Category Archives: Economics

George Romney, Success Destroying Socialist

I post what follows with some hesitation; I feel I should say something considering the tragic events of yesterday, but I have nothing. I do think there is genius in succinctness, the lasting kiss of a short brief work, and perhaps the briefest phrase is no words at all. I cannot attempt genius, but I can at least attempt silence, and the dead of yesterday can now be given nothing but that.

So, the following is a simple context, strangely unremarked by reporters, to a speech given by Mitt Romney chastising his president for his un-american attitude. A transcript, accompanied by the approving whoops of partisans, can be found here. Analysis I found valuable, though it does not deal with the context I address here, are “How ‘You Didn’t Build That’ Violated Conservative P.C.”, by Jonathan Chait and “How The ‘You Didn’t Build That’ Canard Went From Right-Wing Blogs To Mitt Romney’s Mouth” by David Taintor.

I quote two notable fragments:

I’ve got to be honest, I don’t think anyone could have said what he said who had actually started a business or been in a business. And my own view is that what the President said was both startling and revealing. I find it extraordinary that a philosophy of that nature would be spoken by a President of the United States. It goes to something that I have spoken about from the beginning of the campaign. That this election is, to a great degree, about the soul of America. Do we believe in an America that is great because of government or do we believe in an America that is great because of free people allowed to pursue their dreams and build our future?

In the past, people of both parties understood that encouraging achievement, encouraging success, encouraging people to lift themselves as high as they can, encouraging entrepreneurs, celebrating success instead of attacking it and denigrating, makes America strong. That’s the right course for this country. His course is extraordinarily foreign.

So, Romney makes very clear that government is detrimental to success, and government involving itself in business is “extraordinarily foreign”. I find this approach rather strange, given testimony his father, George Romney, gave before the Senate Antitrust subcommittee, February 7th, 1958. His father, I think everyone will acknowledge, was a very successful businessman. It is thanks to his father’s extraordinary business acumen that Mitt Romney was born to such a privileged and wealthy place. It may also be said with little dispute that, unlike his son, his business concentrated on creating and keeping jobs in the United States, rather than exclusively on profit, with jobs of secondary or no importance at all.

Here now is this testimony before the subcommittee. There are many sources, but I have taken my quotes from a contemporary article in The Charleston Daily Mail. It is titled: “Competitor Asks Split of GM, Ford”. This was George Romney, asking the government to take apart the two largest companies, GM and Ford, as well as any company that exceeded a 35% share of the market. Though partisans might seize on the fact that this was partly due to unions having a greater bargaining advantage with a small number of competitors in a market, which they could play off each other, this was not the sole reason at all. George Romney felt that an outsize position was detrimental to customers, shareholders, all parties.

I cannot quote the article in its entirety, but unlike Mitt Romney, I do not quote someone out of context; those who read the piece in full at the link will find the quotes retain the same meaning.

The president of American Motors Corp. today urged Congress to break up General Motors and Ford into smaller companies and split the bargaining forces of the United Auto Workers.

[George] Romney, whose company is one of the two comparatively small independent producers surviving, declared that “economic power in the automobile industry should be limited and divided.”

Romney suggested that any company which approached a dominant place in a basic industry be compelled to split itself.

The breakup point, he suggested, should come when a firm exceeds 35 per cent of the total sales of an industry: or, if it is engaged in more than one basic industry, 25 per cent.

After crossing the 35 per cent line, Romney explained, the company would be obliged to submit to the government a plan for splitting off part of its operations as a new and going concern.

Romney said, “General Motors and Ford stockholders, executives, employees and customers could reasonably be expected to benefit.”

So, it does appear that George Romney actively sought out the government’s help to break apart his competitors, that he believed their very success at achieving a market share of over 35% merited the state intervening. My humble mind observes a man of the past, attacking success, denigrating success, rather than celebrating it. The president has made the simple point that government builds and supports infrastructure which helps create a healthy environment for business. This simple idea, Mitt Romney has called un-american. Mitt Romney’s father made a demand that went far further than this idea, asking for the government to come in and diminish his corporate fellows. It seems that Mitt Romney’s father, by his own son’s terms, is far more un-american, far more foreign, in his approach to capitalism than his opponent. Yet somehow this un-american, extraordinarily foreign man managed to create more long-term jobs in the United States than his son has done, or ever will.

The great maw of the state turned down the request of this decent, extraordinarily foreign man.

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Caleb Crain’s Copyright Arguments Aren’t Worth A Dog’s Breakfast

“Why Matt Yglesias is wrong about copyright”, explains Mr. Caleb Crain, giving three very poor arguments for his position. I believe there may well be very strong arguments in opposition to Mr. Matthew Yglesias; these aren’t them.

Last week, for example, Yglesias belittled the damage of online piracy with this rationale:

Even when copyright infringement does lead to real loss of revenue to copyright owners, it’s not as if the money vanishes into a black hole. Suppose Joe Downloader uses Bit Torrent to get a free copy of Beggars Banquet …and then goes out to eat some pizza. In this case, the Rolling Stones’ loss is the pizzeria’s gain and Joe gets to listen to a classic album. It’s at least not obvious that we should regard this, on balance, as harmful.

