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Postmodernism Corrupts Everything

According to Encyclopaedia Britannica:

“Postmodernism, … a late 20th-century movement characterized by broad skepticism, subjectivism, or relativism; a general suspicion of reason; and an acute sensitivity to the role of ideology in asserting and maintaining political and economic power.”

Its roots go back long before the late 20th century phenomenon. Consider quantum physics. The Copenhagen interpretation (developed in the 1920’s) holds that, “physical systems generally do not have definite properties prior to being measured.” The most infamous and absurd example of this is Schrodinger’s Cat: it is neither alive nor dead until a human consciousness observes the radiation detector. This is obviously “broad skepticism and subjectivism”. And a general suspicion of reason (perhaps less obvious).

Next, consider the historical revisionism of Howard Zinn. His People’s History of the United States began with the belief that there is something wrong with America, going back to prior to its Founding. His scholarship was shoddy, but that is rather the point. He puts the history profession at the service of the Marxist class warfare narrative. History can jettison the fact of what happened, in service to socialist political ends.

Zinn’s effort bore its ultimate fruit in the New York Times so called 1619 Project, which–with rotten scholarship–asserts that slavery is essential to capitalism. Yeah, and war is peace and ignorance is bliss, too.

What other field comes to mind, at the mention of disregarding the facts in service to the goal of political power?

“Each of us has to decide what the right balance is between being effective and being honest,” said global warming activist Stephen Schneider

Yes, I am aware of the supposed nuance of his comments and his stance. But no amount of nuance can defend the false alternative of effectiveness vs. honesty. And no one would dare defend this view (or claim nuance), if not for the pervasive poison of postmodernism.

Postmodernism has also had its impact on the law. In the 17th century, John Locke and others were developing the idea that law does not simply mean whatever the government forces you to do.  Locke said that people have rights such as their life, liberty, and property. Law is supposed to be written to protect these rights, not to give a veneer of respectability to the so called “divine right of kings”, otherwise known as Might Makes Right.

But starting in the late 19th century, this understanding was abandoned. The Sherman Antitrust Act stands as an awful example of a postmodern approach to law. Loosely worded, it makes a crime out of restraint of trade. A proper law written to protect individual rights must be clear, so that everyone can know in advance what is legal and what is illegal. A postmodern law is not intended to protect rights, but to give the government the power to violate someone’s rights.

Unfortunately, the trend accelerated after 1890. People (and the Supreme Court, see the opinions written by Justice Oliver Wendell Holmes) moved away from the principle that the government has enumerated powers, and the concept of individual rights. The Constitution, they said, was a “living, breathing” document. In other words, it means precisely what they want it to mean, subject to change based on convenience.

Today, virtually every productive enterprise is subject to regulation. This means, in practice, that a government agency writes, judges, and enforces a set of broad but not clear laws. Businesses are under a presumption of guilt, and have the burden of proof to show that they are innocent.

Next, let’s look at money. The postmodernists attempt to get away with adulterating and perverting money, to the point where people are forced to use debt as if it were money. This is no random economists’ confusion. It’s done in service to the leviathan state. In the words of Benito Mussolini, “Everything within the state, nothing outside the state, nothing against the state.”

Today, the government has seemingly unlimited capacity to dole out free goodies. The cargo cult of so called “Modern Monetary Theory” pugnaciously asserts that the limit is only when the “bathroom sink overflows”—i.e. when they create too much of this debt-money. So far in response to the coronavirus, the government has bestowed on us $2.8 trillion of loot. This was on top of a baseline budget deficit of $1.7 trillion in the 12 months ending March 21. The US government will likely run a deficit over $6 trillion.

There is a limit to this. There is a point in any postmodernist deviation from reality, when the consequences hit at high velocity. It’s just that the US government’s capacity to consume our accumulated capital is higher than anyone thought.

And this brings us to epidemiology. What had been an obscure field that studies disease vectors, how now catapulted onto center stage with its call to lockdown the people and shutdown the economy.  So far, in America, over 33 million people have filed for unemployment. And that understates the reality because state unemployment offices are unable to keep up, because some companies keep making payroll out of accumulated capital, because of the 2-month payroll subsidy in the so called CARES Act, etc, and because the self-employed and business owners are generally not eligible to collect an unemployment check.

