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What is Wealth Destruction? (part 1 of 5)
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There are three essential elements to understanding wealth creation and it’s counterpart wealth destruction.
- Understanding how capitalism was interwoven into the fabric of the United States by the group of men known as The Founding Fathers.
- Understanding the basic concepts of the U.S. monetary system, how it has changed over time, and how it works today.
- An introduction to the mathematics of Cascading Effects referred to by Gladwell (2002) in The Tipping Point, The Black Swan Taleb (2007) and more generally by mathematicians as Catastrophe Theory.
Capitalism and the Founding Fathers
The 5000 Year Leap (Skousen, 2006) details the 28 principles that the Founding Fathers felt were the keys to guiding the behavior of people through government. None of these principles were the invention of this group trying to build a country from scratch. They carefully selected ideas from great minds of the past. The first principle was that of natural law and comes to us from Marcus Tullius Cicero (106-43 B.C.) For example:
The concept of UNALIENABLE RIGHTS is based on natural law.
The concept of HABEAS CORPUS is based on natural law.
The concept of LIMITED GOVERNMENT is based on natural law.
The concept of SEPARATION OF POWERS is based on natural law.
The concept of CHECKS AND BALANCES to correct abuses by peaceful means is based on natural law.
The right of SELF-PRESERVATION is based on natural law.
The right to CONTRACT is based on natural law.
The concept of JUSTICE BY REPARATION or paying for damages is based on natural law.
The right to BEAR ARMS is based on natural law.
The principle of NO TAXATION WITHOUT REPRESENTATION is based on natural law.
These examples serve to illustrate how extensively the entire American constitutional system is founded on natural law. An important concept to take form these laws is that the designers of the US system of constitutional law felt very strongly about exactly what the government should not do.
Our current administration has made it clear that they do not share the views of our Founding Fathers on the redistribution of wealth. The president has stated that the redistribution of wealth is one of his primary goals. The founding fathers believed that the government should protect equal rights, not provide equal things. Samuel Adams declared the ideas of a welfare state were unconstitutional:
The utopian schemes of leveling [redistribution of the wealth], and a community of goods [central ownership of all the means up production and distribution], are as visionary and impracticable as those which invest all property in the Crown. [These ideas] are arbitrary, despotic, and, in our government, unconstitutional. (The Life of Samuel Adams, Wells, 1865)
Central to these ideas is the freedom to try, the freedom to buy, the freedom to sell, and the freedom to fail. The authors of or constitution and our form of government wrote a series of principles that they used to pen the original document. The 15th principle is: The Highest Level of Prosperity Occurs When There Is a Free Market Economy and a Minimum of Government Regulations.
The ideas for a free market economy were based on The Wealth of Nations (Adam Smith, 1776) and the formula called for the following:
- Specialized production - let each person or corporation of persons do what they do best.
- Exchange of goods takes place in a free market environment without government interference in production, prices, or wages.
- The free market provides the needs of the people on the basis of supply and demand, with no government imposed monopolies.
- Prices are regulated by competition on the basis of supply and demand.
- Profits are looked upon as the means by which production of goods and services is made worthwhile.
- Competition is looked upon as the means by which quality is improved, quantity is increased, and prices are reduced.
Nowhere on earth, were these principles being practiced by any nation of size or consequence. The United States was the first people to undertake the structuring of a whole national economy on the basis of natural law and the free-market concepts of Adam Smith. The founding fathers agree with Adam Smith that the greatest threat to economic prosperity is the arbitrary intervention of the government into the economic affairs of private business in the buying public. Nevertheless, there are four areas of legitimate responsibility, which properly belong to the government. These involve the policing responsibilities of government to prevent:
- Illegal force in the marketplace to compel purchase or sale of products.
- Fraud in misrepresenting the quality, location, or ownership of the item being sold or bought.
- Monopoly which eliminates the competition and results in restraint of trade.
- Debauchery of the cultural standards and moral fiber of society by commercial exploitation of vice.
Central to the idea of the wealth of a country is its currency. At the Constitutional convention, the founders determined that they would make the American dollar, completely independent of any power combination of powers outside of the American people. They therefore stated in the Constitution that the Congress would have the power “to coin money, regulate the value thereof, and of foreign coin…” (Article I, Section 8, Clause 5). All money was to be coined in precious metal. Paper notes were to be promises to pay in gold or silver, not legal tender as such. States were strictly for Britain to allow debts to be paid except in terms of gold or silver (Article I, Section 10). Washington's stated:
We should avoid… the depreciation of our currency; but I can see this in would be answered, as far as might be necessary, by stipulating that all money payments should be made in gold and silver, being the common medium of commerce among nations. (Writings of George Washington, Fitzpatrick, 1931)
Through a series of policy errors the issuing of money was turned over to private consortium of bankers, who set up a privately owned bank called the Bank of the United States. The indignant protest of Thomas Jefferson can be heard across the vista of 200 years:
If the American people ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied. (The Story of Our Money, Dwinell, 1946)
At the time we were funding our national debt, we heard much about “a public debt being a public blessing”; that the stock representing it was a creation of active capital for the alignment of commerce, manufacturers, and agriculture. This paradox was well adapted to the minds of believers in dreams (Writings of Thomas Jefferson, Bergh 1907)
These are the words of our Founding Fathers – but how does it work now? President Obama is convinced that Roosevelt had the answer to the Depression of the 1930’s with the intense spending programs of the New Deal. History teaches us that Roosevelt owned key responsibility for the Depression of the 1930’s through the New Deal, the promotion of labor unions, and his first act Sunday March 5, 1933 - FDR closed all the banks and when they reopened they were forbidden to pay in gold. He effectively transferred all the gold of the United States to a private banking consortium called the Federal Reserve Bank.
On Tue March 4, 2009 President Obama’s press secretary Robert Gibbs made a couple of very telling comments. I’ll paraphrase since I don’t have a transcript.
He said – We have learned that what is good for Wall Street is not necessarily good for Main Street.
That has been a common theme for the administration. It shows what a complete lack of comprehension they have of a society based on free market principles.
The other comment he made was – The president has to be more concerned with the whole population not just the investor class.
Take a second to really understand what he said. Really? He could not be serious or could he?
- Who are the investors in the United States “Investor Class*?
- Anyone with a 401K, mutual fund or stock account of any type.
- Anyone with a home or property.
- Anyone with a bank account that pays interest.
- Anyone that owns a business of any type in the U.S.
Unfortunately, the focus of this administration is the redistribution of wealth and the result is and will continue to be the largest wealth destruction ever seen. If you have not done so already, Obama proof your portfolio today - the worst is yet to come.
References
Gladwell, M., (2002), The Tipping Point, Black Bay Books, NY.
Rockwell, L., (2009, Feb), Obama’s wealth destruction, retrieved February 21, 2009 from http://mises.org/story/3331
Skousen, C (2008), The 5000 Year Leap, National Center for Constitutional Studies.
Taleb, N., (2007), The Black Swan, Random House NY.
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