Stock Markets and Economic Liberty

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[I revised this on the day before the Dow Jones Industrial
Average closed above 14,000, which took place on Thursday, July
19. It was sent to my Remnant Review subscribers on July
20, when the Dow fell 150.]

We would expect
the world’s stock markets to rise as liberty spreads. If men expect
to be allowed to retain the fruits of their production, they ought
to invest more money in the markets for ownership, which the equity
markets are.

Stock markets
have risen rapidly in Asian nations (not counting Japan) over the
last fifteen years, matching the spread of free market ideas and
practices there. So have Asia’s real estate markets. There is no
question that over the last fifteen years, there has been an historically
unprecedented expansion of property rights in China and India.

for price inflation, what about the U.S. stock market? If we take
the Dow Jones Industrial Average as the benchmark, it was about
1,000 at its peak in early February, 1966. It is about 14,000 today.
According to the Inflation
Calculator of the Bureau of Labor Statistics
, the dollar bought
6.5 times as much in 1966, so dividing 14 by 6.5 gives us about
2,150. So, it took 41 years for the DJIA to double in real terms.
That’s about 1.9% per year. There were dividends, of course, but
these were taxed as regular income. Dividends after 1982 fell to
about 2% or less. If the investor was in a DJIA index fund, he paid
management fees: maybe 2% per annum. (There were very few no-load
index funds in 1966.) If he invested $1,000 in February, 1966, and
sells for $14,000 today, he will be taxed 15% on his $13,000 increase.
So, he will take away $11,050 in after-tax profits. Divide this
by 6.5. We get $1,700. Over 41 years, that’s a return on investment
of 1.15% per annum. In other words, the stock market investor after
taxes and fees has just about nothing to show for his 41 years of
doing without the use of his money.

This is not
the story which the "buy and hold" cheerleaders for the
American stock market tell today’s investor.

Lyndon Johnson’s
Great Society gave us war, Medicare, and a vast expansion of Federal
power over the economy. Economic liberty contracted. The performance
of the stock market has reflected this contraction of economic liberty.
There was economic growth, but it was not spectacular after 1973,
when real wages grew stagnant for two decades. The stock market
did not outperform general economic growth. After taxes, it did
not match economic growth.

In this report,
I compare the differences between 1974 and today in terms of two
things: the idea of economic liberty and the institutional reality
of economic liberty. If we believe that stocks do well when economic
liberty increases, we had better make an estimate of the "market
for liberty." In this way, we can get some idea of the case
for the American stock market.

To assess the
validity of my thesis that stock market performance is closely related
to the market for economic liberty, let us compare the market for
economic liberty in 1974 vs. today. I am saying that the stock market
has performed poorly. So, I am also saying that the market for economic
liberty has performed poorly. Is my conclusion correct?

and Government Debt Since 1974

I think back
to when I began publishing Remnant Review. That was in May,
1974. It was a period of enormous confusion in international currency
markets: the end of an era. It was the beginning of international
currency instability. This provided the first visible warning that
the Bretton Woods monetary arrangement of the post-War world was
about to come apart at the seams. The funding of the American welfare
State got its wake-up call in this period. That system was Keynesian
to the core. Keynesian economic theory got its wake-up call in this

On Sunday,
August 15, 1971, Nixon unilaterally revoked the convertability of
the dollar into gold at $35/oz, a legal right possessed by foreign
governments and central banks. This convertibility had been the
central institutional guarantee of the Bretton Woods plan. "Hold
dollar-denominated debt instruments instead of gold. They are as
good as gold." This, in turn, had been the underlying promise
of the Genoa Conference of 1922, where the world’s central banks
substituted pounds sterling or dollars for gold. It was fractional
reserve banking for central banks. "We’ll pay you interest;
plus, you can get your gold back at any time on demand." Fractional
reserve banking is built on a lie. There will eventually be a bank
run in which the promising banks will suspend payment. The post-1922
system was called the gold exchange standard — a fake gold standard.

