“But if the government undertakes to control and to raise wages, and
cannot do it; if the government undertakes to care for all who may be
in want, and cannot do it; if the government undertakes to support all
unemployed workers, and cannot do it; if the government undertakes
to lend interest-free money to all borrowers, and cannot do it; if…‘The
state considers that its purpose is to enlighten, to develop, to enlarge, to
strengthen, to spiritualize, and to sanctify the soul of the people’ – and
if the government cannot do all of these things, what then? Is it not
certain that after every government failure – which, alas! is more than
probable – there will be an equally inevitable revolution?”
– Frederic Bastiat, The Law, ( June, 1850)
It’s been more than 150 years since Frederic Bastiat wrote his treatise, The Law, a
small work, challenging the ravages of failing socialism thrust upon France as a result of
the French revolution.
In that unique pamphlet, Bastiat points out that when the law of any country supports
the moral belief systems of a people, defends the rights of said people and their
property, the law is perceived as being moral; a defense against evil and those who
flaunt it as being immoral. Payment of taxes and civic obligations are perceived as a
virtue and those who flout this as criminals.
However, when the law becomes a source of plunder or pits itself in opposition to the
morals of the people, the people perceive the law to be immoral and widely despise it.
Indeed, in those times, flouting the law is extolled as virtue.
Another book by contemporary author Hernando Desoto, The Mystery of Capital:
Why Capitalism Triumphs in the West and Fails Everywhere Else, points out much the
same thing – that the security of ownership of private property, guaranteed by law for
the lower and middle-classes, has been the essential ingredient resulting in the prosperity
enjoyed by many western countries. Without this security, where the state becomes
an impediment to commerce or property ownership, the people are forced to operate
their economies outside of law – which is once again perceived as evil – rather than a
force for good.
In essence, when a government goes from being a protector of private property to a
plunderer of it, it places itself on a course of chaos, economic ruin, and its own ultimate
self-destruction.
Editor’s Note:
The following article,
used with the author’s
permission, provides
a sober yet necessary
review of socialism’s
progression in society.
By understanding the
steps of socialism,
you will be better able
to comprehend the
direction your nation
is going. Although
this article was written
from an American
viewpoint, Mr. Loeffler’s
piece has implications
that transcend
any one nation.
John Loeffler is the
host of Steel on Steel,
a weekly radio program
that highlights
historical and contemporary
challenges to
Western culture. He
is also the co-host of
the Big Picture segment
of The Financial
Sense Newshour (www.
financialsense.com).
Volume 2, Issue 9 -8- The Sad Road to Socialism
The Three Steps of Socialism
Socialism is the mechanism that transforms government
from its noble role as a protector into a predator.
And since the citizens of our fine country seem determined
to plow through socialism to its bitter end, we
should examine the territory through which these three
sad steps lead. The core result of socialism is the destruction
of private property and wealth.
The events described in this article are a composite of
the ravages of socialism experienced in other countries.
While each country does not experience all the events
portrayed (remember, this is a composite, variants will
be found in each historical example), all socialist countries
ultimately follow the same miserable path. The
U.S. doesn’t have to go down this road, but it seems
determines to do so.
We’re Off to See the Wizard
One of the great dangers of any government “by the
people” is that sooner or later their politicians discover
they can vote largess from the public trust. Their
first experiment at this bold new adventure invariably
revolves around social programs enacted in the name
of morality and the public good – or even solving some
current crisis.
Who could oppose that? “After all,” it will be argued, “don’t you care about people, or the welfare of the country, or the
environment?”
The lure of this argument has been absolutely irresistible, from the Roman Empire to the French and Bolshevik
revolutions, all the way to the mainstream “Socialist Parties” in the USA today (Democrat and Republican – both have
followed a socialist line).
Step One - The Moral Argument: A Promise of Something for Nothing
The moral argument that claims we can finally solve poverty, pain, sickness, and hunger with “free” money seems just
too good to be true. It usually is, but it “sells” to the public. To fund these allegedly moral programs, the assets of the
gentle citizens must be quietly taxed in the name of the public good.
Only a few wise and isolated voices warn that this baby dragon they have just hatched will grow up to be a firebreathing
monster. But not to fear; the wise voices are generally shouted down by the “gentle politicians,” who fiercely
demonize protestors as selfish and blocking the road to the perfect society. After all, how could something so noble do
anything bad to the country?
Volume 2, Issue 9 -9- The Sad Road to Socialism
At first the rich are the only ones asked to pay more of their “fair share.” In the U.S., income tax originally affected
only upper-bracket individuals. In this early stage, few complain and everyone seems happy, except for those nagging
voices still warning of dire consequences ahead – the ones the gentle legislators wish would just shut up. Other than
that, the people have little to fear because the gentle legislators appear to be heroes, placing our feet firmly on the road
to utopia. Soon they promise all the have-nots will have, and those who do have, will have just a little less.
