define some terms.  First let’s define wealth.  Wealth and money are not the same.  Wealth is accrued value in the form of ownership of assets.  All assets are owned by someone.  A Balance Sheet tells you who owns what.   In your Liabilities section of that financial statement, you will list other parties who share ownership of  assets with you.  For example, if you bought a home with a 20% down payment, and you financed the remainder, that means that you own 20% of that home and your lender owns 80%.  The 20% you own is called Equity.  The 80% owned by the lender is their asset, and your liability.  Money is not wealth; wealth is composed of assets; money is the store of the value of those assets, the medium of exchange, and everyone’s means of describing or measuring value. 

In United States, we measure assets, liabilities, and equity in terms of dollars.  If you own a home, and you want to measure its value for use in trading, and your home was purchased for $100,000, you could say for purposes of barter that your home is worth 100 refrigerators @ $1000 each.  But that’s a problem because you will most likely never be interested in 1,000 refrigerators.  But by means of valuing both houses and refrigerators in the currency of dollars, you now have a means of computing and representing value that both of you accept.  The assets are the wealth, your equity in those assets is the measure of your wealth, and your liabilities represent the wealth of other parties.  So assets – liabilities = your equity (your wealth). 

Assets are created by means of production.  Production is harnessing natural resources to add value and utility.  Money had to be invented before large scale trade could be possible.  With the advent of the industrial revolution, the production process involved increasingly longer chains of endeavor.  For example, no one manufactured a car entirely by himself.  The car had many moving and non-moving parts, and each of these parts was a product in itself.  Car manufacturers do not make the steel, the tires or the batteries, and the manufacture of every single item that goes into a car requires specialized tools that also have to be designed and produced.  The land, buildings, tools, and labor used to create assets are called the factors of production.  All of the goods and services produced in an economy in a year are referred to as Gross Domestic Product, or GDP. 

The value of goods and services produced per worker is called productivity.  Productivity has less to do with the energy, focus, and work ethic of the worker, and more to do with the quality of the tools he is given to work with.  For example a person equipped with a reel hand mower 50 years ago, working very hard, could be expected to mow a lawn of a certain size in 10 hours.  With a small, early model gas-powered lawn mower, he could mow that lawn in five hours, or two such lawns in 10 hours.  With a recent model riding zero-turning circle mower with a 72” mowing deck, he could mow that same lawn in one half hour, or 20 such lawns in the time frame of the original 10 hours.  His productivity has increased 20 times, and his labor has become much less physically demanding because of the improvement in his tools.  Now let’s say that his reel mower, adjusted for inflation cost him $1,000, and his new riding mower cost him $8,000.  In each case, these amounts spent on tools are called capital investments. The mowers are the capital, and investment in these mowers is what raised the productivity. 

 The money to make these purchases of improved tools came from savings.  Savings are what is left over when you spend less than what you earned.  In business, what is left over when you spend less than what you earned is called profits.  Without profits, there is no capital to invest to further raise productivity.  Profits therefore are a cost of doing business tomorrow.  When profits are accumulated, or retained, there are sums of money available to invest in further productivity-enhancing land, building, and equipment.  Everything described in the above paragraph represents a lot of decisions by possibly many different people, each of whom will act in his own self-interest and with the hope of the greatest possible gain for himself.  The concept of an entire society of people each free to trade with anyone else in voluntary trade, in order to earn a profit and then to accumulate and invest those earnings, is called capital-ism.

 It has never been practiced.  What is referred to today as capitalism is a hybrid political philosophy, more commonly referred to as a Mixed Economy.  Learn what this means for you in future articles.

 Thanks for visiting.  Stay tuned for more on money.  John Bechtel

It was Abigail Adams who wrote the words of my title to her husband John Adams in a letter dated March 31, 1776.  She also wrote in that same letter “I am more and more convinced that man is a dangerous creature; and that power, whether vested in many or a few, is ever grasping, and like the grave, cries, “Give, give!”  Apparently the English historian Lord Acton concurred when he wrote in a letter to a colleague in 1887 “Power tends to corrupt, and absolute power corrupts absolutely.”  All of written human history boils over with our obsession for power over our fellow humans.  It surfaces in every organized human endeavor, from who will lead a Boy Scout troop, to the high handed behavior of the President of a small Homeowners Association, to sports and business competitions, and most obviously, to the naked desire for political power.  The motivations may vary:  a love of indolence; a desire to outshine others in our pack or tribe;  an expression of envy of the position, respect, obedience, or reverence another may receive;  a desire to compensate for low self-esteem and personal inadequacies;  a desire for access to unearned wealth and deference and the trappings of power;  a sense of duty; or an ideological certainty that we personally are better equipped to tell others how to live their lives.  We behave as pack animals do, and in every society known to history, humans have been preoccupied with their status within their group.  In many cases it is nothing more than mating behavior,  a desire to win the best available mate.  In every society we develop totems to publicize our status and power.  A beautiful, striking, or powerful mate enhances our standing within the tribe.  Think about it:  what is the first thing every celebrity or drug lord looks for?  A trophy mate.  On the other hand, many of the conflicts endemic to the smallest group known to civilized society, the  married couple, often devolve around the sharing of power.  The moral of all power seeking is that it is easier to obtain than to keep, and that all power is constantly in flux and eventually fades.  

Even cows going out to pasture have a queen, who routinely leads the way out and back each day.  And when an up-and-coming cow displaces the queen of the herd, the queen becomes neurotic and often stops giving milk.

During the Ottoman Empire, so paranoid were the sultans about retaining their power that immediately upon their ascendancy to the top position of power, they ordered the massacre of all their brothers and half-brothers, who were the most likely future threats to the new Sultan. 

In today’s world of business, the greatest challenge to the young and bright MBA coming out of the gate is going to be his immediate supervisor in the corporate world.  Why?  Because that individual, with his small level of power, will feel threatened by the newcomer and move to protect his “domain”.  The term “office politics” is so common as to be cliched.  For simplicity’s sake I have used the male gender in this paragraph, but there is no biological reason to believe that female behavior in similar contexts would be any different than a man’s.  Almost all species show a remarkable focus on power and territory.  It is about survival, control of resources, mating advantages, and status in the herd.

What has this got to do with financial literacy, dear Reader?  One of the greatest forms of power is the Power of the Purse.  Ultimately, all politics works to the end of controlling the economy.  And what is an economy, if not the trade of what one person produces with another?  So he who controls the economy controls the productive effort of the slaves, uh, I mean, citizens.  Free trade is voluntary, and power is not an issue.  When what one person produces is controlled, regulated, and redistributed by another, without their consent, it is called coercion and confiscation.  Democracy, without protection of individual rights, is nothing more than a fancy word for mob rule.  The great achievement of the U.S.  Constitution was that it guaranteed the freedom of  anyone we don’t agree with, don’t like, envy, or whose property we covet.  In protecting the smallest minority in existence, the individual, the Constitution  protected everyone.  For the last 100 years that Constitution has been under political assault so that the social engineers and political activists can finally “fix” everything that is wrong with the world we live in–according to them.  Also during this last 100 years over  100,000,000 people have been slaughtered in the most organized, systematic way in the name of imposing a better world order–on people who disagree.  This concatenation of circumstances is no accident of history.  The vast majority of the mass murdering has been done in the name of socialism, whether of the national socialism of the Nazi’s or the socialism of the Communists, or the socialism of Social Democrats; there is creeping socialism brought about by peaceful measures and democratic processes, and there is socialism brought about by armed revolutions and brutality.  There is socialism that is brought about by wage and price controls, and there is socialism that is brought about by the nationalization of industry.  What is this monster, and why is it dangerous?  Socialism is the government ownership of the means of production.  That’s it?  That doesn’t sound very sinister, does it?  Or does it?

Our survival is not given to us by instinct.  We survive by the application of our minds to survival issues.  We eliminate disease by identifying its causes and discovering cures.  We deal with drought by developing irrigation systems and dams.  We make our world and work easier by harnessing energy from fossil fuels, water, nuclear fission, the wind and solar power.  The use of our mind is our means of survival, and he who controls the disposition of the product of our mind, he who confiscates the product of our mind, asserts the moral right to our life also because there is no freedom without economic freedom.  Socialism says the State has the moral right to own and control the means of production.  You will understand what this means more fully as we proceed.  The critics of socialism have always attacked its inevitable failures at central planning.  This author attacks socialism from a moral perspective as well.  I do not believe the State owns you.  I believe the purpose of the State is to defend you from attack from outside, and from inside, and to protect free trade.  The rest is up to you.  No one gets something for nothing.  The Statists are constantly fiddling with the mechanism of central planning, and their own criticisms of previous failures at socialism have been directed at the wrong methods used, not the wrongness of the concept itself.  But as  Ayn Rand once said  about the game of redistribution ‘When you legislate free milk for everyone, you have just enslaved the milkman.’

First of all, let’s make it clear that “free trade” is an unknown ideal and has never been practiced in this country or any other.  At no time has voluntary trade between parties, whether individuals, companies, organizations, or countries, been devoid or unhampered by political intrigue and coercion.  The titans of early American industry can be roughly divided between political entrepreneurs and market entrepreneurs.  As children we were all taught how Robert Fulton built and operated the first steamboat in New York State.  We were not taught, however, that Fulton had a government-granted 30-year monopoly on all steamboat traffic in the entire state.  For sixty days in 1817 Cornelius Vanderbilt defied the law and evaded capture by the government as he ran steamboat traffic from Elizabeth, NJ to New York City.  In 1824 Chief Justice John Marshall and the Supreme Court struck down Fulton’s monopoly.  About 1830 Vanderbilt decided to compete against the Hudson River Steamboat Association, who had effectively engaged in price fixing at $3 for the run from NYC up the Hudson to Albany.  Vanderbilt with his own ships cut the fare from $3 to $1 to ten cents and finally to nothing.  His method?  He figured out it cost him $200 per day to run a ship, and if he provided food and drink to his passengers for $2 each, with 100 passengers he was at breakeven or better.  He was a pioneer of marine concession stands.  The Associations response?  They bought him out.  Now see if you can figure out who the political entrepreneurs were, and who the market entrepreneurs were.  If this happened today, the political entrepreneurs would be howling “Foul!  Predatory pricing!!” and running to their Congressman.  As a matter of history, after the Association bought out Vanderbilt, they raised the price back to $3.  Five or six more steamboaters opened up shop, because they saw the handsome profit Vanderbilt made from the sale of his enterprise.  Each of them lowered the price of the fare again, and each of them in turn was bought out by the Association.  The entrepreneurs made money, and the public benefitted by the ongoing fare war!

The same is largely true today, and the real market entrepreneurs believe, or at least hope, to overcome the confiscatory tax practices and interference by the State by means of their own ingenuity and the productivity of their enterprises.  And in fact the State is counting on their doing exactly that, for were it not for these producers, there would be nothing to expropriate and redistribute.  Wealth has to be created by the Creators so that it can be redistributed by the machinery of the State.  The fact that we relabel this expropriation of private property in the name of democracy doesn’t change the reality of what is happening.  A thing is what it is.  So let’s practice the fine art of identification for a moment.  What has everyone learned under our system?  That in a democracy, especially in one that has eroded the protections afforded by its Constitution, the voters have the power to vote to themselves the property or earnings of their neighbor.  What results can you expect?  Long lines of people with their hand out.  Some want money, some have pet peeves, pet charities, and others have beliefs!  And everyone has needs!  The mob now rules!  How?  By organizing, raising money, hiring their political lobbyist, their man in Washington.  Money talks, and everything else walks.  When there’s free milk, everyone’s thirsty.  And where does the money go?  It goes into the reelection funds of the encumbent politicians.  In effect, what have the contributions of the mob purchased?  They have purchased influence.  How is this any different than the medieval Catholic Church selling indulgences (the purchase of Church prayers to ease those in Purgatory into Heaven)? 

