Taking the theories of economist John Maynard Keynes as gospel, our most highly respected contemporary economists imagine a complex world in which economics at the personal, corporate and municipal levels are governed by laws far different from those in effect at the national level.

Individuals, companies or cities with heavy debt and shrinking revenues instinctively know that they must reduce spending, tighten their belts, pay down debt and live within their means. But it is axiomatic in Keynesianism that national governments can create and sustain economic activity by injecting printed money into the financial system. In their view, absent the stimuli of the New Deal and World War II, the Depression would never have ended.

On a gut level, we have a hard time with this concept. There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told, is complicated.

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can't be repaid. However, this is precisely what we are planning on a national level.

I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.

As a follower of the Austrian School of economics I believe that market forces apply equally to people and nations. The problems we face collectively are no different from those we face individually. Belt tightening is required by all, including government.

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.

Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.

If we look at government market interventions through this pragmatic lens, what can we expect from the coming avalanche of federal activism?

By borrowing more than it can ever pay back, the government will guarantee higher inflation for years to come, thereby diminishing the value of all that Americans have saved and acquired. For now the inflationary tide is being held back by the countervailing pressures of bursting asset bubbles in real estate and stocks, forced liquidations in commodities, and troubled retailers slashing prices to unload excess inventory. But when the dust settles, trillions of new dollars will remain, chasing a diminished supply of goods. We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation.

The good news is that economics is not all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it. However, the free market does have a cure: it's called a recession, and it's not fun, easy or quick.

But if we put our faith in the power of government to make the pain go away, we will live with the consequences for generations.

By PETER SCHIFF
DECEMBER 27, 2008

Mr. Schiff is president of Euro Pacific Capital

http://online.wsj.com/article/SB123033898448336541.html

Hat tip: Len Salonsky

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APPROPRIATE: To set apart for, or assign for a particular use, in exclusion of all other uses; as, a spot of ground is appropriated for a garden. [Webster’s 1828]

MONEY: 1) Coin; stamped metal; any piece of metal, usually gold, silver or copper, stamped by public authority, and used as the medium of commerce. 2) Bank notes or bills of credit issued by authority and exchangeable for coin or redeemable, are also called money; as such notes in modern times represent coin, and are used as a substitute for it. If a man pays in hand for goods in bank notes which are current, he is said to pay in ready money. [Webster’s 1828]

CHARITY: Liberality to the poor, consisting in almsgiving or benefactions (Alms - Any thing given gratuitously to relive the poor, as money, food, or clothing, otherwise called charity), or gratuitous services to relieve them in distress. [Webster’s 1828]

"Every man in this House knows it is not a debt. We cannot, without the grossest corruption, appropriate this money as the payment of a debt. We have not the semblance of authority to appropriate it as a charity. Mr. Speaker, I have said we have the right to give as much money of our own as we please. I am the poorest man on this floor. I cannot vote for this bill, but I will give one week's pay to the object, and, if every member of Congress will do the same, it will amount to more than the bill asks."

AUTHORITY: Legal power or a right to command or act; as the authority of a prince over subjects, and of parents over children. Power; rule; sway. [Webster’s 1828]

He took his seat. Nobody replied. The bill was put upon its passage, and, instead of passing unanimously, as was generally supposed, and as, no doubt it would but for that speech, it received but few votes and of course, was lost.

Later when asked by a friend why he had opposed the appropriation, Crockett gave this explanation:

"Several years ago I was one evening standing on the steps of the Capitol with some other members of Congress when our attention was attracted by a great light over in Georgetown. It was evidently a large fire. We jumped into a hack and drove over as fast we could. In spite of all that could be done, many houses were burned and many families made houseless, and besides, some of them had lost all but the clothes they had on. The weather was very cold, and when I saw so many women and children suffering, I felt that something ought to be done for them. The next morning a bill was introduced appropriating $20,000 for their relief. We put aside all other business and rushed it through as soon as it could be done.

The next summer, when it began to be time to think about the election, I concluded I would take a scout around among the boys of my district. I had no opposition there, but, as the election was some time off, I did not know what might turn up. When riding one day in part of my district in which I was more of a stranger than any other, I saw a man in a field plowing and coming toward the road. I gauged my gait so that I should meet as he came to the fence. As he came up, I spoke to the man. He replied politely, but as I thought, rather coldly.

I began, 'Well, friend, I am one of those unfortunate beings called candidates, and-'

'Yes, I know you; you are Colonel Crockett, I have seen you once before and voted for you the last time you were elected. I suppose you are out electioneering right now, but you had better not waste your time or mine. I shall not vote for you again.'

