Dollar Bashing -- Overdone?

Sometimes the Wall Street Journal is a little too transparent in its editorial bias. Take the article, "Oil Is Up Because the Dollar Is Down" from page A13 of the May 23rd issue. Granted, this is a signed editorial by David T. King, not someone the Journal staff, but it faithfully reflects the viewpoint of the staff, which is that the European Central Bank is maintaining a strong euro through robust monetary policy, while the Federal Reserve is pursuing a weak dollar through lax policy. In King's view, this policy is to blame for high gas prices at the pump.

Mr. King points to the dollar-euro parity of 2002, when oil was selling at "about 25" dollars a barrel. He contrasts that with now, when a barrel of oil is running for "about 75 euros a barrel," a threefold increase, versus "over $120 a barrel" in the US, a fivefold increase. His conclusion: "The sole reason for this enormous difference is the incredible depreciation of the dollar against the euro." One can't argue with that. The differential is by definition the result of dollar depreciation. But one can certainly argue with the inferences he draws from this fact.

"If it wasn't for the falling value of the dollar, the price of gasoline wouldn't be an issue," he claims, adding that "It's to blame for the excessive price of gasoline, and now is pushing dangerously into wholesale price inflation, based on the most recent data published by the Labor Department."

This statement raised red flags for me, seeing as how I live in a euro-currency country -- the Netherlands -- and actually fill my car here with gasoline paid for in euros. In fact, I just filled up last Saturday. How much did I pay for a gallon of premium? Well, for a liter I paid €1.66. Convert that over to dollars per gallon, and you have $9.88. Hmmmmmm. Boy I'm glad I'm paying in euros! Otherwise, in dollar terms I'd be paying less than $4.00, or 2 1/2 times less. Which is roughly the ratio I've been familiar with ever since I can remember, and I've lived in the Netherlands since 1990. So the falling dollar hasn't helped me a bit as far as filling the tank's concerned.

This bias against Fed policy does not appear to be borne out by consumer price index data, either. Take this simple graph I made, contrasting US and EU CPI data against the background of the dollar-euro exchange rate (sources: exchange rate: Yahoo Finance, CPI data: International Monetary Fund Data Mapper [www.imf.org]):

Dollar depreciation was accompanied by US CPI gains between 2002 and 2007, while EU CPI remained stable. But in the last year-plus, EU CPI has jumped along with US CPI, nearly equalling it, even as the dollar has dropped further and the short-term interest-rate differential has widened (maybe I'll put that in a graph too at some point). So where is the correlation between spiking prices for the US as opposed to the EU? It hasn't been there, at least since 2007, when the dollar really tanked.

Dollar bashing is all the fashion, but don't get caught up in it, otherwise poor investment decisions could well follow -- that's my nugget of advice.

The Anti-Capitalist Mentality

The flip side to the "salvation by politics" view of reality I criticized in a previous entry is the anti-capitalist mentality, whereby capitalism is scapegoated, leaving Government (who else?) to come to the rescue of the oppressed masses.

In The Anti-Capitalistic Mentality, Ludwig von Mises enumerated a laundry list of reasons for this curious state of mind. There is, firstly, resentment, from a variety of sources. The transition from status society to capitalism bred resentment from those who by birth were others' betters, who occupied positions of leadership in society not by merit but by bloodline. In their view the "new man" could never efface the stain of his humble birth. But in a capitalist society the opportunity for social advancement is open to all, regardless of birth.

Similarly the resentment of the intellectual, who does not look askance at lineage or lack thereof but rather at cultural refinement. Capitalism enables those to advance who do not possess any apparent class or good taste. In fact, its commercialism positively favors the least common denominator, the mass-produced, common forms of culture, whether in art, literature, cinema, music, or what have you.

Resentment is also felt by those who for whatever reason feel as if they have been skunked by those who have done better or become more well-off. Educated professionals may feel as if their income does not match their true worth to society, and resent those who have been rewarded by that society, whose "achievements" may be trivial indeed on any scale of eternal values.

And, finally, resentment is felt simply by those who do not have what others do. Capitalism fosters not equality of outcome but equality of opportunity, but that distinction is lost sight of when envy takes root, and when its flames are fanned by demagogues using the political process to promise rectification of the alleged injustice, and to the degree that citizens are taken in by this prospect, ensuring for themselves an ever-expanding power base.