The most insidious part of the entire process is that it actually changes the mentality of the herd.  Greed feeds on itself, even at the most petty level, and people come to feel entitled to what once was a temporary support mechanism.  And politicians, to be reelected, must continually up the ante, and deliver more and more goodies.  The monster they have created must now be fed.  Have you been following the news in California lately?  The eighth largest economy in the world is broke, and is paying its employees and vendors with IOUs.  Do you realize what they have done?  They have created a brand new kind of fiat money, paper money.  It doesn’t have the Federal Reserve behind it, which is unfortunate, because the feds would just print the money.  Now at least two of the major banks, Wells Fargo and Bank of America, have decided not to honor this new currency.  What do you do with a paper IOU from the State of California that won’t buy you a loaf of bread?  How did this happen?  The State spent $26 billion more than they brought in.  Instead of biting the bullet, facing the voters, and shutting down all but essential services until they were solvent again, they did the next thing they could short of printing money.  Actually, they DID print money–and called them IOUs! 

One of the salient features of socialism, or gaining State control of the means of production, is outright nationalization of industry.  Obviously all governments need a pretext for doing this, and the pretext is always a crisis, and the seizure of private property is always nuanced in soothing terms such as ‘temporary’, ‘for the greatest good’, ’it had to be done’, or best of all, it now belongs to the taxpayer.  Oh, the State expropriated private property in your and my name and that makes it morally justifiable!  Now can anyone remember when we might have had such a situation in recent memory?  How about last year and this year, for example?  We now talk about Government Motors.   Folks, surely you don’t think they were talking about you, do you??  That domestic industry was just nationalized, dear people.  Now let’s analyze.  How often in your lifetime have you heard of a government, national, state, or local, making believable budget forecasts?  How about your government running a profit?  How about your government returning a dividend to its taxpayers (without printing money to do it)?  If the definition of insanity is to keep doing the same thing but expect different results, we are looking at the insanity of the herd at this point in time!  Are we really expecting a federal government that has run $1.1trillion over budget since last October to run efficient automobile manufacturing companies?  What’s going to be different?  And if the government compensates for failing to make a profit and then prints more money to mask the losses, how does that improve the economy?  How is that fair competition for those other privately owned companies who can’t print money?

The government partially nationalized some of the banks also, but who are we trying to kid?  The big banks have been a part of the government for a very long time now.

Margaret Thatcher once said, “The problem with socialism is that you eventually run out of other people’s money.”  On Monday the Financial Times reported that the Democrats in the House are considering an additional tax of 1% on taxpayers who earn more than $350,000 per year.  If you are making less than that, you probably feel quite gratified at your success at picking someone’s pocket above you on the socio-economic scales.  Until you think about it.  Apart from the moral issue, which is a big one, of how does anyone acquire the right to expropriate  someone else’s property with the blessing of the law, there is the question of what would have happened to that money if it had been left to its proper owners?  Most likely it would have been invested back into the capital formation of the economy (more about that later).  Then there is the matter of the exit migration of wealthy people and their money.  Believe it or not, people like to keep what they have earned, and they will usually act to protect their property.  One way to do this is to move, either themselves, or their resources, to another location, state, or country with greater tax advantages.  One of the first discernible evidences of socialism in practice is government imposed restrictions on migration OUT.   The citizens have become prisoners, and their government becomes their jailer.  In the early 80′s I met in Montreal with a group of French businessmen from Paris.  They were in a hurry to buy businesses in North America.  Their President Giscard d’Estaing, had imposed such high taxes on business in France, that anyone with any get up and go was getting up and going!  There was a massive outflow of capital from France because people, all people, like to keep what they have earned.  When the capital leaves, the jobs leave, the profits leave.  All that’s eventually left are the leaves, when the economy falls.

Okay, that’s a bit of the big picture.  We all know enough at this point to make a fool of ourselves down at the corner bar.  So let’s get serious, and let’s get financially literate.  In the next few articles we are going to take one subject at a time, starting with money itself.  I promise you, you will be amazed.  Bring your Excedrin; we are going to learn some new vocabulary.

Thanks for stopping by.  Don’t forget to subscribe on the right side of this page, near the top.  Stay tuned.  John Bechtel

I have decided that we humans are fundamentally lazy, that is, we travel with the herd and we will do what we have to for our own survival, but for the most part we will ride on the efforts of others as much as possible.  It is best and safest to be in the middle of the herd, for those who travel on the periphery are far more likely to be picked off by predators or somehow get separated from the herd, to their destruction.  Basically, all we want is what the members of any herd want, the freedom and safety to graze and reproduce.  Now what, exactly, does this have to do with financial literacy?  Everything, dear Reader, everything.  Literacy requires effort, mostly mental effort, and time spent reading and thinking and conceptualizing and comparing new knowledge with old knowledge, accepting some, discarding others, and continually challenging the orthodoxy of the day.  Orthodoxy is what is generally accepted by the herd, and to challenge that orthodoxy is to place ourselves at the fringe of the herd, to be viewed with suspicion, or even to be shunned.  This would mean willingly placing ourselves in a minority of our own choosing, the minority of independent thinkers. 

 I am not speaking of pseudo-free thinkers:  those individuals who seek to differentiate themselves, not  by real thinking, but by faking its supposed trappings, meaning strange dress, odd behavior, loaded language, secret meetings, or anything that will draw attention to themselves as being fringe for the sake of being fringe.  These people are also lazy, seeking to acquire the image of independent thinking without the mental effort of achieving the reality.  They are fakes.  The most obvious example of these folks are the young, who will blindly take to the streets with little information and bold slogans to demonstrate against the status quo.  These are the same people who will adopt the dress and mannerisms of their pop idols and who in their own way become the greatest conformists of all.  For them, to be, is to be AGAINST something.  And the definition of courage is to find something worth dying for, because at that point in their life they haven’t found anything yet worth living for.  They are AGAINST whatever IS, at the moment.  As opposed to conservatives, who are against any CHANGE of what IS, at the moment.  None of this is critical, or independent thinking.  It is all nonsense and herd mentality.  But the herd exists, and it behaves as it must, as a herd.

 I grew up as a Jehovah’s Witness, the same as the family of the recently deceased Michael Jackson.  There was a lot of good in how I grew up, including a respect for hard work and honesty.  Honesty in some things, deception in other things.  We believed in material honesty, in not cheating or defrauding others.  That honesty did not extend to matters of the mind.  That’s where the fraud began.  One of the first hallmarks of intellectual dishonesty is to label anything that differs from our own beliefs, and to use those labels as a substitute for thinking, as a shortcut around thinking.  Instead of critically evaluating, you simply label a thing and that absolves you from the effort of genuine, honest, open thought.  There was danger in free thinking; one might be seduced by differing ideas.  The belief system must be defended at all costs.  The most efficacious way to achieve this goal is to constantly warn of the dire consequences of opening the lid to Pandora’s box by even a crack, and allowing the seeds of doubt to enter our minds.  To facilitate control of the herd, access to outside, or conflicting information needs to be closed off.  It is absolutely necessary to gain control of what information gets through to the herd.  If truth was what mattered, truth being loosely defined as reality, what IS, there would be no danger from the herd having full access to any information out there.  But truth is not what matters, belief is what matters, and therefore every power broker in the history of mankind has sought control of what information becomes available to the herd.  The politician, dictator, guru, ayatollah, or leadership insists on becoming the only acceptable channel, or conduit, of new information.  The minds of the herd need to be forcibly protected by  seizing or controlling the media.  All news is filtered and given the proper “slant”.  The editing of information and news may be subtly nuanced or flagrantly propagandistic.    Success is finally achieved when the herd polices itself, and takes over the job on behalf of the State, the organization, the enterprise.  Belief has finally taken on a life of its own and requires no further rational defense.  Belief now substitutes for thinking.  Everyone can now get on with the serious business of grazing and reproducing.

 I knew growing up as a Jehovah’s Witness that we were often labeled as a cult, and I used to wonder what that really meant.  In time I learned that it was an elusive term that seemed to take on a different connotation in every different context.  Ultimately it meant any belief system inspiring intense devotion, and that was outside the herd thinking, i.e. outside the orthodoxy of the time and location.  Cults often seemed to attract people who were lost souls to begin with, the disenfranchised, those without purpose or direction, those looking for someone to tell them what to do next with their life, or to tell them what to believe.  Many of these people had no idea what they believed, they simply sought an unearned elitism of being AGAINST something.  They identied their Devil before they acquired their God. Intellectually, they wanted something for nothing.  They were not really independent thinkers, but seeking a new herd with which to identify themselves.  They are more like the very young offspring of a species who become imprinted after prematurely losing their real parent, and who then are brought into close contact with a representative of another species and adopt that one as their lost parent.  This produces charming absurdities, as we see a duckling adopting a cat as its parent and following it dutifully. Humans who get separated from the main herd are vulnerable to becoming imprinted by any stray subgroup or guru that happens along, and strongly identifying themselves with that new group.  They develop a new, and possibly absurd, new identity.

 Jehovah’s Witnesses were no different from anyone else, but they certainly had no corner on the market of intellectual dishonesty, or trying to control the flow of information to their followers.  We knew who the enemy was:  it was the other churches, first and foremost the churches of Christendom, and extended from there to  the full range of all the Moslem and eastern religions of the world.  It became necessary to learn the weaknesses of the competiton, but to assure that the membership of the herd was not influenced by the competition.  Therefore, all higher education, meaning college education, was strongly discouraged.  Our youth were encouraged to find blue collar jobs and vocational school training.  If the children of church elders went to a college, it placed the position of the elder in jeopardy.  Who knows what contaminated ideas the young and impressionable might be exposed to at the altars of higher learning?  The Humanities departments of our universities were the breeding grounds of wrong ideas, and were therefore the enemy.  As in all herds, access to ideas had to be carefully controlled.  The irony of all this is that thought control, or political correctness, is nowhere more prevalent than on the university campuses purportedly dedicated to open inquiry.  Hence the professor who achieves tenure as protection from coercive practices of the school administration, and who then introduces punitive actions towards students who do not subscribe to his own version of orthodoxy.  Each minority, when the tables are turned, proceeds immediately to a repetition of the behaviors of the preceding majority.

 In time I lived at the headquarters of the church and was able to observe the workings of the organization at the very top.  It was disillusioning.  I did not see evil as I would define it.  I saw victims of victims.  I saw closed minds and the power of belief.  I saw true herd mentality, circular logic, propaganda, power struggles, and sex.  I saw the masses happy to be told what to do, what to believe, and how to behave.  I saw the viciousness towards any who broke from the herd; I saw the pack turn on them with a ferocity never quite directed towards those who had never belonged to the herd to begin with.  I saw the confusion of the herd when they occasionally perceived glimpses of internal power struggles and ideological conflict.  It was necessary for the herd to believe all was harmony, that there was still a final authority, and that God forbid, no one had to do any thinking of their own.  Everyone wanted something for nothing.

 When we would go from door to door, canvassing for new converts, I was amazed at finding the same phenomenon everywhere.  Someone would say, as a defense to engaging us in unnecessary or prolonged conversation, that they were sorry, they were not interested, because they were, say for instance, . . . Catholic.  I would ask them what it meant to them to be a Catholic.  I never once, in years of proselytizing received an intelligible answer to my sincere question.  As a matter of fact, the question was usually received as an absurdity, as if it was unaskable and unanswerable.  No one knew why they were a Catholic, instead of, say, a Methodist or Presbyterian, or God forbid, a Buddhist or Hindu.  They just were what they were.  It was unchallengeable, unassailable, and accepted as axiomatic, something that required no defense or thought.  Belief had become a short cut for thinking.  Something for nothing.  No mental effort required.

 Belief in God was accepted without thinking; belief in the Bible was accepted without the necessity of reading it; belief in the Koran was accepted without the necessity, not only of reading it, but of reading anything at all; belief in Communism and the triumph of the proletariat was defended and died for, without  ever reading its Manifesto; belief in economic Central Planning was accepted without any comprehension of money, production, the creation and preservation of wealth; belief in every boondoggle imaginable was accepted by virtue of its constant repetition in the media, as if anything that received enough Twitters could turn nothing into something.  The billions of parents of the world sent their own children into the furnaces of armed conflict to die for causes they never understood, but accepted and believed because they had heard the holy mantras repeated so often they must be true.  Slogans were substituted for thinking.