This, I believe, is a slight misrepresentation. This was a tangential aspect to the issue in the original article that every download is necessarily a lost sale. If I read a book at a library, rather than buy it, is that necessarily a lost sale? Or is that a book I enjoyed mildly, but not enough to buy it? If I listen to a stream of an album and again, find it interesting but not compelling enough to listen to it again, is that a lost sale? The tangent that Mr. Crain addresses is not a justification for a piracy but an explanation that disposable income not spent on such an album is necessarily lost to the economy, but will still be spent on goods. Mr. Crain misses the point with his counter-example, confusing goods that are consumed entirely (no one else can eat that lunch now), versus those that might be enjoyed, or at least listened to, ad infinitum or nauseum, by many. If Mr. Crain eats Mr. Yglesias’ lunch, Mr. Yglesias cannot eat it, and he must purchase another lunch. If I buy a Ke$ha record, listen to it, think this is terrible, I am able to then give it to a friend with terrible taste of music, who may go on to use the disposable income they would have spent on terrible music on an extra snack. The distinction between these two products, I think, is trivial.

Mr. Crain then acknowledges that a lunch and a piece of music, but then, wrongly, claims “that this is a separate issue”. That a lunch, which can be consumed once, and a virtual piece of music are very different things does not imply that there cannot be property rights for both; that their very different qualities affect their property rights is very relevant, and not a separate issue at all. I may download a public domain book, and there is no possibility I am stealing. This is not the case of downloading a book whose copyright is extant. In contrast, if I steal a physical book from a book store or library, whether it be public domain, such as Jane Austen, or extant copyright, such as The Tiger’s Wife, by Tea Obreht, I am stealing. Again, I believe this is a simple, trivial, distinction.

Mr. Crain then shifts ground to the idea of a violation of moral integrity in the case of a virtual document being duplicated. He employs two analogies, both of which I consider poor:

Suppose I were to start claiming that I’d been awarded a Purple Heart. (The truth is that I
have never even served in the military.) I wouldn’t be taking anyone else’s Purple Heart away. The award is felt to be valuable, but it doesn’t have a clear price, and probably no one could prove that I had gained money by my false claim. Nonetheless most people would be likely to agree that by such a lie I would be harming soldiers who had rightfully earned the award. This example may seem too heavy, morally speaking, as I’m willing to admit, but I think it does prove at least this much: Whether it is right to take a thing from a person does not depend on whether it is abstract, and does not depend on whether the original owner is thereby deprived of his possession. A lighter example: sneaking into a half-empty movie theater through the exit. True, it’s not a felony, but it is wrong. If they catch you, they do call your parents.

The claim of a purple heart is not a claim of possession of an object, material or virtual, but a claim of a particular experience – great service to one’s nation. The signifier is irrelevant, and has no inherent value – it is the experience itself which is crucial. One is making a claim of false achievement, rather than possession – actual possession is irrelevant. It is of no concern if a soldier who served valiantly, is awarded a purple heart for righteous and truthful sacrifice is awarded a purple heart and then he somehow loses it in a house fire or a theft – it is the experience itself not the medal. A similar analogy would be a claim to authorship of a work, for which one had no part. In this case, it would make no difference if the works were in the private or public domain.

If I re-write small parts of Martin Chuzzlewit or Harry Potter, then submit them as my own work to a novel writing contest or a publisher, I am making a wrongful claim of achievement, whether copyright is extant or not. The half-empty movie theater is equally wrong as analogy. In the case of a movie theater, I am paying for rental of the seat for a period of time. Whether or not the rest of the theater is empty or not is irrelevant – the fees are assumed to go towards the upkeep and maintenance of the theater, as well as the projection of the films. I am in the wrong sneaking into a half empty theater without payment, just as I am for sneaking into a half empty parking lot without payment. The copyright of the film is irrelevant; there is no possible violation of law if I watch a public domain film on youtube. When I sneak into a theater, I am avoiding fees for rental of the theater seat, whether the film is public domain, such as Georges Melies’ Voyage to the Moon or Ghost Protocol.

Mr. Crain continues:

Yglesias notes that it isn’t correct to assume that every act of piracy “represents a lost sale.” But it doesn’t represent nothing, either. You pirated the work because you wanted it, so it did have some value to you.

The fact that I wish to listen to something does not necessarily imply that I wish to purchase it, or that we always provide funds at retail value of the product if we enjoyed it. According to this logic, if I listen to several songs on youtube to determine if I’d like to buy them on itunes, I must pay a fee for each trial listen, as this has some value. If I greatly enjoy a novel I bought used, or which is in the public domain and was downloaded from Gutenberg, I must now buy those products at full retail value to reflect my enjoyment.

Attacking from another angle, Yglesias suggests that illegal piracy reduces “deadwight loss,” an economic term of art for the value lost to the market when prices aren’t set merely by the intersection of supply and demand curves. If the government subsidizes corn, the resulting increase in corn-syrup-sweetened colas drunk is a deadweight loss…To say you approve of copyright infringement because it reduces deadweight loss, therefore, is a little like saying you approve of tax evasion because it reduces the market-distorting appropriation of citizens’ money by the government.

No, it isn’t. Your taxes pay for a wide variety of services, a fraction of which goes to agricultural subsidies, many of which you or your family employ or will employ at a future point. You are not paying fees, in other words, on products you fully consume on the grounds that you object to some of the products consumed by others. This analogy has nothing to do with deadweight loss; it is an argument for someone who refuses to pay full price for Lana Del Rey, even though they consider Lana Del Rey excellent and greatly enjoy her music, but because the money that the record company will get will partly go towards the record career of Rebecca Black.

