Idaho's Weekly Journal of Local & National Commentary  Week 1614


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by Free Market Duck

Wherein lies the value of today's paper money?...
The problem: unconstitutional Federal Reserve plays Quantitative Economics (as if econ is physics
) rather than Qualitative Economics, which is based upon individual rights and freedom - Part 4
(Sep 20, 2007)

If you want to be a physicist, go study F=ma.  If you want to be an economist, go study why Snoop Dog sells more CDs than the New York Philharmonic.

New York, NY -- Having grabbed a double-scoop cone of Belgian double chocolate low carb (ha-ha you caught me, girl friends, low carb, my ass) Haagan Dazs ice cream at the Boise Towne Square Mall yesterday, I wandered into Border's Books, picked up a copy of ex Federal Reserve Chairman Alan Greenspan's book The Age of Turbulence and plopped myself down in an overstuffed chair to speed-read his excuses for intellectually betraying (1) Ayn Rand's Objectivist philosophy of individual rights and (2) Libertarian free market economists' qualitative theory of praxeological (human action) economics.

   Bingo!  It didn't take long.

   I barely got past the Introduction and three licks of my Belgian double chocolate cone -- freely purchased in a mutually agreed upon exchange of commodities (well, I did use Federal Reserve Notes, please don't beat me) -- when, hesto presto, at the end of Greenspan's Chapter One - City Kid, pages 35-37, I found my answer.

   On page 35 Greenspan writes:

   "In 1951 I signed up for a course in mathematical statistics, a technical discipline based on the notion that the inner workings and interrelationships of a major economy can be investigated, measured, modeled, and analyzed mathematically.  Today this discipline is called econometrics, but then the field was just an assemblage of general concepts, too new to have a textbook or even a name."

   Greenspan continues:

   "I immediately saw the power of these new tools:  if the economy could be accurately modeled using empirical facts and math, then large-scale forecasts could be derived mathematically, without the quasi-scientific intuition employed by so many economic forecasters.  I imagined how that could be put to work.  Most important, at age twenty-five I'd found a growing field in which I could excel."

   Greenspan continues:

    "My early training was to immerse myself in extensive detail in the workings of some part of the world and infer from that detail the way that segment of the world behaves.  That is the process I have applied throughout my career.  ... The substance is from a far simpler world, but the method of analysis is as current as any I would apply today."

   What Greenspan failed to understand is that economics is a qualitative science of human choice, not a quantitative science such as physics.  The economic theory of value and thus the creation of market prices -- is derived by qualitative prioritizations of service rendered as determined by free individuals in a free market.  Gravity, acceleration, and the movement of celestial bodies in the universe are not determined by human choice.  The two types of science, economics and physics, are both valid but their underlying methodologies are inherently and fundamentally different.  One cannot morph the methods of physics into the methods of economics, period.

   Therefore, Greenspan, along with others who didn’t think it through, erroneously assumed that the qualitative-ness of economics, which he apparently disdained, could be made ‘more scientific’ – i.e., from his point of view, more like physics -- by shoving historical market prices into mathematical models and extrapolating future economic parameters much like physicists calculate the future trajectory of a space ship.  Unfortunately, the future price of potatoes is not determined by historical prices of potatoes but rather, once again, the concept of value and the creation of market prices are the result of dynamically-changing, qualitative, subjective choices of traders in a market.  Thus, the entire basis for Alan Greenspan’s use of econometric models to attempt to “manage” market economies is flawed at its very foundation.  While it might be OK for a physicist such as Albert Einstein to miscalculate F=ma or E=mc2, since it doesn’t affect my bank account or taxes, it is devastating to both my individual rights and bank account when Congress abdicates its responsibility, illegally creates a private central bank (the Federal Reserve), and Fed Chief Greenspan or his successor, Ben Bernanke, manipulates the economy with bogus, non-collateralized paper money and credit based upon the fallacies of Econometric modeling.

   Greenspan not only failed to study, learn, or understand the theory of value and price formation as taught by such Austrian free market economists as Prof Ludwig von Mises or F.A. Hayek (the latter of whom won a Nobel Prize for his work on price creation based upon the qualitative theory of value), Greenspan also failed to connect Ayn Rand’s Objectivist philosophy (the metaphysical, epistemological, and moral philosophical levels in which she stressed why and how the individual must be free to choose in order to live in a rational society) as a rational foundation for economics.

   How did Greenspan reconcile Rand’s moral philosophy of capitalism, the foundation of which is individual rights and mutually agreed upon exchanges in a free market, with his Econometric modeling of society in which the individual’s qualitative choices of value, and thus the creation of exchange ratios (market prices), must necessarily be squashed (ultimately at the point of a gun) in order to carry out the government’s (which means the Federal Reserve’s) Econometric modeling of monetary manipulations such as regulating prices, wages, interest rates, and issuing trillions of dollars of non-collateralized paper (money and derivatives) after dumping the gold standard?  The truth is, Greenspan didn’t reconcile these contradictions because he didn't realize they existed and, therefore, he couldn’t.  Not logically.  Nobody could because contradictions, by definition, are irreconcilable.

