For those of you who are curious about the title of this blog, it refers back to the "American System" pioneered by Henry Clay in the early 1800's. It was arguably the most successful and logical domestic policy ever pursued by the United States government; and it is largely to thank for the rapid expansion of the American economy for the century following its initiation. The American System called for a three pronged approach to the American economy:
- First, it called for the stablishment of a strong central bank to encourage economic stability and provide for a depository for federal surplus funds. The legitimacy of the central bank and its effectiveness have been debated since the times of Andrew Jackson, but overall, the central bank as established by the pre-20th century American government was quite an effective and balancing force in American finance, albeit it was structured quite differently from how it is now.
- Second, it called for the institution of protective tarriffs for American manufacturing. These tarriffs, while cruelly distorting prices, helped nurture American manufacturing in its early years. This manufacturing, with its seedling firmly planted in the soil of protective tarriffs, blossomed years later and made America the strongest industrial power on the planet.
- Finally, it called for federally funded infrastructure (i.e. roads, canals, bridges). This infrastructure was intended to unite the country politically, make the country more efficient economically, and provide for more streamline settlement of the west. In respect to all these issues, it succeeded to a degree.
Today, the American System has all but vanished. The central bank no longer serves as a depository for federal funds, but a lender, one that makes substantial profit off of an indebted America. It also is so unregulated and secretive as to ensure almost no genuine justice in the economy. The protective tarriffs have been all but abandoned in favor of free trade, a wonderful institution that has allowed American manufacturing to virtually tumble by double digit percentages in the last few decades. Finally, infrastructure is decaying rapidly for want of funds which would ideally have come from protective tarriffs.
Ultimately, in my first post I would like to make it clear that I will be examining the current state of American affairs in a historical context. It is only in a historical context that we can see what America has gotten right and how we can do it again.
Thank you for reading.
Posts
(1) Central Bank.
ReplyDeleteIt is a monopoly, a grant from government, and besides delivering ever grossly negative consequence of monopolies upon the public large, its entire purpose is to protect the largest banks and their profits from the free market.
The creation of this institution is the direct cause of the economic disaster today.
(2) Tariffs. As with all tax, it destroys one part of the economy to benefit another part of the economy. Because people can be directed to look in one direction, and not another, people often shown the 'positive' effects of such tax, and never shown the destructive effects behind them. Few account for the unseen destruction, and therefore appeal for more of the same "benefit" until one day, it overcomes them from behind - and as they are crushed they cry "We didn't see it coming!!"
(3)Government extracts its funds by force from the people (tax) or by destroying the monetary base of the people (printing money).
If it then takes these funds and sinks them into projects whose Return on Investment is measured in multiple decades or centuries, it starves free market business whose Return of the same capital is measured in less than a handful of years.
The consequence - the nations wealth become stagnant and bound into investments waiting a hundred years to pay back instead of free market business to pay it back in 5 years.
Because these cause and effects are displaced over a large period of time - 5,10,15 years or more - people are easily misled into thinking that these concepts are at worse harmless and at best, good.
They are, in fact, the direct cause of national collapse.
(1) I am not an advocate of the central bank, but it was an important part of a plan that actually worked, so it is worth taking a look at. Also, the central bank in the 1800's and the central bank now are almost nothing alike, so it is unreasonable to measure the idea of a central bank only against the performance of the corrupt and secretive one we have today.
ReplyDelete(2) It seems as though you are arguing against taxes at large with respect to the tarriffs. Obviously there are going to be taxes, so why not institute ones that will help our economy grow AS WELL AS take from it. If anything, the tarriffs would be destroying a part of the global economy, not the national one. There is no reason for us to be allowing foreign businesses to thrive at the expense of our own. If your idea is that tarriffs will destroy the economy, it is false. America has been largely self-sufficient in the past and can be so again. It will not get there by allowing our markets to be flooded with cheap foreign goods.