Mr. Crain’s conclusion:

According to the Constitution, the purpose of copyright is “to promote the progress of Science and useful Arts.” For that purpose I’m willing to not only eat Yglesias’ lunch but cash his paycheck, too. Jeffrey Rosen of the New Republic recently suggested that “There is certainly a price below which authors and journalists won’t produce good work in the first place.” Sure, answered Yglesias, and “the price is almost certainly negative.” In other words, Yglesias thinks that writing, music, film, and television can prosper as hobbies—that in the copyright-free future, people might even pay for the privilege of writing and creating. Corporate bean counters of Slate! Did you read this?

Mr. Yglesias does not believe that the various cultural industries can prosper as hobbies. This is a mis-statement. I will give Mr. Yglesias’ statement a more honest airing:

[Let] me pick a new fight with Rosen’s dubious claim that “There is certainly a price below which authors and journalists won’t produce good work in the first place.”

There certainly is such a price, but the price is almost certainly negative. Obviously financial rewards are a factor in people’s activity. But in a world in which it was strictly impossible for law professors to earn extra living by offering opinions on newsworthy legal issues, plenty of them would continue to do so. People have strong feelings about things and want to share them with the world! If nobody had a full-time job as a writer, we’d presumably have less writing but not none.

As an example, I provide this post: it is an attempt at a refutation of Mr. Crain’s article, for which he was presumably paid, with a rigor and diligence which I hope at least equals Mr. Crain’s original. This would be an example of an attempt at uncompensated, quality work.

I do not, however, consider this as a possible substitute for content on Slate, and neither would Slate or Matthew Yglesias. A periodical, of whatever format, requires its writers to deliver content on some decided topic, or range of topics (Mr. Yglesias is expected to write on economics, he cannot hand in a review of The Grey instead) at a particular length, by a particular date and time. Most likely, there is demand for several such filings during a day. That Mr. Yglesias acknowledges that people will write, our of their own urgent desire, and sometimes produce very good work, would not give any relief to the tyrannical overlords of Slate, who do not simply require that there be good content somewhere out there, but good content on approved topics, by an approved time, in conformity with the style parameters of their publication. Again, I think this distinction is a simple one, and these points are not in contradiction.

A simple conclusion: I believe Mr. Crain did good, thorough work in “Fair and Balanced: On Copyright and Fair Use” and there is the possibility of his making a counter-argument to Mr. Yglesias, but not with these weak points.

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Matt Stoller Writes Wrongly Of Many Things

(since initially posting this, I have made a few style edits and added some text addressing the Federal Reserve, sourced from William Greider’s Secrets of the Temple

An analysis of Matt Stoller’s “Why Ron Paul Challenges Liberals”. I will point out that Mr. Stoller’s core thesis, “that the anger [Paul] inspires comes not from his positions, but from the tensions that modern American liberals bear within their own worldview” is very obviously flawed. The anger that Paul inspires in progressives can be directly linked to works – the newsletters which deeply violate progressive norms and the ideas espoused in Freedom Under Siege.

Of the newsletter articles, which include those that engage in racial slurs about the laziness of black people, talk about killing a black man and getting away with it, encourage paranoia over a race war, encourage nativism about the descent of the white race, encourage nativism over immigrants with AIDS, advocate the segregation of those with AIDS, Paul, either, at best, simply profited from but did not write them, or, at worst, was directly involved in writing (a paragraph of authorial marks linking Paul to the newsletters is here, a mention of an obscure word used both by Paul in Freedom Under Siege and his newsletter is here). This, in addition to what is stated in Freedom Under Siege, a book written by him, advocating the end of sexual harassment protection, the end of legal protection of those with HIV, AIDS, or other disease from being terminated on the basis of their illness, the end of civil rights legislation in general. All this is in opposition with essential progressive ideals, not a convenient re-interpretation or over-generalization of progressive ideals, but the very core of progressive ideals regarding the dignity and rights of a fellow citizen. It can be taken for granted, then, that the anger felt towards someone who is in such opposition to their ideals may well be over the ideals themselves, whatever the other traits of the opponent.

If individual A is indicted and convicted of deliberate murder, we might state that wealth, poverty, or political inconvenience play a part in the conviction if the evidence is non-existent or spare; on the other hand, if the evidence is strong, untampered, with eyewitnesses, then it can be stated that the conviction is sound, lies with the crime at hand, and whatever the other traits of the individual, the conviction lies with the crime itself, with the individual’s traits irrelevant. Mr. Stoller, showing either arrogance or an absence of intellectual rigor, concedes the crime, but somehow insists that the indictment and conviction takes place because of individual A’s traits.

I will go through Mr. Stoller’s piece in some depth, use well-known, mainstream, and reputable sources for my points. I will leave any commentary to the end, as I do not wish the analysis to be tainted with a pejorative tone.

The essay is structured around an examination of three presidents, Lincoln, Wilson, and FDR, their intertwined use of centralization of financial power, enlarged state power, and war-making.

Mr. Stoller:

What connects all three of these Presidents is one thing – big ass wars, and specifically, war financing.

American empire precedes the federal reserve, and war financing took place outside these presidents. The Revolutionary War involved huge debts and the payment of soldiers in scrip, due to the lack of hard currency. A list of those principally culpable for the formation of American empire would not contain these three.