This stupefying ruin occurred because postmodern epidemiology attempted to find the “balance is between being effective and being honest”. Professor Neil Ferguson published his projections of mass death, based on a pathetic buggy computer model. And, because an early paper claimed that the virus can be transmitted by asymptomatic people. This claim was based on a since-retracted story of a Chinese woman in Germany. She did indeed transmit the virus to a German colleague, but it turns out that she had symptoms. They just did not bother to call her to ask, before going to print with a story that fueled the momentum to lockdown everyone worldwide. They were highly “effective”, if not balanced with honesty.

The government laid waste to the economy and people’s lives because postmodern lawmaking puts the power to lockdown 300 million innocent Americans into the hands of the governors (and postmodern ethics sets up the false alternative of saving lives vs. the economy), who listen to postmodern epidemiologists who rely on postmodern software.

Unfortunately, the people will respond with even more “broad skepticism, subjectivism, or relativism.” All scientists will be lumped together, under a “a general suspicion of reason.” If a proper scientist develops something real (e.g. a vaccine for COVID-19), millions will not avail themselves of it, out of belief in conspiracy theories. This trend, of skepticism towards science as such, began with the postmodern global warming scare (which also featured bogus computer code that the developer refused to publish so the scientific community could review it).

Staggering Job Losses

So far, about 20% of the people who had jobs 6 weeks ago, are unemployed. This is in addition to the 96,000,000 who had no job even before the lockdown, but who aren’t counted as being in the workforce.

And the reality is worse than even this, for three reasons. One, unemployment offices are not able to keep up. More people are being added to the rolls who already lost their jobs.

Two, government at all levels has not begun laying off yet (if they ever will). So these people were laid off almost entirely from the productive sector.

Three, many businesses are still paying salaries hoping for a quick resolution. But every day, they drop, depleted of capital. No one knows how many there are, or how many workers still receive paychecks from such businesses.

This is really bad. Really really bad. Worse than 1930’s bad. And it comes at a time of record high leverage. Deleveraging has hardly even begun.

How Wide is the Margin?

Economics discusses the margin, and the concept of marginal all the time. For example, the marginal worker is the one who loses his job, at a downtick in revenue.

Well, since the government response to the virus, over 26,000,000 people have lost their job.

It is not just one worker who occupied the role of marginal worker. It was over 26M workers (and counting).

The concept of margin also implies the concept of width: how wide is the margin? All those included within this finite space are at risk of loss of their job, business, etc.

And due to a number of factors, including decades of falling interest and margins, with rising net present value of all liabilities including debt and wages, the margin has grown quite wide indeed. And of course a months-long shutdown widens the margin much more than a week-long shutdown.

Perhaps 30% of the US economy (we shall see how big it is) was included in this wide margin. The fallout will be felt for many decades.

When Government Has All the Powers

I wrote only one paper that was rejected by Professor Antal Fekete. It was nominally about duration mismatch. He asked me to write it as a guide for a course at his New Austrian School of Economics in 2012.

I argued that when banks borrow short to lend long, they harm themselves and their clients. This is in accord with what Fekete taught. However, I made an additional point with which he did not agree. I said that government should not have the power to ban everything that every special science lobbied to prohibit.

Today, the special science most in the public spotlight is epidemiology. Like in economics, controversy sometimes splits epidemiology on certain issues. That does not prevent it from calling for bans on behaviors that epidemiologists don’t like, including those related to the spread of contagious disease.

Little did I know, back in 2012, that this side point to my paper would become so important. Based on the work of certain epidemiologists, the government has shut down our economy.

Unfortunately, the government has taken for itself and the people have willingly given it, a terrible power. Government can now ban all the things. In 2012, I was focused on a potential ban of a banking practice. But I argued that a government which has the power to ban one thing, in fact, has the power to ban all the things. If you doubt me, just ask those who sell food in restaurants, clothing in clothing-only stores, haircuts in salons, and much more.

