set watchmen upon thy walls, O Jerusalem, which shall never
hold their peace day or night: ye that make mention of the LORD,
keep not silence (Isaiah 62:6).
If you ever
ask your next-door neighbor his opinion on derivatives, you will
find that he has none. He also has not heard about the possibility
of cascading cross defaults, even though Alan Greenspan has. As
for the statistically
inevitable bankruptcy of Social Security and Medicare, he
may have read about some looming problems, but he expects to retire
in comfort. Has he ever checked with the Social Security Administration
regarding his promised benefits? Of course not. But he isn’t worried.
Something will work out. The government will figure out something.
He is not
alone. Most Americans share his lack of concern. So do most Europeans
and Japanese. Who will write the checks for the middle-class retirement
lifestyle of ever-larger numbers of retirees? Answer: "A
declining number of workers, who will have to be taxed at ever-higher
rates." Will they revolt? "Of course not." Why
not? "Because we paid into the system, so they have to pay,
too. That’s only fair!" All over the world, people in their
fifties are looking forward to their retirement years, despite
the fact that they have few savings. At a 1% interest rate, courtesy
of the Federal Reserve System, it would take an investment portfolio
of $4 million to generate an income of $40,000 a year. Does the
average American ever bother to consider this? Of course not.
THEY WILL NOT SEE
anything like I am, you’re frustrated about the unwillingness
of otherwise intelligent, competent people to take seriously the
extent of the various crises that confront this nation, and the
West in general. It’s not that all the information is being suppressed.
On the contrary, it’s available in the daily newspaper. But putting
the pieces of the puzzle together is too much for most people.
They just don’t want to hear bad news. And because of this, they
are unable to recognize the really good news.
the first people in history to face this problem. It happens every
generation. Anyone who has ever read the Bible knows the stories
of the Prophets. They faced this problem continually. In fact,
it was basic to the ministry of every Prophet (except Jonah, who
went to the pagan city of Nineveh) to be rejected, ridiculed,
and even persecuted.
of Prophet was eliminated two millennia ago.
there is still a Prophet-like function in society. People who
see problems brewing have a moral responsibility to warn others,
even if the listeners might not respond favorably to the warning.
of giving warnings is a multiple problem. Has the contemporary
prophet observed the significant facts accurately? Has he integrated
these facts by means of an accurate theory? Has he got his timing
correct? Has he packaged his presentation effectively, so as to
motivate his listeners to take effective action in order to deal
with the problem?
Even if he
does everything correctly, most people pay no attention. So, why
bother? Why put your neck on the line? Why not just keep your
If a person
decides not to share his concerns about the future with his family,
friends, and associates, and the events come true, isn’t he responsible
for his own inaction? On the other hand, if he has diagnosed the
problem incorrectly, or his timing is way off, isn’t he equally
people seriously consider the possibility of some sort of social,
military, or economic crisis? Not many. As an LRC reader, you
do. How many people in your neighborhood would enjoy sitting down
and discussing these topics on a Saturday afternoon? How many
of your colleagues have taken steps to protect themselves? Not
many, I would guess. So you find yourself in the role of a contemporary
prophet (little u2018p’). Should you keep your mouth shut? Should
you tell them about some of the things that are bothering you?
Should you pass along a copy of a newsletter or something? What?
To a very
real extent, these are the sorts of questions that face hard-money
newsletter writers. Most of us are instinctively suspicious of
anything the federal government does. Does each move mean something
sinister? Or just something stupid? All of us distrust all bureaucracies
some of the time, but what about the military? Do the generals
lie, too? Or fudge the data? What about retired generals?
retired generals on our TV screens during the initial phase of
the continuing war in Iraq warned of the daily shootings that
our troops are facing today? How many pundits on Fox News warned
of an $87 billion hike in the federal deficit this year and on
into the future? Who would have imagined last March that President
Bush would find it necessary to go begging to the United Nations?