 Now let’s get back to financial literacy and the purpose of this blog.  Why do I write, dear Reader?  Because I have unanswered questions, and you should too, if you do any thinking at all.  And the answers matter.  In the last ten years hundreds of thousands became millionaires on paper, only to lose it and become paupers.  What was going on?  Was it the failure of capitalism, or the forceful intervention of governments into free enterprise?  Is the solution more intervention of governments, or a return to free enterprise?   What is capitalism anyway?    What are inflation and deflation?  They say we should buy gold.  Should we?  If we do, what do we do with it?  It won’t earn interest in our closet.  Who do we sell it to if paper money becomes worthless?  Will we be able to buy a loaf of bread with a bar of gold?  If the government wants our gold, what is to prevent them from knocking on our door and confiscating it?  If they do that, what recourse do we have?  They have the guns and we don’t.  What about the national debt?  They say we are mortgaging the futures of our children.  What does that mean, anyway?  Are our children all going to get an invoice in the mail, like a credit card bill, but from the government, saying they will have to make onerous monthly payments to Uncle Sam?  And if not, exactly HOW are our children saddled with our debt?  This doesn’t seem real, and so we don’t really care about it, and why should we?  None of us want to become accountants or economists, and how much do we really need to know?  Why isn’t it enough to just believe?  Like being a Catholic or a Democrat or a Scientologist or a Kenynesian or a Liberal or a Libertarian?  Why can’t we just accept a label of our choosing and go on grazing and reproducing, which is all we really want to do?

 When I was a Jehovah’s Witnesses, the herd organized lots of meetings, assemblies, conventions.  We were often regaled with lengthy dissertations so dense and obscure that no one really had any idea what had just been said.  Happily, however, it never occurred to us that the obscurantism was intentional obfuscation; that the problem was not our failure to comprehend, but that the message was incomprehensible.  After such a program, we often said to each other, in discussing the recent content, how intellectually “deep” it was.  Little did we realize that we had long ago given up the sovereignty of our own minds, and now accepted any imposter’s substitute.  Now I listen to the same intellectual sleight-of-hand in the form of endless economic and political sermonettes disseminated on the 6 o-clock news as divine truths, using jargon and slogans that gain credibility with their endless repetition.

 I have already been accused on this blog site of writing too many words.  Can’t I reduce concepts to Twitter-size feeds, or sound bytes, that tell us what to do and what to believe?  And actually, as a card-carrying member of my herd, I really don’t want to be disturbed with new information, or the introduction of conflict and mental discomfort into my carefully fabricated perception of reality.  As a philosopher said long ago, I have never seen a subjugated people that didn’t deserve it.  As I would say, if we have not the will to impose our own terms on life, we must be prepared to accept the terms life imposes on us.  And when that happens, we will have no comprehension of how we got there, but will we really care, as long as we can go on grazing and reproducing?

 Why can’t we have something for nothing?

As always, thank you for stopping in.  Leave a comment if you wish, and come again.  John Bechtel

(That’s not incorrect grammar in the title of this article; it’s literary license!)

Michael Jackson and his siblings grew up as Jehovah’s Witnesses, at least sort of.  So did I.  So I started comparing my life with his.  We started at the same place, and ended up in very different places.  Who did better?  I decided to keep score:

 Tough, authoritarian parenting was the norm.  Michael, one; John, one.

 Michael grew up on music; I grew up without music.  My father was protecting me from people like Michael.  No telling what I might do under their influence:  grow my hair longer??  Michael, 1000; John, zero.

We had to perform to win approval.  Michael, one; John, one.

 We both went on stage, Michael to earn fame and fortune, me to win approval of the church authorities.  Michael, 10,000; John, one.

 We both needed to win the approval of our parents.  Michael, one; John, one.

 We had no clue how to manage our money.  We either didn’t have financial statements, or didn’t know how to read them.  Probably not enough interest to learn either.  .  In my family, we didn’t even know what a financial statement looked like.  Michael, one; John, one. 

 I knew when I was broke.  Michael didn’t.  Michael, zero; John, one.

 With regard to our sexual development, I would guess Michael lost his virginity before I did.  Hell, everybody lost their virginity before I did!  At the age of 23, I married the only girl I had ever kissed.  We were both virgins.  I don’t know why she got married, but I got married because I just thought that’s what you should do when you were 23.  If you waited much longer, people might start to wonder about you.  Wonder what?  I didn’t know.  It was just time.  It wasn’t even about sex.  I was so sexually repressed, I didn’t even know what I was missing.  Michael, 2500; John, one.

 Michael lost the favor of the church; I went to the church headquarters and rose in the church hierarchy.  Michael, 2500; John, one.

 We both left the church.  Michael, one; John, one.

 Michael got involved in sex scandals; nobody cared what I did.  Michael, -2500, John, one.

 Michael was extremely handsome when very young, and then got weirder looking as he aged.  I was weird looking as a nerd before that was chic, and the wrinkles now camouflage the nerdiness satisfactorily.  Nobody could be a nerd at my age.  Michael, one; John, one.

 Michael went to a plastic surgeon more often than I did.   Michael, -2500; John, one.

 Michael had more “friends” than I did.  In the end, we probably had about the same number of real friends.  Michael, one; John, one.

 We both have known money problems.  Michael’s money problems had more zeros on them.  Michael, one; John, one.

 We both had unsuccessful marriages.  Michael, one; John, one.

 Tens of millions grieve Michael’s premature death, but far more than that don’t even know that I am alive and grateful for every minute of it!  Michael, 5,000; John, Priceless.

 Moral of the Story:  Better a live dog than a dead lion.  Better yet, become financially literate, and turn your  dog days into a lion’s pride.  Having too little money has some things in common with having too much money; either way, if your money is bigger than you are, you will lose it.  We all need financial literacy!

Thanks for listening in.  Come back again! John Bechtel

Human beings are a tribal species, and like most of the lower species on this planet, they prefer to travel in herds.  Truly free thinkers have always been a desperate minority, and it has been the unfortunate destiny of such individuals to periodically carry the world forward on their backs, often having to apologize for their discoveries, recant their theories under torture, or have their earnings plundered by their inferiors.  In a world culture based on the nonsensical concept that all men are created equal, these individuals have broken from the herd in their thinking, transcended commonly accepted “truths” and challenged the orthodoxy of the day.  Their discoveries and powers of production have done exponentially more to raise the standard of living  the world  over than the efforts of all the hand-wringing social planners of the planet combined.  The politicians of the world would have nothing to redistribute were it not for the outstanding minds and abilities of these scientists, engineers, and entrepreneurs.  To say that these persons are only the equals of the hordes who benefit from their exceptional minds can only be called the triumph of ideology over reality.The breeding ground of all innovation is freedom; the freedom to challenge the unassailable, to think the unthinkable, to doubt the cherished myths of the culture, and should one be successful, the freedom to keep as one’s own property the product of one’s efforts.  One of the greatest myths of all time is that the purpose of our life is to live for others, a belief that runs counter to both rationality and reality.  A basic axiom of all conscious existence is that we must work to assure our own survival, and that in the case of man, survival is obtained by the use of our mind.  When the existence of lower species is threatened by some force of Nature, instinct requires fight or flight, and many or most die in the process.  Man, on the other hand uses his mind to understand and harness the forces of Nature, to bend those forces to his will.  In the process he has gone from being one of the weakest and most vulnerable of species to exercising a fundamental control of all of Nature, with the possible exception of viruses.  Like most other species, humans are hardwired to compete with each other for dominance, to seek power within the herd just for the sake of that power, and also to compete sexually.  It stil matters who obtains the favors of the female and succeeds reproductively.  Again, like other species, the male of the human species will strut “his stuff” to show his desireability.  One of the most seductive blandishments of a human male is the demonstration of power over others in the herd.  As Henry Kissinger is famously known to have said, there is no greater aphrodisiac than power.  This explains a great many phenomena such as why guys with expensive cars get laid more often; men with power or wealth, or even the mere appearance of such  attract females much younger than themselves; why even physically homely rock stars attract hordes of beautiful, adoring women.  It also explains a great deal of consumerism, or the need to constantly acquire new toys; the appearance of wealth and power is usually just as effective a means of displaying one’s standing in the herd as the reality of them.  Much of Nature is based on camouflage and deception in order to succeed at reproduction. 

There are essentially two ways to compete in the acquisition of power and assets:  one is to create value through innovation and production, and the other is to plunder the values created by others.  The more free a society is, meaning the more likely an individual is free to think for himself, without coercion, and the more free s/he is to keep the product of his efforts, the greater the aggregate innovation and productivity of that society, or herd, as a whole.  In other words, more freedom and less plunder equals prosperity.  One has only to look at third world petty dictatorships to see the net result of a herd dominated by plunder by their own petty chieftains; anyone with ‘Get-Up-and-Go’ in their tribe has gotten up and gone.  Your best minds will go where they are more likely to be able to keep the fruits of their labor.  Incredibly, your greatest minds are “selfish”.  They want to keep what they have earned, and they want control over its disposition.  If they are charitably inclined, they want to decide on the worthiness of potential recipients of their largesse, and they resent expropriation of their earnings by any gang of power lusters who seek control of the producers in their society.  They see no need to apologize for their success, nor do they feel morally obligated to expiate unearned guilt by giving away their wealth.  If they are as accomplished at the art of philosophical introspection as they are at physical creation of value, they understand that theirs is the only moral form of economic activity and for which no apology is required.

As far as the plunderers are concerned, there are only two basic types, and both types rely exclusively on one source of power:  the power of a gun.  The first type are the dictators of the world, who make no pretense at their goals and their methods.  They exterminate anything and anyone in their path.  They often make feeble efforts at philosophical or theological justifications for their power lust, but they generally achieve their rise to power due to physical intimidation and violence, and the general vapidity of humans in a herd.  Inexplicably, humans in the face of mortal threats to their freedom and very existence, often react like a doe in the headlights of an approaching vehicle.  They freeze up and in many cases pay the price of their own destruction.  Just as often, a herd population will endorse a potential dictator because they support the use of his strongarm methods to achieve goals of their own.  This is why in modern societies, the rise to power of some autocrat or other is frequently and enthusiastically applauded by intellectuals and journalists who see themselves as part of the power structure of the new regime, or they see this regime change as an opportunity to impose on the general population ideologically-based imperatives that would otherwise be rejected in a free society.  It rarely occurs to these people that the tyrants they put in power have no regard for life or property of anyone, including their own supporters.  Without a rule of law, everyone is at risk, and the new tyrants are quick to turn against their own supporters as potential threats to their power.

The second type of plunder is through democracy.  The real challenge of political philosophy is not to make the world safe for democracy, but to make the world safe from democracy.  Democracy is nothing more than a euphemism for mob rule or gang warfare.  The majority rules.  Period.  As NY Times columnist Russell Baker once said, ‘I despise the implied assumption of all minorities that if the tables were turned, they would be different.’  If you didn’t get that statement, read it again and think about it for a moment.  All minorities, meaning any group of any description whatsoever, chafes at the restrictions and limitations imposed on them by their majority rulers.  Their only recourse is to work at undermining the power structure of the powers that be in order to supplant the dominant party by their own.  One group, or gang, is pitted against the others.  Whenever a minority achieves its objective and comes into power, they immediately seek to use the levers of government power at their disposal to reverse their fortunes, and now impose their cherished values on the new dissenters.  Even in a democracy, the ultimate power is the power of a gun.  Each faction seeks control over the legislative process, first to perpetuate their own power base and maintain  control of the public purse, and the penalty for noncompliance with new laws is inevitably fines, imprisonment, or worse.  In the United States, our system  and our prisons are overflowing with the abuse of elected power.