Mises has some interesting things to say about the entertainment elites, the stars who have made it big, and why they become anti-capitalist. It has to do with their utter dependence upon popularity. The hype which raised them to stardom could just as easily cast them into utter oblivion. They come to believe that in a communist or anti-capitalist system they would occupy positions of status without being subject to the whims of the entertainment marketplace.

This resentment and envy truly lies at the heart of the anti-capitalist mentality. How, then, did capitalism take root in the West? For, as Helmut Schoeck emphasized (Envy, 1969), it is this factor which has kept peoples and nations from economic advancement in the first place.

The answer lies in the atonement-oriented social order of Western civilization, otherwise known as Augustinianism. I have addressed this point in my book Common-Law Conservatism, and I work it out further in my book Covenant and Capital (forthcoming). The gist of it is, that all civilizations have tried to find a way to achieve atonement for the burden of guilt which they generate. And all civilizations generate guilt, for all civilizations are mired in sin -- the doctrine of original sin, for those of you who are ignorant of Christian theology. The problem is, guilt is conflated with debt. And indeed, guilt and debt are correlate phenomena, which is why many languages, including German and Dutch, use the same word for both. (And in fact the King James Version of the Bible (Matthew 6:12) translates Jesus' words as "forgive us our debts, as we forgive our debtors" -- the Greek word for debt [opheilema] being the same as for sin.) Now then, capitalism, being built on debt, is conflated with guilt-generation, guilt and debt being left undistinguished. Therefore the institutions of capitalism are not allowed to grow beyond a minimal level -- the one civilization in a greater degree, the other civilization to a lesser degree -- because the level of guilt (debt) they create is unbearable.

But the Atonement set forth in Augustinianism separates guilt and debt by separating atonement from the administration of justice. The Atonement is achieved once and for all through the work of Christ on the cross; the church administers the sacrament of Holy Supper as the celebration of that work. Thus atonement is removed from the repertoire of the organized political society, leaving the administration of justice and the capacity to enforce the regime of private law in the hands of the state. And this liberation, brought about by the Augustinian separation of church and state, allowed the civilization of capitalism to be engendered.

The "guilt" that capitalism engenders, debt, fuels the drive for atonement which underlies the religious fanaticism all civilizations have exemplified. For consider that it was the most capitalistic societies of the ancient world, the Phoenician and Carthaginian, which also exhibited the most blatant and revolting forms of the quest for atonement: child sacrifice.

The flip side of debt is interest, which then becomes the target of obloquy. The aristocrat Aristotle best formulated this criticism:

As this is so, usury is most reasonably hated, because its gain comes from money itself and not from that for the sake of which money was invented. For money was brought into existence for the purpose of exchange, but interest increases the amount of the money itself (and this is the actual origin of the Greek word: offspring resembles parent, and interest is money born of money); consequently this form of the business of getting wealth is of all forms the most contrary to nature (Aristotle in 23 Volumes, Vol. 21, translated by H. Rackham. Cambridge, MA: Harvard University Press; London: William Heinemann Ltd., 1944), ch. 1, sec. 1258a-b).

Taking offence at money begetting money -- interest -- lies at the heart of the anti-capitalist mentality. It lies at the heart of Marx's critique, for the capitalist simply skims the surplus value from the labor of the working man, rather than himself working to earn that value. Unearned income, that -- which is why capitalism is exploitative and why it must be overthrown. Eugen von Böhm-Bawerk, realizing this, set about defending interest precisely as earned income (see the introduction to his monumental Capital and Interest). His effort in the end may have proved unsatisfactory, but his motivation was unimpeachable.

Ultimately, the capacity for capitalism can only be found in the ability to separate atonement from justice, guilt from debt. It is this which then allows the regime of interest to be established, which is nothing other than the regime of private law -- the two are inseparable. (The concept of property premium makes this clear.) That is why capitalism is the product of the Augustinian West. And that is why it cannot be sustained if that civilization is allowed to be destroyed by multiculturalism, relativism, and a false doctrine of the neutrality of the state. For the "neutral" state, by abandoning the Augustinian distinctive, dismantles the separation of atonement and justice, and opens the door to the return of the politics of envy.