The major elements of the foundation of american empire would include the overthrow and seizure of the Hawaii kingdom by William McKinley for the convenience of the island’s wealthy planter class and white minority; the Spanish-American War, again under McKinley, which gave the US virtual rule over Cuba through the Platt amendment, to the great benefit of sugar and coffee plantation owners, to the great adversity of their laborers; the acquisition of the Phillipines for strategic and commercial advantage. The case for seizure of the Phillipines was opposed on the basis that it was an imperialist power-grab; it was argued for on the grounds that Filipinos were too racially inferior to handle their own sovereignty. These ideas of the inherent inferiority of certain racial groups show up, of course, in Ron Paul’s publications.

Under another republican, Theodore Roosevelt, the Panama independence movement was backed through funding and gunboats. After, Roosevelt formulates his doctrine that gives the United States the right to intercede in any part of the hemisphere it sees fit. Nations in the hemisphere must show “reasonable efficiency and decency in social and political matters, if it keeps order and pays its obligations”, or they may face intervention. This happens under Taft, another republican, in Nicaragua, where the reformist president Jose Santos Zelaya was overthrown for the benefit of american mining interests. A similar coup took place under Honduras, again under Taft, again under the basis of the Roosevelt doctrine, this time for wealthy american landowners. I do not see Taft and Roosevelt in Stoller’s list of miscreants; Paul, in his newsletter, was disgusted at the return of the Panama Canal to its territory, blaming, as usual, the Trilateral Commission and David Rockefeller.

I make these points without citation because they are well-known; I consulted Stephen Kinzer’s Overthrow when writing this for the part on the foundation of american empire, and Ron Chernow’s Alexander Hamilton for the few sentences on the Revolutionary War.

Moving on,

If you think today’s deficits are bad, well, Abraham Lincoln financed the Civil War pretty much entirely by money printing and debt creation, taking America off the gold standard.

He did not take America off the gold standard; paper money was issued, but gold coins remained in circulation, and gold was still used to pay interest on bonds and tariffs. You cannot take a nation off the gold standard, if gold and gold currency is still being used for payment. A table showing the various currencies in circulation – gold coin, gold certificate, paper currency – can be found in A Monetary History of the United States by Milton Friedman and Anna Jacobson Schwartz, page 43.

The argument made at the time was that paper currency was already in existence alongside metallic currency. From Battle Cry Of Freedom by James McPherson:

“Every intelligent man knows that coined money is not the currency of the country,” said Republican Representative Samuel Hooper of Massachusetts. State banknotes—many of them depreciated and irredeemable — were the principal medium of exchange. The issue before Congress was whether the notes of a sovereign government had “as much virtue…as the notes of banks which have suspended specie payments.”

Lincoln did not take such action, unilaterally, but with the support of business, banks, and a majority vote from Congress.

Continuing with Mr. Stoller:

The dollar then became the national currency, and Lincoln didn’t even back those dollars by gold (and gold is written into the Constitution).

Gold is not written into the constitution. The coinage of money is written into the constitution. The argument that currency must be metallic derives from a literal reading of this federal power:

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

The counterargument is that paper money, as stated by representative Hooper, in the previous quote, was already in use. Paper scrip had been used in payment during the revolutionary war. The insistence that “coin” must imply gold or silver is necessary to make the argument against paper currency, since any metallic currency, without rarer metals such as gold and silver, might be as plentiful as one of paper.

This financing of the Civil War was upheld in a series of cases over the Legal Tender Act of 1862.

I’m not sure what is meant by “upheld”, since the first of the cases over the Legal Tender Act, Hepburn v. Griswold, was heard in 1870, years after the war was over.

Prior to Lincoln, it was these United States. Afterwards, it was the United States.

No, prior to Lincoln it was the United States. After, it was the United States. The constitutional preamble:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

What changes is that prior to the Civil War, there is the implication that the United States are. From Christopher Hitchens’ Thomas Jefferson: Author of America, following the Louisiana Purchase:

When the treaty was signed, [diplomat and Jefferson friend] Robert Livingston probably spoke for a majority in saying, “From this day, the United States take their place among the powers of first rank.” (Pause to note the locution: it was not until after Gettysburg that Americans began to say “the United States is” rather than “the United States are.”)

The essay then moves on to Woodrow Wilson. I would like to take the time to point out a sentence in this section, not for its factual falsehood, but strange, sloppy thinking:

Like Lincoln, [Wilson] set up a tremendous war financing vehicle to centralize capital flows and therefore, political authority.

The sentence implies, perhaps inadvertently, a Confederate reading of Lincoln. War financing was set up in order to centralize capital flows and political authority. War financing is not set up for war itself, in this case, Confederate insurrection (or “insurrection”, in quotation marks, as Ron Paul writes in Freedom Under Siege), but for the purpose of centralizing capital flows and political authority. War is waged, not out of necessity, but for the selfish purpose that the president be able to make himself tyrant. That’s an extraordinary claim, and I hope that sentence is not making it.

There is also this sentence:

In many ways, Wilson set up the rudiments of America’s police state, and did so arguably to help a transatlantic Anglo-American banking elite.

It makes a claim that is extraordinarily large and dangerous, yet is entirely vague and contains no facts. It may or may not be refutable, since it only makes a claim without factual citation. It reminds me of nothing so much as the sentence, “The Trilateral Commission is no longer known only by those who are knowledgeable about international conspiracies, but is routinely mentioned in the daily news. Evidence of its influence on the Republican and Democratic administrations is all about us”, from the Ron Paul Freedom Report 1978.

