The Case for Political Action

One of the ongoing debates among advocates of political and economic freedom is over methodology: what is the best way to achieve a greater degree of freedom than exists today? Some, like Leonard Read (interviewed in this issue) argue that massive educational efforts are a precondition for any meaningful increase in freedom. Others, like Harry Browne (in his book How I Found Freedom in an Unfree World) emphasize self-protection and self-preservation, arguing that individuals can't change the world and shouldn't waste time trying. Still others, such as the Libertarian Party, argue that political action can and should be used to roll back the power of the State. It is this latter point of view that is argued in Howard Katz's article. Mr. Katz thinks that political action is not only feasible, but necessary if we are to have political and economic freedom.

It is almost a self-evident proposition that one ought to pursue one's values. That is, one ought to act to achieve those purposes and goals which are good and valuable. The great bulk of humanity carefully follows this prescription in the unimportant details which makes up their lives, but totally disregards it in the major issues which determine the direction of those lives. One of the stark tragedies of the modern hard-money movement is the way in which so many people in it (dear reader, this might mean you) are living their lives—and I mean by this, in relation to their fundamental choices of goals—in total disregard of the knowledge they possess in the field of economics.

But we are used to thinking of values in connection with esoteric subjects, such as ethics or aesthetics or perhaps politics. What have values got to do with economics, in particular with making a living? To answer this let me take an example which will be far enough removed from present controversies to be susceptible to impartial judgment.

Consider the time in human history immediately after the discovery of agriculture. Agriculture was a mode of production which allowed a vast increase in material wealth. The techniques and methods of the art were new so there was large room for improvement and ample opportunity for invention and ingenuity. Before the discovery of agriculture an ambitious and competent youth could only look forward to a life of hunting and gathering, just as his father had done. But after the discovery of agriculture he was faced with a choice; this choice was of a moral nature. It required of him a re-evaluation. This is, it required him to reassess his values and to do so by a rational process. All of the nonrational factors—conservatism, fear of the new, family pressure, the opinion of the community, simple inertia—worked to persuade him of the incorrect choice. It was only a rational decision on the subject of values which gave him the proper choice.

Note has often been made of the great amount of talent in the field of politics in the late 18th century—men such as Jefferson, Madison and Hamilton—and the total lack of talent in the late 19th century, where we find example after example of dull, mediocre presidents and statesmen, all very much in the tradition of the Founding Fathers, but incapable of any new inspiration or greatness, capable only of dutifully and adequately following along a path laid out before with principles taught them by others.

Where were the great leaders in politics in the latter part of the 19th century? Where were the individuals of intelligence and energy which the country had surely proved itself capable of producing? The answer is: they were in business. The greatest value in the world of the 18th century was freedom. But by the 19th century this value had been achieved (just as by the time of the industrial revolution, the value of proper agriculture had been achieved). The great minds of the 18th century turned themselves to the question of freedom, and thus to the sphere of politics; the great minds of the 19th century, living in a country where the principles of freedom were already well understood, turned their minds to further advances, to the great value represented by the railroad, to the application of science to the improvement of human life.

TODAY'S WORLD

Now what is important to understand is that our age has seen a fundamental change in world conditions making it essentially different from the world of the 19th century. Most such fundamental changes in human history are advances; however, our age has seen a regression. This regression is the loss of freedom which has blighted the 20th century and constitutes the principal problem of our time.

The reason freedom is so important is that it is a prerequisite to any other value. Without freedom, as Ayn Rand points out, no other values are possible. For people living as serfs under the control of a government bureaucrat there is simply no point to working for any value. Why try to build a business when a government edict can destroy it at any time? Why work for 20 years of your life to build something when a bureaucrat's mistake can wipe it out?

If the above paragraph appears to be an abstraction, then consider the following examples—known to me personally. A small businessman is wiped out when an urban renewal project removes his customers. The project offers to relocate him in another area, but it would require many years for him to build a clientele, and he is an elderly man. He thought he had provided for an old age of self sufficiency and dignity. But he becomes a ward of the state. A small independent trucker is denied a license to operate interstate because he lacks the requisite political pull; so he can never build his business beyond a small, local enterprise.

Sit down for a minute and start to review your personal life plans in the light of what you know about economics and in the light of the kind of thing which has been happening for the past few years in America.

Bear in mind that the beneficial effect on business of a paper money expansion wears off after a time so that to achieve the same beneficial effects ever greater issues of paper money are needed. We can thus expect the paper money issues to accelerate, leading to an ever greater rate of currency depreciation. (This of course has been the history of the past 25 years.) Additionally, it becomes more and more difficult to maintain the profits of the corporate establishment in the face of growing public alarm over the depreciation of the currency. There is thus a necessity for a greater and greater degree of government control over the economy. (This also has been the history of the past 25 years.) Project these trends forward 15 years.