Today, every practitioner of every special science has taken note.

Whatever the threat of coronavirus may be, history surely teaches us of the dire threat of a government with unlimited power. A government with unlimited power is a totalitarian government. Whatever your view of coronavirus, I hope we can at least agree that government must be limited.

I have never asked anyone to call their legislators or governors, but now I implore you to call and ask them to honor the limits placed on government power by some wise men in 1776.

Flattening the Curve is Central Planning

It may be getting lost in the noise now, but there was a principle behind locking down most of the people (except those deemed “essential”). It was not to “fight” the coronavirus. The locker-downers conceded that everyone will be exposed to this virus sooner or later, anyways. They just wanted to *slow* the spread of the virus.

Got that? We are laying off millions (or tens of millions) of people, ruining hundreds of thousands of businesses, wiping out trillions in capital, impoverishing the people. Not to stop the virus. Just to SLOW it.

And why is slowing it so important that we cause this much harm to so many people? It is important, we are told, because the hospitals have too few beds. Worse, they are inflexible and unable to expand capacity due to shortages of everything from doctors to ventilators.

This harm is inflicted to manage demand at hospitals.

The reason why the health care industry is so brittle is the countless regulations that require permitting, licensure, Certificates of Need, armies of bureaucrats that can approval of anything. Such as the manufacturing of masks. It would not be exaggerating by much to say that everything which isn’t mandatory is prohibited.

In other words, the central planners have managed the supply at hospitals. And now their managed supply is insufficient, so they seek to manage the demand. Your job, your life savings, your business, your dreams and goals–are just collateral damage.

Flattening the Economy Because, Virus

I write this on March 18, now having watched a 180-degree reversal of how we think about contagious disease. Formerly, we would put sick people in quarantine and respect the right of healthy people to go about their lives. Today (March 18, 2020), we are now on the brink of martial law. In our zeal to fight the corona virus, we are shutting down travel, public gatherings, restaurants, etc.
This is what a mass panic looks like.
Not to mention it is already wreaking massive economic damage. The economy was already faltering. The false boom stimulated by a decade of monetary meth was likely turning to bust, even before the virus. And then the government began to shut down whole industries: air travel, hotels, sports, bars, restaurants, etc. And likely more to come.
I write extensively at Monetary Metals about the risk of debt defaults cascading like Dominoes, so I will not further address that here. I will only say that whole industries are laying off (with much more to come) whole workforces in one giant dump. That is a lot of people who will suddenly experience hardship, not to mention stop spending on everything from clothes to computers, phones to tunes (never mind restaurants and bars, they wouldn’t be allowed even if they still had their paychecks). As always in a downturn, mainstream financial and economic analysis is useless. I think right now, they are predicting “slower growth.” Yeah, and if you slam the brakes in your car, it is “slower acceleration,” too.
Any why this draconian response? There is now a new technical expression, among the newly-minted tens of millions of experts who inhabit social media platforms. They seek to “flatten the curve.” That is, they say, it is inevitable that this virus will sweep the population. But if we can just slow its progress, then our health care system will be able to respond, there will be enough beds, ventilators, and health care professionals to care for the case load. If we allow it to progress at full speed, then the hospitals will be overwhelmed, and America will look like Cuba.
If you think that the govt must outlaw public gatherings, close the restaurants, and shut down half the economy … to “flatten the curve” … then you–yes YOU–are attempting to be a central planner.
In capitalism, people and industries are resilient. The reason is simple. They are free to act on their reason, and to seek a profit.
In socialism and central planning, there is no resiliency. The people starve if the crop yield is below quota, they drown if the tide rises, they suffer in darkness if an oil shipment is delayed. The reason is simple. They are not allowed to act, but must wait for orders from a central planner. And Mises proved that socialist planning is impossible, even if the planner is a wise, honest, caring genius. 
If it is indeed true that American hospitals are soon to be overwhelmed by virus patients then this is not a recommendation for more central planning, enforced by redirecting scant law enforcement resources to enforcing martial law.
It is a damning indictment of just how socialist–and hence sclerotic, rigid, and brittle–our health care industry has been forced to become under the degree of socialized medicine we already have. We are not fully socialist yet. Hence we are not Cuba yet.
I fear the kind of government that can shut down public gatherings and centrally plan healthcare and everything else. I fear it much more than a virus.