Chapter from Stahl, State Law and the Doctrine of State available

The introductory chapter to the translation (in preparation) of F.J. Stahl's State Law and the Doctrine of State has been published in the latest issue of Christianity and Society. The issue may be downloaded at the Kuyper Foundation website or purchased separately. For details see the Kuyper Foundation website.

Mises on Natural Rights

Ludwig von Mises, the great Austrian-school economist, had a way with words. In The Anti-Capitalistic Mentality he put them to especially good use. The following excerpt, from the section "Injustice" in ch. 4, "The Non-Economic Objections to Capitalism," absolutely skewers the claims of economic justice derived from the doctrine of natural rights. It repays, with dividend, close reading.

It is a gratuitous pastime to depict what ought to be and is not because it is contrary to inflexible laws of the real uni­verse. Such reveries may be considered as innocuous as long as they remain daydreams. But when their authors begin to ignore the difference between fantasy and reality, they be­come the most serious obstacle to human endeavors to im­prove the external conditions of life and well-being.

The worst of all these delusions is the idea that “nature” has bestowed upon every man certain rights. According to this doc­trine nature is openhanded toward every child born. There is plenty of everything for everybody. Consequently, everyone has a fair inalienable claim against all his fellowmen and against society that he should get the full portion which nature has allot­ted to him. The eternal laws of natu­ral and divine justice re­quire that nobody should appropri­ate to himself what by rights belongs to other people. The poor are needy only because unjust people have deprived them of their birthright. It is the task of the church and the secular authorities to prevent such spoliation and to make all people prosperous.

Every word of this doctrine is false. Nature is not bounti­ful but stingy. It has restricted the supply of all things in­dispens­able for the preservation of human life. It has populated the world with animals and plants to whom the impulse to destroy human life and welfare is inwrought. It displays powers and el­ements whose operation is damaging to human life and to human endeavors to preserve it. Man’s survival and well-being are an achievement of the skill with which he has utilized the main in­strument with which na­ture has equipped him—reason.

Men, cooperating under the system of the division of labor, have cre­ated all the wealth which the daydreamers consider as a free gift of nature. With regard to the “distribution” of this wealth, it is non­sensical to refer to an allegedly divine or natural principle of justice. What matters is not the allocation of portions out of a fund presented to man by nature. The problem is rather to fur­ther those social institutions which enable people to continue and to enlarge the production of all those things which they need.

The World Council of Churches, an ecumenical organi­za­tion of Protestant Churches, declared in 1948: “Justice demands that the inhabitants of Asia and Africa, for in­stance, should have the benefits of more machine produc­tion.”* This makes sense only if one implies that the Lord presented mankind with a def­inite quantity of machines and expected that these contrivances will be distributed equally among the various nations. Yet the capitalistic countries were bad enough to take possession of much more of this stock than “justice” would have assigned to them and thus to deprive the inhabitants of Asia and Africa of their fair portion. What a shame!

The truth is that the accumulation of capital and its in­vest­ment in machines, the source of the comparatively greater wealth of the Western peoples, are due exclusively to laissez-faire capi­talism which the same document of the churches passionately misrepresents and rejects on moral grounds. It is not the fault of the capitalists that the Asiatics and Afri­cans did not adopt those ideologies and policies which would have made the evolution of autochthonous capitalism possi­ble. Neither is it the fault of the capitalists that the policies of these nations thwarted the attempts of foreign investors to give them “the benefits of more machine production.” No one contests that what makes hundreds of mil­lions in Asia and Africa destitute is that they cling to primitive methods of production and miss the benefits which the employ­ment of better tools and up-to-date technological designs could be­stow upon them. But there is only one means to relieve their distress—namely, the full adoption of laissez-faire capitalism. What they need is private enterprise and the accumulation of new capital, capitalists and entrepreneurs. It is nonsensical to blame capitalism and the capitalistic nations of the West for the plight the backward peoples have brought upon themselves. The remedy indicated is not “justice” but the substitution of sound, i.e., laissez-faire, policies for unsound policies.

It was not vain disquisitions about a vague concept of jus­tice that raised the standard of living of the common man in the capitalistic countries to its present height, but the activi­ties of men dubbed as “rugged individualists” and “exploit­ers.” The poverty of the backward nations is due to the fact that their poli­cies of expropriation, discriminatory taxation and foreign ex­change control prevent the investment of for­eign capital while their domestic policies preclude the ac­cumulation of indigenous capital.