   Thus, Greenspan missed the intellectual connection between (1) Rand’s individual rights philosophy and, therefore, is not a Libertarian by any means, and (2) the qualitative theory of value in free market economics and, therefore, is not a true economist.  A government interventionist, yes; an economist, no.

   In short, the major problem in economics today is that we now have an unconstitutional Federal Reserve playing Quantitative Economics (as if economics is physics) rather than Qualitative Economics, which is based upon individual rights, freedoms, and choices.  If you want to be a physicist, go study F=ma.  If you want to be an economist, go study why Snoop Dog sells more CDs than the New York Philharmonic.

   Why is the Federal Reserve unconstitutional?

   The Fed is unconstitutional because the U.S. Constitution, Section 8. POWERS OF CONGRESS Articles (5) and (6) state that (5) “Congress has the power to coin money [not print non-collateralized paper money], regulate the value thereof, and of foreign coin, and fix the standard of weights and measures [which refers to setting weights and measures for U.S. coinage of which all the gold and silver is now missing, having been replaced with base metals and fiat paper currency],” and (6) “to provide for the punishment of counterfeiting the securities and current coin of the United States.”  Stop and think about it.  Our Founding Fathers were not stupid.  Fractional reserve banking (hello Federal Reserve) is essentially a form of counterfeiting our original gold certificates since gold certificates were contractual promissory notes between U.S. citizens and their government.  In addition, the U.S. Federal Reserve is also guilty of counterfeiting its own fiat Federal Reserve Notes as it replicates them, changing only the serial numbers, as non-collateralized fake contracts.  Today, the U.S. has no real Constitutionally-authorized money in general circulation -- except for limited releases of gold and silver numismatic proof or BU (brilliant uncirculated) sets for coin collectors.  By what right did the U.S. Congress abdicate its responsibility of regulating our gold and silver money and authorize a private cartel of central bankers to replace redeemable U.S. money with irredeemable paper?  What's next?  Will U.S. Senators soon allow winos to walk in off the street and vote for Appropriations Bills on the floor of Congress while they take vacations in Greece?

   In addition, The U.S. Constitution, Section 10 Article (1) states, “No state shall … coin money; emit bills of credit; or make anything except gold and silver coin [GOLD AND SILVER COIN, not non-collateralized paper money] a tender in payment of debts… ”  So the private Federal Reserve and its continual manipulation of the economy is not only the cause of our current economic debacle – monetary meltdown and resulting recession, it is also illegal, unconstitutional, and survives only as what is called, “pretended law” until overturned by legal action.  Good luck.

   In short, ex Fed Chief Alan Greenspan and all Federal Reserve members are neither true economists nor philosophical intellectuals for freedom.  Instead, they are actually carrying out the true definition of economic fascism – the government controlling the economy with tons and tons of rules and regulations – creating a huge redistributive welfare state on a grandiose scale.  Greenspan, Bernanke, and all government central bankers who think of themselves as “Quantitative Economists” can best be characterized as Historical Price Modeling Interventionists for Government Bureaucrats and Special Interest Groups, which is exactly what has been going on for decades and has now brought us to our current economic debacle:  an impending monetary meltdown and recession.

   Supporters of Interventionist Greenspan say, “Wow, what a genius.  Look at how the Econometricians at the Federal Reserve have saved America and kept us on an even economic keel.”  FM Duck counters with, “Wowsie-bowsie, yourself, you idiots.  Think what a true free market WOULD HAVE ACCOMPLISHED if it had not been mangled by Fed interventionist policies for the last 75 years, AND look at how the investment bankers and affiliates have GREATLY enriched themselves not through an objective free market but rather through government-sanctioned monetary manipulations by which they have cleverly transferred the wealth of other individuals to themselves.”

   From an individual rights and economics point of view, we now live in a fascist non-market instead of a limited government free market.  Those who think we can live in a mixture of both, a mixed economy, have not done their homework.  Remember, valuation of exchange and thus price creation, are qualitatively determined by free people freely trading.  Destroy that mechanism and you destroy all market prices, the use of supply and demand, and eventually the entire market.  Mixed economies are delusions of Quantitative Econometricians and battlegrounds for future dictators.  One cannot simply inject capitalism into communism or arsenic into wine or become half pregnant.  Either you is, or you ain’t.

   Did I bother to finish reading Greenspan’s book?  Naw.  Why bother.  When you know the philosophical premises, you know the outcome.  I did, however, finish my Belgian double chocolate ice cream cone without spilling one drop on Mr. Greenspan’s 500 pages of where I grew up, how I played the clarinet, why I like ex President Gerald Ford, why the War in Iraq is all about oil, and how – this is rich – the Bush Presidents coulda, shoulda, woulda made America great if only they had followed my Mathematical Model of Suppressing Individual Rights instead of their Whatever Model of Suppressing Individual Rights.

   Stay tuned for Part 5 in which we discuss:  dum-da-dum, The Solution to this damn mess. – FM Duck

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