The CEO Pay Ratio

A popular metric is to compare CEO pay to the pay of the lowest-skilled–and hence lowest-paid–worker in the company. If the CEO makes $15,000,000 and a burger-flipper makes $15,000 then the CEO is making 1,000 times more.

This provides fuel for policy debate. As I often say, socialism is not about economics. There is no economics of socialism. It is nothing more than institutionalized envy. And the pay ratio of 1,000 appeals only to envy. It is offered without context, as none is deemed necessary. The very fact that he is paid so much more is taken as proof of … well it’s outrageous.

Something must be done!

Or so the Left argues. Get him because he’s rich. Impose a pay restriction on all companies, or at least all public companies. Tax the #$&%! out of him. Give all workers a so called guaranteed basic income (so called because socialism never delivers on its promises).

Libertarians are correct to note that if a wage is set in a free market, there is no fairer mechanism. And besides, it’s the company’s money to spend as it chooses. No good can come out of Washington meddling. They also point out that the CEO produces more value than the burger flipper, and his job is harder and more stressful.

This is true, but the very notion of a ratio of one person’s pay to another’s is meaningless. It tells us exactly nothing, while tantalizing us that it tells us something important.

I propose a different metric. A ratio of a worker’s pay to the value he produces. For example, suppose the gross profits (ex. cost of meat and ingredients) generated by the burger flipper’s work is $15 per hour. His pay is $7.50. Therefore this is a 2:1 ratio. He is paid half the value he creates.

Now consider his manager. The manager supervises 10 workers. Assuming all have equal productivity, the total gross value of these workers is $150. If the manager is paid $15, then this same ratio moves up quite a lot. It is 10:1.

Finally, let’s go all the way up to the CEO. If the firm’s gross profit is $15,000,000,000, then this ratio is 1000:1.

As we move up in the value chain, it is harder to measure the gross value contributed by each worker. For example, with the CEO, is the gross value simply gross profit? Or are we trying to look at just the difference he makes compared to his predecessor?

However, it should be clear that as you go up in value and salary, the ratio of value created to salary also goes up. That is, higher-value workers are paid less as a percentage of the value they create. Isn’t that a different view from the common envy view?

I am not sure what to call it. It may even exist, though I have not come across it. I am mulling “gross value capture ratio of wages”.

You Didn’t See That

I don’t normally write about myself. Please bear with me as I get something off my chest.

My field is monetary science. I focus on two areas. One is the pathology of the dollar, which is in terminal decline. The other is a free market in money, a.k.a. the gold standard. Science is a quest to discover new principles. I work on understanding the processes and mechanisms of both the failing dollar and the unadulterated gold standard.

One of the greatest satisfactions in my life is to identify something, work out what it is, obsess until I truly understand it, and then communicate it. For example, why we need an objective unit of measure of economic value and how we can recognize it when we see it.

This is what I have done all my life. As an early teen, learning to program on the Apple ][+, I developed a way to write floppy disks that could not be read by any copy program (copy protection was important in those days). I studied how the disk drive mechanism worked, and traced the inner loop of the commercial copy programs (alas I did not have the discipline to finish and commercialize it, or I should have made a lot of money).

At my last company, DiamondWare, I envisioned what 3D audio would sound like, what it would do for voice communications. I remember the day when we finally put together all the code to implement it, and I heard it for the first time. It worked! Later, I architected a scalable realtime audio server to provide this 3D voice experience to a massive number of people.

After selling the business (and spending several years at Nortel, and then at Avaya), I applied myself to monetary economics. The gold world has a benchmark called the Gold Forward Rate (GOFO). It is as important to gold-using businesses as LIBOR in conventional finance. It was published daily by the London Bullion Market Association until a few years ago. Everyone said it could not be calculated using only public market data. I developed a way to do it. We now update a daily chart of GOFO.

I have worked out what a modern, 21st century gold standard will look like—and the path to get from here to there.