(3) Here it seems as though you are arguing for total anarchy. The government already spends insane amounts of money on public projects. All I am advocating is that they spend this money on projects that will help grow our economy so that people will have good jobs and can afford healthcare on their own.
There is something in your site that prevents "Pasting" a post.
ReplyDeleteThis makes it very difficult for me to respond.
I apologize. I don't know what the problem is though because it is allowing me to "paste," even when I am signed off. I'm not sure what I can do to fix the problem.
ReplyDeletePS: Congrats on your new blog.
ReplyDelete""(1) I am not an advocate of the central bank, but it was an important part of a plan that actually worked""
“actually worked” - ….for what? If what you were measuring was the profits for the banking cartel, it worked.
If it was for stabilizing the economy, it was a disaster.
Again, I point to the inability to grasp the time differential between cause and effect.
The FED was created in 1914, and its one of its first attacks into the economy was to artificially drop the interest rates to mask the economic disaster we call, historically, World War One.
WW1 was the greatest economic disaster in modern history to that time.
It needed to be reckoned.
The destruction of capital by Western government was massive and this needed a severe recession to reset the economy. This was seen to be politically impossible.
So, government artificially drove down interests, deceiving capitalists that there was more economic demand then there was.
The consequence – called the Great Depression.
So, if you believe “it worked” – what we call the roaring twenties – is your measure, that is equivalent of saying that the first euphoria of heroin poisoning is a good thing.
Just because you almost die later because of it – you take no measure of that in your judgment.
At this point, your measure of ‘working’ is no better a measure than a drug addicts measure. As long as the short term pain is gone, you discount the long term, nearly fatal, damage.
One of the biggest challenges in Economic theories is almost all of them refuse to account for anything beyond a short time scale nor the unseen.
Hence, they are crackpot theories.
They are constantly surprised by outcomes – you hear comments such as “No one expected this…” - and they are right as it applied to themselves and their disciples – because they did not account for the consequences of the long term or the unseen.
Back to Central Banks.
Central Banks exist for one reason.
A government demands control over the people and their wealth, so it injects itself into the economy so to control aspects of it which it believes exercises the greatest of that control with least effort – that is, high leverage.
In an economy, the highest leverage possible is absolute control over the most desire commodity – its money.
The creation of a Central Bank is the tool to accomplish this control. This seizure is a direct assault on every person in that country – a literal seizure of their ability to freely interact and trade.
"paste problem" seemed to go away as quickly as it showed up - probably just an anomaly... thx!
ReplyDeleteTarriffs are mostly what turned a recession into the Great Depression.
ReplyDeleteI agree with the economic assertions about World War One and the Great Depression. They are extremely complex and impressively logical. However, there has been a central bank in America for most of American history. Every major politician who has taken it on has eventually seen it reemerge. It is basically a given that this central bank will continue to exist.
ReplyDeleteIt would be reasonable, then, to redefine it instead of fighting it because it has quite tragically come to be accepted by everybody without question.
The Constitution grants congress control of the money supply, so your assertion that it is government's attempt to insert itself into the economy is only half true, because it has that right anyway. What makes it unacceptable is government granting its constitutional power to a non-governmental body.
No matter what, the central bank of the 1820's served a traditional purpose. It was different from other banks of the time only because it served as a depository for federal funds. The bank today is completely different, in that it has unrestricted control over the printing of money, which was not its function in the 19th century.
My simple theory is that we cannot destroy the Federal Reserve. It is more likely and favorable that we transform it into the less powerful and more transparent model that existed before it.
An example of hidden key information is who owns the Fed. Nobody knows. The stock is nontransferable, meaning that banks can't sell it amongst themselves, but what happens if a bank buys another bank? This is a question that had much less murky answer in the era of Henry Clay.
Yes, Clay's bank was harmful too, but in much less destructive ways. It was involved in the overspeculation of land in the West, which is what drove Andrew Jackson to hate it so much, but so was every other bank of the time. However, it was not the prime cause of wild currency inflation, as is the Federal Reserve.