In a democratic society, as in all of Nature, camouflage and deception are the norm.  One’s real goals can never be stated.  All controversial legislation is ALWAYS framed in humanitarian terms, in order to cast the opposition as selfish, ruthless, egotistical, or worse.  Moral high ground is always sought as the ultimate mask in any ideological struggle, ending with each side out-shouting  the other in their professions of love, compassion, and self-sacrifice.  Not the self-sacrifice of the power-lusters, but your self-sacrifice.  Power mongers are notorious for creating exceptions for themselves in the sacrifice business.  Almost all populism falls into this category; it panders to the greed and ignorance of the masses.  Not understanding the creation of wealth, and envious of those who have more than they, however earned, the masses enthusiastically support any legislation to “soak the rich”.  In their eagerness to pick the pockets of those above them on the socio-economic ladder, they forget there are many below them just as eager to pick their pockets.  So a fundamental question is, Who gets to pick the pockets of others?  And who gets to be the victims?  The mob will rule.  So a few years ago, in an effort to expropriate more of the wealth of the producers, legislation was passed at the federal level called Alternative Minimum Tax, which was designed to make the wealthy pay more taxes regardless of their legitimate deductions.  In other words, individuals above a certain income level were to be denied tax deductions that were legal for everyone else, in order to make them pay more taxes.  That was an example of populist legislation, since there are a lot less rich voters than those not rich.  The legislation appealed to the greed of the masses.  The middle and lower classes were more than happy to pick the pockets of the higher-ups in order to pay for their pet entitlement programs.  Why not?  But the legislation backfired because in the next few years the incomes of large numbers of the middle class grew so much, by inflation or otherwise, and threw them into the ranks of the “rich”.  Hey, they had never approved the picking of their own pockets; AMT was designed to pick the pockets of others!  The politicians hastily threw together new legislation revising the AMT to relieve these screaming voters.

Free societies regularly and incrementally vote themselves into slavery.  In the beginning they always believe they are merely imposing their own “appropriate” and “moral” and “unimpeachable” objectives on an unenlightened society; the giving away of freedom is always preceded by an arrrogance and elitism of the few who feel compelled to fix the world and tell everyone else how to live their life, and to overrule any disagreement with the power of the government’s gun.  No one is safe in any so-called free, democratic society, unless there is a firm rule of law, beginning with a Constitution limiting the power of the government and its voters.  It means there are some rights, individual rights, that can never be voted away by any majority, no matter how wildly popular with the masses.  The masses of voters are a herd, and they are educated by popular television, and can easily be induced to run off a cliff to their own destruction.  The media are largely indoctrinated by the universities, which are heavily influenced by an intelligentsia that favors collectivism, altruism, and government control of the masses.  Markets are also subject to herd mentality, and when they run off a cliff, the government usually steps in and says Step aside, we can do this better.  They then create the virus of the next financial pandemic, and in the process accrue and consolidate power over more and more of the subject population  and its economic activities.  Rarely is freedom lost all at once.  That’s all for today.  John Bechtel, Greenville, SC

In Part I of this article, I discussed how people are vulnerable to belief when they are unhappy or unsatisfied, and most people are one or the other most of the time.  In times of dramatic change, people are scared, insecure, and eager for anything that promises certainty.  Unsure of themselves, they are quick to follow any Confidence Man or Group who exudes a high level of certainty and self-assurance, whether the facts warrant it or not (and they usually don’t).  When the Confidence Man (or Group) also promises some form of utopia that people want, and if that Utopian suggests that the crowd can have what they want by taking it from someone else, few will resist that temptation.  Such plunder is always camouflaged in language of some form of altruism, of everyone sacrificing or giving up for the common good.  Such behavior is successful because historically, for millennia property existed by permission, not by right, and it was usually acquired by military acquisition, not by trade.  Those who actually produced economic values were viewed as serfs, as socially inferior to those who controlled their products by force.  In addition to this historical emphasis on property acquired by force and kept by permission, feudal society viewed the tribe, not the individual, as the core unit of society.  So when we moved to the Industrial Revolution, property earned was considered the property of the group, or tribe, rather than the individual.  The prevailing philosophy has been one of altruism, meaning that the individual was expected to give up some part of his earnings, without compensation, to the tribe.  Although technology has changed dramatically, we still cling to these ancient paradigms.Altruism, like its political offspring, socialism, represents a view of life based on need, want, sympathy, pity, handouts.  In a society where these values are paramount, the greatest virtue is achieved by those who sacrifice their life, time, and resources to distribute to those in need.  While there is a place for charity in life, a time when those of us who have done well want to help others less fortunate, particularly through no fault of their own, and who are therefore eager to get back on their feet, something ugly happens when a person’s need becomes accepted as a moral claim on another person.  Helping then ceases to become charity, and is extended either through social pressure (guilt) or coercion (expropriation and redistribution).    I remember, almost ten years ago, when I was introduced to a professor in the Humanities Department of Ohio State University who quickly engaged me in debate over raising taxes to fund some of her pet projects of a humanitarian nature; that when I objected on the grounds that such taxes ceased to be charitable gifts but in fact became the forced and immoral seizure of private property, she looked at me with half a sneer and said ‘surely you can live without some of your precious profits’.  The point was not whether I could, or could not, live without some of my profits.  The point was that they were my profits that I earned through the use of my mind, and were for me to dispose of as I saw fit.  Her viewpoint was that my abilities, the product of my mind’s effort, did not belong to me, but belonged to the tribe or the collective.  The harder I worked the more I was to be penalized in a scheme called “soak the rich”.  She did not view my earnings as my property, but rather the property of the collective, and I could keep only what the collective decided, by their permission.

I understood this feudal attitude, because I grew up under this philosophy.  My father, for whom financial literacy was NOT an outstanding character trait, fervently believed that there was only so much wealth in the world, and so if some had more than we did, they obviously took it out of our pocket somehow.  He had no idea that this concept was a holdover from the days of feudalism when wealth was not created, but only confiscated.  The King owned all property, and he awarded land and castles to noblemen in reward for successful military service (which in fact meant the successful seizure of other people’s property).  These gifts of land to the nobles were held by the King’s permission, and “ownership” could be revoked at the pleasure of the King.

 My Dad’s sense of economics served him well.  He never understood money or wealth, had virtually no  financial literacy, and he died very poor.  Under the feudal system, people were born into their economic circumstances or social class, and no movement upward was possible, except to become a successful warrior and kill or enslave other property owners and confiscate that property.  Serfs were the producers, and they got no thanks for their efforts, other than permission to keep enough of their own  product to subsist—barely.  This was an agrarian society, and production was of the brawn, not the brain, variety.  Brawn was looked down on, and the products of brawn were expropriated by the nobles and the King.  The serfs survived by permission; the nobility survived by brute force.

 There was a psychological payoff for the serfs though.  The serf’s wife or children could not, and would not, ask him why they did not live in as nice a house as the nobleman in the castle.  A man’s lot in life was inherited and unchangeable and accepted.  In a capitalistic society, however, it was another story altogether.  With free trade, based on one’s ability and hard work, output varied considerably, and consequently, so did wealth.  So a man’s wife, could, and would, point to the better neighborhoods and pointedly ask why their family was not doing as well as the Smiths, or the Jones.  People compared themselves to others, and envy and resentments developed to a far greater degree than existed before.  The class society began to weaken, and upward mobility became a real possibility, as did a Middle Class.

 It is a mistake to underestimate the importance of this phenomenon.  From the times of earliest man, in all our tribal societies, status has been very important to our species.  In this respect we are like many other species, and we quickly develop a pecking order, a power structure, a hierarchy of status.  Among early man, pre-ideology, even pre-religion, we subscribed to a form of animism, wherein we ascribed human attributes to  animals.  Even in these primitive civilizations, enclaves, and villages, we erected totems which were not so much religious symbols, but rather symbols of  social status in the hierarchy of the village.  The taller, wider, more elaborately carved and ostentatiously decorated totems belonged to those with the highest standing in the village.  Not much has changed.  Today our totems are our luxury cars, our beautiful homes and neighborhoods, the clothes and jewelry we wear; anything to tell the outward world what our status is in the social hierarchy in which we live.  Because such comparisons are so easy, we can come to hate those who have more than us, and class warfare can set in.  We can also come to despise the system that makes such comparisons so unwelcome.  How do I tell my wife that Fred down the street was just smarter than me, worked harder than me, caught opportunities that I missed?  How do I tell her that in the marriage sweepstakes she didn’t do as well as Fred’s wife?  Rather than deal with this reality, I now resent Fred, and my wife now resents Fred’s wife.  And since we can’t afford what Fred has, we attempt to fake reality by buying the same things that Fred has on credit that we can’t afford.  Envy has a lot to do with a consumer society.  We want what others have, not so much because we  need it, but because they have it and it has become a “totem”.  The more things change the more they stay the same!

 In the case of my family, my mother developed a personal philosophy that served her well:  she knew others had more because they were dishonest.  This included all entrepreneurs and business people.  With the feudal paradigm to draw from, we had less, they had more; somehow they had stolen our birthright, our fair share of Nature.  How?  We didn’t know how, but somehow they had.  There was no reasoning with this position. We confused fantasy with reality.    Did anyone force employees to work for this businessman?  No.  Did anyone force the customers to buy from this businessman?  No.  Did anyone force other business people to sell to this businessman?  No.  Then if everyone is making their own choices with no coercion, how did this businessman steal from all of us?  No answer.  We just know he did.  This was our family’s way of evading the reality that we did not understand the creation of wealth.  It also meant that until or unless we improved our financial literacy, we had no chance of changing our economic situation.  (To our credit, we did not consider our need a claim on anyone else.  We went to the doctor only when we could afford it; we took on extra jobs, or we did without.)  Socialism operates on a principle that does not exist anywhere in Nature.  It attempts to legislate into existence an equality of result that runs counter to reality, to what IS.  Imagine trying to grow a forest where it was required that every tree be exactly as tall as every other tree.  Imagine trying to fertilize the scrawny ones to encourage them to grow faster and taller, and that failing, trying to limit the growth of the taller ones, or pruning them back, in the spirit “of fairness.”  Such is the challenge of the utopians of the human species.

 There are other historical and psychological reasons why we long to believe the utopians.  There is for example, the matter of intrinsic worth.  In a market society, you become wealthy by selling a good or service that a lot of people want.  It does not matter whether the item in question reflects good taste or atrocious taste; what matters is if it appeals to the taste of a mass market.  There are many who take great offense at this, including intellectuals, artists, scientists, educators, etc.  They may consider themselves to have great intrinsic talent, only to find that those who pandered to a more common taste earned much more money.  Once again envy comes home to roost, as we have to deal with the awkward business of comparing our totems, or stature, with others in our society.  So a professor may disdain a former student who has been much more financially successful than he, the professor, could ever be.  When the market does not reward my clearly superior talents, it is only appropriate that the government, and its elite, give me the recognition, of which  the market in its blindness, deprives me.

 Socialism always involves forms of elitism, substituting the taste and opinions of the few over the wishes of the many.  The use of force, or coercion, to accomplish this is a given.  Government subsidizes what the market will not recognize.  If you don’t believe this, go in any art museum today and ask yourself if the “market” put a lot of that stuff on the walls?  As George Orwell once said “Some things are so preposterous, only an intellectual could believe them.”

 In a free market, as in all of nature, each produces and survives according to his ability.  Those with less cannot blame it on living in a class society where they have no chance to change their station in life.  Those who compare less favorably with their colleagues and peers often hate the free society that invites such unfavorable comparisons and takes away the excuses.  I learned this lesson well in the early seventies in Brooklyn and Newark, NJ, where I developed many friendships among the Haitian immigrants of that period.  They had everything against them; some spoke poor English, many were illegal, almost all were quite poor and lived many families per apartment.  But they had good minds and a great work ethic, and the vast majority of them within a few short years became successful business owners and landlords in former slum areas burned out by the race riots of the period.  When most of the population around them were complaining that they had no chance because of racial bias,  the Haitians, who were of the same race as their neighbors, created wealth.  To this day they serve as an inspiration to me of what can be done with intelligence and great desire.

Those on the other hand who are unwilling to deal with their own limitations, and do not  work to expand their abilities may choose to find refuge in platitudes, such as “We are more spiritual; we do not trade in material things”.  Authors of little-known book titles scoff at the “material” or “poor taste” of the buying public.  They find the worth of their own writings suffused with intrinsic worth that clearly cannot be evaluated by their lack of financial success.  All of this is a form of pretentiousness, the intellectual equivalent of leasing a luxury car we cannot afford in order to fake a success we have not achieved.  Great literary works are by definition authored by people who went against the conventional wisdom of the time, and whose fame was often posthumous.  That does not mean however that an economic system that allows for others who did achieve financial success by catering to a popular taste is to be condemned.  Personally I have found some of the great classics a real treat, and with some of the others, I couldn’t help wonder by what standard they made the cut into “greatness”.  I have always had the arrogance to reserve the right to my own judgment in such things.  Just because someone tells me that a work is great art does not mean I am going to agree.  I still cannot bring myself to accept the crude scribblings of a small mind as “art” just because it came to hang on a museum wall by some fraud of the popular culture.

