Sitting Ducks: Why the Tea Party Movement Is Vulnerable to Economic Charlatans, Ignoramuses, and Statists

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Recently
by Gary North: Ellen
Brown: Bernanke’sCheerleader

 

 
 

Ellen Brown
is a leftist. I have hammered away at this since October 8: 52 original
criticisms, followed by 30 responses. Still, her followers could
not believe it. They sent me outraged letters. Poor
Max Keiser publicly challenged me to defend myself.
How did
I dare say such things about his favorite anti-FED expert?

On November
20, she pulled
the rug out from under Mr. Keiser
and all the rest of the Greenbackers.
She published a glowing article on Bernanke, the Federal Reserve,
and quantitative easing 2. This will save the economy, she said.
The world should follow Bernanke’s lead. Hard to believe that she
wrote anything this preposterous? Writing preposterous things is
her specialty, as I have been trying to show. Read
about the “new, improved Ellen Brown” here
.

For weeks,
I kept saying she
is a wolf in sheep’s clothing
. She is “putting the shuck on
the rubes.” Just three days after my
final response to her 30 responses
to my criticisms, she came
clean. She wants a welfare State, and Bernanke is providing the
free money. So, hooray for Bernanke!

For regular
readers of my columns, this will not come as a shock. But her victims
now must now face reality. They trusted her. She was the brilliant
lawyer who was leading the charge against the forces of evil! They
have now been sold out: lock, stock, and barrel.

Here is the
problem. Well-meaning conservatives are unfamiliar with economic
logic
. They have no understanding of how the free market works.
They think they are free market people, but they are ignorant. So,
they are easily deceived by leftists and statists who come in the
name of the free market, but who want votes to make the state bigger.
They get sucked in by rhetoric. Some supposed conservative writer
seems so sincere. He must be correct. He says he is in favor of
America. He says he is for the little guy.

He may be an
ignoramus. He may be a charlatan. He may be in way over his head.
But his followers cannot see this, because they have no way to judge
what he is saying. They are ignorant of the simplest principles
of economic theory. They are easy prey.

One of the
problems that faces every economist is that he discovers this sad
fact early in his career: logical argumentation seems almost
useless in persuading people of the falsehood of popular economic
propositions
. People are committed to a particular way of looking
at the world, and this way is only rarely what the economist regards
as the economic point of view.

MERCANTILISM
LIVES!

This has been
true from the beginning. If we date the advent of modern economics
with the 18th century Scottish Enlightenment, meaning such figures
as David Hume and especially Adam Smith, we discover that it took
decades for intellectuals in the English-speaking world to become
convinced of their basic argument, namely, that the mercantilist
policies of the 17th century and the 18th century led to reduced
economic growth.

The argument
behind Adam Smith’s Wealth
of Nations
is this: when an individual is allowed to pursue
his own economic self-interest as he sees best, society prospers
as a result. Smith argued that individual self-interest is legitimate,
and that when the legal order allows each individual to pursue his
self-interest, the increased productivity of his actions leads to
greater wealth for everyone concerned.

We think of
this today as the normal way of defending economic liberty. But
it was not the normal way of defending economic liberty prior to
the middle of the 18th century in Scotland.

The mercantilists
argued that the wealth of nations is based on economic productivity,
but only productivity directed by the government. They argued for
government intervention in order to stimulate exports and increase
the flow of gold into the nation. This is the proper way to increase
national prosperity, they taught.

Smith argued
that this increase in the supply of imported gold does not increase
wealth whenever this increase is based on intervention in the economy
by government officials. He argued that the freedom of the individual
to pursue his own interests is the key to national wealth.

Unfortunately,
this argument took over half a century for leaders in the British
government to accept. Only in the middle of the 1840s did the British
government finally repeal the infamous corn laws, which had kept
the price of domestic food higher than would have been the case
had tariffs and restrictions against food imports never been legislated.

Despite the
fact that Adam Smith’s Wealth of Nations has been in print
constantly since 1776, we still find that a large number of conservatives
believe that tariffs and import restrictions are a positive benefit
to the economy. There have always been supporters of tariffs, although
very few of them have been professionally trained economists. The
economic point of view was hammered out by Adam Smith and his successors
in terms of an analysis of restrictions on imports. Modern economics
has always begun here. The person who is opposed to free trade across
national borders reveals himself as a non-economist. There are very
few of these people in modern academic life, but there are a few,
although they have very little influence.