If I had to choose, the lesser of two evils here is pretty clear.
Thank you for the congratulations. I appreciate the fact that you would bother to speak with me at all. I will be regularly reading your blog as well.
To Harrison: The likely reason that tarriffs made the Great Depression worse was because we allowed our economy to grow too dependant on foreign trade.
ReplyDelete“”…It seems as though you are arguing against taxes at large with respect to the tarriffs…. “”
ReplyDeleteYes. The act of taxation – regardless of its name, action, or effect – creates that genre of economic destruction.
It damages one part of the economy, which is ignored, to favor another part of the economy, which is broadly highlighted.
This action of ignoring the damage and cheering the favoritism can only promote more of such action – if by an act only appears to produce good things, more of that act will be demanded.
If that act actually produces damage, but ignored, that damage will only accumulate in the shadows, until it becomes so large that it bursts out – surprising everyone with its size and destruction – causing panic and confusion.
But there will be no talk of eliminating the favoritism by taxation – because the perceived benefit of such flow over time has embedded it as an ‘entitlement’ – and hence politically too dangerous to touch. Thus, the damage becomes permanent.
“”…Obviously there are going to be taxes…,””
Why?
“”… so why not institute ones that will help our economy grow AS WELL AS take from it….””
There is no tax that helps the economy grow. Because you ignore the damage – you believe your statement is true.
All tax is a creation of an act of politics. A special group advocates for privilege from a political power. Because this group wants better competitive situation in a free market then they can earn, they want political decisions to replace economic decisions.
An economic decision, based on political outcomes, is a non-economic decision. Economics, based on non-economic decisions will always be inferior to those made by economic decisions.
Therefore, any political-based decision about any economic matter will result is a worse economic situation then before the decision.
“” …If anything, the tarriffs would be destroying a part of the global economy, not the national one….””
Not true. It artificially raises the prices of the good in the internal economy as well as protects inferior producers and their products.
If I produce a widget cheaper and/or higher quality then you, and sell into the economy for a $1. With your inefficiencies, you cannot produce it cheaper, your best price is $1.25. You create a tariff that raises my price to $1.30. What happens? Your inefficiency – which BY DEFINITION means you consume too much resources to create the same good – enforces that inefficiency into the marketplace. You are wasting capital and wealth. Further, you are now immune to the free market forces that force you to improve your product and any drive to become efficient – why bother as there is no pressure? The same analysis based on inferior quality.
You need a tariff to protect yourself because there is something wrong with YOU. And you want your fellow citizens to subsidize your mistakes.
“”…. There is no reason for us to be allowing foreign businesses to thrive at the expense of our own…..””
Extend your reasoning. Do you claim your next door neighbor is thriving at your expense when you buy his product? You forgot that you are more enriched by the transaction then you were before the transaction – or else you would not have done that transaction!!
Again, you are only observing a small part – and ignoring everything else – to make your claim. You refuse to account for the superior benefit of the trade TO YOU.
We buy foreign goods because the terms of the trade make us richer – or else we would not trade.
“”…. If your idea is that tarriffs will destroy the economy, it is false. America has been largely self-sufficient in the past and can be so again. It will not get there by allowing our markets to be flooded with cheap foreign goods…..””
ReplyDeleteLet’s go over your theory.
Your claim is “If I pay more at Sears for the same goods as I can buy at Walmart, this improves my personal economic situation, because the good I buy is worth more!”
But this is not true. If you buy at Walmart, you get the good PLUS money left over to buy something else. If I force you to buy at Sears, you have the good, but nothing else. Your economic situation in the latter is LOWER than the former.
You want to ‘prove’ your theory by claiming Sears will be wealthier – thus that is a good thing. Sears is wealthier – an inefficient supplier has been rewarded – but that did not make the economy wealthier. It made it poorer – you do not have that ‘extra’ good that your saved money would have purchased. And this is what you failed to account for.
