Thursday, April 2, 2009

When Empires Fall - George Santayana

No one rings a bell when an empire falls. No one sends out an alert when an empire decays. Most of the people who live in such nations continue to live their normal lives. They think that life will go on as before. Two thousand years ago, Romans numbed their minds by watching circuses and gladiators. Today, Americans numb their minds by watching sports, "Dancing With The Stars," and "American Idol." Only the external appearances differ. The fundamentals are the same. Is America asleep? I fear it to be so.

In my newsletter, I have written extensively about the move toward dumping the dollar as the world's reserve currency. It might not happen this week (when the G-20 meeting takes place). However, it will happen. When an empire's currency falls, the empire falls. No exceptions.

On March 30, 2009, President Obama fired the CEO of General Motors, once the greatest of all American corporations. Think about it. The federal government now dictates who should, or should not, serve as the CEO of a PRIVATE CORPORATION. Representative Barney Frank has now proposed legislation which would allow the federal government to set ALL SALARIES OF ALL EMPLOYEES of companies which have accepted federal financial assistance. What do you think that Thomas Jefferson and James Madison would say about that? What would they do?

I have no sympathy for Mr. Wagoner, the CEO of GM. No one should excuse the stupidity of GM's management. They made just about every bad business decision which could have been made. However, bad business decisions do not go unpunished in free markets. The free market would have disposed of Mr. Wagoner and GM quite well. If we had free markets, GM would have gone bankrupt months ago. The "good" parts would have been bought, and the bad parts would have been liquidated. Instead, as a practical matter, the United States government will now run the company. Welcome to GM: Government Motors.

I fully realize that many Americans do not care any more, but there is no Constitutional authority for what Mr. Obama has done with GM. None. If you haven't read the Constitution lately, perhaps you might consider doing so now. Let me know if you see anything which would allow a federal politician to force a CEO of a private corporation to resign. If you do not think that the Constitution is important, perhaps you would prefer to live in a world in which politicians decide what is legal as the mood strikes them. After all, it's for the greater good.

Now that GM will be run by bureaucrats from Washington, it will be interesting to see what kinds of "free market" business decisions they will make. What will they do about all their labor union friends in the UAW? Will they mandate job cuts? That wouldn't be a big vote-getter, would it? Will they allow GM to manufacture the kinds of vehicles that the public wants, or will they dictate what kinds of vehicles must be made? I'm betting that the government will do the same stellar job with GM that it has done with AMTRAK. Bring back the Yugo!

I suspect that very few modern Americans have ever heard of the Roman Emperor Diocletian. Thank our public education system for that. In the early third century A.D., Diocletian had a currency crisis on his hands. The Roman coinage had been debased to such an extent that inflation was running rampant. Even though this had been caused by the government, Diocletian blamed "profiteers" and "speculators." In 301 A.D., he imposed The Edict on Maximum Prices. He forbade merchants from raising prices. He set wage controls. Those who refused to abide by the price controls were subject to the death penalty. At the same time, Diocletian continued his policy of minting large quantities of coins of low precious metals content, thus causing increasing monetary inflation.

What happened? Normal business activities ceased. A huge black market arose. A barter economy grew. The official Roman currency increasingly became worthless. The Roman economy did not stabilize until years later. Rome lasted a while longer. It wasn't sacked by the barbarians until about 100 years after Diocletian. However, under Diocletian, the empire had embarked upon the road to debasement. There is a lesson in all of this, although it is clear that our current leaders will not heed it. Humanity has been at this fork in the road in the past. The Romans took the wrong turn, and our current leaders seem likely to do the same.

Our current problems are not the result of too much free market capitalism. To the contrary, we have had too little free market capitalism. We live in a society in which the Fed, a central bank, sets certain important banking interest rates. An interest rate is the price of money. Setting interest rates by central planning committee is a form of imposing price controls. If we lived in a free market economy, ALL interest rates would be set by free market forces. Most of our current problems have happened because central planners artificially set low interest rates. This, in turn, sent a false message to borrowers about the price of money, and it ignited the biggest real estate bubble in world history. We are now paying the price.

When central government planners interfere with private businesses by hiring, firing, setting wages, and dictating industrial policies, they are attempting to do the same things which failed when Diocletian tried them more than 1,700 years ago. Our present leaders think that there is no aspect of the economy which government planners should not attempt to control. The only way one can entertain such a belief is to ignore the clear lessons of thousands of years of history.



"Those who cannot remember the past are condemned to repeat it."

Article by George Santayana

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