After all, as we said, it’s just their “fair share.”
Ah, but time rumbles onward, and the number of people dependent upon these programs swells along with the number
of “free” government services. Free things do sell, and that’s what politicians want to do: sell their programs.
As the programs swell, they become unwieldy, requiring bloated bureaucracies to administer them to ward off the
inevitable fraud and corruption. This in turn consumes an ever-greater part of the tax booty and services less to the
originally intended recipients.
In order to control the chaos of a large group of people cueing up to get something for nothing, large volumes of laws
and regulations have to be written to control who gets what, where and when – and who the “givers” and who the “takers”
are. Now, the bureaucrats who administer these programs are also dependent on them for their livelihoods. This
entrenches the program and assures its progression to Stage Two.
The Magic Dragon Isn’t Cute Anymore
Somewhere along the line, the gentle legislators discover that their baby dragon has grown and it’s snarling at them
a lot. It wants much food. They’re not controlling it; it’s controlling them. However, in order to retain their prestigious
position, ever-increasing sources must be found to feed their growing rapacious raptor.
The food source (tax burden) shifts rapidly downward into the middle class, as the gentle politicians coo that only
the rich are being soaked. Concomitant with the increase of taxation, the miracle of hidden taxation through monetary
inflation is discovered. Central banks print more and more money to allow the good times to continue over and above
what direct taxation will allow.
This process of monetary inflation results in debasement of the currency, causing the citizens to work harder and
harder, and run faster and faster, in order to keep up with the loss of their currency’s value and the concomitant rise
of prices. It’s slow at first but accelerates along an insidious, exponential path. Ultimately it destroys everything the
middle-class works for.
Additional reptilian food sources called “revenue streams” are created. More fees, fines, “mitigation payments” and
permits are required to do almost anything, driving the cost of doing everything upwards. Coupled with this is a bewildering
array of regulation and laws making the business of life much more difficult to accomplish. Big businesses can
absorb this, but the middle class ultimately buckles under the strain.
The dragon is never satisfied.
Stage 2: Silent War Between Government and Its Citizens
At some point, the unwashed masses suspect their politicians aren’t really gentle any more, much less benevolent. This
is where a silent war between government and people erupts. It’s a blurry transition through never-never land, when the
Volume 2, Issue 9 -10- The Sad Road to Socialism
politicians still claim to be gentle but the people sense that they have gone from being protectors of the public good and
private property, to plunderers of it. It’s a shift from morality to immorality.
The “Bastiat” transition doesn’t take place all at once but, one by one, members of the working class realize they’re
toiling like mad and getting nowhere. What money they do make is confiscated in taxes or destroyed by inflation. Little
is left over, and their life’s savings are being destroyed while the politicians tell them “all is just fine.” A cognitive dissonance
is created between the hardship workers experience and the good times the politicians promise.
But those friends of the dragon on the dole still insist the dragon’s intentions are moral, even if its methods are not.
As tax rates push ever higher into confiscatory ranges, self-preservation kicks in and the people take defensive action
against what they no longer perceive as “moral duty” but legally sanctioned theft. While the people do this they pretend
that the gentle politicians are correct, even though they know better.
The rich catch on and move their assets offshore and sometimes themselves, physically moving out of the reach of
the dragon: they expatriate. These individuals have the means to structure their finances in a way that preserves wealth.
Besides, the politicians are frequently among this class, so they aren’t about to let the dragon loose on themselves.
Unfortunately, the middle-class doesn’t have this option, so it fights the dragon by engaging in evasive maneuvers.
Citizens cheat on taxes, and seek to conceal taxable assets. Whenever possible transactions are shielded from the everprying
eyes of the hungry dragon.
As the ravages of taxation and inflation eat out the middle-class’s substance, a vibrant underground economy springs
up, utilizing barter, cash, foreign currencies, precious metals and any other means to conceal taxable activity. Regulatory
laws are flouted as people try to “see what they can get away with.” Often times this underground economy has an
organized crime component (which is what happened in the former Soviet Union).
The second half of Stage Two of this government-citizen war kicks into gear as the dragon responds to rising opposition.
And a panoply of laws and regulations – with increasing fines, penalties and prison sentences – are imposed on
the people.
To block the rampant flouting of law, the dragon wants to monitor everything the citizens do in order to assure that
plunder shall be paid. All of this is done in the name of the “rule of law” and public order. Civil rights break down, all in
the name of morality and public security.