By buying at Walmart, you now have the good PLUS money left over, now you went to MacDonald’s for food. MacDonald’s got the benefit from the efficiency that Walmart delivered to you. But you do not care for MacDonald’s because you do not see them, and thus failed to account for this (unmade) purchase. You do not see them because you are only looking at Sears, and nothing else. You lowered the economic situation of MacDonald’s in favor of Sears – and you do not care because you did not notice this.
See “Broken Window Fallacy” of Bastiat.
“”…Here it seems as though you are arguing for total anarchy….””
An (no) archy (right to rule).
What right does one man have to rule over another man?
“… The government already spends insane amounts of money on public projects. All I am advocating is that they spend this money on projects that will help grow our economy so that people will have good jobs and can afford healthcare on their own….”
How do you know what projects help grow our economy????
This is the theory of central planning – that some super-smart man or men can figure out exactly what the economy needs far better than the natural choices of hundreds of millions of people making aggregate of billions of economic decisions a day.
The free market uses a mechanism called pricing. “Highest bid wins”. This allocation of resources to those that desire it the most turns that good into the most money. With more money, more goods are created – which improves the economy.
No brain or set of brains is great enough to allocate resources better than the free market. Any attempt will cause a decrease in the efficiency of the market, over-reward poor economic actors, punish superior actors, and worse – create a belief that all the unintended consequences of this interference demands even more intervention. The conclusion of all of this: wholly stagnated economy with political tyranny.
“…However, there has been a central bank in America for most of American history….”
ReplyDeleteThe ol’
“Because a cartel lives long, therefore it must be good” – argument!
“… this central bank will continue to exist….”
I agree.
“…It would be reasonable, then, to redefine it instead of fighting it because it has quite tragically come to be accepted by everybody without question….”
To redefine it is to fight it.
This is what the current fight regarding Ron Pauls attempt at an audit. It is viciously resisted.
Any redefinition will ALWAYS proceed to more government control over the economy, not less. Any redefinition will be by hands of government, and it will never release control but demand more of it. The cartel will tighten.
“….The Constitution grants congress control of the money supply, so your assertion that it is government's attempt to insert itself into the economy is only half true, because it has that right anyway. ….”
Government does not have rights.
Only real people have rights.
“…What makes it unacceptable is government granting its constitutional power to a non-governmental body….”
What is unacceptable is government.
Free man in voluntary trade needs no referee.
“…My simple theory is that we cannot destroy the Federal Reserve. It is more likely and favorable that we transform it into the less powerful and more transparent model that existed before it. …”
That is a pipe dream, “something over a rainbow, way way high in the sky”
You merely wish to transfer the destructive control over money from the hands of a bank into the wholly ignorant hands of government. I believe you see this as a good thing.
I see as a horrifically bad thing.
“..An example of hidden key information is who owns the Fed. Nobody knows. The stock is nontransferable, meaning that banks can't sell it amongst themselves, but what happens if a bank buys another bank? This is a question that had much less murky answer in the era of Henry Clay….”
We do know who ones the FED – it is a cartel of the 5 largest regional banks in the United States. This is not a secret (though many pretend it is).
What we do not have – which is key – is the reasoning used as a basis for the actions of the FED – these are closed door meetings subject to no outside review. There has never been an audit of the FED.
“…If I had to choose, the lesser of two evils here is pretty clear….”
When you choose between evil, you get …. Evil.
“…Thank you for the congratulations. I appreciate the fact that you would bother to speak with me at all. I will be regularly reading your blog as well….”
Stand Up for America is not my blog, but one where I enjoy participating. I am a heavy poster and antagonist on that blog – and yours appears to be of a similar genre – a valiant attempt to make sense of the collapse of America and in that learning, attempt to discover the tools and the ideas to restore the Nation.