Great Britain
went back to the gold standard in 1925, but at the pre-war price,
as if there had been no wartime inflation. This was Churchill’s
decision, as Chancellor of the Exchequer. It caused a deflation
in Britain and then depression. Great Britain went off the gold
standard in 1931. In short, it reneged. Fractional reserve banks
always renege. The United States reneged to its people in 1933 when
Roosevelt outlawed the ownership of gold bullion by Americans. That
was a herald of things to come in 1971.

the dollar’s exchange rate on August 16, 1971, was allowed to float
temporarily. In December, 1971, there was an attempt by the International
Monetary Fund to re-fix exchange rates: a 2.25% band in which currencies
were allowed to fluctuate. This policy failed. Confidence in fixed
rates was gone. In February, 1973, floating rates became official
policy of the IMF. In 1974, it was still illegal for Americans to
own gold bullion. That would not end until January 1, 1975.

On October
17, 1973, during the Yom Kapur war (Oct. 5—26), the Arab oil
states imposed an embargo on oil sales to countries supporting the
State of Israel. Oil prices went from $3 a barrel to $12 by early
1974. The academic economists had no clue as to what was about to
happen. Consider the 1972 prediction by M. A. Adelman, an academic
economist specializing in oil, that OPEC would be unable to maintain
high prices, and that the price of oil was about to enter an era
of long-term price decline. (The
World Petroleum Market
, Johns Hopkins University Press,
1972.) This prediction matched Milton Friedman’s prediction that
if the dollar were ever floated, the "system of floating exchange
rates would eliminate the balance-of-payments problem. . . ."
(Newsweek May 15, 1967).

I look around
me today and find that the Federal government still extracts a quarter
of the output of American citizens. It regulates the economy with
greater intensity and zeal in many fields.

There are some
exceptions. Airlines and transportation have experienced falling
prices and vastly increased volume because, under Carter, there
was de-regulation in these fields. Because the Federal Communications
Commission does not regulate satellite radio or the Internet, there
is a new world of information available to us. The U.S. Postal Service
charges ever more money to mail a letter or a package, but email
and on-line bill payment have dramatically cut into USPS revenues.
FedEx and UPS have taken away the government’s one-time monopoly
in packages. So, where the government has receded or has never run
the show (Internet), productivity is up dramatically. Then there
are the currency markets: floating rates. But where the government
still regulates, we are in worse shape than in 1974.

The level of
Federal debt relentlessly climbs upward. This fiscal year, the on-budget
debt will rise by over $200 billion. The economy is still growing,
so revenues have increased enough to slowly cut rate of increase,
despite an Iraq war bill of $450 billion so far and seemingly endless.
The off-budget debt now approaches $70 trillion. The next prescription
drug bill, which Bush is expected to sign, will hike this by several
trillion more. Nothing is done to deal with this statistically inevitable
disaster. The public trusts the government, and says nothing. The
government just keeps passing more Medicare-related legislation.

Despite Ronald
Reagan, despite talk radio, and despite the Internet, the spread
of government power has not been reversed. It has been challenged
intellectually, which is positive, but the last major round of government-slashing
came under Carter: the Civil Aeronautics Board, the Interstate Commerce
Commission (which went out of operation in 1995, under Clinton),
and a few other price floor agencies.

By 1974, I
had been in the conservative movement for almost two decades. I
came into the conservative movement in 1956. The impetus was a speech
by Fred Schwarz, an Australian physician who spent his career arguing
against Communism. He was a very effective speaker and teacher.
His little books on Communism remain among the best introductions
to the topic ever published. He aimed them at the common man, not
scholars. Yet his understanding of Marxism-Leninism was equal to
any scholar I ever came across in my own studies of Marxism. I came
across a lot of them. I wrote my first book on this topic: Marx’s
Religion of Revolution

Since 1956,
I have seen a lot of conservative people and organizations come
and go. I have seen some victories, though not many. I have seen
many failures. But this is normal in life. Most ventures fail. Capitalism’s
great benefit is that it links responsibility with outcomes. It
imposes the costs of failure mainly on individual entrepreneurs,
who would have benefited greatly, had the ventures succeeded. Capitalism
transfers to consumers — people with money — the veto power over
unsuccessful ventures.