Without boasting, this is what I do.

So I must say the most frustrating experience for me is when someone denies my observation. What they are saying (without understanding what I am saying) is, “you didn’t see that.”

Obama infamously said “you didn’t build that.” It’s pure envy. He did not build anything, and says this to feel better about his own lack of achievement. When various and sundry alleged free marketers say “you didn’t see that,” they are trying to feel better about their own lack of vision. They hold to the conventional Quantity Theory of Money. Aside from being wrong, this theory does not encourage (or enable) seeing new phenomenon. It’s a dead-end.

Some of these folks are threatened by my seeing that, the way Obama is threatened by entrepreneurs who build that.

They have even tried to suggest that I am attacking Mises along with all economists. Sorry, guys, that’s not how science works. You do not get to deny an observation by such emotional appeal. You cannot just conjure up a picture of carnage, of economists slain by the dragon of a new idea.

Either I am right, or I am not. If not, show me where I made a mistake (which would first demand that you understand what I said). Failing to meet that standard, you’re just attacking what you don’t comprehend.

You cannot make me unsee something. Nor can you cow me into remaining silent. If there may have been a time when you could have marginalized me by browbeating my early audience with fear that if they follow my work they will be ostracized, that time is long past.

If what I say makes you feel uncomfortable, then it is not my sin. It’s all yours. It is you who ought to check your premises, oh you who would presume to utter “you didn’t see that” out of fear of seeing it for yourself. It is you who need to know why my ideas cause you such anxiety. If it were true that I saw nothing, and my work just rubbish, then you know that it would not vex you so.

And if you don’t want to know, if you don’t want to check your premises, and you don’t want to understand my ideas well enough to refute then, then you marginalize yourself. Monetary science is moving forward, whether you will or not.

I’ve got science to do, a business to build, and a world to help move towards the gold standard. What are the “you didn’t see that” crowd doing?

The Party of Spend More vs. the Party of Tax Less

The Senate just passed a 500-page tax reform bill. Assuming it lives up to its promise, it will cut taxes on corporations and individuals. Predictably, the Left hates it and the Right loves it. I am writing to argue why the Right should hate it (no, not for the reason the Left does, a desire to get the rich).

The root of our problem is spending. The federal government spends much of our income, and an increasing amount of our wealth to the tune of over $4 trillion a year. That is over $11,000 for every man, woman, and child. But children don’t work and many adults don’t either (or they work for the government or a contractor). Assuming 100 million work in the productive sector, the government spends $40,000 in cash for each one, not counting the promises it racks up. This is the federal government only, and of course the people also bear the burden of spending at state, county, city, and municipal water district levels.

The government spends more than it takes in tax revenues. A lot more. The federal debt today is over $700 billion more than it was a year ago. The reason is simple. The people may love spending, but they hate taxes. So the government makes it up by borrowing.

I have written a lot about this concept, borrowing. They call it borrowing, but without the means or intent to repay it, it’s really a fraud. This is my definition of inflation—counterfeit credit. It is the compromise between the party of spend more, and the party of tax less: the policy of borrow more.

And that brings us to the present topic. Is it good to cut taxes? Economist Frederic Bastiat could have written this essay for me, in only 168 words. The first paragraph of the introduction to his 1850 book That Which is Seen, and That Which is Not Seen reads:

“In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause — it is seen. The others unfold in succession — they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference — the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, — at the risk of a small present evil.”

If they cut taxes, the seen is the lower tax you must pay. That is good and everyone is happy. But what is the unseen? What is that thing to which Bastiat refers as the “ultimate fatal consequence”?

It is an increase in borrowing. The “great evil to come” is the collapse of the debt, which is the backing for what we call money nowadays. When the debt is defaulted, our money will be worthless.

A reduction in tax revenues necessarily means an increase in net borrowing. Borrowing, of course, does not generate revenues. It is merely an addition to the debt.

To manage the rising debt—it’s rising exponentially—they suppress the rate of interest. This keeps the monthly payment down, but it has many other unseen but foreseeable consequences. Just ask a retiree trying to live on fixed income.

