I have 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.
SEEING, THEY WILL NOT SEE
If you’re 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.
We aren’t 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.
The office of Prophet was eliminated two millennia ago.
Nevertheless, 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.
The problem 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 mouth shut?
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 responsible?
How many 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?
How many 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.
JUST THE FACTS, MA’AM
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.
RIGHT, YET WRONG
Ludwig von 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 Notes and Recollections (1978): "I set out to be a reformer, but only became the historian of decline" (p. 115).
Mises cited 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.
The policies 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.
Mises commented: "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 he died.
Three things 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."
Menger’s pessimism had long-term consequences for all of Western civilization.
He had 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 account).
Mises failed 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.
The third 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.
BEING WRONG TEMPORARILY
Menger was 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? Very few.
What about 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, look out.
But let’s 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.
MARX’S OPTIMISM AND COMMUNISM’S SUCCESS
There are 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 soon 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.)
This same 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.)
Mises believed 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.)
In 1984, I wrote these words:
Today, 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 millennium.
Within a 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.
After the 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.
Today, most 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 Holy Deficit.
Those of 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.
But things 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, Capitalism 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 Deficit.
The federal 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.
Ideas do 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,
And that 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).
September 27, 2003