Communism failed
because of its own internal contradictions. Reagan did stand up
to Gorbachev, but the reality of the USSR’s disintegration was becoming
clear by the late 1980’s.

When the USSR
went under in 1991, it owed the West about $60 billion, which it
could not pay. Today, due to revenues from oil and natural gas,
the Russian government has foreign exchange reserves of $406 billion
— third behind Japan and China. That is up by $150 billion in eleven
months. Eleven months!

Got that? China
and Russia are second and third. The United States was over $2.5
trillion in the hole at year-end, 2006, according to the Bureau
of Economic Analysis. The United States is the biggest debtor on
earth. No other nation comes close. This has taken place since 1985.

Americans have
experienced the expansion of debt on a scale undreamed of in human
history. There is no thought given as to how these debts will be
repaid by the government. Private debt ratchets upward along with
private assets. Monthly debt service payments as a percentage of
disposable income for the Average household in 2007 is a little
above 19%. It was slightly below 16% in 1980. This figure has risen,
but not spectacularly. Consumers do pay attention to their monthly
income and outflow. But government debt ratchets upward.

The best site
that covers this expansion is M.
W. Hodges’ Grandfather Economic Report
. Here are five charts
that tell the story.

This process
is relentless. Americans get political rhetoric to the contrary,
but the reality is seen in these graphs. The government is tireless
in its expansion. There are a few victories, but in terms of its
rate of growth vs. the private sector’s rate of growth, it’s no

The War
of Ideas

Here, we are
way ahead of where we were in 1974. The 1970’s were still the era
of Keynesian dominance. By 1980, the price inflation of the ‘seventies,
coupled with two major recessions (1970 and 1975), had undermined
the intellectuals’ confidence in Keynesian intervention. Keynesianism
was supposed to overcome recession by adopting policies of increased
government spending. Government spending rose in the 1970’s, but
so did unemployment and prices. This was not supposed to happen.

In 1974, Marxism
was still taken seriously as an intellectual system. There was a
reason for this, which had nothing to do with Marx’s economics.
His economic theory had been completely refuted by Bhm-Bawerk in
1884 and again in 1897, then by Mises in 1920 and 1922. Hardly any
intellectuals in 1974 (or today) knew who these critics were. Hardly
any of them had read Marx’s writings. Then why the attraction? Because
intellectuals usually worship power and hope to gain it. The Soviet
Union had demonstrated enormous power, 1917 to 1991, so it gained
respect from Western intellectuals. When the USSR went belly-up
in full public view in August, 1991, this ended the cachet of Communism.
The books-for-a-buck bins immediately filled up with books with
titles like What Marx Really Meant. Marxist professors started
getting laughed at by their colleagues on campus. They were not
used to this. By 1991, China’s experiment with capitalism was producing
unprecedented economic growth. Marxism as an ideology was finished,
except in a few departments where tenured Marxists had gained access
to fireproof pulpits.

As far as I
can see, Keynesianism is on the run on campus. Its practitioners
are retiring. There is no economics textbook with the influence
that Samuelson’s Economics had from 1946 to 1970. The "unified
field theory" that neo-Keynesians thought they had achieved
in 1965 is a thing of ancient history and widespread contempt. Keynesianism
is in defensive mode. The economics departments have more Chicago
School people than ever before. There are also public choice theorists,
who analyze the actual performance of governmental institutions
in terms of Adam Smith’s observation that men seek their personal
economic self-interest. This includes government employees. There
are also rational expectationists, who were obscure figures in 1974.
They don’t think that government intervention can make things better.
These schools of opinion are far more suspicious about the effects
of government intervention than Keynesians ever were.

