Government Money, Taxes, and War

Struggle for Empire: Kingship and Conflict Under Louis the German, 817 – 876, by Eric J. Goldberg.

One key source of income for Louis the German was the collection of tribute – for example, collected from the Danes and various Slavic people.  I find this of little noteworthy interest in and of itself; what is noteworthy is the amount – and what that amount represented:

…Louis could demand some 335 pounds of silver annually from the Slavs and the Danes….Of course, frequent rebellions made it likely that Louis often received only half the owed tribute in a given year.  Nevertheless, the estimate suggests an annual income of some 170 pounds of silver.

Call it $55,000 at today’s price of silver (I am not going to get into pure silver per ounce, troy or otherwise, etc.).

To put the sum in perspective, this amount was enough wealth for the king to reward sixty-eight young noblemen with a complete set of military equipment – a horse, coat of armor, helmet, sword, shield, and spear – every year.

This is about $800 per young nobleman.

I can think of a dozen points that must be examined before I feel I fully understand the meaning of this calculation; I do not intend to examine any of these points.  Instead, I offer two observations:

First, the total sum collected from the entirety of Louis’ non-Saxon tributes is $55,000 in today’s value of silver.  That’s it.

Second, the fighting men of Louis’ time required only $800 worth of equipment to turn them into the most destructive fighting force of Europe at the time.

Times have certainly changed, on both points.

The Least Great Generation

…a better title for us would be the Least Great Generation, because that’s what we were.

-        Roger Simon

Roger Simon is author of I Know Best: How Moral Narcissism Is Destroying Our Republic, If It Hasn’t Already.  Simon describes the defining characteristic of this generation not just as narcissistic, but something far more dangerous and pervasive:

That form is moral narcissism—a pathology that underlies the whole liberal left ethic today and some of the right as well.

The Pathology

The short form is this: What you believe, or claim to believe or say you believe—not what you do or how you act or what the results of your actions may be—defines you as a person and makes you “good.”

If your intentions are good, if they conform to the general received values of your friends, family, and co-workers, what a person of your class and social milieu is supposed to think, everything is fine.

It doesn’t matter that they misfire completely, cause terror attacks, illness, death, riots in the inner city, or national bankruptcy.

The pathology is even worse: it includes the certainty of being right…about everything.

The Founding Fathers and Mothers

Simon names names of this Least Great Generation:

We were pre-boomers. I, only a foot soldier in this cohort army, was born in November 1943, but look at the icons: John Lennon, born in 1940; Tom Hayden, in 1939; Abbie Hoffman, in 1936; Gloria Steinem, in 1934; Allen Ginsberg, 1926; and Timothy Leary—apostle of “turn on, tune in, drop out” and virtual patron saint of hippie culture—born in, wait for it, 1920.

The baby boomers merely followed along.

The One

Morpheus: You are the One, Neo. You see, you may have spent the last few years looking for me, but I have spent my entire life looking for you.

This least great generation found their One, also:

The election of Barack Obama was the apotheosis of this melding of lifestyle with political worldview….The “me” generation had found its perfect leader. Hope and change were never specified, because we all knew what he meant.

Peter Berkowitz expands: Symptoms of those afflicted with this most terrible pathology include “intellectual rigidity, self-righteousness, and disdain for those who disagree.”  Climate change; racism and sexism are to be found everywhere; progressive policies on gun control and affirmative action.

Berkowitz, like Simon, also points to Obama:

Citizens, it turns out, do not like to be regarded as “bitter” individuals who “cling to guns or religion or an antipathy to people who aren’t like them,” as Barack Obama, speaking on the 2008 campaign trail, characterized working-class residents of the Rust Belt.

Obama’s defining acts as president offer no benefits to sizeable segments of the American population:

…the Affordable Care Act; a path to legalization for people in the country unlawfully; costly measures to reduce the country’s carbon footprint; and the Iran nuclear deal.

Worse than no benefits…only costs (although I am OK with the Iran nuclear deal).

Conclusion

The reaction is growing throughout the West: Donald Trump and Bernie Sanders, Brexit and the many nationalist movements in Europe.  Yet, Berkowitz offers hope to those afflicted with this pathology:

The establishment is not without options. By listening to the people’s concerns, understanding their anxieties, and grasping the reasons for their choices, elites could take a significant step in reestablishing that democratic debate on which constitutional self-government depends.

This would require introspection and self-examination; it would require the ability to feel empathy.  Is there any chance of this?

