We are faced with difficulty at the moment in our economic and financial affairs. Many refer to it as a crisis. I suppose that is in the eyes of the beholder. But a faltering economy is a fact whatever its degree. Some are proposing certain remedies that they vervantly hawk as new and different to fix the exigencies of our times. The proposal of Government, Inc. include among others the following: i) a program of wage and price controls ii) printing of money that will debase the current value of money and iii) the issuance of extraordinary amounts of notes–borrowing.
The phrase “exigent circumstances” has even been used by the Federal Reserve to justify several of its more extreme actions of late, such as the take over and funding of AIG and other banks. Likewise the Treasury has called upon such language for its justification for recent actions. We have tried wage price controls before and without exception they have all been dismal failures. Check your history. There is not a single example of that effort being efficacious.
Government, Inc. has not set the sticker price of GM cars, at least not yet, but it has in reality. By mandating the amount of wages the company will pay and the amount of debt it will be allowed to carry on its books and lastly demand that it produce “green cars” , the Government, Inc. bureaucrats and politicians are setting the price. The market is not setting the price. Likewise Government, Inc. through its regulatory controls will be setting the price of borrowing for everything from cars to houses. In the face of growing international hesitancy to buy our debt the Treasury is issuing even more debt of unprecedented proportions–Trillions. (See China for the hesitancy). Lastly, the Fed has embarked upon a policy of printing up money and dumping it into the stream of commerce without any underlying economic justification that there is an equivalent increase in value in our economy. Have these problems and attempted remedies been tried before? Yes. Go all the way back to the embryonic days of our Republic.
During the Revolutionary War we faced these problems. Shortages and disrupti0ns caused by the war with Britain were causing a tremendous spike in prices. We weren’t really a nation yet but a confederation of colonies with limited financial resources and were facing difficulty in provisioning our armies. Indeed that was the constant thorn in the side of Washington throughout the war. As early as 1776/77 the effort was made to impose wage price controls by some of the colonies. A few did. They prepared very specific lists of the prices that could be charged for services or products. “horse-keeping, at sea port towns per night or 24 hours, 2s, 6d”, “best beaver hats at 42s. best felt hats at 8s”, and the lists go on. This was from Rhode Island in 1777. There were many others. There were those who were opposed to the whole notion. From Dr. Rush in 1777–“The wisdom and power of government have been employed in all ages to regulate the price of necessities to no purpose”. ….”We estimate our viture by a false barometer when we measure it by the price of goods”….”The resolution before you is nothing but an opiate. It may compose the continent for a night, but she soon will awaken again to a fresh sense of her pain and misery”. Later John Adams commented “I much doubt the justice, policy and necessity of the resolution. The high price of many articles arises from their scarcity. If we regulate the price of imports we shall immediately put a stop to them forever”.
The colonies varied in their approach to the controls. Many ignored them completely. It was a hodge- podge of enforcement but they were failures. We printed more money through the Continental congress. The Continental currency had little value because we printed too much and our power was limited. Thus the phrase “not worth a Continental”. There were heated arguments about the effects of inflation. Those arguing against the wild printing were right. A few years later in 1781 we had to reconstitute our money and debts. We traded in the old debt at 40 to 1. Our currency was recognized as having little worth and thus our debt was without value. The King of France loaned us millions out of his own purse. So did other French interest and the Dutch. This was all before our final victory at Yorktown. Those were our biggest debts. The money was used to pay for the war. Naturally the French King and his subjects had their own selfish reasons for helping us defeat the British.
A few years later when we adopted the Constitution and organized our affairs as a nation one of the first things we did was recognize the obligation to pay our national debts. Mr. Morris of Pa. had also financed much of our war expenses. Indeed he financed almost alone our campaign and victory at Yorktown. The decision to honor our debts was not universally popular at the time. Many thought is was merely favoring the rich here and abroad. Those in power recognized how important it was for our new nation to start its voyage as an equal on the world stage by honoring its debts–by doing the right and honorable thing. The memory of the inflation and debasement of our debt and currency was fresh on the minds of all in the late 1780’s. Despite the populist demand and rants that we deny payment on the debts of the Confederation decency and common sense prevailed. Thus we have Article VI of the US Constitution.
Having money that is worth something is vital. Honoring your debts by paying with real value is economically important and letting the market work will keep our economy free. Government, Inc. is not the solution, it is going to be the problem. Our virtues and values are the solution. Please, please read some history yourself on this topic from different eras in history. Government intervention into market systems universally leads to bad results. Otherwise the Soviet Union would still exist and be the world’s premier economic powerhouse and leader.ore www.olcranky.wordpress.com