There has been
a resurgence in Austrian economics thought since 1974. Mises died
in October, 1973. A month after I launched my newsletter, I attended
the Austrian economics seminar held in South Royalton, Vermont.
There, several dozen young scholars came to hear lectures by Israel
Kirzner, Murray Rothbard, Ludwig Lachmann, and other older men in
the field. A few months later, Hayek was named co-winner of the
Nobel Prize in economics. That event renewed interest in Austrian
economic theory. Austrian economics is still very much on the fringes
of the academic economics guild, but it is more visible than it
was in 1974, especially because of the Ludwig
von Mises Institute

What about
book publishing? Regnery Books today produces best-sellers. In 1974,
as in 1954, it was a small, struggling publisher of conservative
books. Arlington House existed, but not for long. Caxton was no
longer visible. Devin-Adair might as well have been gone. The only
publisher that seemed to put out consistently good conservative
books was Basic Books, a neoconservative operation.

The Foundation
for Economic Education was barely visible in 1974. I had left FEE
in early 1973, after only a year and a half on the senior staff.
I saw no future there. FEE was staffed by people in their late fifties
or older. It held three two-week summer seminars for about 25 high
school teachers per seminar. It did not publish books, other than
collections of short essays by FEE’s founder, Leonard E. Read. The
cost of homes in Irvington, New York, was high. It would soon rise
much higher. It was just 25 miles from New York City, on the Hudson
River. No one who did not already own a house in the area would
be able to buy one. There was therefore no possibility that young
men would replace the old men on the staff. Read had a rule: every
dime a senior staff member made outside of FEE had to be paid directly
to FEE. Every lecture, every book royalty, everything: it all belonged
to FEE. This meant its senior employees belonged to FEE. No one
had an economic incentive to do anything new, because Read never
fired anyone. Working at FEE was a retirement career. FEE had no
future except as the publisher of The Freeman, which was
still a good introduction to free market ideas. It had begun publication
in 1956. Its subscription base was declining. It could have been
published from anywhere. FEE in 1974 was basically Leonard Read’s
retirement home, with a staff of 25: free housing, free lunches,
free transportation, weekend trips to resort hotels around the country
for the price of two 30-year-old speeches: all tax-free. I quit
in 1973. Read died in 1983. Getting out at age 31 was as good a
decision as I ever made.

As for popular
journalism, there was National Review, founded in 1955, which
had not yet gone neoconservative. There was Bob Tyrrell’s tabloid,
The Alternative, published in Bloomington, Indiana. It had
not yet become The American Spectator, which it did in 1977,
nor had it become neoconservative. There was Human Events,
another tabloid. It had been around since 1944. It was readable,
but it had few readers. The only other widely read journal of popular
opinion was Christian Economics, a twice-monthly tabloid
which was sent to every pastor in the country for free. This policy
of free subscriptions was canceled in 1974 or 1975. Its financier,
Calvinist-libertarian oil billionaire J. Howard Pew, died in 1973,
and the foundation he started had quietly begun its drift into liberalism.
It soon pulled the plug on Christian Economics.

It was very
difficult for a conservative scholar to get published, other than
in Modern Age or Intercollegiate Review, which was
published by the Intercollegiate Studies Institute. Neither of these
publications counted for academic tenure. Maybe an article in The
Public Interest would have counted, but it was neoconservative.
It was limited mainly to exposing why government boondoggles — never
actually called boondoggles — had failed to achieve the promises
which their political sponsors had made. This fact had astounded
the journal’s ex-Trotskyite founders, beginning in 1965.

There were
two Beltway think tanks in 1974, both brand new. Both were geared
to public policy, not theory. The Heritage Foundation had been operating
for a year in 1974. It was co-founded by Paul Weyrich. Ed Fuelner
did not arrive until 1977. Weyrich’s Committee for the Survival
of a Free Congress began operations in 1974. There was no Cato Institute,
which came in 1977.

Then there
is the home school movement. It did not exist in 1974. Millions
of parents have pulled their children out of the public schools.
Their children are getting a better, safer education than what they
themselves received in a public school in 1974.