 When all else fails, when we observe, and envy, those who have achieved much more than we have, we can fall back on the old standby:  “But they’re not happy.”  This conclusion is more ubiquitous than one might think.  In the interests of brevity, I will only say this:  It is true that neither money, nor wealth, will bring happiness.  But it is also very true that the absence of it can bring a lot of unhappiness, debilitating stress, and grief.  For all those who bemoan the modern state of society, I can only ask how many of us would like to live without our medical science, our conveniences that we take so for granted, our mobility, our leisure time, our extended lifespans?  It is one thing to denigrate these things in “chic” social banter; it is quite another to survive as the noble savage, the primitive man who lost all his teeth by the age of 20 and who was exhausted, diseased, or dead by 30; who had no time for such leisurely pursuits, and most of whose children died before they ever reached maturity.  How very interesting that our culture considers charitable work a great virtue, but rarely speaks out in praise of all the men (and women) of the mind who created the wonderful world we live in, and whose minds keep it going.  They are often forgotten because, just like in the millenia of the past, production was expected of the competent.  Why? Because they were competent.  The producers were serfs; the nobility redistributed the value of what they produced.  The nobility were the lords of confiscation and reallocation of resources. 

 Ultimately, what is the appeal of all utopias?  It is the belief that we can get something for nothing.  It doesn’t matter whether the goal is material or spiritual, whether it is financial success, or respect,  admiration, or love.  If it is a desire to have what we have not earned, we will choose to believe what facts and reason will not support.  When you scratch the surface of all utopian philosophies, somewhere below the shiny surface is an ugliness of power lusting, greed for the unearned, envy of those who have earned it, and a desire to fake a reality that doesn’t exist except in our wishful thinking.  Utopia is the suspension of disbelief; it is the attempted triumph of consciousness over existence; the belief that we can remake what IS by no greater effort than wishing it to be so.

Thanks for visiting!  John Bechtel, Greenville, SC

About ten years ago I was asked to give a speech about the power of cults, largely because I had been raised almost from infancy as a Jehovah’s Witness, a religious organization often associated in the public’s mind with cultism.  Some of the hallmarks of cultism are a need for certainty, a conviction that you have absolute truth and are the final authority on that truth, and repression of dissent.  Some cults exercise a physical control of their members, but most of them exert a psychological control.  A true believer is someone who no longer needs coercion or physical restraint, but who now acts as if those restraints are still in place.  I can best compare it to training a guard dog; you use a choke collar with such consistency that eventually you remove the choke collar from the neck of the dog and he is so conditioned that he continues to act as if the choke collar is still there.  When, in my thirties I left this organization, I was eager to embrace a society of intellectually free people, and I was excited about the prospect of associating with others with open, inquiring minds.  I was astonished to find so much more of what I had just abandoned, only worse:  People who were born into freedom, and yet who both abused and despised it. 

Cults are all about utopias.  Everyone on this planet is unhappy about something.  Everyone has a problem that they would like to go away, everyone knows someone else who has what they want, or more of it.  Everyone believes their life could be much better, if only . . . You fill in the blank.  Cults gain adherents by claiming to have found the ultimate truth, the only solution, the compelling argument, The Way.  Sacrifices will have to be made, but that is a small price to pay, isn’t it, if you look at it unselfishly?  Quite usefully, cults  provide a devil, or scapegoat, on which to project blame for whatever our particular grievances are (Management, Jews, Foreigners, The Other Religion, The Rich, The Other Political Party)  We have enshrined in our Declaration of Independence our right to the pursuit of happiness; utopians promise the reality of happiness and fulfillment, not the illusion of its pursuit.  Whatever freedoms you may enjoy at the moment, you can be sure that utopians will require that you sacrifice some of them in exchange for their promise of better tomorrows.  Why do people believe them, often in the face of considerable evidence that their claims are a fraud and have repeatedly failed before?

Charismatic leaders cash in on the conditioning you have already experienced; you have absorbed a basic philosophical premise, from your schools, your church, your family, your books, media, movies, songs, everything that comes at you during all your conscious hours, that the only acceptable, moral purpose of your life is–others.  Not you, but others.  Your ultimate value in life is not your life, but everyone’s life except yours.  This is the moral ideal of most cultures on this planet.  The appropriate expression of this ideal is submission.  Every other life form on this planet seeks, by instinct, its own survival.  But our culture teaches us that, as humans,  our moral ideal is to promote the survival of others over our own.  Since this is an unnatural standard, and one that runs counter to our own nature as man, it becomes a standard we cannot live up to, and therefore a standard that induces guilt.  Whoever controls and manipulates our guilt load controls us.  They can now remove the choke collar from our neck, and we will faithfully follow them as surely as if there is a gun at our back.  We will go even further; we will give them what Ayn Rand called ‘the sanction of the victim.’  We have anointed our new Masters.    Once they have obtained our tacit acceptance of the premise that our life is not our highest value, and that our highest purpose is to serve others, it only remains for someone else to decide what the exact form our sacrifice, or service, should take.  When our sacrifice is in the name of God, our payoff is in the Hereafter; when our sacrifice is to Society, our payoff will be just around the next corner, after we have eliminated poverty, restored the ozone layer, reversed global warming, stabilized international trade, protected jobs, revived failed businesses, won the war on drugs, and soaked the rich.  But there is one thing about all sacrifice–it is always later.  So the first prerequisite for a succesful cult mentality is a pervasive culture of self-sacrifice.  This sets the stage for the first charismatic politician, dictator, ayatollah, or  power luster that fortune favors.

The second pre-requisite for loss of freedom to a cult is a CRISIS of sufficient magnitude to scare us out of our wits, and that wrongly leads us to believe restoring stability would be worth a “temporary” loss of some freedoms. Once these freedoms are gone, it is almost impossible to get them all back.  Why is this?  When it comes to freedom, history is not on our side.  As a matter of fact, freedom as an individual right is a very recent development.

During all of the ages of man, there have been two classes of people:  the producers and the expropriators.  Whether the producers were serfs tilling the soil, or forgers of iron or bronze, or men toiling on the pyramids, they were slaves who worked to eke out an existence, to survive, and for the benefit of their Masters, who controlled them with the sword, torture, and death.  Sometimes it was a hostile relationship, and sometimes a symbiotic relationship.  Empires rose and fell by the use of force, and the major difference between the rulers of men was the degree of autonomy they permitted their subjects.  Some of the vanquished were slaughtered, others were placed in chains, some became vassals and achieved a state of semi-freedom in exchange for paying tribute, or a tax on their “freedom”.  Man’s natural state was that of a slave, and only might made right.  Some form of slavery was characteristic of almost all civilizations throughout history.  Until, that is, the philosophical period that came to be known as The Enlightenment. 

For the first time a case was made that the natural state of a man was that of freedom, and that this freedom was his by right, not by permission.  Yes, he could still be enslaved by force, but his jailers were violating his moral rights in doing so.  Man’s highest value was his life, and it was proper and moral for him to seek his survival and his happiness.  The lower animals survived by instinct, but man survived by the use of his mind, and the use of that mind came to be his work and his means of survival.  Therefore, to rob a man of his product, to rob him of the fruits of his use of his mind, was in fact to rob him of his right to life.  Therefore, property, obtained as the product of his mind, was also his right, as a corollary to his right to life itself.  Thus, the right to independent thought (intellectual freedom) and property rights (economic freedom) came to be associated together for the first time in history.  How interesting that these two freedoms tend to disappear together as well when people are enslaved.  Since man survives by the use of his rational mind, it is not possible to separate the two freedoms; it is not possible to have one without the other.  There is no freedom without economic freedom. 

So when Thomas Jefferson wrote that man had the ‘inalienable right to life, liberty, and the pursuit of happiness’, he was not writing the obvious; he was making a radical departure from the orthodoxy of all of human political history.  He was stating that man did not obtain life, liberty, and the pursuit of happiness by permission, but by inalienable right!  This was not a group right, because a group right would have implied that his life or freedom could have been denied him by the group; no, an inalienable right was an individual right.  In this way Jefferson was championing the rights of the smallest minority in the world–and the most maligned–the individual human being.  No other person, clique, group, political party, thug, ruffian, dictator, junta, or voting bloc, could morally deprive him of his right to life, liberty, and the pursuit of happiness. 

Jefferson and the other founding fathers had another daunting task on their hands:  If wealth is to be created by innovation, invention, and production, and the values so produced freely traded, and not expropriated by military conquest, then what is the proper moral role of government in the lives of men?  Since property  derives from the application of our minds to natural resources, the only other way to acquire property is to plunder it from those who produced it.  If plunder is easier than work, men will resort to plunder, according to Frederic Bastiat, the author of the delightful treatise La Loi.  To prevent them from doing this, we give government a monopoly on the use of force.  Government is there to protect our property from plunder by foreigners and also from plunder by domestic thieves and ruffians.  But who is to protect us from our own government, if they get it into their head to plunder us? Our only protection could be Rule by Law, so that even our enemies have to abide by this law. 

Our Constitution was specifically designed to protect us from our own government, because from time immemorial the law itself has been used as the tool with which to plunder, or expropriate property from the masses.  When the law is politicized, bent to the will of the group in power, and when that group is replaced by another group, the new group simply uses the power of legislation to turn the tables on their former tormentors.  Under a rule of law, it should make no difference what the political opinions are of a potential jurist; he would have no means to bend or change the law to his ideals.  When the rule of law deteriorates into the rule by people, a civilization has attained the first step on the road to tyranny.  There is nothing to stop anyone who wants what you have.  It is theirs for the taking, because they use the law to seize it!  This degradation of the rule of law is well advanced in our society.  As we gradually migrate from a rule by law to a rule by people,  a higher premium is placed on the political opinions of candidate jurists, because the limitations and restraints placed on legislators by the Constitution are under attack by judicial activists, who believe that any small loss of freedom is more than compensated for by the compelling social benefits of their proposed new legislation.   What happens when the seemingly good intentions of the legislators turns out to be not quite so well-intentioned after all?  Even granting these lawmakers the benefit of a benevolent doubt, do they understand that in weakening the Constitution, they have weakened the Rule of Law and moved an entire nation closer to Rule by People, where any and all of us are sitting ducks for the first gang with the opportunity to capitalize on it?  The problem with all utopians is that in their vision of the world, they themselves will be pulling the levers of power.  It never occurs to them that someone else might be the beneficiary of the damage they did to our system, and that they might end up being among the victims.

We have experienced a prolonged erosion of respect for the rule of law, and a concomitant politicization of the legal process in America.  Add to that a culture that incessantly promotes the spirit of altruism, i.e. that only a life lived in the service of others is moral and worth living.  We are in the middle of the greatest global financial meltdown in history.  We have created a culture of entitlement, which means the right to confiscate and enjoy the product of other men’s labor, without compensation.  A government produces nothing; it can only seize and redistribute.  When it provides anything, any service, for nothing, it has made a slave of someone else.  That someone else is the producer.  When politicians extol the benefits they are giving us in exchange for keeping them in power, they are trading in stolen goods.  For anyone else, that is a felony.  For government it is a privilege.  If the victims of this expropriation have the temerity to complain, they are selfish and anti-social.  This is the corrupted morality of our mixed economy, and it is this anti-life morality that has rendered conservatism helpless.  Unable or unwilling to defend capitalism on moral grounds; which is nothing more than economic freedom, freedom to produce, trade, and keep the product of your trade; the conservatives hope to compete with the neo-socialists by trying to out-do them in the expropriation department by advocating “compassionate capitalism”.  What does that mean, that we’ll say “Thank you” when we expropriate the product of your mind and work??  By what definition is it compassion to expropriate, by force, the product of one man’s effort in order to distribute it to another?  And what makes government a better judge of the worthiness of the recipient’s need than the producer of the values being expropriated?  The implied answer:  The government will be “unselfish” distributing the producers goods, whereas the producer will likely be more “selfish” and may want to keep his earnings.  By what morality does a man need to feel guilty about wanting to keep what he has earned? Is this the thought pattern of a free society, or the thought pattern inherited from the endless ages of the producer as the slave so that the privileged classes can seize the product of his labor?  And yet this is what a philosophy of altruism has produced:  submission, bowed heads, and mindless obedience.  We are just as conditioned as the dog after the choke collar has been removed.  We know our place, we go along in order to get along.  Once we have experienced the power of a choke collar, we don’t actually have to be threatened with it anymore to secure our compliance.

