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

Recently by Gary North: Ellen Brown: Bernanke’s Cheerleader

 

  

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.

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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.

Copyright © 2010 Gary North