This was a sockdolager, I begged him to tell me what was the matter.

'Well, Colonel, it is hardly worth while to waste time or words upon it. I do not see how it can be mended, but you gave a vote last winter which shows that either you have not capacity to understand the Constitution, or that you are wanting in the honesty and firmness to be guided by it. In either case you are not the man to represent me. But I beg your pardon for expressing it in that way. I did not intend to avail myself of the privilege of the constituent to speak plainly to a candidate for the purpose of insulting or wounding you.

I intend by it only to say that your understanding of the Constitution is very different from mine; and I will say to you what, but for my rudeness, I should not have said that I believe you to be honest. But an understanding of the Constitution different from mine I cannot overlook because the Constitution, to be worth anything, must be held sacred and rigidly observed in all its provisions. The man, who wields power and misinterprets it, is the more dangerous the more honest he is.'

'I admit the truths of all you say, but there must be some mistake about it, for I do not remember that I gave any vote last winter upon any constitutional questions.'

'No, Colonel, there is no mistake. Though I live here in the backwoods and seldom go from home, I take the papers from Washington and read very carefully all the proceedings in Congress. My papers say that last winter you voted for a bill to appropriate $20,000 to some sufferers by a fire in Georgetown. Is that true?'

'Well, my friend, I may as well own up. You have got me there. But certainly nobody will complain that a great and rich country like ours should give the insignificant amount of $20,000 to relive its suffering women and children, particularly with a full and overflowing Treasury, and I am sure, if you had been there, you would have done just as I did.'

'It is not the amount, Colonel, that I complain of, it is the principle. In the first place, the government ought to have in the Treasury no more than enough for its legitimate purposes. But that has nothing to do with the question. The power of collecting and disbursing money at pleasure is the most dangerous power that can be entrusted to man, particularly under our system of collecting revenue by a tariff, which reaches every man in the country, no matter how poor he may be and the poorer he is, the more he pays in proportion to his means.

What is worse, it presses upon him without his knowledge where the weight centers, for there is not a man in the United States who can ever guess how much he pays to the government. So you see that while you are contributing to relieve one, you are drawing it from thousands who are even worse off than he. If you had the right to give anything, the amount was simply a matter of discretion with you, and you had as much right to give $20,000,000 as $20,000.

If you had the right to give to one, you have the right to give to all and as the Constitution neither defines charity nor stipulates the amount, you are at liberty to give to any and everything which you may believe, or profess to believe, is a charity, and to any amount you may think proper. You will very easily perceive what a wide door this would open for fraud and corruption and favoritism on the one hand, and for robbing the people on the other. No, Colonel, Congress has no right to give charity.

Individual members may give as much of their own money as they please, but they have no right to touch a dollar of the public money for that purpose. If twice as many houses had been burned in this country as in Georgetown, neither you nor any other member of Congress would have thought to appropriating a dollar for our relief. There are about two hundred and forty members of Congress. If they had shown their sympathy for the sufferers by contributing each one week's pay, it would have made over $13,000. There are plenty of men in and around Washington who could have given $20,000 without depriving themselves of even a luxury of life.

The Congressmen chose to keep their own money, which, if reports to be true, some of them spend not very credibly; and the people about Washington, no doubt, applauded you for relieving them from the necessity of giving by giving what was not yours to give. The people have delegated to Congress, by the Constitution, the power to do certain things. To do these, it is authorized to collect and pay moneys, and for nothing else. Everything beyond this is usurpation and a violation of the Constitution.

So you see, Colonel, you have violated the Constitution in what I consider a vital point. It is a precedent fraught with danger for the country, for when Congress once begins to stretch its power beyond the limits of the Constitution, there is no limit to it and no security for the people. I have no doubt you acted honestly, but that does not make it any better, except as far as you are personally concerned and you see that I cannot vote for you.'

'I tell you I felt streaked. I saw if I should have opposition, and this man should go talking, he would set others to talking and in that district I was a gone fawn-skin. I could not answer him and the fact is, I was so fully convinced that he was right, I did not want to. But I must satisfy him and I said to him:

Well, my friend, you hit the nail upon the head when you said I had not sense enough to understand the Constitution. I intended to be guided by it and thought I had studied it fully. I have head many speeches in Congress about the powers of Congress, but what you have said here at your plow has got more hard, sound sense in it than all the fine speeches I ever heard. If I had ever taken the view of it that you have, I would have put my head into the fire before I would have given that vote; and if you will forgive me and vote for me again, if I ever vote for another unconstitutional law, I wish I may be shot.'