Every once in a while the beleaguered middle-class pleads with the gentle politicians to fix the problem – unaware
that it was the gentle politicians who created it in the first place. But politicians are more than happy to be seen as
dragon slayers, and hence they create a series of scapegoats for the problem, transferring blame for the mess and enacting
a new series of programs to supposedly fix the dilemma.
In reality, they just delayed the pain, put the dragon on steroids, and made the problem far worse.
This war is not without casualties. As it becomes ever more difficult for small businesses to function in this poisoned
atmosphere of taxes, fees, fines, regulations and prosecutions, more of the middle-class throws up its hands and goes
elsewhere or becomes part of the dependent poor. Small businesses fold or operate illegally.
As inflation devours life savings, people are wiped out. Retirees have a difficult time as their lifetime achievements are
destroyed. Most of the middle-class slides inexorably down the slope into poverty.
Volume 2, Issue 9 -11- The Sad Road to Socialism
Disrespect of law is common. In the free-for-all, everyone is in it for himself and no one can afford to obey the law.
Jails swell with those unfortunate enough to get caught. As more complex laws are steadily passed, all citizens ultimately
become law-breakers. This slide is also evident in the monied-class as scandals and corruption charges become
public.
This enables the dragon to seek pretexts for seizing the assets of citizens. Businesses are nationalized. Wage and price
controls are instituted. Property ownership is forcibly transferred from those who oppose the dragon to those who
support it. Retirement plans are brought under the “protection” of government and their owners left with governmentissued
IOUs. Assets are seized on the mere allegation of criminal activity. Indeed, law enforcement agencies encourage
their members to plunder. They even make arrangements with organized crime at times. The list of plunder-and-defend
possibilities is astounding.
In an effort to stem the hemorrhage, the middle-class starts throwing out the rascal politicians, only to elect another
group of rascals. This has little effect, since the dragon is now a self-existing monster that doesn’t require gentle politicians.
By this stage it’s very clear: Small and middle-class businesses, and ranchers and farmers all know who the enemy
is – the dragon.
There is no illusion that the politicians are “gentle” or acting in the people’s best interests.
As the security of property ownership declines, investments flee and the economic environment becomes unstable; no
one wants to invest where earnings will be heavily taxed. Moreover, nobody wants to subject themselves to the possibility
of direct confiscation on the allegation of having violated a plethora of unknowable, unobservable laws. Doing
business becomes just too dangerous.
As doing business becomes perilous, investments die and jobs go out of existence, increasing the pain of the working
lower and middle-classes. Small business is always the primary creator of employment and it is the most abused. In the
end, the rich are never soaked, the middle-class is destroyed, and the poor discover that there is no free lunch.
Stage Three: A Day of Wrath and Mourning
Ultimately the dragon cannot keep its promises. This last stage is where events turn nasty and chaotic. It is a dangerous
time – it is a time no country should ever wish to reach.
Politicians are perceived as ravenous wolves. Blame and finger-pointing frenzies among politicians erupt to deflect
responsibility, all the while attempting to hold onto their privileged positions.
Faith in government dissolves along with faith in the currency. Widespread flouting of law is common and tax payments
quit. If it gets bad enough, organized and random crime flourishes. The domestic economy collapses into a
depression, and the currency is no longer a valid measure of wealth – it disintegrates.
By this time there are several violently outraged groups of people. The first group consists of those who have been dependent
on the dragon for their free programs, and once the dragon reneges on its promises to provide these “services,”
they are outraged at the violation of their imagined rights to a free lunch. This group can include pensioners who paid
the dragon money but discover the dragon spent it all before they retired.
The second group is the middle-class, who have been beaten to death to feed the dragon and his cronies. They have
lost all their livelihood and property.
Volume 2, Issue 9 -12- The Sad Road to Socialism
This is the point where many revolutions occur. Sometimes the revolutions are non-bloody and occur only at the voting
booths; sometimes they are horrifically violent.
It is a dangerous time because the chaos caused by the breakdown of economic and political order, coupled with the
collapse of morality, often requires brute force to restore order. And brute force is fertile ground for dictators and the
destruction of rights.
One of the great ironies of history is that those who started the mess – and benefited greatly from it – are rarely, if
ever, called to pay for the crimes and carnage they caused.
Finally the dragon dies.
Conclusion
No country trapped in socialism goes through all the events described above, which is a composite of past histories.
The nation can turn itself at any time providing it is prepared to discipline itself, and undergo the pain required to get
off the public dole – much like coming off an addiction. Few societies ever want to face that, so they condemn themselves
to all three stages. And the longer they wait to enact the necessary changes, the worse the pain will be.
