Archaic Financial Freedom
The mainstream press is still full of articles about the alleged evils of cash, which we regard as a typical “trial balloon” launched by the powers-that-be. The way this works is that they get a repressive measure they indent to implement out there, not only to propagandize in its favor, but also to gauge the reaction of the serfs. Is there an outcry? Does anyone care? If not, they quietly go forward with putting the measure into practice. If there is a great deal of pushback, they will simply wait for a better opportunity. A useful emergency always comes along after all. The Charlie Hebdo attack in France is a pertinent recent example: Under the false pretext that this is needed to “fight terrorism”, all cash transaction exceeding €1,000 have been banned in France.
German daily Frankfurter Allgemeine Zeitung, has recently published an article about the “hoarding of cash” by citizens of Switzerland and the euro zone. With interest rates either at zero or negative, the cash currency component of the money supply has increased significantly, as more and more citizens prefer to hoard money under the proverbial mattress. The new European “bail-in” regime, so vividly demonstrated in Cyprus, is a major motive as well. Most recently, Greek citizens have resorted to withdrawing their deposits, with mainly small savers withdrawing cash (large depositors are more likely to simply transfer money to other parts of the euro area that seem safer).
While the article is written in a fairly value-neutral tone, it does mention that the negative interest rate policy of the SNB is hampered by people withdrawing their money from banks. And of course, “hoarding” is always regarded as an unmitigated evil, so the use of this term alone indicates that one should disapprove of this attempt by the citizenry to escape wanton confiscation (we have posted an article a while back in which we explain why contrary to the current Keynesian economic orthodoxy, “hoarding” is not a problem for the economy at all. See “Are US Consumers Evil Hoarders?” for details). So there is a subtle propaganda undertone pervading even this seemingly sober report.
We recently reminisced about the 1980s, when we once opened an account with a German bank. We queued at the cashier’s desk, and when it was our turn, we offered to show our passport to the cashier. He asked: “What do you want to show me your passport for?” “Well”, we replied, “we want to open an account with you.” The cashier remarked to this: “We are not the customs office. There is no need to show us your passport, just fill in the form.” The form was about half a page long and asked for the most rudimentary information. It turned out that it wouldn’t even have been necessary to show up at a bank branch office in person – we could have opened the account by mail as well. Today such a degree of financial freedom appears positively archaic. One almost feels like a criminal just reminiscing about how things once worked.
One Intervention Never comes Alone
Thinking about the ever-growing burden of government intervention in the economy and the increasing regimentation of the citizenry with ever more draconian laws to allegedly ensure its “safety”, we were reminded of Ludwig von Mises’ book Omnipotent Government, published in the mid 1940s. In it, Mises inter alia explains how price controls – unless the government abandons them upon realizing that they don’t work as intended – will inevitably lead to socialism:
“Under a market not manipulated by government interference there prevails a tendency to expand the production of each article to the point at which a further expansion would not pay because the price realized would not exceed costs. If the government fixes a maximum price for certain commodities below the level which the unhampered market would have determined for them and makes it illegal to sell at the potential market price, production involves a loss for the marginal producers. Those producing with the highest costs go out of the business and employ their production facilities for the production of other commodities, not affected by price ceilings. The government’s interference with the price of a commodity restricts the supply available for consumption.
This outcome is contrary to the intentions which motivated the price ceiling. The government wanted to make it easier for people to obtain the article concerned. But its intervention results in shrinking of the supply produced and offered for sale.
If this unpleasant experience does not teach the authorities that price control is futile and that the best policy would be to refrain from any endeavors to control prices, it becomes necessary to add to the first measure, restricting merely the price of one or of several consumers’ goods, further measures. It becomes necessary to fix the prices of the factors of production required for the production of the consumers’ goods concerned. Then the same story repeats itself on a remoter plane. The supply of those factors of production whose prices have been limited shrinks. Then again the government must expand the sphere of its price ceilings. It must fix the prices of the secondary factors of production required for the production of those primary factors.
Thus the government must go farther and farther. It must fix the prices of all consumers’ goods and of all factors of production, both material factors and labor, and it must force every entrepreneur and every worker to continue production at these prices and wage rates. No branch of production must be omitted from this all-around fixing of prices and wages and this general order to continue production. If some branches were to be left free, the result would be a shifting of capital and labor to them and a corresponding fall in the supply of the goods whose prices the government has fixed. However, it is precisely these goods which the government considers as especially important for the satisfaction of the needs of the masses.
But when such a state of all-around control of business is achieved, the market economy has been replaced by a system of centralized planning, by socialism. It is no longer the consumers, but the government who decides what should be produced and in what quantity and quality.”
In short, the interconnectedness of the economy’s structure of production means that an intervention in the price system can never remain isolated. Its inevitable failure must lead to further consequences. Ideally, the intervention is abandoned. However, government rarely works that way. Thus, if price controls are introduced for a consumer product, price controls must also be introduced for the products made in the stages of production preceding this consumer product. But even if the entire chain of production involved in the making of a specific consumer product is thereby put under government control, the problem is still not solved from the interventionist perspective.