In contrast,
among the voting population, arguments in favor of tariffs and import
quotas remain popular. The most famous defender of these restrictions
is Pat Buchanan. His opinion is widespread within the conservative
movement.

I first came
across this in high school. The man who taught me high school civics
and basic economics believed in tariffs. He was a conservative.
He was probably the most conservative teacher at the high school
level in Southern California. Nevertheless, when it came to the
question of international trade, he was a believer in tariffs.

When I began
to study economics in the late 1950s, primarily by reading The
Freeman, I encountered the case for free trade. I realized at
the time that The Freeman promoted a position that was not
held by the conservatives I knew. There was something about the
argument in favor of free trade that alienated those conservatives.
There is something persuasive to them about the belief that government
intervention at a national border is productive, even though they
firmly assert that similar restrictions are unproductive at state
borders, county borders, and city borders.

When I realized
that this was the case, half a century ago, I also realized that
becoming a professional economist has its downside. Probably the
most obvious downside is this, which I have found it to be true
ever since: people pay very little attention to economic arguments
that challenge their belief in the productivity of government intervention
.

Conservatives
debate over which kinds of government intervention are productive,
but there is not much debate on the fundamental question of the
legitimacy of government intervention against voluntary transactions.
I am not talking about trade in certain goods or services that are
considered inherently immoral or destructive, such as prostitution
and addictive drug usage. I am speaking about the exchange of goods
and services that are not considered immoral, and that individuals
want to purchase. For some reason, conservatives believe the state
can be a tool for increasing personal wealth as well as national
wealth, without hampering the economic liberties of others in the
society.

You would think
that conservatives, not trusting bureaucrats, would reject the idea
that government bureaucrats who possess the power of the gun are
not reliable people in the realm of economic planning. Yet what
I have found for over 50 years is that in certain limited areas,
the logic of freedom, meaning the logic of free trade, is not believed
by people who say that they do believe in these principles. They
accept arguments in favor of free trade as long as the trade takes
place inside national borders. But as soon as they get to the border
between two countries, they abandon any commitment to the logic
of free trade. This has persuaded me that conservatives do not really
understand the logic of free trade.

Economic
Logic

This raises
another question. To what extent do conservatives believe in economic
logic at all? Can they follow the logic of an argument? Can they
even recognize the logic of an argument?

I have concluded
that the vast majority of people who call themselves conservatives
are unable to follow the logic of economic reasoning.

Back in 1946,
Henry Hazlitt’s book appeared: Economics
in One Lesson
. Early in the book, Hazlitt says that most
people are unable to follow long chains of economic reasoning. They
cannot see how economic cause and effect operate. I am convinced
that Hazlitt was correct. I have found, over many years of experience,
that most people do not have the ability or the interest in following
long chains of reasoning
. This especially applies to economic
reasoning.

Over 40 years
ago, I read in the introduction to the best economics textbook then
available an explanation for why it is important that economists
earn a Ph.D. The reason is this: if they are not compelled to study
economics on a rigorous level, for many years, students will never
believe what they read in their freshman year of college in the
introductory class on economics. This is another way of saying that
people do not really believe the logic of economics, unless they
have spent a lot of time and effort following the implications of
these relatively simple principles of cause and effect.

I have used
the example of tariffs to illustrate my point. I have done so because
this is the oldest debate within the camp of the economists. Modern
economics began with a consideration of this question. Adam Smith
and his peers in the Scottish Enlightenment understood that they
were arguing against a popular conclusion, namely, that government
restraints on trade benefit the general population. Those Scottish
scholars understood clearly that this was a widespread idea, and
that it would take careful economic reasoning to persuade the general
public that these ideas are incorrect. It has taken a lot longer
than Smith would have guessed to persuade the voters of the truths
of the benefits of free trade.

THE QUESTION
OF FIAT MONEY

I need to consider
another issue, less well-known than the debate over free trade versus
tariffs. This is the question of money.