Back to Mr. Stoller, who begins his critique of Wilson with the president’s establishment of the Federal Reserve:

On to Woodrow Wilson. Wilson signed the highly controversial Federal Reserve Act in 1913; originally, the Federal Reserve system was supposed to discount commercial and agricultural paper. Government bonds were not really considered part of the system’s mandate. But what happened the next year? Yes, World War I.

This link between the purchase of government bonds being driven by a war funding decision is, again, wrong. The initial decision to buy bonds came not from the Reserve, but from the Reserve Banks, and was taken not for the purpose of funding or regulation, but because government paper was a sound place for keeping funds. From the sane, skeptical, but non-conspiratorial (despite the title) look at the Federal Reserve, William Greider’s Secrets Of The Temple: How The Federal Reserve Runs The Country:

The twelve Reserve Banks formed their alliance against Washington around an issue that, at the time, seemed a peripheral question – the buying and selling of government securities. The original operations of the Federal Reserve did not use the open-market purchases of U.S. securities as the means to create new money or extinguish it. Money was created entirely through the Discount windows at the twelve Reserve Banks. Instead of buying or selling government notes and bonds, the Fed took in “real bills” of trade – the short-term debt notes that banks took when they lent to business and agriculture. When these notes were eventually paid off at the Fed, the money would automatically cease to exist. Creating money for real commercial transactions, it was assumed, would make the money supply self-regulating, growing and contracting always in step with the ebb and flow of private commerce and credit.

When individual Reserve Banks began buying government securities for their separate portfolios, it was not to regulate the money supply but to increase their own earnings. Treasury paper was a safe place to park idle funds and provided a modest return that would help pay for the banks’ operations. Most economists, inside and outside the Fed, did not grasp the larger implications – these random transactions were themselves expanding or shrinking the money in circulation. If Atlanta or Philadelphia bought $1 million in bonds, it was pumping high-powered money into the banking system – $1 million that would be multiplied by bank lending. If it sold bonds, the reverse occurred.

The wiser heads, including Benjamin Strong in New York, rather quickly recognized the connection. When Reserve Banks made open-market transactions, interest rates rose or fell, accordingly, in financial markets. On some occasions, there was plain confusion when one Reserve Bank would be buying bonds while another Reserve Bank was selling.

Strong persuaded the other Reserve Bank officials that the twelve Reserve Banks, at the very least, must coordinate their actions, a proposal that became the means for organizing the regional banks as a rival power center, independent of the Federal Reserve Board in Washington. The New York Fed, it was agreed, would handle all sales and purchases for the others managed in a way that did not disrupt markets. The twelve Reserve Banks formed their own Open Market Investment Committee to decide things. The Federal Reserve Board approved, apparently unaware that it was ceding control of a powerful monetary lever.

It should be emphasized that Strong’s action was not part of some conspiratorial attempt to go off the currency. Strong does not want to go off the gold standard, and fears this possibility.


In 1913, Strong wrote to his friend Paul Warburg warning that if Federal Reserve Notes were made an obligation of the U.S government, they would inevitably constitute “greenbacks,” the fiat money that the Populists had sought. “If the United States government embarks once more upon the expedient or experiment of issuing fiat paper, although in this case supported by bank assets and percentage in gold reserve. the day will come when we will deeply regret it…”

Mr. Stoller writes of government bonds not being part of the original mandate; I am uncertain of where he gets this idea. The original mandate was extraordinarily vague, and certainly allowed for the purchase of government paper. Again, Greider:

The original instructions that Congress gave to the temple were vague (and not much improved over the years). The 1913 act said merely that the Reserve Banks should set Discount loan rates “with a view of accomodating commerce and business.” Credit should be provided to member banks with due regard to “the maintenance of sound credit conditions, and the accommodation of commerce, industry, and agriculture.”

From A Monetary History of the United States (my bolds):

Receipt of gold, rediscounting of “eligible” paper, discounting of foreign trade acceptances, and open market purchases of government securities, bankers’ acceptances, and bills of exchange were the means initially provided for creating Federal Reserve money, and the converse for retiring it.

Back to Mr. Stoller, and his discussion of the internal security measures of the Wilson administration.

Wilson also implemented a wide variety of highly repressive authoritarian measures, including the Palmer Raids, the Espionage Act of 1917, and the use of modern PR techniques by government agencies.

Here, one can argue that libertarians are wary of centralized financing and political authority for liberal reasons – the ACLU was founded after the Palmer raids.

The Palmer raids, initiated under Attorney General Mitchell Palmer, along with the Espionage Act and the Sedition Act, were almost entirely an attempt to destroy american organized labor, for the ostensible reason that they were part of a larger communist insurgency. The Palmer raids had nothing to do with centralized financing or authority; labor had been persecuted before and after the creation of the Federal Reserve.

The major target of the Espionage Act was the International Workers of the World group; it was government harassment done in concert with the vigilante group the American Protective League (APL), a private business supported organization, which placed operatives in bank and industry, who would root out any subversives, in this case, members of organized labor; nor would he have issue with the practices of private detectives and thugs in the pay of such business. It is a simple and obvious note that Paul would have no difficulty with the private persecution of employees, or the more loathsome business practices of the era which led to the formation of unions, that this is entirely consistent with his admitted writings on private property and contracts.

On to the Palmer raids: Mr. Stoller appears to give Wilson sole responsibility for the authority and supervision of these raids, which I find somewhat strange. The first Palmer raid takes place on November 7, 1919, not co-incidentally, an anniversary of the Russian revolution. On September 25, a month prior, Wilson has already suffered the stroke that destroys him entirely, making him president in name only. The Palmer raids were conducted entirely by Palmer himself, without any presidential oversight whatsoever.