All those rejecting capitalism on moral grounds as an unfair system are deluded by their failure to comprehend what capital is, how it comes into existence and how it is maintained, and what the benefits are which are derived from its employment in production processes.

Who Cares About "Retaining Power"?

I am getting soooo disgusted with politicians these days. Case in point: I was reading a Mike Gallagher commentary on John McCain over at Townhall.com (link). Gallagher was interviewing David Frum, whom he claims makes a good case for John McCain as "possibly the perfect GOP candidate in an ever-changing country" over against "torchbearers of conservatism like Ann [Coulter] and Rush Limbaugh and others who believe that the real peril is in Republicans even considering moving one inch to the center." (As if it was all simply a matter of linear displacement -- quantitative, not qualitative, distinction.) Frum's clinching argument: "if the GOP has any chance of retaining power in D.C., the party should realize that this isn’t our father’s Republican Party anymore."

And there you have it. The bottom line in politics and with politicians and with beltway pundits and various and sundry satellites orbiting Washington is this: "retaining power." All else must serve the goal of "retaining power." Nothing is more important than "retaining power." Ideas, principles, interests, all must bow to "retaining power." Is there anything that is not subservient to "retaining power"?

My conclusion is that party politics is destroying conservatism just as it destroyed Christianity in the Netherlands. Why bring up the Netherlands? Because it is an entirely apropos case in point. After the Netherlands established a, for all practical purposes, godless atheistic state in the 19th century, conservative Christians developed an ideology and an institutional framework for participating within that "neutral" structure. Abraham Kuyper pioneered an ostensibly Christian version of participation within the neutral democratic state, which was and is unique to the Netherlands. In tandem with his establishment of an independent church denomination (the Gereformeerde kerk, in opposition to the established Hervormde kerk) he established a new political party, the Anti-Revolutionary party (ARP), closely allied to this denomination. When he became Prime Minister of the Netherlands, he and the ARP led the charge for establishing state funding for Christian education, whereby a group of parents could establish a school according to their beliefs and receive state funding for it. The system has become part of the structure of the Dutch way of life. There were other expressions of this "denominalization" of public life as well, as church denominations -- and other groupings: socialists, humanists, and the like -- each had their own newspaper, their own radio and TV (shared out under government auspices), their own sports clubs.

All of this led to the balkanization of Dutch society (verzuiling). Which would be bad enough in itself. But it also led to something worse. Dutch Christians were convinced that the best way to bring the Christian influence to bear on public life was through the ballot box, that political organization within the framework of the neutral state was the only viable alternative within a secularized framework. But what has happened is that the influence has gone all in one direction. There was a pipeline established between the church and the government via the political party. But that pipeline had valves opening in only one direction. All the influence went from the government, and from the state, to the church, deforming and undermining the church to the point that the church became the mirror image of the fashionable politics of the day, completely sold out to the secular, godless, pro-death, pro-dependency, pro-victimization, pro-multiculturalist, pro-earth-worship welfare state. And the role of Christian political parties is not to make the state listen to the church and the Christians, but to make the church and the Christians listen to the fashionable cultural power elite in Hilversum (where the media resides) and The Hague (where the politicians reside)!

The bottom line is that party politics is destroying Western civilization. And this should not be surprising. Politicians do not get elected to represent the citizenry in government, they get elected so as to represent government to the citizenry. They have a vested interest in government and the power of government. They exist to bolster and strengthen government. They are an interest group like any other. That is why, for them, power is the be-all-and-end-all. That is why they are not to be trusted. That is why they always disappoint when in power: because they promise the world in order to get elected, and blame everyone else in order to stay elected.

They then turn to scapegoating, which is the mode du jour for politicians. The fault always lies elsewhere, even when it is plain to see that the fault is of the politicians' own making. Oil is now the scapegoat for both the energy and the environmental crises, both of which are faux crises created by politicians for the purpose of growing government.

How long will citizens go along with this? Who knows? Will Rogers once said "This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer" (my thanks to a Townhall poster for that quote). One thing that has to be realized is that politics is out of control. Constitutional reform is required to put the brakes on it. Friedrich von Hayek realized this and in his monumental Law, Legislation, and Liberty proposed constitutional reform as well as a renewed strengthening of private law as bulwarks against politicians gone wild.