We find that
even those economists who claim to be rigorous logicians and also
defenders of free market principles come to the conclusion that
government is capable of establishing control over the monetary
system, and that government regulations promoting the expansion
of the money supply are positive economic policies. Milton Friedman
argued carefully against the intervention of the government in many
areas of life, but when it came to the question of monetary policy,
he believed that the economy had to have a central bank, and that
there had to be rules governing the central bank.

This was a
silly argument. The idea that a central bank would submit itself
to any fixed principles of action was ludicrous. The whole purpose
of a central bank is to establish power, mainly promoted by profit-seeking
fractional reserve banks, to enable the banks to continue to operate
against the interests of depositors, voters, and investors. The
main goal of a central bank is to keep the free market and its sanctions
away from monetary policy
.

Friedman never
really believed this, and neither do his disciples. They follow
the logic of private property to the “border” of central banking,
and then they say: “The logic of our position does not apply to
the area of central banking.” In other words, they call for a
government-established monopoly in order to protect the other government-established
monopoly, namely, the fractional reserve banking system
.

If Milton Friedman
and virtually all of the defenders of free trade and free markets
cannot understand the logic of this position as it applies to the
monetary system, it should not surprise anybody to find that conservatives
who have no training in economic logic and no training in economic
history have come to a very similar conclusion. These are the Greenbackers.
They do not understand the logic of the free market, and they surely
do not understand the logic of the free market as it applies to
monetary policy. In this sense, they are not much more ignorant
about economics and money than professionally trained economists
who are followers of Milton Friedman. They are surely no worse off
than the followers of John Maynard Keynes. His academic followers
promote very similar policies.

In the case
of Keynes, he favored the logic of men who were correctly regarded
in his day as economic cranks. These economic cranks held
positions very similar to those promoted by modern Greenback advocates,
who are never trained economists. But this is not why they have
made their mistakes. John Maynard Keynes was a self-trained economist.
His disciples are trained economists, yet they promote monetary
policies that are not fundamentally different from those policies
promoted by the Greenbackers.

In my critique
in 1965 of the Greenback promoter Gertrude Coogan, I pointed out
that her position on monetary policy was not fundamentally different
from the position promoted by John Maynard Keynes. The main difference
was this, which was not fundamental in terms of economic theory:
Coogan’s hostility to fractional reserve banking and especially
privately owned banks. Coogan, as with all Greenbackers, hated fractional
reserve banking, because it enabled bankers to make a lot of money
by creating a lot of money. Coogan wanted the Federal government
to make a lot of money by creating a lot of money. She trusted the
Federal government. All Greenbackers trust the Federal government.
No Greenbacker trusts a central banker.

That was the
case until November 20, 2010, when Ellen Brown climbed aboard the
U.S.S. Bernanke. She did this three days after I completed
my refutation of her 30 attempts to refute me.

My
original critique of Brown is the same as my critique of Gertrude
Coogan. Brown holds the same economic logic that Gertrude Coogan
held. She makes the same arguments; she relies on many of the same
examples; and she quotes the same bogus quotes that Gertrude Coogan
did. When I prepared to publish my extensive critique of Ellen Brown,
I sent to the Mises Institute a somewhat updated version of my 1965
essay on Gertrude Coogan. The Mises Institute decided to publish
that updated article in the form of a short book, Gertrude
Coogan’s Bluff
. I wanted people to be able to access my
critique of Coogan, so that they could understand that Ellen Brown
was making the same arguments, meaning that she was making the same
mistakes.

Some conservatives
in the 1960s believed Gertrude Coogan, and too many conservatives
today believe Ellen Brown. They do not know exactly why they believe
her, but they accept her arguments in favor of fiat money because
they accept her arguments against fractional reserve banking. The
Austrian School economists have made far more cogent criticisms
of fractional reserve banking, but they favor freedom in money,
which leads historically to some form of gold or silver coin standard.
The Greenbackers oppose gold and silver as the basis of the monetary
system. They
are in favor of the same kind of fiat monetary expansion that John
Maynard Keynes was
. Yet they think of themselves as anti-Keynesians.

Read
the rest of the article

November
24, 2010

Gary
North [send him mail]
is the author of Mises
on Money
. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible
.

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Best of Gary North

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