So, compared
with 1974, 2007 is Nirvana. There are many outlets for conservative
and libertarian writers and talkers. There is a large market of
readers. It costs almost nothing to self-publish a book through
a Website or a blogsite or print-on-demand. In terms of getting
our message to the general public, 2007 is better than I could have
dreamed of in 1974.

The mainstream
media are in defensive mode. The TV news networks lose audience
share every year. The newspaper industry is literally dying. They
can’t make their on-line models work, except for the Wall Street
Journal. Liberalism is on the run.

In only one
area are we still as bad off as we were in 1974: higher education.
The same two dozen schools remain the only conservative places that
are suitable for sending our kids too — all are private, all are
way too expensive for the education received, and most of them compromised
with humanism, because their professors have Ph.D.’s and have imbibed
at least part of the training that screened them.

Families can
do an end run around this, but they won’t. I explain how here:
At least 40,000 people have seen my video report. There have been
no follow-throughs saying, "I have done it."

The collegiate
accreditation system, which was launched by Rockefeller’s General
Education Board in 1903, when coupled with the lust for exam-based
certification, is the bane of the West. The West has universally
adopted the medieval Chinese system of exams, which screened the
Mandarin bureaucrats for a thousand years. The Jesuits imported
the model from Asia during the 18th-century Enlightenment,
and their students adopted it when they went secular and launched
the French Revolution. The Chinese model was the basis of France’s
coles of Napoleon’s era. This was also true of the University of
Berlin. Thomas Jefferson imported the Jesuit model for the tax-funded
University of Virginia. It was solidified by the tax-funded land-grant
college system, passed in 1862 as a Civil War measure.

The academic
mandarins have successfully screened out most of those would-be
academics who reject tax-funded education, the mandarin examination
system, and the abandonment of the apprenticeship model. William
F. Buckley half a century ago quipped, "I would rather be governed
by the first 200 names in the Boston telephone directory than by
the faculty of Harvard." (Spoken like a Yale man.) Conservatives
say they believe this, but they would send their children to Harvard
if their kids got accepted, and they had an extra $190,000 per child.

The breadth
of resistance to liberalism today is very great. The main problem
we face is that of the neoconservatives, who have a lot of money,
plus a lot of smart, academically certified people. Their view dominates
Fox News and the talk show hosts. They are committed to an aggressive
American foreign policy in defense of the State of Israel. This
goal resonates with millions of premillennial dispensationalists,
who have votes. This has led to a true disaster in the Middle East:
two wars, both of which we are losing, and the possibility of a
third in Iran before January 20, 2009.

On the issue
of war and peace, the fall of the USSR gave an opportunity to the
West to disengage from empire. From August, 1914 until August, 1991,
there had been an escalation of confrontation. The conservative
movement had divided over the issue of war and peace, intervention
and nonintervention (isolation) after 1945, with the dominant element
becoming pro-Cold War. This, at long last, could have ended, beginning
in 1992. But it didn’t. The American empire, with its 700-plus military
bases in over 100 countries, was not dismantled. Then 9-11 led to
the two wars.

So, on two
issues — war and the New Deal’s welfare State — conservatives did
not make a clean break with the liberals. But these were the two
halves of the central ideological and political issues of our century:
the warfare-welfare State. Here, there was almost no improvement
after 1974. If you want two words to describe the victory of the
statists, who are the enemy, they are these: Medicare and Pentagon.