If you continue with such a goal – I promise I will haunt you, too (in a good way ;) )
I enjoy the haunting. I still have trouble with your reasoning, however, because you are advocating a self-defeating position. Right now, America is mostly honoring free trade agreements, but our competitors, such as China, Japan, and the EU, are not. You will never get everybody to agree to free trade.
ReplyDeleteAt the moment we are opening our markets to foreign goods, allowing actual wealth to flow out, and allowing cheap goods to flow in. As free trade allows wealth and jobs to leave the country, citizens here become less able to choose high quality expensive goods over low quality cheap goods. Neither one is inherently better than the other, but Americans are being forced to choose the latter. There can be no genuine competition in America when state-owned and subsidized Chinese manufacturers depress prices and drive American competitors out of business. How could you ever expect an American company, that has to deal with unions, to compete with a chinese one, that has the government stifle out any dissent or call for change. Free trade will never be beneficial unless everyone embraces it, and for all intents and purposes, that will never happen.
If you are that enthusiastic about haunting me, you should consider subscribing. Sadly, you would be the first one haha.
…”I enjoy the haunting”….
ReplyDeleteI am a friendly ghost.
…” you are advocating a self-defeating position…..You will never get everybody to agree to free trade. “….
So, let’s go through the reasoning of why ---wait for it---- this is a good thing!!!
America trades with Japan. USA has no trade barriers, no taxes, no impediment to the flow of goods. We will apply that use of policies to Japan.
Americans buy products based on their own desires, price being one of them. For the sake of argument, Japan cannot compete – their product costs too much to make to achieve equal (or insufficient superior difference) to justify its price. Thus, Japan ‘subsidizes’ their product – (a reverse tariff, but a tariff nonetheless). Now, their product is lower priced than the USA product.
Now, evaluating the consequences YOU MUST remove your emotion from it – “America good/Everyone else bad” emotional appeals are worthless in evaluating economic outcomes.
American consumers buy the subsidized Japanese good. What does this mean? It means every single Japanese citizen is paying an American to buy their goods. If someone paid you money to buy something that you want, wouldn’t you think this is a good thing? Well, it is. It’s making you richer. You get the good AND you get the money, instead of just getting the good alone.
So for consumers, this is good for Americans and lousy for the Japanese.
American makers of that goods. They are losing – true. But they are freed from spending capital on making that good, and can focus their capital in making a new set of goods. So, for a short time it appears they are losing, but it really allows them to move capital to other profit making opportunities. Now, the consumer is better off again – not only are they getting the first good they wanted and being paid to buy it, they now have brand new goods coming to market to buy with all that extra money!
So for American business, this is good – new products for sale. And good for American consumers, they get to buy more useful things than before. Still a lousy deal for the Japanese.
Japan cannot subsidize forever. They end the subsidization and try to recapture their lost capital. But, being a free market, the increase in price of that good suddenly attracts new competition – and since subsidization has protected the inefficient Japanese production (which is why they needed to be subsidized) the competition is fierce and probably winning. Japan has only one recourse – return to subsidizing. Slowly the economy of Japan is drained by paying Americans to buy products – America gets richer and Japan gets poorer. A lousy deal for the Japanese.
Again, the mystery of why this is so obscure to most people is the factor of time. There are gaps ‘of motion’ between action and consequence. Americans losing their jobs squeal in pain thus provoking some sort of political response – typically doing the same destructive things other nations are doing – subsidizing weak or dying industries. Yes, the human emotional factor is important – but not in evaluating economic outcomes.
If we are talking about economics – ALL TAXES and subsidizes ALWAYS impoverishes the nations that use them to the benefit of nations that do not.
…” allowing actual wealth to flow out, and allowing cheap goods to flow in. “….
Such a statement betrays a serious misunderstanding to what wealth and trade really is.
PS: Already subscribed
PSS: Found the problem. First time I try to post, I cannot paste.
If I enter text (even one character) and preview then edit, I can paste.
Weird.