Certainly no one in the Bush Administration, especially President
Bush. Iraqi oil is not flowing, but red ink is.
What do the
pundits learn from the facts? Which facts are they ignoring? According
to what sort of theoretical framework? Taken in which order? What
weight should be given to any particular fact? We all subscribe
to too many news sources as it is. What we need is a universally
reliable sorting device to let us pick and choose the facts. The
quest goes on for such a source. Some people use a particular
newsletter. Others use technical analysis. Others use astrology.
But nobody ever trusts his own interpretation of the system 100%
of the time. Nobody outside a mental institution, anyway.
What we need
is a reliable charting system for choosing which charting system
will work with which commodities or stocks for the next six weeks,
or six months, or six years. If we could just ask a computer to
select which newsletter writer will perform best over the next
time period that interests us! (I saw a cartoon of a guy in a
computer store. He asks the clerk: "Do you have one that
can tell me which computer I should buy?") Sadly, no such
computer program exists.
So what do
we do? If we’re disciplined, we read and think, then read some
more, and then take preliminary actions. But there’s that nagging
worry that we’re making jackasses of ourselves.
Mises, the Austrian economist and advocate of a free market economy,
could be considered the patron saint of the gold standard economists.
As a European who went through World War I, and as a Jew who fled
Austria in 1938 and Switzerland (needlessly, as it turned out)
in 1940, he had seen the worst social, political, and economic
policies imaginable. In 1940, he wrote in his subsequently published
and Recollections (1978): "I set out to be a reformer,
but only became the historian of decline" (p. 115).
a story told to him (third-hand) by his grandfather in 1910. It
was a statement by Carl Menger, the founder of the "Austrian
School" of economics.
as conducted by the European powers will lead to a horrible
war that will end with gruesome revolutions, with the extinction
of European culture and the destruction of prosperity of all
nations. In preparation for these inevitable events investments
only in gold hoards, and perhaps in obligations of the two Scandinavian
countries can be recommended.
"In fact, Menger had his savings invested in Swedish obligations.
Whoever foresees so clearly before the age of forty the disaster
and the destruction of everything he deems of value, cannot escape
pessimism and psychic depression" (pp. 34—35). Menger
was 40 years old when he made his prediction, so he made it in
1880, 34 years before World War I broke out, and 41 years before
should be noted. Mises noted one of them. Menger had a brilliant
mind right up until his death at the age of 81. Yet he never wrote
much in the latter decades of his life, despite the fact that
his early work in 1871 literally restructured modern economics
— indeed, modern economics can be dated as having arrived
in 1871, as a result of the writings (simultaneously and independently
published) of Menger, Jevons, and Walras. Mises believed that
it was Menger’s pessimism that hindered his later productivity.
Mises wrote: "The knowledge that his fight was without expectation
of success, however, sapped his strength."
pessimism had long-term consequences for all of Western civilization.
transmitted this pessimism to his young student and friend,
Archduke Rudolph, successor to the Austro-Hungarian throne.
The Archduke committed suicide because he despaired about the
future of his empire and the fate of European civilization,
not because of a woman. (He took a young girl along in his death
who, too, wished to die; but he did not commit suicide on her
to mention the second remarkable connection between Menger’s pessimism
and its results. Rudolph’s death in 1897 elevated his cousin,
Francis Ferdinand, to the position of Archduke, heir to the throne
of the Hapsburg (Austro-Hungarian) Empire. Rudolph had been a
classical liberal, as was Menger; Francis
Ferdinand, is described by British historian A. J. P Taylor as
"violent, reactionary, and autocratic." It was his assassination
by Serbian terrorists in 1914 which led to the outbreak of the
war that Menger had predicted so long before.
fact Mises failed to mention is this: Menger died in 1921. His
investments carried him through World War I and at least the initial
phases of the horrible post-war Austrian inflation. So he was
correct in his forecast and correct in the proper investments
that would serve as hedges against disaster. He was off only in
his timing. He paid a high price for his accuracy: psychological
paralysis. But he gained something most of his Austrian peers
did not gain: the preservation of his capital.