The bottom line is that when the government spends our income and our wealth, we are impoverished. That is a fact, and there cannot be any real debate over it. The debate is whether it is less bad to tax us or to borrow.

When the government taxes us, we know we are poorer. It is seen. We adjust downward our consumption and our quality of life. This is why everyone hates taxes.

When the government borrows, by contrast, we do not feel the pinch of the impoverishment. Instead, the government sells us bonds. The bond is a financial asset which not only pays interest, but has been in a bull market since Ronald Reagan took office in 1981. We not only don’t feel poorer, but we actually feel richer. The purchasing power of our investment portfolios is going up.

Borrowing is not a magic perpetual motion machine. It is not a way to spend above your revenues. It is not a way to consume without first producing. It is a just a way to deceive—to consume without the taxpayer realizing it.

It is Bastiat’s unseen.

The Big Myth

Don Watkins of the Ayn Rand Institute wrote an article, The Myth of Banking Deregulation, to debunk a lie. The lie is that bank regulation is good. That it helped stabilize the economy in the 1930’s. And that deregulation at the end of the century destabilized the economy and caused the crisis of 2008. If deregulation is the problem, then reregulation is the solution. So, in the wake of the crisis, Congress enacted a 2,300-page monstrosity of regulation known as Dodd-Frank.

Watkins does a good job describing government regulation of finance, in particular addressing the savings and loan industry. He gives an example where people commonly assume that Congress reduced regulation, the Graham-Leach-Bliley Act of 1999. The headline is that this law reduced regulation, and allowed banks to be in the securities business. However, the truth is that it mixed in a dollop of increased regulation.

I commend him for tackling regulation and the moral hazard of deposit insurance, and calling for real deregulation.

However, I must criticize is article. He says:

“By far the most important factor in postwar stability was not New Deal financial regulations, however, but the strength of the overall economy from the late 1940s into the 1960s, a period when interest rates were relatively stable, recessions were mild, and growth and employment were high.”

Here is a graph of the interest rate on the benchmark 10-year Treasury bond from 1946 through 1969.


Even during the initial smooth period through 1953, the rate of interest climbed 27 percent. By this point, the instability had only just begun. If “into the 1960’s” refers to the last plateau in 1965 before the rate destabilizes further, then the rate was about 4.2%. This is about double what it had been just 15 years earlier. And at the end of the 1960’s, the interest rate had hit 7.7%, or about 3.5 times where it started.

Watkins gives us a hint that he means that the interest rate destabilized after President Nixon severed the last link to gold in 1971. He says, “…[the] U.S. government cut its remaining ties to gold in 1971. The volatile inflation and interest rates that followed…”

So let’s look at the interest rate for the full period of rising rates, up to the peak hit in 1981.


We can see that it does indeed get worse after Nixon’s ill-conceived act. However, it is just a continuation of the same trend that had been underway since 1946. It’s a combination of rising interest rates with rising interest rate volatility. Both phenomena inflict damage on the economy.

Watkins claims, “Part of the credit for this [interest rate] stability goes to monetary policy.” He thus contributes—I assume unintentionally—to the myth of monetary central planning.

Myth: central planners were successful for decades, delivering a strong and stable economy. They can do it again. So if our present planners are not getting it right, then we just have to hire the right people.

If our civilization is to have a future, then this myth must come down!

In recent decades, most people believed that Fed Chairmen Greenspan and Bernanke administered a strong and stable economy. They called it “the great moderation”. Of course, this view ended with a crash in 2008, along with the markets.

Watkins reinforces the myth in his subsequent discussion of regulation and the savings and loan crisis. He says that New Deal regulation, “collapsed under the pressure of bad monetary policy from the Federal Reserve…” The very phrase “bad monetary policy” implies that there is such a thing as good monetary policy.

There is no such thing as good monetary policy.

There is no such thing as effective monetary policy, or monetary policy that does no harm. There are only the times when most people see no overt symptoms, when they don’t realize the damage being done. And there are times of pain, when reality takes hold again. Since monetary policy can have lags of decades, most people do not know how to ascribe the blame properly.

