Memo to the Political Class: You Can't Be a Hero and a Thief

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Maybe there is some natural fidelity to history in John Locke's return to England from exile in the company of the future Queen Mary. It certainly contrasts with his ignominious flight many years earlier from the Catholic James I, though history itself has been rewritten on the occasion of his strife with the ruling regime. While Locke has been synonymous with the founding of true liberalism, authoring the basis by which the principles have been largely set, he had years before written an absolutionist piece defending the monarchy.

To reconcile Locke's intellectual journey from Hobbesian absolutism to what would animate the American founders, among others, into tolerance is to see inherent contradictions in all things.

It would be no surprise, given the constant state of upheaval in 17th century England, that Hobbesian theories appeared quite conforming of the age. The lack of any stability, political or otherwise, was simply another episode in the endless string of history whereby people will gladly cede liberty in the name of order. Hobbes simply gave it an air of authenticity when he observed, wryly, "The passions that incline men to peace are fear of death..."

What Locke observed later after his close brush with monarchical disfavor was that though that may be the path of least resistance, there is a more fruitful road by which society can be governed by more than brutishness.

"Reason, which is that Law teaches all Mankind, who would but consult it, that being all equal and independent, no one ought to harm another in his Life, Health, Liberty, or Possessions."

It was that last in his list which gave rise to the notion of property as the fullest expression of human existence, each person's "right" to live out as he sees fit; as "life, health and liberty" are uniquely bound, actually derived from in terms of actual existence, to a person's ability to originate and maintain his own property.

"Every Man has a Property in his own Person. This no Body has any Right to but himself. The Labour of his Body, and the Work of his Hands, we may say, are properly his. The great and chief end therefore, of Mens uniting into Commonwealths, and putting themselves under Government, is the Preservation of their Property."

We are all shaped by the times in which we live, and opportunity so often comes from disorder and disruption. Our view of history is so often narrow, however, left to simple narratives or pure recitation of chronology. That constriction loses in the simplification the texture that provides so much fuel to drive human society forward - and backward. It is not enough to see that Locke wrote what he wrote, but to encompass the full idea of how and why he arrived at these thoughts, and thus why they have lasted so long.

Against that end, economic history is so often ignored in favor of the rudimentary. The occasion by which Locke found himself run out of England was not just political messiness but also economics, which was almost always tied to such intrigue. King Charles II had incurred disastrous levels of debt, to which he replied in 1672 with the infamous, and ultimately self-defeating, Stop of the Exchequer. It was, essentially, a great default event.

The need to preserve "treasure" for the King had become one of "national security", in today's parlance, as Charles had begun what was the third war with Holland. Trading rivalry had made the two nations bitter enemies, particularly as the Dutch East India Company had frequent conflict of interest with its English counterpart. Yet for all the size and presence of the English military might, the Dutch were seemingly always offered much better terms on debt. In other words, the "natural" rate of interest in Holland perpetually undercut that in England.

Not long before the "Stop", members of the King's council on trade had persuaded Charles that he should decree the rate of interest in England from 6% down to 4%. As a chronic borrower, it was not a long argument. But the full manner of the exposition was beyond simply the King's debt, rather that such debt would be far more easily carried once economic forces were unfettered by high rates of interest. In this line of thinking, the higher charge of interest in England was nothing more than an undue tax on the English economy. The more things change...

It was not just the rate of interest that was supposedly holding back English fortune, but a "shortage" of money. The people of England had been debasing currency for some time, literally, clipping coins to stretch mostly silver. The great instability in money was met with an increasing need for milling coins, rather than hand striking them, so much so that by the time the Bank of England was founded in 1694 (no coincidence as to the timing) coinage had been forced into more of an industry than art. Economic disfortune so often occasions periods of currency instability, and thus political instability, that you might even grow to see causation in one from the other. John Locke himself did, as did his contemporary Isaac Newton (and many others), as both men took turn in keeping England toward "hard money."

For those attached to the property rights of all men, coinage was not just an act of debasement, it was properly believed as theft. It mattered not whether it was encountered via private hands in the clipping of hand-fashioned coins or whether it was occasioned by the special standing of the King's new banking agent. Disregard for private property rights is the only means by which debasement can be literally undertaken.

The modern world has itself "progressed" to the point where the people have been fully deprived of such property. Money is no longer money; Federal Reserve Notes are the indirect property of the government. It was not just FDR's Executive Order 6102 that stripped money and property from Americans, that process had begun the moment national banks were allowed to use government bonds in reserves. By the time the Federal Reserve was even created, bankers had already figured out that their future lay ahead in refiguring the entire system toward the asset side of their balance sheet - in other words, making "money" their property, not yours.

In that respect, the Federal Reserve System was a compromise where banks and government would share the property of money, to common benefits. The intertwine of banking interests with government interests is nothing new in history, as even the Bank of England's very existence is owed to exactly that. However, it has always been the hard rule of money by which the common people maintained economic legitimacy.

But such a dispersed power structure is inherently messy. The messier it gets, the greater the inclination toward absolutism, in whatever form. If there is any feature to modern, orthodox economics, it is this proportion of absolutism over freedom.