We need to
ask ourselves: Was the price he paid too high? I think it was.
He could have bought Scandinavian bonds and gold coins, and still
labored up until the War to get out more and better economics
materials. But we can understand how the suicide of Rudolph would
have affected him. The heir to the throne, a classical liberal
who dreamed of reforms, had taken Menger’s pessimism too seriously.
Without a vision of victory, without any sort of confidence in
the possibility of putting his limited government ideals into
action, Menger’s heart was not in the fight.
correct in his assessment of what was going to happen to Europe
generally and specifically to his nation, Austria. Yet he was
correct about thirty years too soon. As an old man, he saw his
fears come true. His capital was sheltered because he had been
correct decades earlier, and he planned in terms of his forecast.
But for over three decades, his predictions looked somewhat foolish.
The day of reckoning was long delayed.
But the day
of reckoning finally came. The scars of the First World War are
with us still. Remember, the U.S. federal deficit was about a
billion dollars prior to that war. We are still trying to pay
off our nation’s war debts. Those few people who recognized the
crisis in time were able to hedge against the disaster, at least
to some extent. But how many would have stuck to a program of
self-disciplined hedging against catastrophe for over three decades?
those people who have bought gold and silver coins? Isn’t gold
a loss-producer, long-term? Not if we’re correct about the eventual
effects of $500 billion annual federal deficits. Not if we’re
correct about the inability of the federal government to deal
with the problem of unfunded liabilities in the so-called off-budget
federal programs. Nothing is being done about it.
What we pessimists
say is simple: politically, nothing will be done about it. The
growth of federal spending is now approaching the famed exponential
curve. The Fed will continue to inflate.
But the markets
don’t care about "eventually." They care only about
tomorrow. They cared about tomorrow in Menger’s day, too, so he
looked foolish for several decades. If Menger had known in which
year the war would break out, he might have saved himself a lot
of time and trouble, but he didn’t.
If you use
gold as a hedge against mass inflation, and you want privacy when
it really counts — when controls are slapped on — then
you buy steadily and thank God for the delay in the crisis timetable.
But one thing you don’t do; you don’t grieve yourself with self-doubts
about the seemingly endless ability of the federal government
to sell T-bills in order to cover the debt. It won’t go on forever.
You know it; I know it; and Alan Greenspan knows it. When he resigns,
keep our pessimism in focus. Pessimism should be mid-term, not
long term. Long-term optimism is basic to a strategy of victory.
I want to see truth win out, and I expect to see it.
OPTIMISM AND COMMUNISM’S SUCCESS
a lot of confusing interpretations of Karl Marx, and one reason
for this is that he was a many-sided character. He was the descendant
of rabbis on his father’s side of the family. His father converted
to the State church, Lutheranism, before Karl was born, and Karl
was baptized as a Christian at age 6, in 1824.
In his youth,
he professed a pietistic, liberal sort of Christianity. He wrote
a gymnasium (high school) essay, "On the Union of the Faithful
with Christ according to John XV, 1—14, described in its
Ground and Essence, in its Unconditional Necessity and in its
Effects." A real mouthful. (Have you ever wondered why German
philosophers and theologians write as if they had been smoking
something funny? They are trained in this sort of ponderous blather
from their youth.) In this 1835 essay, at the age of 17, he wrote:
as a man longs for this union with Christ, he is at peace and
calmly awaits the blows of Fate, courageously sets himself against
the storms of passion, fearlessly endures the anger of the wicked,
for who can oppress him, who can rob him of his Saviour? . .
. Thus union with Christ contributes to an inner uplifting,
consolation in sorrow, a quiet confidence, and a heart that
is open to love for mankind and for all noble and great men,
not out of ambition or love of fame, but through Christ. . .