If prices in one sector are administered by the bureaucracy, more and more capital will leave this sector and seek out opportunities elsewhere. In the end, the bureaucrats will administer an empty shell, and shortages of the good that was the initial target of price controls will be worse than ever. The only logical next step is once again to either abandon the price controls, or expand government controls over industry even further. In the end, there will no longer be a market economy: government will control everything and full-scale socialism will have been imposed – if not in name, then certainly in practice.
Waking Up in a Fascist Prison
Today we can observe this “logic of interventionism” at work in practically every sphere of life. Think about the NSA and its ubiquitous spying. Once upon a time, intelligence agencies tried to obtain specific information by specific means largely in line with legal, above all constitutional, constraints (violations of these constraints undoubtedly occurred, but at least it was clear that they were violations). Today these agencies have arrived in their on version of full-scale socialism.
The STASI – buttonhole camera – a little inconvenient in situations when you had to take off your coat …
Photo credit: W.D.Roth
Not unlike the Stasi of Eastern Germany, they assert that they need to know everything about everybody. Hence, they must put the whole world under constant surveillance in order to “keep us safe”, and in an example of an Orwellian perversion of language, to allegedly “preserve our freedom”. Somehow they have neglected to mention who will keep us safe from them.
Every year, a veritable avalanche of laws and regulations is enacted in the countries of the so-called “free world”. Much of this legislation comes in the form of so-called administrative law. First parliaments vote in favor of a new law – with legislators usually not even finding the time to read the contents of the bills they are voting for – and then the State’s bureaucracies are tasked with formulating the detailed regulations, which of course have the force of law as well. There is no democratic oversight of these processes, because that is physically impossible. How does one “democratically oversee” the creation of tens of thousands of pages of new regulations? Consider e.g. the telephone directory-sized Dodd-Frank Act, which we have previously discussed in these pages. At the time the detailed regulations were about 40% finished, they comprised nearly 14,000 pages. By the time this thing is “ready for action”, it will amount to an entire library of telephone directories. Will it make the financial markets safer? It will likely do the exact opposite, by creating an unwarranted sense of complacency.
Cartoon by Nate Beeler
The constant avalanche of regulations has seeped into every nook and cranny of our lives. Whether it is the amount of water that is allowed to pass through a shower-head every minute, or the emasculation of toasters and vacuum cleaners – we are in the middle of a process of bureaucratic de-civilization. There are now so many laws and regulations on the books, that not even highly specialized experts are able to interpret them anymore, even within their own field of expertise (one can easily test this by asking ten different experts about the same topic. Chances are one will end up with ten different opinions). This obviously opens the door wide for abuse, since not even knowledge of the law can ensure that one will be able to obey its intent – and ignorance of the law is in any event not accepted as a defense. As Bill Bonner recently pointed out, these days “everybody is a criminal”.
The most pernicious trend has been set into motion in the context of allegedly keeping us safe from terrorists, who in terms of the actual danger they represent might as well not exist. It is of course terrible when a terror attack occurs and there are a handful of cases when the toll has been high, but as a rule, our perceptions are skewed by the fact that these events are getting enormous media attention. By contrast, the far higher death toll from e.g. simply crossing the street, drowning in one’s own bathtub, or falling over a misplaced piece of furniture is getting no attention whatsoever. In most cases, terrorism is of course only a pretext anyway, especially in the context of the ever more comprehensive loss of financial privacy.
How did we progress to the point at which even the banning of cash currency is discussed? As Robert Prechter correctly remarked in his assessment of Willem Buiters screed (in which the latter argued that cash should be banned to make it easier for central banks to steal the funds of savers by imposing negative interest rates):
“He says libertarians–people who champion the far-out-of-fashion value of liberty–should “take one for the team.” But central bankers and governments are not some team. They are grasping, corrupt, dissolute, self-interested rulers. This is like slave-owners telling their newest acquisitions to turn in all their production to the slave-master for the good of the team. Go, Slaves! America’s Team!”
The very same principle holds true for all other efforts that end up curtailing liberty under the pretext of making society safer or improving it by assorted social engineering measures. Those enacting such laws represent the State, and “we” are definitely not the State. As Prechter says, it consists of “grasping, corrupt, dissolute, self-interested rulers”. Their main interest these days is apparently in creating all-encompassing Orwellian control over the serfs, all the while pretending that this is in the latter’s “best interest”.
The imposition of all the these laws and regulations hasn’t happened all at once. Similar to Mises’ example of how price controls, if pursued to their logical conclusion, must lead to the adoption of socialism, one or two new laws intended to improve our safety can never be enough. There will always be some things that remain out of control, spheres of freedom that criminals might abuse to their advantage. One could always make life easier for the executive if one were to restrict those as well.
Photo credit: Igor Normann
A salami tactic is therefore employed, not least because this ensures that there will be little protest. A new law or regulation may not be seen as overly onerous in isolation. The average citizen may well think – if he or she is even aware of the adoption of a new law: “Oh well, it is a bit creepy” or “it does make life a bit more difficult”, but “if it helps to keep us safer/more prosperous/more free/saves the planet, I can put up with it”. And so one freedom after another is taken away. If pursued to its logical conclusion, no freedom will be left in the end.
Eventually it won’t even be necessary anymore to put anyone in prison for having violated this or that law; instead, one can simply build a wall around the whole country and put a roof atop, and let the newly militarized police patrol it. At least we will be perfectly safe at that point.