Every major economic episode since money was banished has been, in one form or another, a tightening of the screws in that direction. The Great Inflation, for example, was largely a result of the growing desire to test theoretical abilities brought forward by technological advances. In other words, central bankers had discovered the basics of regression equations and wanted desperately to use them.

One such relationship was the Phillips Curve, and for a short time (which was too long, as it turned out) the Kennedy and Johnson administrations' economists were sure that there was a long run trade-off between inflation and employment. As such, the centralized target for employment, in the form of lower unemployment, could be "adjusted" so that the "economy" could be prodded toward the inflationary. The idea was that the economy, no longer via actual markets and individual decisions but rather centralized inputs, would accept more inflation to gain lower levels of unemployment.

Though ordinary Americans were unable to be disabused of such monetary theft, certainly as Locke understood it, foreign participants in the Bretton Woods system could be. Toward the end of the 1960's, again, another period of great instability, American reserves of gold were severely threatened, and so therefore was the international financial and trade paradigm. Observers today tend to downplay the international gold drain in favor of some form of appeal to "progress", as in the system was simply evolving, favorably, from archaic processing toward one of great "flexibility."

It wasn't debasement as in the old form of coin clipping, but rather the modern form of money as government property. As Locke noted, "[Government] can never have a Power to take to themselves the whole or any part of the Subjects Property, without their own consent. For this would be in effect to leave them no Property at all." As to that point, the net effect of the Great Inflation was not as extreme as Locke had warned, as the people were not left with nothing, but, on the whole, the diminished purchasing power of currency, not money as property, and economic illegitimacy had left the nation far poorer for the grand experimenting. But that has never ended, and in fact rolls on in newer and more exasperating fashions.

The role of money in society is not just a medium of exchange, though that is the primary role asserted by monetarists. If money is nothing more than that, there is no downside in removing money and substituting tokens, sea shells, charta, or whatever. It is the systematic theft of the ability to engage in what is nothing more than despotism. Does it matter that the purposes of the majority of the thieves are well-intentioned?

The sentiment of "for your own good" has been the driving instrument of exactly this form of "order." The good priests of economics, particularly Solow and Samuelson, were so very wrong about the stability of the Phillips Curve, but no matter, when they get it right we will all be the happier for it. Collectivism requires, even demands, a lot of messy transitions. And that is what property properly means, the right to assert negativism, as in to withdraw outside the paradigm when it is taken too far. Ultimately, that is what monetary power really is, the ability to determine what constitutes "too far."

Even in these modern United States, there is still the ability to "vote with your feet" in all things except the economic. I suppose there is the survivalist option of completely "dropping off the grid", but for most people economic fortune is made and cast by the central authority of the FOMC, and its NYC apparatus, without any alternative - leaving economics itself as something cold, remote and thus someone else's problem. Accountability has been totally detached, without any recourse (intentionally). In today's age, which increasingly resembles the Samuelson-Solow debacle by the month, there is no way to escape with property intact. They "give" us stock prices and risky assets, check the pricing on leveraged loans (syndicated junk) and low-grade bonds, but punish and repress anything resembling safety.

Instead, the orthodoxists that have gained such intense power are busy rewriting the future course of the economy into something more like dysfunction (and calling it "potential") - even after the disaster of the asset bubbles and Great Recession which they themselves were "certain" would never happen. If you revisit economic predictions from the end of the last century, mostly straight lines to be sure, you need to rescale them far lower just to capture what actually took place.

Now they are fossilizing this lower trajectory as the "natural" course, when there is absolutely nothing natural about it. Nearly every monetary jurisdiction, which covers everywhere there is no financial equivalent of property and proper withdrawal, has gone experimental and all to no avail (though their promises were never delivered, they now rewrite their own standards to at least congratulate themselves on some unspecified number of jobs "saved").

Political instability follows from monetary and economic instability. Monetary disruption is not the contention of markets, but rather the disregard for basic rights. People must not be allowed to think, and therefore disagree with the basic plans set out by centralized, authoritarian views - regression equations notwithstanding. The economy is not anymore a collection of individual efforts strung together by the basic interweaving of goals and respect, but rather a singular social construct that can (should!) be managed and controlled by the mathematics of personal opinion.

John Locke and Isaac Newton knew centuries ago that stability was a function of personal responsibility, and thus began with the idea of individual ability. Reason and observation would suggest an end to the experimentation as it fails time and again. But many, if not all, of today's elite think that they possess the advancement which invalidates those traditional principles, that individual rights are secondary to the collective motivation as seen by them. These same people, at least some of them, often claim to respect individualism while at the same time engaging what cannot be called anything other than purposeful collectivism - a contradiction that cannot be reconciled. You cannot be both a hero and a thief.

The reason Marxism always fails is that it requires exactly that, the theft and deprivation from some in the name of others, arbitrarily wielding the power of redistribution. Such arbitrariness is simply inefficient and more often than not self-defeating. It is no basis for stable politics, and it is a disaster upon true economics. Money as property right invalidates all of it, as it allows a decentralized alternative. Respect for property invites stability, and thus actual economic advance. As we see now, the opposite is also just as true.





Jeffrey Snider is the Chief Investment Strategist of Alhambra Investment Partners, a registered investment advisor. 

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