Our free system has been weakened by the relentless assault of bad philosophy.  Freedom is lost when public attitudes change, when people cry Foul when someone picks their pocket, but think nothing of picking the next man’s.  The stage is set.  Now enter any gang of politicians with initiatives,  the worth of which they are absolutely convinced (remember–cults are identified by a need for certainty with the cult leader as the final authority), and their attempted expropriations are framed in the context of service to humanity, but which regrettably involves the confiscation of property.  Their presentations are  couched in terms of the highest moral ideals, so much so that any opponents should feel compelled to apologize for their lack of compassion and crass selfishness, and be shamed into silence!  “Big government is here to help!” It is in this incremental manner that liberty is lost.  As philosopher David Hume once said:  “It is seldom that liberty of any kind is lost all at once.”  When the public arbiters of what private property we are allowed to keep are done with their economic coercion, the loss of intellectual liberty is not far behind.  In no time at all our attitudes, opinions, and values are monitored, and a system of rewards and punishments tells us what is acceptable and what isn’t.  This process is also at an advanced stage in this country, but that is the subject of another article.

Alexis de Tocqueville, in his book Democracy in America comments on ‘the new servitude’:  ” . . . It covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate to rise above the crowd.  The will of man is not shattered but softened, bent and guided; men are seldom forced by it to act, but they are constantly restrained from acting.  Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to be nothing better than a flock of timid and industrial animals, of which government is the shepherd.”

There are soft cults, such as the situation described by de Tocqueville above, and there are hard cults, such as Stalin’s attempt at utopia, or Hitler’s brand of national socialism.  The difference between soft and hard cults is often one of incrementalism, of time and opportunity; there is always someone whose view of the world is so compelling, so incisive, and well, so right, to them at least, that it justifies the use of force against others, until of course, those others come to their senses.  And if they don’t? . . . . well, sacrifices have to be made.  Nine foxes and one chicken just voted on what to have for dinner.  The chicken lost.  It lacked vision. The funny thing is, when the foxes came for it, the chicken didn’t run, it didn’t resist.  It knew its glory was in serving the needs of the others.

Thanks for listening.  Leave a comment.  John Bechtel, Greenville, SC

The global economic crisis now in play is being universally touted as the failure and collapse of capitalism.  The cover of the February 16, 2009 edition of Newsweek ecstatically proclaimed “WE ARE ALL SOCIALISTS NOW”.  The documented collapse of Wall St. institutions and international banking is being gleefully interpreted as the failure of capitalism itself.  In the furious debate that has ensued, the arguments for and against capitalism have focused entirely on the causes of various recent economic phenomena, such as Wall St. greed, the failure of regulators, the incompetence of one or another administration, and the complexity of derivatives that were both unheard of and technically impossible only twenty years ago.  All of them have totally missed the point.  Capitalism has not failed, because capitalism was not practiced to begin with.  Pure capitalism has never been practiced because it is philosophically unacceptable in our culture.  What is called capitalism today is a hybrid political philosophy so filled with contradictions, it is unable to defend itself.  To answer the question in the title of this article, we have to begin at the beginning.

Capitalism is a form of political philosophy.   The philosophy taught and accepted as orthodoxy in our Humanities departments of our universities was largely imported from Europe during the nineteenth century.  Europe’s ancient economic model and paradigm was that of feudalism, a system where the act of production was performed by serfs.  In the minds of medieval Europeans, manual labor was split from intellectual life and All property belonged to their kings(the head of their tribe) and this property was bestowed by the King’s permission to noblemen, usually as a reward for military service to the King.  Property could, and often was, reclaimed by the King at his whim.  This system lasted well into the nineteenth century, when it was replaced by what came to be called capitalism.  What really happened during this century is that ownership of property and production changed from the head of the tribe (the King) to the people of the tribe (the State).  The tribal attitude remained unchanged.  This is very important.  The concept of individual rights of a sovereign man was virtually unknown in Europe. considered inferior to it.  The role of nobility was to own and control such production.  Any act of material production was considered lowly and demeaning, and certainly not an appropriate pursuit of the upper classes.  Europe was (and is) very tribal, and everyone’s role was to serve the tribe.   About this same time the science of political economy came into being, but was again based on the tribe as the smallest unit, not the individual.  Political economy was the study of the most efficient utilization of economic resources, but those resources belonged to the community, and the individual was the smallest cell of that community.  A serf was still a serf, and the only known paradigm was ruling the producers of material goods with physical force, and this use of coercion was the privilege of the noble classes of society.  The American concept of individual rights of man was drastically and radically new.  In feudal Europe, there was no dignity or value to the creation of wealth, the honor and glory  was in the confiscation of it.  The American system was based on the principle that wealth was to be owned by its creators.  We became a great nation and economic powerhouse because people here could become wealthy beginning with nothing, because they were entitled, by law, not permission, to keep what they earned.  We understood early on that without economic rights, without the right to private property, there were no rights, for property rights are nothing more than the right to keep the results of our effort.

European political economy however clung to the preeminence of the tribe rather than the individual, and the products of ones efforts belonged to the community, and any profit or surplus was to be disposed of by the ruling class for the benefit of the tribe.  In America we saw a human being as an end in himself; in Europe they saw man as a member of the tribe.  Europeans were collectivist in their mindset; we were individualist here in America.  This has a lot to do with the fact that we have been a wellspring of innovation and entrepreneurial activity that has been the envy of the world.  Anywhere in the world, a young person with get-up-and-go wanted to go to America.  Europeans tended to be more rule -bound and clung to corporate models that emphasized security over risk taking; more safety and less reward.  Their society provided extensive social safety nets for the less productive and more regulatory restraints on the more productive.  In Europe individual rights were largely subordinated to group rights.  In the event of a conflict between the two, the greater good of the greater number prevailed.  That of course begs the question, The greater good as determined by whom?  The answer of course is by whomever is in power at the moment.

The American experiment was enshrined in our Constitution and in our Declaration of Independence, two remarkable documents designed to separate us from any other democracy; these statements of intent declared that even in a democracy there were some things that could NOT be voted on, and that would NOT be subjected to the will of the majority:  anything that was a violation of individual rights could not be voted away by some majority in power.  These documents were to protect us from our own government; that the goals, visions, and wishes of  any groups or gangs that might get voted into office were limited by the sanctity of individual rights.  Those rights began with the right to hold property by law and not by permission.  In America our problems began with a philosophical conflict between capitalism, or each individual seeking their own personal happiness and life values, and the ideal of altruism, i.e. that man’s highest and greatest value should be in the service to others.  In time it became culturally unacceptable to openly declare so-called selfish motives, such as profit, and all such self-seeking behavior had to be camoflaged as job creation, charitable donations, community involvement.  A man’s profits could only be justified by how much of it he gave away (to charity) for the public good.  In a capitalistic society, values are established by objective criteria; the worth of a man’s product is determined by what another man is willing to trade for it (markets); whereas in a collectivist system, values are assigned according to either subjective (what I think) criteria, or intrinsic (what the value should be) criteria.  We saw this manifested most recently by the current administration assigning salary caps to any organization which receives a government bailout.  Who decides what such caps should be, and by what criteria?  Rather than capitalism, we have what is commonly known as a mixed economy, which is a hybrid of capitalism (private ownership of the means of production), socialism (mostly private ownership of the means of production, but State regulation of it) and communism (all State ownership of the means of production).  A mixed economy resembles feudalism to the extent that you “own” property until the King (the modern State) says you don’t.  In a mixed economy, the State regularly interferes with free market processes, usually in the pursuit of political power thinly disguised as altruistic purposes.  A mixed economy lurches schizophrenically back and forth from free market initiatives to social planning according to which philosophy is currently enthroned by the electorate.  In a mixed economy, political decisions are frequently imposed by force on “free” markets for political or ideological reasons.  Any time such decisions are imposed, they are never market choices or there would have been no need to impose anything by force, edict, or law.  One of the many problems with social engineering is the Law of Unintended Consequences.  Such was the case in 1999 when the Clinton Administration leaned heavily on  Fannie Mae to ease the credit requirements on loans to subprime borrowers.  Home ownership was declared a “right” without regard to financial qualifications.  The banks were eager to make such loans because they got to bundle them and sell them in “securitized” packages at huge mark-ups to investors, primarily foreign governments.  Easing of credit created a gigantic bubble in the real estate asset class, all of which has created our current global crisis.  In a truly free market, without government guarantees, lenders would have been far more circumspect about credit worthiness; and without government interference with credit markets, we would not have had too much cash (and credit) chasing too few goods (real estate), resulting in runaway inflation of home prices.  When the credit bubble collapsed, the promised collateral rapidly deflated in value, causing the banks to stop lending in an effort to improve their reserves, and no one, not the banks, not the government, and not the politicians, wanted to fix a real, current market value to the collateral for loans in default.  To do so would have required a massive mark-down of the banks assets and a considerable number of them would have been insolvent.

The above referenced Newsweek article positively gushes about our rush to European-style socialism, engaging in circular prose and unanswered questions; the questions without acceptable answers.  I give you:  “Whether we want to admit it or not . . . the America of 2009 is moving toward a modern European state.”  And, “As entitlement spending rises over the next decade, we will become even more French.”  Or how about this one:  “Polls show that Americans don’t trust government and still don’t want big government.  They do however, want what government delivers, like . . . protections from banking and housing failure.”  “The Obama administration is caught in a paradox.  It must borrow and spend to fix a crisis created by too much borrowing and spending.” (emphasis mine)  Crisis created by what policies?  No answer.  Then in direct contradiction to what it said before about a decade of increasing entitlement spending by government, this author continues:  “Having pumped the economy up with a stimulus, the president will have to cut the growth of entitlement spending . . . ).  The next article in that issue of Newsweek says approvingly:  “One of the more lasting effects will be a steady drift toward what could be called a European model of governance, regulation, and paternalism. . . the U.S. government will be forced to fill the gap, firmly directing  businesses in all sorts of ways—regulating some industries (particularly banking and the automotive sector) with big brother vigilance, favoring others like clean energy with grants and loans, and turning still others—health care and pensions—into virtual wards of the state.”  Now folks, before we lose our perspective, this loving, paternalistic, omniscient government is the same one that spent Social Security trust funds (the largest Ponzi scheme in history), that lists an enemy nation-state, China, as its largest creditor, that has a national debt equal to $186,717 for every man, woman, and child in America, that is on target to incur $7 trillion in new deficits over the next 10 years, and that has already this year of 2009 incurred a deficit equal to 4 x the total deficit for 2008, which up till then was the record highest!  Folks, this has nothing to do with capitalism.  This is vintage social planning.  The Newsweek article continues:  “So aside from expanding the social safety net, the government will have to take a greater role in guiding business toward ends the state deems healthy for the overall economy.” (Emphasis mine)  This is not the creation of wealth, it is confiscation and redistribution of that wealth to fit social and ideological visions of the planners with the guns.  This is the practical application of altruism in the field of economics, and the only real question is, how do we seize property without losing our producers?  “Publicly funded” means property expropriated from those who produced it.  As Newsweek notes almost as an afterthought:  ”Slow growth could kill rugged American individualism, too.”

All of this is possible only because no one has the courage to challenge the socialists on moral grounds; that altruism is theft, not service; and that the great flaw of socialism is not its very unpleasant side effects, but the fact that it separates the producer from the product of his efforts and denies his right to keep it.  It forcibly redistributes that wealth in ways that foster dependence (aka paternalism) and the greed of the needy.  It is a philosophy that is anti-life, as we acknowledge in the Declaration of Independence, wherein we acknowledge the right to life, liberty, and the pursuit of happiness.  Since property in a free society comes by the production of objective values that sustain life, expropriating those products is separating a man from his means to his life.