Opposition to the Palmer raids came from within the Wilson government itself, with the Secretary of Labor, William Wilson, former coal miner, who now witnessed his fellow workingmen persecuted. Palmer made these raids in the fervent hope that they would help elect him president. His support at the democratic convention was derived from his strikebreaking and abandonment of anti-trust prosecutions, actions, again, which Ron Paul would heartily support. The opposition to Palmer lay not with any libertarian business owners, but entirely, again, with organized labor, who helped defeat him at this same convention.

Mr. Stoller takes what was fundamentally an anti-labour political action, of public and private powers acting in unison to deprive workers of their rights, not unkin to the anti-labour movement now, and somehow transforms it into something to do with the Federal Reserve.

The previous is sourced from the chapters “The Missing Years”, “‘Palmer – Do Not Let This Country See Red!'”, “The Soviet Ark”, “The Facts Are a Matter of Record” from J. Edgar Hoover: The Man and The Secrets, by Curt Gentry.

Now, FDR:

And finally, we come to Franklin Delano Roosevelt. Roosevelt’s Fed is a bit more complex, because he did centralize monetary authority using wartime emergency powers, but he did so in peacetime. FDR abrogated gold clause contracts, seized the domestic supply of gold, and devalued the currency.

FDR did not use “wartime” emergency powers for this. The initial executive action immediately following his election, without congressional approval, was to make a de facto bank holiday official, a bank holiday that many banks, national and state had already taken. From Traitor to his Class by H.W. Brands:

As various governors watched banks in their states succumb to “runs”—uncontrolled withdrawal demands by depositors, which frequently ended with the failure of the banks—several pondered the drastic step of declaring “bank holidays,” that is, simply closing the banks to business. The idea, or hope, was that the panic would pass: that if depositors were temporarily prevented from withdrawing their funds, they would calm down and decide they really didn’t need the money. In fact most neither needed nor really wanted the money. Bank deposits earned interest; cash in a can in the garden or in a shoe box under the bed did not. If the depositors could have been sure their money was safe in the banks, nearly all of them would have been happy to leave it there. With this in mind, the governor of Louisiana declared a state bank holiday in early February. Michigan did the same at midmonth, followed by Maryland, Indiana, Arkansas, and Ohio. At the beginning of March twenty other states closed the doors of their banks. By inauguration day, the American banking system was nearly at a standstill.

Congress would give retroactive approval to this holiday, along with the power to open and close banks, embargo gold, and issue notes that would circulate as currency. Brands, again:

The law retroactively granted Roosevelt authority to close the banks and embargo gold, thereby removing any taint of unconstitutionality from Roosevelt’s executive action. Looking forward, the bank bill authorized him to reopen the banks when he saw fit, under the supervision of the comptroller of the currency, and to direct the Federal Reserve to issue notes that would circulate as money, regardless of the strictures of the gold standard, which remained technically in effect.

The second major executive action that Roosevelt asked for, and Congress granted, was unilateral ability to cut the budget. This was done to the detriment of the poor, as it was chiefly used to cut pensions and veterans’ benefits, which Congress very much wanted to cut, but were unable to do given the power of the constituency.

I have a very specific sense in mind of “wartime powers”. They are powers exercised by the executive, without approval of other branches, on the basis of military threat, whether used for military or non-military purposes. It does not include executive powers voted and approved by congress on the basis of a national emergency.

The abandonment of the gold standard is a combination of the powers granted by congress, and later congressional action.


Deflation was an economywide problem, but because of their chronic indebtedness it hit farmers the hardest. Roosevelt had long commiserated with farmers, and even before the success of the bank rescue was assured, he turned to the farm question. There were two ways of dealing with low prices. One was to expand the money supply. This strategy was what the Populists and silver Democrats led by William Jennings Bryan had advocated in the 1890s with their call for remonetizing silver. They lost their fight in the election of 1896, and the country had officially embraced the gold standard—after decades of observing a de facto version—in 1900. Some silver-state Westerners still agitated for silver, but the first step in any systematic expansion of the money supply would be the abandonment of the gold standard.

Curtailing production would tend to raise farm prices, but not as fast or surely as increasing the money supply. Diehard populists like Oklahoma Democrat Elmer Thomas contended that every other effort would be wasted unless the president did something about money. Roosevelt’s farm bill passed the House in mere days and by an overwhelming margin—315 to 98. But Thomas stalled its progress in the Senate by proposing an amendment authorizing the president to expand the money supply by remonetizing silver, redefining the relationship between the dollar and gold, or reissuing the kind of fiat currency—“greenbacks”—that had circulated during and after the Civil War.

Roosevelt had known that the money question would come up, but he had hoped to keep it separate from the farm issue. The Thomas amendment made this impossible—as Thomas knew it would. The Oklahoma senator felt an obligation not merely to farmers but to the people of America generally. “No permanent relief is possible until the masses have buying power,” he declared. The way to give them buying power was to put money in their hands.

Elmer Thomas’s maneuver compelled Roosevelt to take a position on money sooner than he had intended. Roosevelt accepted the Thomas amendment, noting, however, that it only authorized the president to devalue the dollar. It did not require him to do so. “Purely discretionary” was how Roosevelt, speaking at a press conference, characterized his prospective power to expand the money supply. The Thomas amendment provided various methods of achieving inflation. “I do not have to use any of them,” Roosevelt said.