. (Reprinted in Robert Payne, The Unknown Karl Marx,
New York University Press, 1971, p. 43.)
sense of destiny remained with him throughout his life. He rejected
his Christianity during his college years. He became a rabid anti-Semite,
as his 1842 essay, "On the Jewish Question," reveals
so clearly that only Marxists and liberals won’t admit it. But
he never abandoned his faith in the coming revolution. Everything
— science, history, economics — points to it. "The
Knell of capitalist private property sounds. The expropriators
are expropriated." (Capital,
1867, Modern Library edition, 1906, p. 837.)
that this sense of optimism was basic to the success of the idea
of socialism. "Nothing has helped the spread of socialist
ideas more than this belief that socialism is inevitable. Even
the opponents of Socialism are for the most part bewitched by
it: it takes the heart out of their resistance." (Socialism,
Yale University Press, 1951, p. 282.)
I wrote these words:
if we are to believe Solzhenitsyn, there are no more Marxists
in the Soviet Union. Faith in Marxism is long dead. The People’s
Daily in Peking recently announced the government’s official abandonment
of Marxist economics; they have freed up agriculture, and are
talking about creating zero-tariff freeports all along the huge
Chinese coast. Only in the West, where intellectuals can still
afford to indulge themselves, as Marx and Engels did over a century
ago, in speculations concerning the wonders of the coming socialism
decade, the Soviet Union disappeared. The Communists in Russia
lost faith in the future, despite their tremendous arsenal and
huge army. The Communists in China use terror to retain political
power, but they have abandoned Communist economics. Communist
China has adopted capitalist ownership and is an economic powerhouse.
Ideas eventually have consequences. Economic failure eventually
cannot be covered up.
fall of the Soviet Union, Marxist professors on campus started
getting laughed at. They still teach Marxism, but they are regarded
by students and non-Marxist faculty members as a joke. They have
tenure, but they no longer have respect. Nobody takes them seriously.
Americans are less optimistic than they were a generation ago.
There has been a steady loss of faith in the government, but nothing
has replaced this declining faith. This represents a great evangelism
opportunity for those who are not members of the Church of the
us who are committed to the idea of sound money, low consumer
debt, personal thrift, hard work, deferred retirement, and entrepreneurship
still don’t get a hearing in Washington or London. Keynesians
still dominate government policy-making. Federal deficits grow
ever-larger. We are tempted to become discouraged.
are better for the spread of our ideas today than they were when
I started college in 1959, when liberal Keynesianism was completely
dominant in academia, two years before Milton Friedman’s book,
and Freedom, was published. Things are a lot better today
in terms of our audience than they were in 1980 or 1991. Year
by year, people continue to defect from the Church of the Holy
government is going to go bankrupt. It will default on Social
Security. I knew that in 1959. We are closer to that day of default
than we were in 1959. These things take time, as Menger learned.
The difference is, the free market ideas of Menger are getting
a wider hearing today than in 1933, 1953, or even 1983.
We are in
a war of ideas. We have a moral obligation to defend verbally
what we believe is true, namely, that no one can safely trust
politicians’ promises. Our defensive tactics remain the same as
they were in Menger’s day: we must not become dependent in our
old age on government promises and central bank money.
Year by year,
the day of reckoning for bad economic policies draws nearer. We
should enjoy our present opportunities to spread the word, stay
in the job market, and earn a good living. We must press the claims
of truth. There is no doubt that those who trust the politicians
will wind up losers, but this is always the fate of those who
adopt faith in something for nothing.
have consequences. When the day of reckoning arrives, we may be
in a position to help others, or at least not become a burden
on others. We have greater responsibility because we know the
truth. As Jesus said long ago,
servant, which knew his lord’s will, and prepared not himself,
neither did according to his will, shall be beaten with many
stripes. But he that knew not, and did commit things worthy
of stripes, shall be beaten with few stripes. For unto whomsoever
much is given, of him shall be much required: and to whom men
have committed much, of him they will ask the more (Luke 12:47—48).