If I were to
identify the two most important political speeches of the second
half of twentieth-century America, I would select these: (1) Eisenhower’s
farewell address in 1961, in which he identified the military-industrial
complex as the great threat; (2) Ronald Reagan’s 1964 speech in
defense of Goldwater’s doomed campaign. Conservatives and liberals
alike ignored Eisenhower’s warning. They did nothing to challenge
the military-industrial complex. Conservatives responded to Reagan’s
speech, which was magnificent rhetoric. But his vision was not implemented
by Reagan in his eight years of opportunity, except in two areas:
reduced marginal income tax rates — a major success in 1981 — and
his refusal to back down on his threat to deploy the strategic defense
initiative ("Star Wars") in 1986, a bluff that Gorbachev
believed. It was a bluff. The Air Force has made sure that SDI would
never be deployed, from its forgotten days as BAMBI in 1960 until


In 1974, there
was still the nagging issue of the Vietnam War. The United States
had disengaged. Saigon fell a year later. The war had been a disaster.
Americans were tired of it in 1974. They were happy to be out of
the front lines. Nixon had abolished the draft, so white middle
class families no longer had to worry about their sons. That pulled
the fuse on antiwar protest movement’s of the future.

Then there
was Nixon. Die-hard Nixonians were in a fruitless defensive battle
when I launched Remnant Review in May. It was all over three
months later. Nixon resigned. The tapes had done him in. Nobody
at the time suspected that an inside man had illegally leaked the
tapes to the investigators. Even today, I
am the only academically certified historian who periodically returns
to this theme.

Then Ford pardoned
him. His own press secretary resigned in protest — unheard of. The
pardon pretty much guaranteed Ford’s loss in 1976. The recession
of 1975 did guarantee it.

Nixon’s departure
cleared the field for conservatives. Reagan was their first choice
— in 1968, in 1976, and finally in 1980. Richard Viguerie’s mailing
lists got him elected. This, too, was a sign of what new technology
could do. It let outsiders play. Anyone in 1965 could have gone
to the House of Representatives and written down the names and addresses
of every donor to the Goldwater campaign who gave over $50. Only
Viguerie did. He got about 12,000 names. That was all it took.

The reaction
of the voters in the November, 1974 election was to elect a new
group of Democrat Congressmen. These men set the tone for the next
two decades. When Carter came in, there was a clean sweep: House,
Senate, and President. Yet Carter did begin to undermine the Civil
Aeronautics Board and the Interstate Commerce Commission rate-setting
(price floors). Ted Kennedy backed him. Those were major institutional
victories for economic liberty. But there were not many under Carter.

National politics,
like economics, is all about small changes at the margin, short
of an economic collapse (1932) or a major war. The price system
sets the limits in economics. The Council on Foreign Relations sets
the limits for American politics. People generally ignore the price
system. They pay attention only to specific prices. Conservatives
generally ignore the CFR. They pay attention only to specific campaigns.

A few "conspiracy
theorists" mention the CFR, but when they really believe in
its power, they lose interest in national politics. They know the
system is rigged. Yet conservatives before 1960 had never heard
of the CFR. In 1960, Dan Smoot’s paperback, The
Invisible Government
, appeared. It was sold only by direct
mail — a million copies, he told me two decades later. The John
Birch Society figured out what had been going on politically only
in 1964, when Welch’s speech, More Stately Mansions, appeared
in print. Few Birch members ever read it. Prior to 1964, Welch had
been an anti-Communist. After 1964, he became an anti-conspiratorialist.
The anti-Communism theme disappeared from the pages of American
Opinion. In 1967, the JBS published a newly typeset edition
of John Robison’s Proofs
of a Conspiracy
(1798), a book written about the Bavarian

Those few conservatives
in 1974 who had actually read the famous twenty pages of Carroll
Quigley’s massive, non-footnoted Tragedy
and Hope
(Macmillan, 1966), knew another story: the leftist
journals (e.g., New Republic) and organizations (e.g., Institute
for Pacific Relations) that had infuriated conservatives for 50
years, had in fact been Morgan Bank operations from day one. The
CFR was part of the Morgan-Rockefeller banking interests’ friendly
rivalry, and it had been since its formation in 1921. As a result
of Quigley’s book, W. Cleon Skousen moved from anti-Communism (The
Naked Communist
, 1958) to anti-conspiracy (The
Naked Capitalist
, 1970).