Did capitalism fail?  It never had a chance.

Thanks for visiting.  Leave a comment.  John Bechtel, Greenville, SC

Every so many years during the last quarter century a book has been published declaring the death of socialism and the triumph of capitalism.  Always rash, such predictions were not only premature but incurably optimistic about human nature.

Briefly put, socialism is the concept that wealth should be redistributed from those who created it to those who need it.  It is based on the concept that all men are equal, or would be at least, were it not for factors beyond their control, such as genetics, culture, personal history and upbringing.  None of us get to pick our parents or our gene pool, and we can easily become trapped in our neighborhoods and other disadvantaged circumstances. 

Socialism is fundamentally based on the philosophy of altruism, i.e. that the highest purpose of human life can be found in the service of others.  For the religious, this finds expression in duty to God and neighbor; for the secular altruism finds its expression in service to Society.  The core premise of socialism is one of sacrifice of self to the needs of others.  Icons of socialism are Mother Theresa, Mahatma Gandi, and anyone else who may have sacrificed the life they wanted to live for a life of lesser benefit to themselves, but in the service of others.  Socialism is about self-denial, self-abnegation, servitude, and duty.  Its hallmark is guilt, the guilt of those who thus have to sneak their pleasures.  If the bottom of society can not be brought up to an equal level with the rest of society, then the top level of society has to be brought down.  Not equality of opportunity, but equality of results is the benchmark of success.  Since man is basically “selfish”, socialism always involves the use of government coercion, the threat of a gun, to achieve its aims.  People cannot be relied on to sacrifice themselves in large enough measure to achieve the utopian objectives. 

The emotional payoff for the practitioners of socialism is first of all power, for you have the ability, either by the vote, or by regulatory authority, or subjective law, or well-financed lobbying, to intrude on the lives of others and compel them to adhere to your personal vision of the “good”; and if your appeals to their sense of unselfishness and self-sacrifice are not successful, you always have the power of the governments’ guns to fall back on.  For those not in power, an  emotional payoff is the knowledge that if they plead their case loud enough, their needs and misfortunes may receive attention from the authorities, usually in the form of a transfer of wealth from someone more productive than you, to you.  For all who sacrifice, there is the satisfaction of a certain self-righteousness, and if their sacrifices result in unhappiness or death, there is always the promise of eternal life and other gratifications on the other side.  Finally, a universal appeal of socialism is that nothing is our fault, nothing can be helped, and anything less than total equality is obviously unfair.  Therefore the seizure of the property of others for redistribution is considered not only moral, but a right, an entitlement.  It is not even charity, because charity is voluntary, not coercive.

Socialism has a strong appeal for underachievers and those envious of the success of others, and it also appeals to those who seek power over others.  The hallmark of socialism and its underlying premise of altruism is “loaded language”, or the doublespeak of those who dare not declare their real motives.  Every wish, every desire, every legislative initiative, every grab for power, is carefully wrapped in the language of sacrifice, self-abnegation, and the good of society, particularly a society of victims.  In this way it seeks the moral high ground of the argument, handicapping the opposition and accusing them of shallow greed and self-seeking.  When the wider culture holds altruism as its highest value, it becomes a potent political weapon.  In a culture where altruism predominates, for example, businessman will rarely mention the profit motive, but frame their efforts in terms of job creation.  The former would be an admission of selfishness; the latter an evidence of nobility of spirit.

Socialism appeals to the power seekers, because the process of redistribution of property has to be administered.  When the electoral process is involved, it is the case of nine foxes and a hen deciding on what to have for dinner tonight.  The election itself is a fraud, because it is a violation of natural, immutable rights of every individual to keep what he has earned.  Most of the redistribution is decided by bureaucrats, however, not by the electorate, and in time a vast regulatory bureaucracy takes on an existence of its own and becomes the Master of those it supposedly serves.  Then begins the craven march of “political entrepreneurs” who come to plead their special neediness, and thus begins the corruption as constituents vie with each other for influence with the power brokers.  Favors are exchanged, bought and sold, and secret “pull” with the authorities becomes more important than real competitiveness.  As a matter of fact, the bureaucrats are frequently sought out for regulatory relief and protection from competitors who threaten to overtake them.   Who you know has now become more important than how good you are at what you do.

This creeping corruption eventually erodes the entire system, robbing it of its efficiency, and replaces it with the adulation of mediocrity.  Units and nation states become less able to compete in the global market place, sheltered by domestic regulation and protection.  For a while such a nation state can maintain an illusion of security, but its internal corruption weakens its fiber until it can no longer sustain itself and it collapses under its own weight.  Its producers produce less; its needy need ever more.  If you are highly productive and efficient, your virtue is punished, and your “excess” property is confiscated and redistributed to the less productive.  You experience the flight of human capital, as your best and brightest follow the money and leave your country to work elsewhere, anywhere where they can keep more of what they earn.  These are vilified publicly for their failure to appropriately sacrifice to those they left behind.  It is then common to see a government close its borders, not to those trying to get in, but to restrain those inside from leaving.

All of this is why socialism always fails.  It runs counter to human nature.  It runs counter to reality, and can only be enforced with guilt, and that failing, a gun.  It doesn’t work because you cannot ask a man to work hard and not keep what he has earned.  Socialism is an attempt to practice slavery under another name.  Socialism is an attempt to load as many fleas on a sled dog as possible without killing the dog.  Altruism maintains that the dog does not have a right to its own life as an end in itself, but that its only right to existence is to support the fleas.  The dog begins to exert most of its effort winning the approval of Flea Control authorities rather than pulling the sled.  It becomes lethargic and listless and ineffective.  The other sled team wins the race.  Whoops.  Too many fleas.  Killed the damn dog.

In a culture where altruism is the moral ideal, socialism always revives, being eternally reinvented, like draping a dead body with new clothes.  In this sense, socialism always succeeds.  Voters in an altruistic culture will always grant government the benefit of legitimacy and good motives that it will deny to businessmen, because the modus operandi of government is theoretically service to others, while business is self-seeking.  In a modern industrial society, this assumption of the moral high ground by socialists is never attacked; criticism of socialism is always based on practical grounds.  “Socialism is a grand ideal,” we are told, but “unfortunately it doesn’t work.”  Or, “it would have worked if it had been properly implemented.”  If only that damn Hitler or Stalin had gotten it right!  Socialism revives, only to fail again.  With self-sacrifice as the moral ideal, corruption, ineptitude, and bloodthirst are excused as regrettable aberrations.  We’ll get it right the next time!

Dear readers, this is where your government is going at full throttle.  Come back to this website in the next few days for a sequel on “Did Capitalism Fail?”

Thanks for visiting.  John Bechtel, Greenville, SC

Was any wealth being created or accumulated during the bubble years?  In some cases yes, in most cases no.  When someone did turn a property quickly and at a substantial profit, that only became wealth if they reinvested their profit into a different, and undervalued, asset class.  Those with the cash reserves and business acumen to manage their rental properties effectively now have tangible assets to show for those years.  The rest have most likely already spent the quick cash they made flipping properties.

When we play the board game Cash Flow every month here in Greenville, it always draws a belly laugh when someone draws a Small Deal card offering them the opportunity to purchase a stock at the top of its trading range.  What idiot would buy such an overpriced asset?  A human one.  In most cases, we are much more likely to make a bad decision in the company of a crowd than a good one alone.  Where have all the investors gone?  Why, property prices have fallen precipitously in the last year!  Who would want to buy at such a time?  Where did the herd, go, anyway, does anyone know?

Thanks for reading.  John Bechtel, Greenville, SC

Save Your Financial Ship from Sinking

If you are scared to death, and it looks like your financial ship may be going down, this article is for you.

This is a Twelve-Step Survival Kit that will help you get through it.  If you are overextended, for whatever reason; if you have been given a pink slip at work, if your business judgments proved to be wrong, or you have no idea how you are going to feed your family, or worse still, if your spouse is leaving you due to financial difficulties; if you are at risk of losing your home, or you have lost your home, your car, or your possessions have been repossessed; if you are overwhelmed with mounting bills that you cannot pay; if you are experiencing remorse over mistaken judgments, fury over the injustices of your situation, shame over your losses, self-doubt over your ability to cope, withering self-esteem because of your failures, and terror at impending bankruptcy, then keep reading. This article is for you.  And it is written by someone who has been there, and survived- several times.  Believe it or not, so can you.

1. You are not alone. You may not be able to see them through the darkness of the stormy night, but they are out there. They are feeling the same terror, and hopefully doing what you are going to do to save your ship. They are as scared as you are.

2. Get your bearings. Quickly! Take stock of your situation. If you’ve never gotten real in your whole life, get real now. There is no time for fantasy or delusional thinking. There is no time for self-pity or handwringing. Open the bills you are afraid to read, and count every scrap of income or resources you have. Use your compass, your sextant, your gyroscope, and your tools of navigation. Review your financial statement as if your survival depends on it. Don’t have any financial statements? Thought that was only for business people? Did you really think that running a household did not require business skills? Who’s been at the wheel of your ship, anyway? Okay, I’ll lighten up. We’ve all been there. Financial statements are nothing more than lists. So forget about getting a degree in accounting right now, just master the basics. Quickly! Make two columns on a piece of paper, one for Income and one for Expenses. It won’t be pretty, but do it. You can’t afford ignorance right now, and you can’t afford to hide from reality. You need to know what is. First you will notice that the Income list is much shorter than the Expenses list. Include in your list when every bill is due, and how far overdue each item is. Is there anyone in your household who is not being as productive as they could be? Do you have grown children who are hanging around who could be washing cars or flipping burgers instead? Do you have a spouse who hasn’t figured out yet that your ship could founder and go down? Does s/he know how to swim on their own? Now might be a really good time to address this issue. Explain to everyone what the situation is, and the need to work together to get through. You need to get your bearings, and you need to know where the rocks are in the water so you can avoid them, and everyone needs to be moving, purposefully, not aimlessly. All hands on deck! If someone is sound asleep below deck, wake them up, Captain, and get them moving! Your financial life might depend on it.

3. Lash everything to the deck and tighten down the hatches. Quickly! When a storm blows up at sea, the first thing sailors do is to tighten down anything that may be loose on the deck of the ship, or move it below. Move to protect what you have. Get going! Time is of the essence. Survival comes first, and everything else gets put on hold. Now is not the time to launch new careers, get an education (other than the School of Hard Knocks you are currently enrolled in), or fanciful new business schemes. You need to get more cash in quickly, and you need to stop the leaks. Control the spending. Cut up the credit cards (but don’t cancel them). Prepare budgets. Every expense gets scrutinized. Can someone in the family help with the care of small children, to save on Day Care expenses? Can you get by with one less vehicle? Can the kids ride the bus to school, instead of you driving them? (They will survive the shame of public transportation!) Get used to saying No, to yourself, to your spouse, to your children. Be ruthless about expenses that need to go. Either you do it, or someone will do it for you. Which would you prefer? Downsize your plans and expenses for non-essentials, including birthdays and Christmas. Explain why to your family members. Allow your fear to motivate you, not paralyze you. This may be the scariest thing you have ever done, but trust me, do it! And if it pains you to deny anything to your children, just ask yourself whose responsibility it is to teach them how to respond to adversity? If you do not teach them by your own example, who will? Who is coming to save you? (Oh yes, I forgot, our government is, with the money hot off the presses.)

4. Throw your cargo overboard! When sailors know the ship may go down, they start jettisoning cargo. Survival trumps everything else. If you can live without it, and can turn it into cash, do it as quickly as possible. Let’s get this into perspective: if you don’t, your creditors will. At least right now you have some control over the choices to be made. Would you rather make them, or have some trustee of the court make them? Who do you think will be more concerned with your survival? Have a yard sale, use Craig’s List, or Iwanna (a local classified publication), or put For Sale signs on non-essentials. Now is not the time to hold out for top dollar; time is of the essence. Price things to sell.