He wasn’t opposed in principle to inflation. On April 5, before the Thomas amendment came to a vote in the Senate, Roosevelt employed his new authority under the banking act to order private possessors of gold to surrender their yellow metal for currency. “The chief purpose of the order,” he explained, “is to restore to the country’s reserves gold held for hoarding and the withholding of which under existing conditions does not promote the public interest.”

The administration’s “monetary goal and objective” proved to be a managed currency, one freed of the constraints of gold. The gold order of April 5 was the first step; Roosevelt’s acceptance of the Thomas amendment two weeks later was a second. “Congratulate me. We are off the gold standard,” he told his economic advisers. Some of them sighed with relief; others spluttered with indignation.

Roosevelt explained that his acceptance of the Thomas amendment was tactical. “He said that the reason for the amendment was that unless something of this sort was done immediately, Congress would take the matter in its own hands and legislate mandatory law instead of permissive,” James Warburg, an adviser to [Secretary of the Treasury Will] Woodin, recalled.

Roosevelt may have overstated the hazard of a congressional diktat, but the result of the Thomas amendment, which passed the Senate in slightly revised form, and the House shortly thereafter, was to augment the president’s power over the money supply. As an indication of what he would do with the added power, he issued an executive order on April 20 forbidding the export of gold without license from the Treasury. More permanently than anything till now, Roosevelt’s embargo cut the dollar adrift from gold.

I have no doubt that Roosevelt’s actions, then and now, are controversial. To have a thesis, however, which argues about the intertwining of finance and military under democratic presidents, then to label temporary powers voted by congress to the executive in a financial emergency without any mention of war as “war-time” in order to make one’s case, strikes me as a little dishonest.

Back to Mr. Stoller:

[FDR] constrained banks with aggressive regulation and seizures of insolvent banks, saving depositors with the Reconstruction Finance Corporation. He also used the RFC to set up much of what we know today as the Federal government, including early versions of disaster relief, small business lending, massive bridge and railroad building, the FHA, Fannie Mae, and state and local aid.

The Reconstruction Finance Corporation was set up under Republican Herbert Hoover, with this very mandate, to provide funds for reconstruction and relief.

After this overview of the three presidents is the main part of Mr. Stoller’s thesis.

Modern liberalism is a mixture of two elements. One is a support of Federal power – what came out of the late 1930s, World War II, and the civil rights era where a social safety net and warfare were financed by Wall Street, the Federal Reserve and the RFC, and human rights were enforced by a Federal government, unions, and a cadre of corporate, journalistic and technocratic experts (and cheap oil made the whole system run.)

And two, it originates from the anti-war sentiment of the Vietnam era, with its distrust of centralized authority mobilizing national resources for what were perceived to be immoral priorities.

I wish to focus on one point: “a social safety net and warfare were financed by Wall Street, the Federal Reserve and the RFC”. It would seem that both a social safety net and warfare would be financed by a labourer’s taxes, that this is the nature, say, of social security, with a portion of one’s wages saved for later needs. It also formed a part of the opposition to war, including Viet Nam, beyond the awful objectives and wretched nature of war itself: that the wages from my labour could best be served in schools, medicine, and food for fellow citizens rather than killing those in a distant place. By making the labourer beholden for his benefits to Wall Street, Federal Reserve, and the RFC, Mr. Stoller removes all agency for the worker, making him entirely a dependent on these powers.

When you throw in the recent financial crisis, the corruption of big finance, the increasing militarization of society, Iraq and Afghanistan, and the collapse of the moral authority of the technocrats, you have a big problem. Liberalism doesn’t really exist much within the Democratic Party so much anymore, but it also has a profound challenge insofar as the rudiments of liberalism going back to the 1930s don’t work.

It would seem that if the social safety net, warfare, as well as (though Mr. Stoller strangely doesn’t mention this), tax breaks and subsidies for large corporations were all funded by the contributions of worker’s wages, then the worker is not beholden to finance, not beholden to the military, not beholden to any technocrat. But no: Mr. Stoller has removed this possibility. And because the labourer, according to Mr. Stoller, is beholden to these, he is unable to make his own critique of the existing morass. He must rely on a degenerate conspiracy minded racist who stands apart from all of them:

This is why Ron Paul can critique the Federal Reserve and American empire, and why liberals have essentially no answer to his ideas, arguing instead over Paul having character defects.

Again, as stated before, Mr. Stoller leaves out the simple fact of a worker’s wages freely earned, with his own sweat, a portion of which goes to taxes funding all these things, in order to remove an agency and participation that the worker has, not as supplicant, but as an engine of all this.

I will make no statements derived from this analysis, as I believe they would be a little too passionate, and a little too defamatory. That can be left for another time, until others, preferably with a stronger background than I in economics and history, can examine Mr. Stoller’s essay as fully, or more fully and in-depth, than I have, providing either confirmation or dissent of what is written here.

For the time being, I will only say this. Mr. Stoller’s essay been praised as “genuinely brilliant” by Mr. Glenn Greenwald, of Salon, in his piece, “Progressives and the Ron Paul Fallacies”. Given the flaws in Mr. Stoller’s work, Mr. Greenwald has either barely read this essay, his knowledge of the economic and political history of the United States is very limited, or his knowledge of the history of the United States is very different from mine. I am told by many that my blog is barely readable; should Mr. Greenwald ever decide to barely read it, and declare me an authentic genius, I would be grateful.