In 15 years we can look forward to a world in which prices rise at a rate between 15 and 25 percent annually and in which price and wage controls (which keep the price increases off the official statistics and drive them onto the black markets) have become permanent. With the currency depreciating so rapidly it will be extremely advantageous to go heavily into debt; with controls so important to business it will be necessary to have connections with the right politicians. For both of these reasons big business will prosper at the expense of small. With so much paper money floating around wild emotional periods on the stock and commodity markets (such as that of 1967-68 or 1972-3) will be common.

There are several types of people whose personal characteristics fit nicely into such an environment. There is the team player, who is very good at getting along with his peer group, but not too good at doing his job. He fits nicely into a big corporation but won't work out too well in a small business. There is the political type who has friends in high places (or the obsequious bureaucratic type who gets appointed to the high place). And there is the promoter type who concocts wild schemes to take advantage of emotional periods on the stock and commodity markets.

While such people will profit from the chaos of the coming years, it is safe to assume that the hard-money people reading REASON are not such types. The economic principle of hard money—that one can not get something for nothing—is also a basic view of life which shapes an individual's character and personality. Where will the something for something people be in 15 years? They will be exploited to pay for the benefits accruing to the other class. How this exploitation will occur will differ in each individual case. Take the above picture of the world of 1989 and integrate it with your own personality, situation and life goals. There is no way for an honest person to succeed in that kind of environment.

What do you do as an individual if, after working years at a career, you realize that you are not promoted because you are not "one of the team" or if your small business is beaten out in the competition because it cannot command sufficient credit or if you are fired because the promoter type who runs the conglomerate which just took you over made a colossal business error?

There is no way to avoid these consequences. The absence of freedom penetrates into every nook and cranny of society. It covers every country in the world. Despite all of our troubles the United States is still the freest country in the world. There is no place to run.

RE-EVALUATE

It follows that, for people who recognize this, there is a re-evaluation required, just as there was for the youth at the time of the agricultural revolution or the industrial revolution. We cannot simply follow along pursuing the goals and values taught us by our parents. In their world it was a high ideal to be a successful scientist, businessperson or professional. But however worthy these goals are in the abstract, they are not the proper goals for our time. Already currency depreciation has proceeded to the point where most firms employing scientists are giant corporations (necessary in order to go heavily into debt to benefit from the depreciated currency and to get government contracts). Today's scientist is no Thomas Edison or Henry Ford working in his bicycle shop. He is a little cog in a big machine where ability is subordinate to teamwork and where, if he does his job badly, they may find out in five years or they may not find out at all. The profits and future of Lockheed Corporation do not depend on the scientists or professional people employed. They depend on top management's political influence.

What is required, then, for our time is pursuit of the value of freedom. This is the goal which is properly realistic for our age. To pursue other values which are based on freedom at a time when freedom itself is slipping away is futile and impractical.

But against this conclusion, among those who understand economics and our monetary problems and who value freedom, an opposing argument is advanced: Yes, it is conceded, freedom is a prime moral value, but freedom is a value for society as a whole. Why should I as an individual devote myself to working for other people's freedom? Wouldn't this be altruism? Those who have knowledge of our economic and monetary difficulties should use this knowledge to profit as individuals. Cooperative action is collectivistic.

This is the argument popularized by Harry Browne, and there is much in it that appeals to the conservative mind. There is selfishness (as per Ayn Rand). There is individualism, in the sense of the single person acting alone. There is economic knowledge used for one's benefit. All of these are virtues which have a great appeal to the conservative-libertarian mind.

However, as valid as these virtues are in the abstract, in the situation which exists today they are of no help. This is not the way to counter the problem we in the 20th century face. Let me take an example.

Suppose you lived in a primitive village. Suppose you discovered, through facts and reasoning not generally accessible, that your village would soon come under attack by a powerful enemy. What course of action would you pursue? Would you argue that security against invasion is a value to the village as a whole and that it was altruistic to try to save the village? Would you say that you should act to save yourself through superior knowledge?

Of course not. You would realize that your own individual well being lay through the village. Only if the village was saved could you be saved. You would have to alert the other villagers to the danger and rouse them to a common defense. You would have to take cooperative action instead of solitary action.

In this situation Harry Browne would call you an altruist for helping to save the whole village. He would call you a collectivist for cooperating with others.

But this situation with the primitive village is exactly analogous to the monetary situation in modern America. In America today a tiny group of people have the power to issue paper money; the rest of us have the obligation to accept it. The operation of this process is to exploit the latter class in favor of the former.

This exploitation occurs through the depreciation of the currency. It is exacted through a political process, and it can only be repealed through a political process. As long as there exists a legal tender law, some people will be able to rob others via paper money.