It had taken
five decades to get this story to a small group of conservatives.
The Establishment Left has never officially figured it out. So,
most conservatives and liberals get all excited about national politics
every four years, as if every candidate except Goldwater since at
least 1912 had not been vetted by the Eastern Establishment’s bankers
by way of the CFR. The clearest examples of this control are the
cabinet members for Carter and Reagan. Susan Huck described this
sometime around 1981: CFR Team A vs. CFR Team B.

The best statement
of this process was made, navely, by Hamilton Jordan, Carter’s
campaign manager. Journalist Robert Scheer interviewed him for an
article published in Playboy in the month of the election.
Time got wind of this in early October, and ran
a story on it
. Sheer quoted Jordan as follows:

If after
the Inauguration you find a Cy Vance as Secretary of State and
Zbigniew Brzezinski as head of National Security, then I would
say we failed. And I’d quit. But that’s not going to happen. You’re
going to see new faces, new ideas. The Government is going to
be run by people you have never heard of.

Vance and Brzezinski
got these posts two months later, and Jordan did not quit. I can
think of nothing else in so pithy a statement that summarizes the
nature of politics in America.

Nothing has
changed fundamentally since 1976 — or 1921. Anyone who thinks politics
is not rigged needs to read Antony Sutton’s book, Wall
Street and FDR
(Arlington House, 1975), which traces the
closely linked employment background of Roosevelt and Herbert Hoover
in the early 1920’s. In 1924, within three years of the CFR’s formation,
a co-founder of the CFR got the Democrats’ nomination for President,
John W. Davis, a prominent Wall Street lawyer. (Davis is less well
known as the lawyer who lost the school integration case, Brown
v. Board of Education of Topeka, Kansas, 8 to 0, in 1954.)

I contend that
because national politics is controlled by a small group of connected
intellectuals and representatives of very large banks, the basic
structure of American politics does not change. So, the degree of
economic liberty doesn’t change. It changes only at the margin —
the political margin.

This is why
Eisenhower’s warning against the military-industrial complex remains
valid. Part IV of his farewell address of January 17, 1961 is like
an echo of George Washington’s farewell newspaper article of 1796.
Not many people have read either one. In order to make my case,
I ask you to read
Eisenhower’s words
. I have highlighted its key passages in bold

Our military
organization today bears little relation to that known by any
of my predecessors in peacetime, or indeed by the fighting men
of World War II or Korea.

Until the
latest of our world conflicts, the United States had no armaments
industry. American makers of plowshares could, with time and as
required, make swords as well. But now we can no longer risk emergency
improvisation of national defense; we have been compelled to create
a permanent armaments industry of vast proportions. Added
to this, three and a half million men and women are directly engaged
in the defense establishment. We annually spend on military security
more than the net income of all United States corporations.

This conjunction
of an immense military establishment and a large arms industry
is new in the American experience. The total influence — economic,
political, even spiritual
— is felt in every city, every State
house, every office of the Federal government. We recognize the
imperative need for this development. Yet we must not fail to
comprehend its grave implications. Our toil, resources and livelihood
are all involved; so is the very structure of our society.

In the councils
of government, we must guard against the acquisition of unwarranted
influence, whether sought or unsought, by the military-industrial
complex. The potential for the disastrous rise of misplaced
power exists and will persist.

We must never
let the weight of this combination endanger our liberties
or democratic processes. We should take nothing for granted. Only
an alert and knowledgeable citizenry can compel the proper meshing
of the huge industrial and military machinery of defense with
our peaceful methods and goals, so that security and liberty may
prosper together.

Akin to,
and largely responsible for the sweeping changes in our industrial-military
posture, has been the technological revolution during recent

In this revolution,
research has become central; it also becomes more formalized,
complex, and costly. A steadily increasing share is conducted
for, by, or at the direction of, the Federal government.

Today, the
solitary inventor, tinkering in his shop, has been overshadowed
by task forces of scientists in laboratories and testing fields.
In the same fashion, the free university, historically the fountainhead
of free ideas and scientific discovery, has experienced a revolution
in the conduct of research. Partly because of the huge costs involved,
a government contract becomes virtually a substitute for intellectual
. For every old blackboard there are now hundreds
of new electronic computers.