Ultimately, though, constitutional reform will have to embrace the notion that there is no neutrality, that a confession of Christianity will have to be made in order to anchor law and the state in absolute, transcendent, unchanging principles, so that power can be put under control. The ballot box is not enough: there must be ground rules outside of which politicians and government cannot go. The natural-rights framework for restricting the power of the state has proven bankrupt; it cannot restrict because it keeps providing new pretexts for government expansion! Alexander Hamilton realized this when he proposed the establishment of a Christian Constitutional Society in 1802 -- yet another reason for his unjust vilification.

Stahl's pithy aphorism puts it best: "Authority, Not Majority." As he himself explained: "The opposition of authority and majority, which I made use of in my answer to an entirely unexpected attack from Bassermann (Erfurt, April 15th, 1850; cf. my Reden, p. 86) has since then been the catchword even for the opposing parties, a sign that it struck the focal point of the political struggle in our time. However, this had its final ground in nothing other than whether the ruling authority is from God or from men" (State Law and the Doctrine of State, forthcoming, WordBridge Publishing).

We appear to be heading into a "Perfect Storm" of left-wing control of government, regardless of political party. Not surprising -- ultimately, all political parties exist to ensure their own survival! May the havoc they wreak serve to discredit the putative messianic power of government once and for all. If only the churches had the nerve to pray thusly.

Economic Practice versus Economic Theory

It's a good thing practice and theory are two different things. If practice had to conform to theory, capitalism never would have gotten off the ground. Economic theory has been positively criminally negligent in its lack of capacity to deal with the realities of capitalist practice. This is because from classical economics onward, economics has restricted its purview to the exchange of goods and services -- the so-called real or natural economy -- neglecting the fact that, as Henry Dunning Macleod pointed out over 150 years ago, the greater portion of what is marketed is not goods and services per se but debts, claims on goods and services, to which John Rogers Commons (following Eugen von Böhm-Bawerk, himself a skeptic in these matters) added a third category, intangible property, i.e., goodwill, which makes up a good portion of what one buys when one buys shares on the stock market. These are all marketable assets, but to make them into goods and services is to beg the question of what a good or a service is.

So economists have neglected these other categories, considering them to be mere derivatives of the primary category of goods and services, and therefore safely ignorable. There have been exceptions -- the above-mentioned Macleod and Commons, for example. Macleod is quite interesting reading, and even if his exposition on banking and currency does not quite go far enough, it does go quite far in capturing the reality of capitalism for the benefit of economic science (for those with ears to hear, of course). Commons can be virtually unreadable, and his anti-capitalist bias is constantly undermining his analysis. Still, there is much to learn from him as well. Irving Fisher is another economist who recognized in business practice, and particularly in accounting practice, that there is more to economics than exchange of goods and services. Still, his quantity theory of money betrays little influence of that recognition. Ludwig von Mises as well recognized the importance of business practice, especially with his recognition of the importance of capital accounting. But once again, this had no impact on his view of credit expansion and currency, which, as far as I can see, he analyzed purely within the paradigm of commodity exchange.

Recently there has arisen a new form of economics that has successfully integrated the realities of capitalism into economic theory, by discovering the basis of interest, the sine qua non of comprehensive economic science. Unfortunately for English-language readers, the language in which this economics is exposited is German. The exponents are Gunnar Heinsohn, Otto Steiger, and Hans-Joachim Stadermann; the key text is Eigentum, Zins und Geld: Ungelöste Rätsel der Wirtschaftswissenschaft [Property, Interest and Money: Unsolved Mysteries of Economic Science] (4th edition 2006), by Heinsohn and Steiger, along with Allgemeine Theorie der Wirtschaft. Erster Band: Schulökonomik [General Theory of Economics. Volume 1: Schools of Economics] (2001). For the longest time, a translation of Eigentum, Zins und Geld has been "forthcoming" from Routledge, but there is still no sign of it. It really is an example of the guild mentality of economists that such a book still has yet to be translated! The same holds true for the General Theory, Vol. 1, which contains trenchant critiques of classical economics, Marxist economics, neo-classical economics, and Keynesian economics (as does Eigentum, Zins und Geld for that matter, although not as systematically). Once again, I will blow my own horn. I have included a summary of the importance of this school of economic thought in the chapter on "Common Law Economics" in my book Common Law Conservatism. So, if you are interested in this subject, don't neglect my little book!