What Harry Browne advocates is that you make up your losses by wise financial moves. But it should be clear that you can only make up your losses by taking wealth from some of your fellow losers. The issuers of the paper money have already gained. For the losers to try to beat each other out to make up their losses is not a fundamental solution.

I (of all people) certainly do not condemn speculation or wise financial moves. My advice is to recommend such tactics in all situations. However, this is completely irrelevant to the losses suffered from paper money. One can speculate in a society with a gold standard, and one can speculate in a society with paper money. Best of luck. But in the latter case an additional amount will be taken from you (above and beyond what you win or lose) by the depreciation of the currency.

THE FALLACY

The basic error Harry Browne is committing is a fallacy very common to conservative-libertarians. It is the placing of economic power above political power. Anarcho-capitalists commit this fallacy when they assume that the market will, if left alone, create defense agencies which perform the proper functions of government. Libertarian economists commit this fallacy when they assume that the bankers' paper money schemes will be defeated by market forces.

It is true that the paper money schemes will be defeated in the sense that the predictions made by the Paul Volckers and the John Kenneth Galbraiths will not come true. But these predictions are not expected to come true. They are pure propaganda measures and are not believed by the men who make them. All through the early and mid-1960's the Kennedy and LBJ monetary economists predicted that the Bretton Woods system would endure. When this prediction failed, the libertarian economists declared: "Aha, the forces of the marketplace have defeated these foolish Keynesians. The Bretton Woods system has been destroyed by the law of supply and demand."

But if we look at what the Keynesian economists were doing in the early and mid-1960's, we get quite a different picture. They were running all around the world setting up the system of Special Drawing Rights (SDR's). Thus, when the Bretton Woods system collapsed, there was no return to gold as the international currency, and when the time is right to junk the system of floating exchange rates, the move will be to the adoption of the SDR as an international currency, not gold. If the SDR had not been created, there would have been no alternative but a devaluation of the dollar and a gold (as opposed to a gold-exchange) standard in international affairs.

So while the libertarian economists were saying: "We predict that your schemes will fail because of economic forces," the Keynesian economists were taking political action to continue and extend the system of paper money. They knew that the Bretton Woods system was about to collapse. Their predictions were outright lies for the purpose of propping the system up until they could get the SDR in place. Their plan succeeded. It succeeded because, while they were taking political action (international agreement on the SDR), the libertarian economists were sitting back doing nothing and waiting for market forces to implement their view. Instead of taking political action to counter the SDR, libertarians lost the battle by default. (The best fight all along has been put up by the French Conservative Jacques Rueff, as a result of which France almost torpedoed the SDR scheme.)

Again this appeals to the libertarian-conservative prejudice. He finds it much easier to hole up in a study with his economic books than to go out in the real world and deal with people (which is what political action requires). Instead of doing what is necessary in reality, he erects a theory (the supremacy of economic power over political power) which rationalizes what he wants to do anyway (study economics).

Political power is superior to economic power. You can not even have economics unless the political system grants some protection to the right of private property and free exchange. Freedom is the value upon which all other values depend. And freedom can only be secured by political means.

VIRTUE REWARDED

It is also argued that political action is altruistic. It is for the benefit of others. It is only marginally for the benefit of one's self. The benefit to one's self from a free society is a small fraction of the total benefit to all the people. Why be the one who takes the lead and does all the work (and it is a great deal of work) when one's share in the reward is so small?

My answer to this is that I am a fundamental believer in justice. I do not believe that one has to see one's specific reward in front of one's nose in order to justify pursuing a course of action. An individual should pursue values. If one pursues values, then one will achieve values. If a person waits until the exact, specific reward is in front of his face, then he can never pursue the long range values, which are the most important values of all.

And, again, consider the primitive village. Suppose the hero in our story successfully arouses the villagers to a common defense and the attack is repelled. Will the only reward our hero receives for his efforts be the fact that his house is saved from the attackers? Common sense tells us not. He will also receive the recognition and gratitude of all of the villagers.

The materialists to the contrary, recognition and gratitude are real values and of real, practical benefit to a person in the world. (They can gain a lot of the things which money cannot buy.) But more than that, society (especially modern society) has a way of translating the spiritual values (such as recognition and gratitude) into the material values. The primitive village might give our hero 3 wives and 1000 sheep and elect him the next chief. In our modern society such leaders in a political movement are in demand for books, articles, lectures, etc. Political offices are open to them. In the long run justice will be served, and values will be achieved in proportion to values created—values in kind. The creator of economic values will get his economic reward; the creator of a more spiritual value will get a more abstract type of reward.