From currency, to energy, to property rights – the issues today are clouded with so much static and partisan bickering
that the average person has little real comprehension of what is happening. Frequently, Democrats and Republicans
blame each other when, more often than not, they’re both responsible and fiddle while Rome burns.
America is truly at an economic and moral crossroad, having already started into Stage Two down the sad road to
socialism. Whether or not we plow through all three stages remains to be seen. It takes great moral courage to prevent
this.
Unfortunately, politicians tend to be neither moral nor courageous.
Thus it is up to what actions are moral, legal and necessary, to see our families and friends safely through the tempest.
But as a ray of hope, it is here where Americans in times past have shown themselves most noble. FC
John Loeffler is 40-year broadcast news veteran and host of the nationally syndicated talk show on the IRN/USA Radio
Network, Steel on Steel (www.steelonsteel.com) and co-host of The Financial Sense Newshour (www.financialsense.
com).
Volume 2, Issue 9 -13- False Values, False Economy and the Devil to Pay
By J. R. Nyquist (www.jrnyquist.com)
Our wretched economy of false valuations cannot continue much longer. It is the
domestic counterpart of President Bush’s past friendship-false with Vladimir Putin. It is
the fantasy world of an everlasting bull market and “successful” government bailouts. The
political leadership in America has demonstrated that it doesn’t understand economics.
They cannot solve the present crisis unless they go back to school and consult the wisdom
they have so long neglected. They have built their post-Cold War world on a false
boom, on false “partnerships” with enemies. They have permitted a policy of credit expansion
without end.
“Credit expansion,” wrote the Austrian economist Ludwig von Mises, “is the governments’
foremost tool in their struggle against the market economy. In their hands it is the
magic wand designed to conjure away the scarcity of capital goods…and to make everybody
prosperous.”
But everyone cannot be prosperous. The boom created by credit expansion cannot last.
This is what the leaders of the United States have missed.
“The inescapable consequences of credit expansion,” wrote Mises, “are shown by the
theory of the trade cycle. Even those economists who still refuse to acknowledge the correctness
of the…credit theory of the cyclical fluctuations of business have never dared to
question the conclusiveness and irrefutability of what this theory asserts with regard to
the necessary effects of credit expansion.”
And what are these effects?
According to Ludwig von Mises, an upswing occasioned by credit expansion can only
be maintained by further credit expansion; and, in the long run, “it turns into depression
when the further progress of credit expansion stops.”
This outcome is absolutely certain, and today’s financial crisis underscores the point.
The economic boom of recent years has been propelled forward by an unprecedented
credit expansion. At each turn, when the market was threatened with contraction, further
credit expansion was urged.
The magic wand of credit expansion is like heroin addiction. The more you take, the
more you want. The day inevitably comes when you cannot increase the dosage because
you run short of supply. And so it is with credit expansion. The markets are accustomed
to easy money. They now require easier and easier money. They are addicted. Eventually,
False Values, False Economy,
and Editor’s Note: the Devil to Pay
The following article,
used by the author’s
permission, provides an
important perspective
on the current financial
crisis – including
the necessary role of
economic correction.
Another aspect to this
crisis, which the author
briefly alludes to in
this piece, is the role of
national security. Forcing
Change encourages
its readers to review Mr.
Nyquist’s articles on
Russian grand strategy
in light of Western economic
collapse. These
articles can be found
at his website: www.
jrnyquist.com.
Jeff Nyquist is an
author and analyst
on global affairs, with
a primary interest in
Russian/Soviet Grand
Strategy and its relationship
to change in
the Western world.
Volume 2, Issue 9 -14- False Values, False Economy and the Devil to Pay
however, they must suffer the
symptoms of withdrawal.
Did we think this expansion
could continue forever without
consequence? Evidently,
we did not consider where we
would end up. And now, at
last, the United States Government
believes it can fill the
hunger for credit through a
coordinated push – the last
gasp of our insatiable credit
addicts.
President Bush offers a plan. Behind closed doors he reportedly said, “This sucker
could go down.”
Once again, the president’s grammar is in error. The sucker in question will go down.
Every dollar poured into the proposed rescue operation will be lost. Buying toxic debt
is not a solution. The proposed mechanism for rescuing the economy represents a new
falsification of values – and a new twisting of the market. The dollar cannot possibly
survive this new initiative. A $700 billion bailout is only the beginning. It is merely a
foretaste. What we see in Washington is an exercise in self-deception. It is the self-deception
of a country that does not see danger, of a country that ignores the wisdom of
ancestors and the ABCs of economics.
They want a booming economy. What they’ve failed to consider is the false nature of
the boom thereby engendered.