5. Trim your sails. When you are in a terrible storm, your focus should be on survival, not on destinations. Now is the wrong time to have a lot of wind in your sails. It can very well capsize your boat. So everything gets put on hold. Forget about the vacations, the trips, college educations, and 401ks. You need to get through the right here and the right now, and you can pay attention to all those other things when you have reached safe harbor. Trim your sails, but don’t roll them up and store them below deck. But if you don’t tie them down right now, the storm will rip them to shreds and render them useless when you need them. In other words, stay focused on the essentials. You will get to your recovery plans in due time. Think humble, and forget about impressing anyone. Forget about what anyone may think of you, or who might look down on you, if they “only knew”. Forget about staying fashionable, and teach your children that they may not be able to have everything everyone else in their class seems to have right now. Again, explain, and remind them how much you love them. They, and you, are learning valuable lessons. Remember, if you lived your life as if you were in bankruptcy court, you might never find yourself in bankruptcy court. Who can take on a second job? And what of it, if someone sees you waiting tables, or doing whatever else keeps the Devil at the door? Now is no time for keeping up appearances. Get real and stay real. This takes courage. Do the right thing.

6. Be prepared to bail water. Your financial ship is going to leak. It may be seaworthy, and maybe it will survive the storm, but it is under great stress and is taking a beating. You are going to have to work endlessly at damage control. You will have to talk to lenders and other creditors. These people are not terribly interested in your stories. They are very interested in getting paid. Figure out what you can do. Make a list of what you can pay everyone before you commit to the first one. You cannot handle this piecemeal, with the first, second, and third creditor to badger you getting the lion’s share of your scarce resources. You cannot run madly from one leak to the next; you have to prioritize, and handle those leaks that are in the most sensitive parts of your ship, that can sink you fastest or do the most damage. Only after you have set all your payment priorities do you begin making commitments. At this point, do not delay talking to your creditors. They will not simply go away. Summon your courage, and talk to them. Tell your creditors what you can do, and be realistic. Do not be overly optimistic, or you will set yourself up for increased badgering, and you will have lost what little credibility you had to begin with. Your creditors will not like your answers, and they will argue with you. Remember, each one of them could care less about your other creditors; each of them wants to get as much as they can out of you for themselves. Stick to your plan. Do not lie to them, but do not waffle, and only tell them as much as they require. As every trial attorney would tell you, never answer an unasked question. You may find this hard to believe at this point, but almost all creditors will take something over nothing. Bear in mind that at this point you are doing the same thing a bankruptcy court does, except that you are volunteering to work with your creditors, and a bankruptcy court tells them what they will get. The court is an unknown for your creditors as well as for you; most people will take an unpleasant known over an unknown. Don’t expect your creditors to love you, or even like you. They may be aggressive and unpleasant. Whoever said saving a sinking ship was going to be fun? Chin up, and do what you have to do. Your only other choice is to drown. Bite your lip and stay cool.

7. Prepare your lifeboat. Your job is gone, your business has failed, unemployment is up, job opportunities are way down, inflation is ramping up and making what few dollars you have worth a lot less and your ship is going down. It is time to prepare your lifeboat. You pay creditors in the order in which they can cripple you. Now let’s make the list: You, your employees (if you have a business), the IRS (if you owe taxes), the bank that holds the mortgage on your house (or your landlord), the utility companies (who keep the heat on in the winter and the electric all year), your doctor and dentist, and all your other creditors (including the credit card companies). Who gets paid first, second, etc.? The answer is they get paid in the order in which they could disable you. That means you get paid first. Without you, there is no future, and no point to anything else. You have to eat. You have to bathe. You have to have shelter. You need your health in order to recover financially. If you are on essential medications, you need to be able to continue taking those meds. You will need transportation to get to a job or other means of earning income. Without income, no one else is going to get paid anyway. So budget for these essential items and pay yourself first. Do not be extravagant. Remember, if this doesn’t work, someone else will do it for you, and they may not be as fair or lenient with you as you will be. Then pay the others in the order in which you need them to survive. You need to pay your mortgage or landlord so you have a place to live. You may decide to downsize your accommodations if that is doable. But you may also be able to negotiate with both your lender and your landlord, for a temporary reprieve or reduction until your ship stabilizes. This may be preferable to them than to bear the expenses of getting you out and someone else in. Do not assume anything, and do not make their decisions for them. You may be surprised how much they will work with you. What is the worst they can do- Say No? You’re already there. You have nothing to lose. Do not delay. If you have knowledgeable friends, ask them for advice. You are likely not very objective at this point. You may be well advised to seek the counsel of your accountant, tax advisor, or bankruptcy attorney. Most will give you a complimentary first appointment. Even if you have to pay, it is worth it. What you don’t know may have gotten you in the trouble you’re already in! If you think education is expensive, try ignorance! You do not need to be ashamed to talk freely and honestly with these professionals. They are like your doctor—they see sick people every day. It is what they do for a living. And you can be sure of one thing: no matter how bad off you are, they’ve seen worse. So get over it, and talk to them.

8. Ride out the storm. This is probably the hardest part of all. After you have done all of the above, there is inevitably a waiting period when not much seems to be happening. You have done everything you can do at the moment. This is when those nagging voices in the back of your head start cranking up and driving you crazy with self-doubt and sometimes even self-hatred. My advice: Stuff a rag in their mouth! You are not alone, you are not stupid, you are in lots of good company, and even the worst storms do not last forever. They come and they go. The sun comes out again. What is the worst that can happen? Your spouse leaves you, your teenage children think you are stupid, you wind up living someplace different for a while, you lose weight, and you live a simpler life. There is no debtors prison anymore; if your spouse left you because of financial reversals, you will find someone else; your children will forgive you when they find out for themselves how tough life can be; and maybe, just maybe, you have learned to worry less about what everyone is thinking about you. Actually, the truth is, you’re not that important to all these other people. If they actually knew the trouble you are in, you might be an interesting topic of conversation for what, ten minutes or so, and then they will move on to what matters to them. I think it was just the day before yesterday that everyone was going to die of swine flu, and now it is all but forgotten in the rush for new and worse news. Worrying about what others think is probably what caused you to live beyond your means in the first place (if that is the cause of your problems, which may not be so).

9. Return to port. Whether you get to shore with your crippled ship, in your lifeboat, or by swimming, you will get there. You survived. First you need to know where you are. We are back to financial statements. Now is not the time to forget everything you might have learned from your shipwreck. You need an Income Statement and a Balance Sheet for yourself and for your life. And I am not just talking about people who own businesses here. Everyone needs to keep a personal set of financial statements to track their financial life. It is your report card. It doesn’t matter if there is very little on those sheets. You still need them. You need to know where you are at, and you need to begin monitoring your recovery. That means new habits, habits of personal accountability and self-discipline and personal growth. Your shipwreck could be one of the greatest learning experiences of your lifetime. You will be better prepared for bad weather the next time. You need to assess the damage and plan repairs. You have credit to repair, and you may have a few relationships to repair. There are people to be paid, and commitments to be kept. Depending on the circumstances, some of these will get swept away as part of the detritus of the storm. But there will be obligations that need to be honored if you value your reputation. Sometimes you can gain more credibility with people through your response to adversity than you could gain from years of dealing with them under normal circumstances. They have observed you under very adverse circumstances, and they have seen your character under intense pressure, and it says more than words ever could. And you always honor those who stick by you in hard times. You were fortunate to have met up with them to begin with. Once again you will have to set priorities, new goals, new time frames, and finally, means of measuring your progress.

10. Repairing your financial ship. This storm, to be meaningful, needs to be a learning experience. Hopefully you managed to control your panic enough to actually think about what happened to you. Some storms seem to blow up out of nowhere and catch everyone by surprise. Sometimes life can blindside you; sudden illness, unanticipated loss of a key family income, business reversals, etc. There is no way to predict everything in life. Maybe that happened to you. But you always need to examine all the details, and this is one time when you need to be unsparing with yourself. This is not self-flagellation, beating yourself up over mistakes. Everyone makes them. But if you deny their existence, you lose an extremely valuable learning experience, and you may very well find yourself sometime soon in yet another storm. To you it may seem like a lot of bad luck; to a more objective and experienced observer, it may resemble more a failure to learn. Never scorn life’s second chances. Learn. It is much easier to deal with reality if you come from a starting point that you are okay as a human being, that whatever you did or didn’t do you can forgive yourself for. Accept yourself, and forgive yourself, exactly as you are! Now get to the learning part. This is where the storm returns value to you—as the beneficiary of one of life’s hard knocks! It is never fun to think about what you could have done, or should have done. But what would be the point of a toddler flagellating himself because he can not do the 100 yard dash yet? That’s not where he is at the moment. He is a toddler. The same is true of you; you are where you are, and you know what you know, so why beat yourself up over what you didn’t know?? Just take this opportunity to humbly learn it, and get better at this thing of financial literacy. You want to end up with a feeling of financial competence, a feeling of satisfaction that you really do know what you are doing. This is not something that you can fake, not to yourself anyway. To try to fake a sense of competence is the worst kind of fraud—you are cheating yourself!! So work at this, and become competent! You can do this! If it makes you feel any better about yourself, our government is a perfect example of some very bright people who appear unable to learn and who continue to make the same mistakes over and over again. They fail to learn, because every disaster gets blamed on someone else. No one is accountable, no one learns. You can do better! Don’t act like a politician in your own living room! Besides, you’re not allowed to print money. Educate yourself about financial matters. There is a lot of free information on the Internet. There are local groups who share your interest in financial literacy, for the same reasons. Right here in Greenville, SC there is a Financial Literacy Club that meets monthly to play the Robert Kiyosaki (author of Rich Dad Poor Dad) board game Cash Flow 101 and to discuss financial subjects. Learn how to read and use financial statements.

11. Ignore the landlubbers. My experience has been that people are much more supportive of you in your misfortune than you might expect. They may have genuine compassion, they may have survived similar hardships but just don’t talk about it much, or they may be thinking “there but for the grace of God go I” and your experiences motivate them to pay more attention to their own financial matters. They may seek to learn from your experiences. Good for them. We all should learn whenever we can. There may be a few people, very few, who are insecure and who bolster their own weak self-confidence by gloating over the misfortunes of others. These may be armchair quarterbacks who at one time or another envied you your seeming success, and are glad to see you take a fall. It makes them feel better about themselves. Maybe these are people who would never get off dry land, who would never set sail out across that wide ocean of opportunity, who have no curiosity about what their own potential is, or are too afraid to find out, and therefore they settle for denigrating those other brave souls who dare to go where they would not. If you experience one of these individuals, ignore them. Life’s too short.

12. Dare to set sail again! Most sailors have experienced a perfect storm at one time or another. Many of them have experienced financial shipwreck. Some have made and lost fortunes and made them again. Most heal, learn, and become seasoned, weathered, and valuable seamen. They are the old hands who teach the young ones. Become one of them. Learn to respect the sea of risk. Learn that bad things can happen, and that most storms announce their advance in enough time to prepare. Learn to inspect you financial ship, and keep it and yourself “shipshape.” Remember that the revered Holy Man of investors, Warren Buffett himself, lost over $25 billion in just the last twelve months. Does anyone keep track of how many times Donald Trump has declared bankruptcy? Does anyone remember these people as failures? Not likely. Hold your head up, and dare to adventure out again, a little wiser this time.

Thanks for listening in.  John Bechtel, Greenville, SC

Every month, John Bechtel hosts the Greenville Cashflow Club.  Financial Literacy is at the core of discussion, then a board game called Cashflow 101, by Robert Kiyosaki (author of Rich Dad Poor Dad), is played to learn the dynamics of real life money in a safe environment.  All are wecome to attend in casual attire. For more information call John Bechtel at 864-380-3660 or email him at jbechtel@thebechtelgroup.com.

Here is part two of the 2 part discussion on Capitalism at the Greenville Cashflow Club.  John Bechtel, with his extraordiary style lays out the complexities of the world economy in a stimulating way.  John always holds the audience’s interest on even the most complex issues with his ability to paint stories and make concepts come alive. 

For more information, you can contact John Bechtel at JBechtel@theBechtelGroup.com or call him at:  864-380-3660.  Ask about the monthly meetings that you are welcome to attend.