Fiat Law and Fiat Currencies — the Relic of Barbarians

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Statutory laws, the laws that get passed with great pomp and circumstance aren’t the laws that really govern society though they might look like they do.

But if they really did, why is it that the crimes committed by Soviet commissars or by the Nazi Gestapo. . . or by the CIA . . . were all committed with the law books bulging at the seams?

It’s not how many laws you have that matters, but how well those laws are obeyed.

Which is a matter of culture and history, of what people expect…. and what they’re prepared to accept.

And to know that takes the study of history and manners; it needs a knowledge of morals and religion. The usual smoke and mirrors sideshow supplied by the political class won’t do. You need to turn to the accumulated wisdom of case law and precedent, of customary law and conventions.

The free market arose wherever there were laws and systems like that — whether in Europe or Africa or Asia. One way to think about this difference would be to see it as the difference between a fiat money, like paper, and a real store of value, like gold. You can print all the money you want, but if there’s nothing to back it up, then you’re in a bit of trouble. Your creditors are unlikely to put much store in you as a credit risk, just as the world’s wringing its hands today over the dollar. Pretty soon, they come calling for their loans with cudgels and pitchforks.

Gold does not have the same problem, because there’s a limited supply of it. It has to occur in nature. It has to be found somewhere underground and then mined and refined. It’s an expensive business — that takes risk, time, and money. There are costs attached to it that someone has to pay. Paper money, on the other hand, can be printed any time you want. Just ask Ben Bernanke. He’s dropping it by the helicopter load from the clouds.

You can pass all the laws you want on the statute books, you can employ stables full of well-groomed and pedigreed lawyers. But if there’s nothing to back the laws, you’re in trouble. Businesses aren’t going to want to do business with you. Investors are going to want their investments back.

The problem arises because you can pass statutory laws as you like, even if they have little relation to how the masses of people actually think and act. That means you can have a country where theft and looting are the norm that might, nonetheless, have very intricate laws on the books against theft and looting. The statutes wouldn’t do a thing to change it.

Customary law, on the other hand, can’t be manufactured out of nothing. It grows organically from the soil in which it lives. It reflects the way people really think and act. It doesn’t run so far ahead of its times that it provokes either resistance or indifference from people. Customary law, like gold, reflects real value. And because it does, it’s also likely to be accepted by people more often. Ultimately, customary law works because it’s a more sensitive and complex measure of a society.

It contains more information from the past — from the history and traditions of the people. Like the pricing mechanism, it’s a communication system that allows people to signal their desires and expectations faster and better than they could otherwise.

Customary law doesn’t just communicate with living members of the group, as pricing does. It also reflects the desires of generations past, where statutory law reflects only the demands of one generation, the living. In that sense statutory law really isn’t democratic at all. Or, at least, not democratic enough. It only consults living citizens. It forgets the dead ones.

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Pure reason, Cartesian reason, is very good at technical and physical problems, but it’s not nearly as good when it’s turned on itself or on human life. Human brains aren’t made that way. We’re more likely to understand who and what we are by looking at things we’ve done in the past — which is what we call history — or things we’ve made — which is what we call culture, than by logic.

Man is, first of all, Homo faber (man the creator), and we understand him best by looking at his creations.

Customary laws work, in other words, because they come out of the history and culture of a society. They constitute verum factum (truth as an act), as the Italian philosopher Giambattista Vico wrote in 1710:

The criterion and rule of the true is to have made it. Accordingly, our clear and distinct idea of the mind cannot be a criterion of the mind itself, still less of other truths. For while the mind perceives itself, it does not make itself.

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As more and more of our world is no longer made by us, we understand it less and less. We’re forced to fall back on theory and speculation, on isolated reasoning.

But thinking, as Vico pointed out, is hopeless when it remains isolated reason. It has to include practical wisdom and rhetoric. The Cartesian cogito ergo sum (I think therefore I am) is just not enough.

Vico liked to argue that the rise of pure rationality in history was one signal of a declining phase of human culture. He called it the barbarie della reflessione (the barbarism of reflection) and said that it characterized what he called The Age of Man. This was the last phase of his cycle of civilizations.

In the Age of Man, popular democracy would run amok and lead to tyranny and empires, which would end in chaos. Then the whole cycle would begin again, with the age of the gods. And so it goes on from eon to eon, said Vico.

It makes you wonder. Does anyone ever learn?

Lila Rajiva [send her mail] is the author of the ground-breaking study, The Language of Empire: Abu Ghraib and the American Media (MR Press, 2005), and the co-author with Bill Bonner of Mobs, Messiahs and Markets (Wiley, 2007). Visit her blog.

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