Is This Directive 10-289 From Atlas Shrugged?

Everyone must ask himself the question: Do I want the world to move to an honest money system, or do I just want gold to go up (I italicize discussion of apparent moves in gold, because it’s the dollar that’s moving down—not gold going up—but I sometimes frame it in mainstream terms).

Gold’s Going Up

There’s tension between these two goals. Many people start with the former desire. Then they come to gold, as they begin to realize that the dollar is going off the rails, that there is something wrong with bail-outs, bail-ins, Quantitative Easing, Zero Interest Rate Policy, and negative interest rates. But a funny thing often happens along the way. They buy into the story of gold increasing in price to $5,000 (or $65,000). They become speculators on its price. They use gold the way most people use stocks and real estate: as just another chip in Casino Federoyale, a way to make dollars.

If you think the Fed has been bad on this count, look at what the central banks have done in Switzerland, Germany, and Japan!

I don’t blame the players. I blame the U.S. Federal Reserve for forcing everyone to play. Everyone must bet on capital gains, as the Fed has sucked the yield out of the markets and thus destroyed investing (and if you think the Fed has been bad on this count, look at what the central banks have done in Switzerland, Germany, and Japan!)

There isn’t an intrinsic contradiction between the goal of speculating to make dollars to pay living expenses, and advocacy of honest money. However, there are times when they can come into conflict. On Friday, President Trump “issued orders” to U.S. companies. Federal Reserve Chairman Powell hinted at further cuts to interest rates. And the price of gold went up nearly 2%. The gold market hasn’t seen action like this since the halcyon days when the Obama administration was just getting started, unlimbering massive bailouts, and the Bernanke Fed launched Quantitative Easing.

Is this a good thing? Those who just want to sell their gold to make more dollars, may think it’s fantastic. Almost as good as Obama’s shovel-ready, pork-barrel spending and Bernanke’s threat to drop bags of cash from a helicopter. Trump, like Obama before him, created a fear-bid on gold, which went over $1,525 (per ounce) after Trump’s remarks. This price has not been seen since the week of April 1, 2013, when the price dropped from $1,580 to $1,480.

But if one is interested in the direction that America is headed, and the future of civilization—if civilization is to have a future—it is quite concerning. I have worn out a keyboard writing so often about the destruction wrought by falling interest rates. So today let’s take a break and address Trump’s “orders.”

The Right Course of Action

Martin Luther King, Jr. said:

On some positions, Cowardice asks the question, “Is it safe?” Expediency asks the question, “Is it politic?” And Vanity comes along and asks the question, “Is it popular?” But Conscience asks the question “Is it right?” And there comes a time when one must take a position that is neither safe, nor politic, nor popular, but he must do it because Conscience tells him it is right.

If the monetary system is not changed, 476AD is where we will end.

Many of us are fighting to preserve civilization. Our modern civilization is on a trajectory that will lead to a very dark place. History provides examples of what can happen: Consider the period 1929-1945, and then of course 476AD. If the monetary system is not changed, 476AD is where we will end.

Directive 10-289

President Trump’s statement is chilling. He began:

“Our great American companies are hereby ordered …”

We are reminded of the vision of Benito Mussolini (who, not incidentally, praised Keynes).

Every word in this sentence is significant, starting with the first one. One must ask, whose companies does he think they are? We are reminded of the vision of Benito Mussolini (who, not incidentally, praised Keynes):

“Everything within the state, nothing outside the state, nothing against the state.”

Mussolini’s idea was to allow nominal private ownership of the means of production—but under government control. Which meant his control. The means of production was “ours”, in the sense of the Royal We.

In accordance with the same principles of Mussolini’s fascist system, Trump is telling companies what to do. He wants them to comply by:

“…bringing your companies HOME [emphasis in original] and making your products in the USA.”

I’m not here to analyze the geopolitical implications of this. Nor the predictable—dare I say intended—consequences such as higher prices for goods, lost profits, investment write-downs, layoffs, and unemployment, etc. I want to look at something I don’t usually address directly: the nature of social systems. Man is a social being. He thrives in an environment where there are (many) others, instead of being isolated on the proverbial desert island.

The Social System

But the benefit depends on the nature of the social system under which he lives. For example, the Soviet system made life all but impossible. It killed tens of millions of its own citizens—in peacetime—and rendered the rest miserable, half-starved slaves. Life was all but impossible, because coordination between productive people was made all but impossible. That’s what government intrusion into the economy does. The more the government overrides individual decisions, the more coordination breaks down.

This is not merely due to corruption. Of course, the people who decide which company to “make” and which to “break” are corrupt. Such power attracts people with a lust for power to begin with.  Even if they were Snow White initially, such power tends to corrupt people. Professor J.R.R. Tolkien wrote a very good story about this.

The breakdown is not merely due to stupidity, though most economic dictators are stupid (Alan Greenspan was the notable exception). Nor incompetence. Nor certainly lack of data. Today, they are buried in data purporting to tell them what we need.

