Our modern civilization is on a trajectory that will lead to a very dark place. History provides examples of what can happen. We refer to the period 1929-1945, and course to 476AD. If the monetary system is not changed, 476AD is where we will end. The raison d’etre of Monetary Metals is to try to help bring about that change.
A Chilling Directive
President Trump’s statement is chilling. He began:
“Our great American companies are hereby ordered…”
Every word in this sentence is significant, starting with the first one. We must ask, whose companies does he think they are? We are reminded of the vision of Benito Mussolini (who, not incidentally, praised Keynes):
“Everything within the state, nothing outside the state, nothing against the state.”
Mussolini’s idea was for nominal private ownership of the means of production—but under government control. Which meant his control. The means of production was “ours”, in the sense of the Royal We (as opposed to when we say the word “we”, to mean this is the Monetary Metals Report and not just Keith’s personal blog).
By the principle of Mussolini’s fascist system, Trump is telling companies what to do. He wants them to:
“…bringing your companies HOME and making your products in the USA.” [emphasis in original]
We are not here to analyze the geopolitical implications to this. Nor the predictable—dare we say intended—consequences such as higher prices for goods, lost profits, investment write-downs, layoffs and unemployment, etc. We want to look at something we don’t usually address directly: the nature of social systems. Man is a social being. He thrives in an environment where there are (many) others, not so much isolated on a desert island.
The Social System
But the benefit depends on the nature of the social system under which he lives. For example, the Soviet system made life all but impossible. It killed tens of millions of its own citizens—in peacetime—and rendered the rest into miserable, half-starved slaves. Life was all but impossible, because coordination between productive people was made all but impossible. That’s what government intrusion into the economy does (Keith proved it in his dissertation, by looking at spreads). The more the government overrides individual decisions, the more coordination breaks down.
This is not merely due to corruption. Of course, the people who decide which company to make and which to break are corrupt. Such power attracts corrupt people to begin with, and even if they were Snow White initially, such power tends to corrupt people. Professor J.R.R. Tolkien wrote a very good story about this.
The breakdown is not merely due to stupidity, though most economic dictators are stupid (Alan Greenspan was the notable exception). Nor incompetence. Nor certainly lack of data. Today, they are buried in data purporting to tell them what we need.
Coordination is impossible under government control, for two reasons. One, the central planner does not know, and cannot know, what each of the market participants knows. The central planner is trying to use aggregate statistics in lieu of knowledge about the margin—the millions and millions of margins in an economy of any size. Two, a diktat does not operate by the same mechanism as the market. Even if the planner knew the right price to set, he would not cause the same economic effects as the market would in setting that price.
If you think of economic diktats as an assault on producers, a breakdown of coordination, and impoverishment of society, then that is the right picture.
And there is another dimension. When the government makes some businesses and breaks others, everyone of course has to work overtime to position themselves to be in the former group. Even if the government is not directly breaking some, if it is just taxing everyone, the consequence is the same. People naturally want to be on the receiving end of the subsidy, not stuck paying endless taxes for no benefit.
All History Is the History of Class Conflict
Central planning specifically, and socialism generally, sets man against man. Claiming there is an inherent conflict between classes, it creates classes and puts them into conflict. So not only does socialism and its central planning impoverish people, but it stokes their anger and gives them reason to direct their anger at members of other groups in society.
This is a dynamic system, much like the monetary system, with positive feedback loops. First one group gets control over the levers of power. And uses it to direct other people’s wealth to its members. Then another group gets control, and does not remove government from its role of economic planner, but merely seeks to benefit from the looting.
With each cycle, new precedents are set, and the level of resentment rises. Few can understand why members of other groups—whom they now hate—are angry. Only their own anger is justified. Others are to be demonized, which is a prelude to committing atrocities against them. If this sounds far-fetched, we encourage you to read about the rise of the Nazi party in Germany.
Making Winners and Losers
It is in this light that we look at President Trump’s order to American companies to move their operations and manufacturing home. This move will make a few businesses, particularly those that can supply components that are currently being supplied by Chinese firms. And it may bid up wages for workers to make these products.
However, it will impose massive losses on every firm forced to move its manufacturing to the US. And on every firm who supported them in being offshore. This includes obviously Chinese firms, but also American shipping, logistics, consultants, and others.
And there will be exemptions. It will prove to be impossible for some manufacturers to move on command. This will be either due to the lack of factories in America that have the capabilities and skills. Or the lack of a massive workforce trained and willing to do the technical but tedious tasks required. Unlike in China, there are not a million people in America that can be hired to do circuit board assembly.
Some of these companies will have a compelling argument and/or good media presence and well-connected lobbyists. They will demand—and get—special permission to keep operating as they do now. Others will fail to get such permission, and be forced to take whatever loss up to going out of business.
This new economic directive will make some and break others. And cause strife between groups who previously had no reason to hate one another. Consider those who are broken by this demand. When they get their guy into power, sometime in the future, what new policies will they want to impose? One thing is virtually certain: he won’t roll back the government’s power and try to return to a freer market. He will seek to impose some new injustice, to compensate for the prior injustice and also simply to take what’s there for the taking.
And then he’s out of power, and the cycle continues. Or perhaps more accurately, the downward spiral from free markets and prosperity, to more controls, more poverty, and hence more group conflict. It takes on a life of its own, with its own momentum and inertia.
Trump said, “This is a GREAT opportunity for the United States.” [emphasis in original]
There are few cases where all 300M Americans have a common interest (e.g. an invasion). This is not one of them. For example, the wage-earner who can afford a smart phone at $500, but not one priced at $2,500, does not have a common interest with the US circuit board soldering company. So it is not true that it is a great opportunity for “America”. It is a good opportunity for those who would seek the power to decide who is made and who is broken.
It is a great opportunity for the gold speculators, who plan to sell their gold for more dollars. And it is a great opportunity for the bond speculators. Just on Friday alone, not counting the move it’s been making since November last year, the 10-year Treasury yield fell another 5%. This is delivering big capital gains to those who plan to sell their bonds for more dollars.
It is a good opportunity for those who would seek to profiteer on the back of every government program. It is a good opportunity for the vultures, and the cockroaches who will feast on the spoils of our once-great civilization, now carelessly spilled onto the floor.
For the love of America, if you are an American, and for the sake of civilization itself, we hope you will oppose this ill-conceived move to take control over a major part of the economy.