The prospect
of domination of the nation’s scholars by Federal employment,
project allocations, and the power of money is ever present and
is gravely to be regarded.
Yet, in holding scientific research
and discovery in respect, as we should, we must also be alert
to the equal and opposite danger that public policy could itself
become the captive of a scientific-technological elite.

It is the
task of statesmanship to mold, to balance, and to integrate these
and other forces, new and old, within the principles of our democratic
system — ever aiming toward the supreme goals of our free society.

Ike had the
self-crafted reputation of being a verbal incompetent. Yet he held
together the European theater of war during World War II. He was
a very shrewd man. If I were to pick the shrewdest politician in
American history who had no reputation for shrewdness, it would
be Eisenhower. The media never caught on. Most historians never
caught on. Ike knew what the supreme political issue was in American
life in 1961, and he recognized that it had appeared during his
own administration. "Our military organization today bears
little relation to that known by any of my predecessors in peacetime,
or indeed by the fighting men of World War II or Korea."

This system
is not only still in power, it is more fully in power than in Eisenhower’s
day. It is so fully in power that the Congress is powerless to stop
it — is in fact wholly in support of it. We are heading for war
with Iran, yet on July 12, the Senate passed Lieberman’s
to the arms appropriations bill. The amendment identifies
Iran as a potential enemy. It passed 97 to 0. It was co-sponsored
by Graham, McCain, and Kyl.

On July 16,
AP story posted on the Marine Corps Times’s Website
the time it will take to pull out our troops. One Army general said
that it will take at least 18 months to pull out half of his brigade.
A brigade is 3,500 troops. He is stationed in Northern Iraq, where
there is little fighting.

But there
soon will be. Turkey has announced that it will invade northern
Iraq if the United States cannot control Kurdish guerrillas who
are making raids inside Turkey’s border. Turkish troops are being
massed on the Iraq border. This
was reported by ABC news on May 31
and again on July 9, but
the information has not penetrated the American public’s thinking.


Not only is
the Iraq war not going to de-escalate, it is going to escalate rapidly
on two fronts: the northern border and the eastern, meaning Iran.
Bush has made it clear: he will not withdraw. He is stalling for
September: Gen.
Petraeus’s report. I can tell you what it will be if he is still
in uniform: the military needs until at least Spring. Congress will
scream, but it will not get the votes to override a Presidential
veto. The Democrats will grouse, blame the Republicans, and grin
like the Cheshire cat. They will wait for the voters’ response in
November, 2008.

At some point,
the U.S. will attack Iran, and all bets will be off politically.
Will Congress attempt an impeachment at the beginning of a war?
Not likely — not given the 97 to 0 vote on July 12.

Much as I hate
to say it, the stock sector to buy is the military, even in a market
downturn. There is no chance of an orderly withdrawal from Iraq,
if one is attempted at all. The equipment will have to be replaced
if we do pull out. If we merely re-deploy in the region inside our
bases, which seems likely, the equipment will still need upgrading
and replacement. The troops will not be home for Christmas, 2010.

My general
conclusion is that politics will not change in the next decade.
The existing political promises have removed politicians’ discretionary
income. There will be no major rollbacks of taxes. The 2010 estate
tax cuts will be allowed to lapse. The war of ideas will not affect
the political order. That order is secure.

Stocks performed
well, mid-1982 to early 2000, because interest rates fell. Short
of a recession, interest rates will not fall. If they do fall, the
stock market will fall with them: recession. To end the recession,
the Federal Reserve will inflate, driving rates higher. So, the
boom of 1982 to 2000 is not going to be repeated.

liberty is still decreasing in the United States. Why should we
expect American stocks to boom?

Economic liberty
is increasing in Asia. There, the stock markets should continue
to move upward.

10, 2007

North [send him mail]
is the author of Mises
on Money
. Visit
He is also the author of a free 19-volume series, An
Economic Commentary on the Bible

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