He haughtingly replied: 'Yes, Colonel, you have sworn to that once before, but I will trust you again upon one condition. You say that you are convinced that your vote was wrong. Your acknowledgment of it will do more good than beating you for it. If, as you go around the district, you will tell people about this vote and that you are satisfied it was wrong, I will not only vote for you, but will do what I can to keep down opposition, and perhaps, I may exert some little influence in that way.'

'If I don't, I said, I wish I may be shot, and to convince you that I am in earnest in what I say, I will come back this way in a week or ten days, and if you will get up a gathering of the people, I will make a speech to them. Get up a barbeque and I will pay for it.'

No, Colonel, we are not rich people in this section, but we have plenty of provisions to contribute for a barbeque and some to spare for those who have none. The push of crops will be over in a few days and we can afford a day for a barbeque. This is Thursday. I will see to getting up on Saturday week. Come to my house on Friday and we will go together and I promise you a very respectable crowd to see and hear you.'

'Well, I will be there. But one thing more before I say good-bye. I must know your name.'

'My name is Bunce.'

'Not Horatio Bunce?'

'Yes.'

'Well, Mr. Bunce, I never saw you before though you say you have seen me, but I know you very well. I am glad I have met you and very proud that I may hope to have you for my friend.'

It was one of the luckiest hits of my life that I met him. He mingled but little with the public, but was widely known for his remarkable intelligence and incorruptible integrity and for a heart brimful and running over with kindness and benevolence, which showed themselves not only in words but in acts. He was the oracle of the whole country around him, and his fame had extended far beyond the circle of his immediate acquaintance. Though I had never met him before, I had heard much of him, and but for this meeting it is very likely I should have had opposition, and have been beaten. One thing is very certain; no man could now stand up in that district under such a vote.

At the appointed time I was at his house, having told our conversation to every crowd I had met, and to every man I stayed all night with, and I found that it gave the people an interest and a confidence in me stronger than I had ever seen manifested before. Though I was considerably fatigued when I reached his house, and under ordinary circumstances, should have gone early to bed, I kept up until midnight talking about the principles and affairs of government, and got more real, true knowledge of them than I had got all my life before.

I have known and seen much of him since, for I respect him - no, that is not the word - I reverence and love him more than any living man, and I go to see him two or three times every year; and I will tell you, sir, if every one who professes to be a Christian lived and acted and enjoyed as he does, the religion of Christ would take the world by storm.

But, to return to my story. The next morning I went to the barbeque and to my surprise, found about a thousand men there. I met a good many whom I had not known before, and they and my friend introduced me around until I had got pretty well acquainted - at least, they all knew me. In due time notice was given that I would speak to them.

They gathered up around a stand that had been erected. I opened by speech by saying:

Fellow-citizens - I present myself before you today feeling like a new man. My eyes have lately been opened to truths which ignorance or prejudice, or both, had heretofore hidden from my view. I feel that I can today offer you the ability to render you more valuable service than I have ever been able to render before. I am here today more for the purpose of acknowledging my error than to see your votes. That I should make this acknowledgment is due to myself as well as to you. Whether you will vote for me is a matter for your consideration only.

I went on to tell them about the fire and my vote for the appropriation and then told them why I was satisfied it was wrong. I closed by saying:

And now, fellow citizens, it remains only for me to tell you that most of the speech you have listened to with so much interest was simply a repetition of the arguments by which your neighbor, Mr. Bunce, convinced me of my error. It is the best speech I ever made in my life, but he is entitled to the credit for it. And now I hope he is satisfied with his convert and that he will get up here and tell you so. He came upon the stand and said:

'Fellow citizens, it affords me great pleasure to comply with the request of Colonel Crockett. I have always considered him a thoroughly honest man and I am satisfied that he will faithfully perform all that he has promised to you today.'

He went down, and there went up from that crowd such a shout for Davy Crockett as his name never called forth before. I am not much given to tears, but I was taken with a choking then and felt some big drops rolling down my cheeks. And I tell you now that the remembrance of those few words spoken by such a man, and the honest, hearty shout they produced, is worth more to me than all the reputation I have ever made, or ever shall make, as a member of Congress."

"Now, sir," concluded Crockett, "you know why I made that speech yesterday."

From the Historic Documents archive published online by The Federalist Patriot at
http://FederalistPatriot.US

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