WEST RIVER, MARYLAND – Recently, The New York Times opened up with alarming news:
The Rich Kids Who Want to Tear Down Capitalism
Lately, Sam Jacobs has had a lot of conversations with his family’s lawyers. He’s trying to gain access to more of his $30 million trust fund. At 25, he’s hit the age when many heirs can blow their money on harebrained businesses or a stable of sports cars. He doesn’t want to do that, but by wealth management standards, his plan is just as bad. He wants to give it all away.
“I want to build a world where someone like me, a young person who controls tens of millions of dollars, is impossible,” he said.
A socialist since college, Jacobs sees his family’s “extreme, plutocratic wealth” as both a moral and economic failure. He wants to put his inheritance toward ending capitalism…
For what it is worth, we agree with Mr. Jacobs. It would be a better world if lamebrains like him never had control over large amounts of money.
A warning to parents!
But all parents die. And their wealth goes to someone else. Under “capitalism” – a “system” developed by trial and error over many centuries – even morons occasionally end up with a lot of money.
But capitalism insists that fools and their money be soon separated. So relax, Mr. Jacobs. No major overhaul is necessary. “Capitalism” will give you not necessarily what you want, but at least what you deserve.
And what’s the alternative? Something more “scientific,” perhaps?
This week, we are exploring the fallibility of science. To bring new readers into the picture, basing public policy on “the science” is asking for trouble. Science is not only fallible; it quickly becomes another tool for the elite to rob the common man.
Today’s elites went to the best schools and pretend to have access to “the science.” They will tolerate no doubts.
Mr. Jacobs knows for a fact that it is wrong for some people to have a lot more money than others. He also probably knows all about the “patriarchy” and how it exploited and oppressed people of color for centuries.
He must be enlightened on environmental science, too; he knows the planet is in danger, and he must save it.
And what he doesn’t know about gender… unequal pay… and politically correct pronouns… is, well, not worth knowing.
As we’ve seen, the elites use this conceit of knowledge to silence critics of their anti-COVID policies… their Global Warming hypothesis… their wars on poverty and drugs… and their faddish “social” science doctrines – diversity, racism, equality, and so on – always claiming that there is some “proof” that these things are not just opinions… they are “facts!”
And Mr. Jacobs brings us to our own little corner of the loopy world – money.
And first, we note that money is not only what makes the nag run, it’s what keeps her from making a fool of herself. Money limits as well as enables.
There are always some people who are smarter, faster, more ambitious – a natural elite. Government attracts them like rich widows attract gigolos.
But what holds them back? What keeps them in check?
Real wealth is created by real people, who furnish goods and services to each other. It’s limited.
In modern societies, the elites can get money by taxing or borrowing. But they run into limits very quickly. Tax too much, and the voters toss you out. Borrow too much, and interest rates rise, “crowding out” the private borrowing needed to produce goods and services.
In either case, until 1971, if the ruling class wanted more money, it had to go to the people’s representatives – in Congress. Back then, it was clearly the people’s money, and if the politicians wanted more of it, they had to have a good reason.
Naturally, the people – or their representatives – were skeptical. They asked questions. “Do we really need another war in the Middle East?” “Do those anti-poverty programs really work?” “We’re not sure we even want to go to Mars.”
That was the crucial link between the people and the government – the power of the purse – that restrained elite power.
Tearing Down Capitalism
That link was broken in the name of a new economic science – monetarism.
In the twentieth century, American economist Milton Friedman believed he had “cracked the code” of inflation. It was “always and everywhere” a monetary problem. And it could be eliminated, or so he thought, by controlling the money supply predictably and tightly.
Friedman proposed removing the gold backing from the U.S. dollar and replacing it with the good intentions and scientific rigor of the Federal Reserve.
The Fed was supposed to increase the money supply by 3% – no more, no less – each year, roughly equivalent to the rate of GDP growth.
Of course, the problem was not solved at all. It got worse – with the inflation rate rising to 14% in 1980.
Former Fed chair Paul Volcker brought inflation under control – for a while.
Then, as debt rose and more crises came along, the feds forgot all about Milton Friedman’s 3% per year rate.
In 2008, the U.S. “monetary base” was only $860 billion. Seven years later, it was over $4 trillion. That’s an increase of over 350% in seven years.
And today, the Fed is “printing” $30 billion of new money every week, adding to the money supply 10 times as fast as Friedman recommended.
And now, with the power to print as much of this new money as they want, the elites no longer need the permission of the people they are meant to serve.
Whatever cockamamie, reckless, and imbecilic thing they want to do – usually backed by some quack science – they can get the money to pay for it.
This change is fundamental… and fatal. It is what has allowed the elites to run wild – enriching themselves at the public’s expense…
…funding foolish wars and jackass social programs…
…and burying the U.S. economy – along with its households, businesses, and the government itself – under a mountain of unpayable debt.
And poor Milton Friedman.
Unwittingly, the champion of capitalism probably did more damage to free markets and to the U.S. government than any of the dim socialists of his era.
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