One economic indicator that may make the postwar economy appear strong is Gross Domestic Product. GDP quadrupled from 1946 to 1969. Unfortunately, GDP is not a measure of the quality of economic activity. A fever is not a measure of the quality your health, but merely the quantity of calories your sick body is burning. Similarly, GDP is not a measure of the quality of the economy, only the quantity of dollars turned over.

GDP should be understood to be a measure combining destruction plus production. Government waste is added to private activity. And of course, not all private activity is productive. GDP does not distinguish between the squandering of precious capital during false booms and the genuine productive enterprise. It also includes many other wasteful activities, such as regulatory compliance.

A rapidly-rising GDP does not necessarily mean the economy is healthy or stable. In fact, it was not in the postwar period.

One subtle but deadly problem was described by economist Robert Triffin in 1959. Rational domestic fiscal policy was in conflict with international demand for the US dollar, used as their monetary reserve asset. The US was obliged—and happy to oblige—to run greater and greater budget deficits. Triffin knew that a crisis was inevitable. It came under the Nixon administration.

I want to pick on a phrase that feeds—again I assume inadvertently—into the anti free market, anti gold standard myth. Watkins uses the passive voice to say that the classical gold standard “had fallen apart during World War I…”

Most people today, if you press them, will tell you that that a free market contains the seeds of its own destruction. “Falling apart” is precisely what they fear will happen when a free market is unregulated, uncontrolled, and not centrally planned. That’s why they want regulators and central planners.

It needs to be said again and again. No. The classical gold standard did not fall apart!

It was killed by government. In 1913, the Federal Reserve was created. That altered the gold standard the way drinking a bottle of wine alters consciousness. If a drunken worker drives a bulldozer through a house, no one says that “the building had fallen apart.” In addition to the Fed in the U.S., the governments of Britain and Germany and other belligerent powers suspended the gold convertibility of their currencies in 1914.

Many people blithely say that the gold standard fell apart. I say, again, it did not.

After the war, the victorious countries claimed they were returning to the gold standard, but instead they created a pseudo gold standard. As everyone knows now, it didn’t work. At least one economist, Heinrich Rittershausen, knew in advance. He warned that this dysfunctional monetary system would cause a great unemployment.

We, the advocates of liberty, will only succeed if we are rigorous. We must know the facts we present in our writings, and our theories must take these facts in account. Otherwise, we may get a hosanna from the choir, but we will not persuade the mainstream. False facts will not win people who have studied the field.

Objectivism is the philosophy which reveres facts and integrates facts into theories which explain reality.

The fact is that since at least 1913, we have not had capitalism (and there was not a free market in banking in 1912, or even in 1812). Instead, since 1913, we have had a central bank. The Fed has been taking for itself more and more power over the decades.

Our central bank administers the interest rate. Interest, being the price of money, affects every other price and every economic decision in the economy. Distorting interest can have terrible consequences, which can come decades later.

More importantly than deregulating—and that is very important—we need to end central planning. The collapse of the Soviet Union proved that even corn production cannot be centrally planned. Corn is a simple product. You put seeds in fertile ground, wait for sun and rain to do their thing, and then harvest it. Yet the Soviets starved.

We are smart enough to know that we can’t centrally plan corn. However, we think we can centrally plan the most complex of man’s products: credit.

We must talk about this in plain language. The gold standard of a freer era did not just collapse, without cause. Power-lusting, war-mongering governments killed it to do away with the discipline it imposed. Then, free from this constraint, they marched men off to worldwide wars twice in 30 years (no, I am not saying that the US had the same moral stature as the European belligerents).

Towards the of the second world war, the US forced the allied powers to agree to a new monetary order at Bretton Woods. The architect of this vicious scheme was Harry Dexter White, a communist and tool of the Soviet Union. Ever since then, the worldwide monetary system has been dominated by the Fed. And the US has been abusing what Valéry Giscard d’Estaing, the French Minister of Finance in the 1960’s, called the “exorbitant privilege”.

The Fed’s central planning could not possibly have delivered stability, as any rational theory tells us. The Fed’s central planning did not in fact deliver stability, as any rational reading of history shows us.