I have not noticed that people who take the Harry Browne line are particularly successful economically (despite the ostentatious image they put forth). In their financial dealings they are the prisoners of their own fallacies. They are continually assuming that the economic collapse they predict is just around the corner. These are the people who were very slow to turn bullish on the stock market in 1967 and very early to turn bearish in 1968 (repeat performance in 1971). Their only success has been the price of gold, this was in part due to political forces. If it had not been for the political pressure mounted by National Committee to Legalize Gold and (I like to think) Committee to Reestablish the Gold Standard, it would have been much easier for the Paul Volckers to move toward a dumping of gold on the world markets. Thus these people who put their faith in economic power are riding on our backs, even while they deride us.

In fact, the "Browne-outs" have a hard time being successful economically because in pursuit of their ideology they are ignoring one crucial economic point. That is that the collapse they predict is not unitary. By their own admission it will either be a depression (i.e., a stoppage of paper money or a decrease in the money supply) or a runaway "inflation" (i.e., massive issues of paper money). It is a simple economic corollary of this that one cannot protect one's self from both of these eventualities. They are opposites with opposite economic effects. The moves to protect one's self from the depression (defensive moves: money in cash, gold stocks and bonds) are precisely the moves which leave one most vulnerable to "inflation." And the moves to protect one's self from "inflation" (real estate, highly leveraged stocks, ventures which leave one in debt) are the worst things one can do in a depression.

Thus Harry Browne can not tell us how to avoid economic catastrophe because he does not know what kind of catastrophe is coming—"inflationary" catastrophe or "deflationary" catastrophe. He does not know what kind of catastrophe is coming because no one knows. No one knows because the issue has not been resolved. The issue has not been resolved because it is a political issue, and the political forces which will resolve it are still struggling furiously in the political arena. And in that struggle the side of good desperately needs the Harry Brownes and the other economic types to get off their backs and enter the battle, not to sit on the sidelines and jeer. (And of course the evil consequences of a currency depreciation are not limited to economics. Assuming that a Harry Browne type could have avoided the economic effects of the depreciation of the German currency in 1923, would that have helped him avoid the consequence of that depreciation—the regime of Adolf Hitler?)

WRONG EMPHASIS

When I look around me, I see so many people basing their lives on what would have been a rational course of action two generations ago. I see them aspiring to careers in business oblivious to the fact that the personality traits necessary to become a business leader have changed and are now traits which they morally despise. I see them refining their talents to the point where they are so overspecialized that their career depends on some government program or government decision—so that bureaucrats they do not know and over whom they have no control determine the fate of their lives. I see them base their careers on businesses which are clearly dependent on the credit expansion and which will collapse as soon as an end is put to paper money. I see them working for big conglomerates whose only reason for existence is their ability to go into debt and which become giant, impersonal machines where ability counts for little and employees play corporate politics.

They think these things are practical (real, as they would say). They give some time and money to political activity, much as the average person gives to charity. But it is in the spirit of: "This is the thing which is fun; this is the moral cause in my life. I give to it for my pleasure, but it is not the serious thing which will make or break my life. It is the frosting of my life; it is not the substance."

But this is wrong. These people have built castles on sand. Their careers are not real, because freedom—the base on which they have built them—has slipped away. They are expecting their employeers and customers to act like 19th century businessmen, but this is a new age where employeers and customers have learned to act in accordance with the principles of paper money and a large bureaucracy. People deal with each other in terms of political pull, and ability counts for little.

In Judea of the third century B.C. a small group of Jews made the decision to fight for freedom against the Seleucid Empire. It was a decision made on moral grounds. The people who made it could have had no practical grounds for hope because they started off with only six rebels. But the rebellion grew as fast as the Syrian attempts to put it down until it became a realistic enterprise. Some Jews joined the rebels; others made the decision to remain at peace—in subjugation. This was still a decision made on moral grounds: to fight—and risk one's life—for the moral value of freedom, or to play it safe and be practical. As in all ages there were those who chose the one and those who chose the other.

As the course of the rebellion prospered, with the rebels holed up in the hills, unassailable by the Syrian forces, these latter, in frustration, turned against the peaceful towns in the valley, ravaging them and venting their fury on their inhabitants—even though those towns were supposedly under their protection.

There is no protection for those who place themselves in the power of evil. There is no security in subjugation. It is not safe to give up one's freedom. These principles apply today as they applied 2200 years ago.

It is the struggle for freedom which is the real thing in the world today. This is the thing in your life which 20 years from now will prove to have been the important thing to do. The effort spent on your career will, at that time, prove to have been largely wasted. It is the moral which is truly practical. Harry Browne and those who follow his advice are doomed to failure.

Howard S. Katz is a graduate of Harvard College (1959) and for eight years was editor and publisher of The Speculator, a financial advisory letter. In 1973 he founded the Committee to Reestablish the Gold Standard. At present he writes two columns on economics and finance, a monthly one for the Murray Hill News and a weekly one for the Wall Street Advertiser. He is a member of the State Committee of the Free Libertarian Party of New York.