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Wichita and Boeing

Reminded of this, following this news. From What’s the Matter with Kansas? by Thomas Frank:

Two hundred miles east of Garden City lies Wichita, Kansas, a metropolis of 340,000 that is to civil aviation what Detroit used to be to automobiles. Maps of what is called the Air Capital are crisscrossed with the landing fields of the various manufacturers: Boeing, Cessna, Learjet, and Beechcraft* each build planes there, and McConnell Air Force Base keeps the sky filled at all hours with KC-135s and the occasional B-52. As the aircraft industry’s fortunes have risen and fallen, so have those at Wichita: The city’s population exploded during World War II, as the defense contracts rolled in and the Boeing B-29s roared off for the Pacific. In the fifties and sixties Wichita built B-47s and B-52s; in later years it produced Boeing 737s and contributed elements to the company’s other airliners.

Until quite recently Wichita enjoyed the sort of blue-collar prosperity that is only a dim memory in places like Cleveland and Pittsburgh. Wichita is in trouble today, following the aircraft industry into a sharp nosedive, but in its fundamentals the place is still intact, its factories still open for business. The huge Boeing plant that sprawls for several city blocks is the largest private employer in Kansas. Entire neighborhoods are populated with Boeing workers, union members with excellent benefits and wages good enough to allow them to afford the sort of ranches or split levels that would elsewhere be the prerogative of white-collar types only.


Corporations are mobile; cities are not. They extract billions from us in bonds, tax abatements, water rights, and outright grants by threatening to pick themselves up and haul their machines and their buildings and their jobs to some sunnier clime. A state like Kansas that is watching its prime industries blow away in the hot summer wind is more vulnerable to this tactic than most. The meatpackers found it a prodigious help in dealing with Garden City. Sprint used it to great effect in Overland Park. Everyone doing business in Kansas City, Missouri, where the state line is never much more than a few blocks away, knows the power of the threat.

The firm with which the state will forever associate this particular species of extortion, though, is Boeing. As the largest employer in Wichita, Boeing has long been able to get that desperate city to a very expensive “yes.” Then, in 2003, the corporation decided to fish in even deeper waters. It began taking applications from states to see which one would get to build its new 7E7 airliner. Ordinarily, of course, businesses are the ones that make bids for government contracts; in this case, though, it was Boeing that was reviewing the bids from governments, an innovation that unleashed a form of civic competition very much like the county-seat wars of the nineteenth century. The prospect of winning the 7E7 work triggered an immediate race to the bottom in Kansas and Washington, the states where the company’s largest manufacturing facilities are located. Soon Michigan, Texas, and California had thrown their wallets into the ring as well. Anyone who wonders how, exactly, the corporate vision gets translated into the nuts and bolts of state law would do well to study the bidding war that followed.

The winning community, Boeing announced, would furnish the company with quality schools, low absentee rates among its labor force, good services, low taxes, cheap land, and “local community and governmental support for manufacturing businesses.” Got it? The competing states certainly did; they responded by generating statements of high romantic love for Boeing and obsequious promises of eternal meekness. People in the Puget Sound area remembered how Boeing had once criticized the state for having high taxes and workers’ comp costs; now they declared themselves ready to change all that, with attractive tax incentives and a promise to make the state’s troublesome environmental bureau into a “more business-friendly” outfit.

Plainspoken Kansas tried to compete in its direct, red-state way by heaping money at Boeing’s feet. In April 2003, the company informed the state that it would need to cough up $500 million in order to stay in the running for the 7E7. The state legislature, meanwhile, was dealing with damnably difficult budget shortfall, fighting over teachers’ salaries and the penny-ante usual, but the assembled pols immediately dropped their cudgels and complied with Boeing’s wishes. They voted a bond issue of the requested face value and added a special incentive, the sort of business-friendly innovation that Kansas wants to be known for: although Boeing would eventually have to reimburse the state for the principal, all interest on these bonds would come out of the state taxes of people working on the 7E7 project. These workers would not necessarily be new hires, remember, just existing Boeing employees who had been given a new task. The main change would be that their state taxes no longer went to into the general revenue but into a special fund to pay back the debts of their employer.

Quite a deal for Boeing shareholders, and quite a curious move for a state government facing the worst budget shortfall in its history. But can we blame Kansas, or any state, for reacting as it did? Every free-trade agreement we have signed in recent years has been designed to make cities vulnerable in precisely this way.

Boeing eventually decided to produce the 7E7 in pretty much the same manner as it produces its other jetliners: part of the work will be done in Wichita, and the final assembly will be done in the Puget Sound region. The bonds and tax breaks voted by the people of Kansas and Washington changed nothing but the company’s bottom line. Still, Kansas leaders were proud of the “signal” they had sent. Everyone in the corporate-relocation community was “familiar with the Boeing legislation,” boasted the state’s lieutenant governor. “They know [Kansas is] pro-business and pro-jobs.” A little more than a month later, however, Kansas would learn the true measure of the corporate world’s respect, and the lesson would make the state’s blood freeze: According to a memo leaked to a Seattle newspaper, Boeing was considering selling the huge plant on which Wichita’s prosperity depended. A decade’s worth of legislative favors and florid pro-business declarations, it now appeared, were like so many valentines to a blackguard. Profit alone swlled Boeing’s cold heart, and its fancy was now fixed on outsourcing. All that was left for Kansas to do was swoon in self-pity.

* Cessna is now owned by Textron, Learjet is owned by Bombardier, and Beechcraft is now known as Raytheon.

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