False values, false ideas and promises of false prosperity pepper the program of today’s
politicians. They have no business at the helm of a great country. Their leadership
consists in pitiful ignorance, and the republic may be in its last days. There has been a
shocking willingness to destroy the country’s currency.
“If the government does not care how far foreign exchange rates may rise, it can for
some time continue to cling to credit expansion,” Mises explained. “But one day the
crack-up boom will annihilate its monetary system.”
The proposed plan to save the markets will save nothing. The proposed solution is
no solution. Improper investments have been made and massive losses must result. We
have to take our medicine before we can get better. Debasing our already debased currency
makes things worse. We have avoided economic pain by a continuous expansion
of credit. The artificial boom must come to an end. False values must pass away so that
real values can be brought to the fore.
Volume 2, Issue 9 -15- False Values, False Economy and the Devil to Pay
Few realize how destructive the boom has been, for the real damage is done by the regime of false values and our collective
investment in those values.
“The boom is called good business,” noted Mises, “prosperity, and upswing. Its unavoidable aftermath, the readjustment
of conditions to the real data of the market, is called crisis, slump, bad business, depression.”
The latter, however, is the period of healing and correction.
The real magic of economics is learning to accept correction. This is what we refuse to do.
The country’s financial managers set a terrible example. Traditionally, the captain goes down with his ship. As the
Titanic sinks today our financiers don’t want to be rescued in a lifeboat. They want to be rescued in a yacht. They don’t
want to accept that wars and depressions are necessary because human nature craves fantasy. The bubble of false peace
and false prosperity necessarily bursts. In the end, reality must be confronted.
“People rebel against the insight that the disturbing element is to be seen in the malinvestment and overconsumption
of the boom period,” wrote Mises.
The curious fact is, noted the Austrian, “If we apply this yardstick to the various phases of the cyclical fluctuations of
business, we must call the boom retrogression and the depression progress. The boom squanders through malinvestment
scarce factors of production and reduces the stock available through overconsumption; its alleged blessings are
paid for by impoverishment. The depression, on the other hand, is the way back to a state of affairs in which all factors
of production are employed for the best possible satisfaction of the most urgent needs of the consumers.”
If the state is to do anything constructive during the “progressive” period of depression, it is to maintain the country’s
nuclear deterrent and preserve national unity. There is no doubt that America will shortly be forced to call its troops
home and close its overseas bases. The financial situation is going to dictate international withdrawal. It is going to
dictate a more modest government. But the politicians in Washington cling to the notion that the boom can continue,
that the false approach to the international situation is viable.
The United States cannot save the world. It will be fortunate to save itself. President Bush’s proposed bailout is not
simply a socialist measure; it is an attempt to avoid a return to correct valuations. It is an ignorant attempt, in effect, to
extend the damage that has already been done.
Our politicians want to give us easy money, a furtherance of the shopping mall regime. They believe this will prevent
millions from losing their jobs. They believe that their proposed measures will save ailing banks. Prosperity would then
continue.
“This reasoning seems plausible,” wrote Mises. “Nonetheless it is utterly wrong.”
The boom has made prices and wages too high. Demand has lost all sense of supply. The consumer is accustomed to
getting whatever he wants, even though he cannot afford it. In order to put matters right, wages must fall, consumption
must be restricted, wasteful practices must come to an end.
“There is no use in interfering by means of a new credit expansion,” wrote Mises. “This would at best only interrupt,
disturb, and prolong the curative process of the depression, if not bring about a new boom with all its inevitable consequences.”
Volume 2, Issue 9 -16- False Values, False Economy and the Devil to Pay
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When Bill O’Reilly says that the disaster is too great, that despite his support for
the free market he sees no alternative to the government bailout plan, he is denying
the healing power of a depression. He is denying the fundamental lesson of economics.
The damage to the economic system has already occurred during the period of false
prosperity.
As strange as it seems, financial crash and depression are needful. We must pass
through a time of troubles. There is no other way to correct the regime of false values.
The problem, of course, has become political. The regime is a political system in
which the economically ignorant call the tune. The magnitude of the disaster is
thereby amplified. The political actors now put the political system at risk.
Because there are national security implications, they now put our very lives at
risk. FC
J.R. Nyquist is author of The Fourth World War, and writes regular columns for
FinancialSense.com. His webpage is www.jrnyquist.com.

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Endnotes:

1 All quotes, unless otherwise noted, have been taken from the audio recordings of this event.

2 Lucile W. Green, Journey to a Governed World: Thru 50 Years in the Peace Movement (The Uniquest Foundation, 1991/92), p.39.

3 Ibid, pp.34-35.

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