Coordination is impossible under government control, for two reasons. One, the central planner does not know, and cannot know, what every market participant knows. The central planner is trying to use aggregate statistics in lieu of knowledge about the margin—the millions and millions of margins in an economy of any size. Two, a diktat does not operate by the same mechanism as the market. Even if the planner knew the right price to set, he would not cause the same economic effects as the market would in setting that price.

If you think of economic diktats as an assault on producers, a breakdown of coordination, and impoverishment of society, then you are seeing the right picture.

And there is another dimension. When the government makes some businesses and breaks others, everyone of course has to work overtime to position themselves to be in the former group. Even if the government is not directly breaking some, if it is just taxing everyone, the consequence is the same. People naturally want to be on the receiving end of the subsidy, not stuck paying endless taxes for no benefit.

All History Is the History of Class Conflict

Claiming there is an inherent conflict between classes, it creates classes and puts them into conflict.

Central planning specifically, and socialism generally, sets man against man. Claiming there is an inherent conflict between classes, it creates classes and puts them into conflict. So not only does socialism and its central planning impoverish people, but it stokes their anger and gives them reason to direct their anger at members of other groups in society.

This is a dynamic system, much like the monetary system, with positive feedback loops. First, one group gets control over the levers of power. And uses it to direct other people’s wealth to its members. Then another group gets control, and does not remove government from its role of economic planner, but merely seeks to benefit from the looting.

With each cycle, new precedents are set, and the level of resentment rises. Few can understand why members of other groups—whom they now hate—are angry. Only their own anger is justified. Others are to be demonized, which is a prelude to committing atrocities against them. If this sounds far-fetched, we encourage you to read about the rise of the Nazi party in Germany.

Making Winners and Losers

It is in this light that we look at President Trump’s “order” to American companies to move their operations and manufacturing home. This move will make a few businesses, particularly those that can supply components that are currently being supplied by Chinese firms. And it may bid up wages for workers to make these products.

However, it will impose massive losses on every firm forced to move its manufacturing to the U.S. And on every firm who supported them operating offshore. This includes obviously Chinese firms, but also American shipping & logistics firms and consultants.

And there will be exemptions. It will prove to be impossible for some manufacturers to move on command. This will be either due to the lack of factories in America that have the capabilities and skills, or the lack of a massive workforce trained and willing to do the technical but tedious tasks required. Unlike in China, there are not a million people in America that can be hired to perform a circuit board assembly.

Some of these companies will have a compelling argument and/or good media presence and well-connected lobbyists. They will demand—and get—special permission to keep operating as they do now. Others will fail to get such permission, and be forced to suffer losses including to going out of business.

Such a new economic directive would make some and break others. And cause strife between groups who previously had no reason to hate one another. Consider those who are broken by this demand. When they get their mogul into power sometime in the future, what new policies will they want to impose? One thing is virtually certain: the new mogul won’t roll back the government’s power and try to return to a freer market. He will seek to impose some new injustice, to compensate for the prior injustice and also simply to take what’s there for the taking.

And when he’s out of power, the cycle continues. Or perhaps more accurately, the downward spiral from free markets and prosperity, to more controls, more poverty, and hence more group conflict. It takes on a life of its own, with its own momentum and inertia.

Trump said, “This is a GREAT [emphasis in original] opportunity for the United States.”

There are few cases where all 300 million Americans have a common interest (e.g., an invasion). This is not one of them. For example, the wage-earner who can afford a smart phone at $500, but not one priced at $2,500, does not have a common interest with the U.S. circuit board soldering company. So it is not true that it is a great opportunity for “America.” It is a good opportunity for those who would seek the power to decide who is made and who is broken.

It is a great opportunity for the gold speculators, who plan to sell their gold for more dollars. And it is a great opportunity for the bond speculators. Just on Friday alone, not counting the move it’s been making since November last year, the 10-year Treasury yield fell another 5%. This is delivering big capital gains to those who plan to sell their bonds for more dollars.

It is a good opportunity for those who would seek to profiteer on the back of every government program. It is a good opportunity for the vultures, and the cockroaches who will feast on the spoils of our once-great civilization, now carelessly spilled onto the floor.

For the love of America, if you are an American, and for the sake of civilization itself, we hope you will oppose this ill-conceived move to take control of a major part of the economy, to force American manufacturing to “come home.”

Related Posts:

1. What Did Capitalism Require to Emerge?
2. Rand v Hayek: Who Gets It Right?
3. Could Atlas Shrugged Become a Unique Asset in College Courses?

   

About the Author: Keith Weiner

Keith Weiner is president of the Gold Standard Institute USA in Phoenix, AZ, and CEO of precious metals fund manager Monetary Metals. He created DiamondWare, a technology company that he sold to Nortel Networks in 2008. He speaks and writes about free markets, money, credit, and gold.