Narcissistic personality disorder (NPD) is a long term pattern of abnormal behavior characterized by exaggerated feelings of self-importance, an excessive need for admiration, and a lack of understanding of others' feelings.  People affected often spend a lot of time thinking about achieving power, success, or their appearance. They often take advantage of the people around them.

Therapy is often difficult as people frequently do not consider themselves to have a problem.

Nope, not a chance.  It is easier for them to believe that the fault lies with the rest of us, with those of us who are “too stupid” to know better.  Even more so when, like many of their fellow leading lights, they have made their billions and can buy their safety.

We are left to clean up their mess.

Let’s Talk Turkey

I have read perhaps a dozen posts analyzing the attempted coup in Turkey; I have listened to a half-dozen interviews on this topic.  Some of the authors and speakers are quite certain they know the backstory (or what isn’t the backstory), and some are not.

Initially I was rather certain that it was Erdogan behind this event – staged.  Much – but not all – of what I have read or heard since then disagrees on this point.  No matter the source or opinion, some of the arguments are reasonable; some are (in my opinion) flawed.  I certainly am unable to find a consistent and reasonable string on the backstory.

I am left to consider the end point and work backwards.  Who benefits from this event?

Whether a staged event or not, the winner is Erdogan.  In so many ways he was losing his power and control over Turkey – to say nothing of his dreams of power over a wider swath of the Muslim Middle East.  This event has afforded him the leeway within Turkey to purge – and purge he is doing.  This event has increased his popularity among the Muslim religious base.  This event will likely drive the middle and upper-class secular / moderate Muslims out of the country for fear of what is coming, reducing those who oppose Erdogan.  This event has united the average Turkish citizen behind him.

Whether staged or not, a second winner in this case is Russia as it seems to be the case that Turkey is moving away from the West and toward Russia.

What if the attempt was legitimate?  Who benefits from overturning Erdogan?

First is NATO, not appreciating recent overtures by Erdogan toward Russia and perhaps concerned that Erdogan is turning Turkey into an unstable partner.  In this case one would obviously include factions of the Turkish armed forces, desiring to remain in NATO.

Second are those who are looking for further chaos in the region.  A successful coup could only result in an expanded civil war in Turkey.  As the United States government has been the prime mover for regional chaos, one need look no further than here.

Third are those who would like to see increased Muslim immigration into Europe, thus further destabilizing Europe. 

All three of these share an important feature – the same groups both benefit from and could be behind the act.

Conclusion

I do not have one.  I certainly do not have a firm answer on the questions: who was behind this event and why?

As the attempt failed (or was intended to fail), the one who most benefits – and benefits directly – is Erdogan.  Second, it seems to me, is Putin and Russia.

In the days after the coup, the narrative was offered that it was Russia who warned the Turkish government just hours before the coup was to begin; this is what foiled the coup attempt.  Whether this is true or not is somewhat irrelevant; that these two parties find it a convenient narrative is perhaps all that is relevant. 

This is to say nothing of the rapprochement between these two governments in the several weeks leading up to the coup attempt.

Trump’s Foreign Policy

After the unfortunate choice of Mike Pence as his running mate it was nice to find this interview of Trump’s foreign policy advisor, Mike Flynn, the former director of the Defense Intelligence Agency (DIA). 

While not Ron Paulian, Flynn (to the extent he is to be believed and to the extent he represents Trump’s views) offers a few statements that would never come out of Clinton’s mouth.  Unfortunately, for the most part there is little meat on the bones of these statements.

Regarding Trump’s statements on NATO and US military leadership around the world:

[Trump] has no intention to step away without examining all relationships that we have. …I would say that NATO as a political alliance does need to be relooked at in terms of everything -- resourcing, capabilities.

We have to look at the cost of resourcing the US military around the world.  …The Chinese get over 40 percent of their oil from the Middle East through the Persian Gulf, but have you ever seen a Chinese aircraft carrier sitting inside the Persian Gulf?

Flynn makes many similar statements in the interview.  The only issue for Trump about NATO and US global intervention seems to be one of who will pay for it; a good conservative position, but not necessarily beneficial toward reducing conflict. 

If Trump can’t get others to pay, does this mean he will support less foreign interventionism?  Because for sure others will not be able to pay.

…the United States should not have to intervene in every single problem around the world. The voters of this country are reacting in a very big, broad way to Mr. Trump.

“Should not have to intervene” does not really say much of anything about commitment.

Regarding Trump’s statement that Merkel was too soft during the refugee crisis…

I think all of Europe has been too soft on the refugee crisis. …But the point was the really incredibly poor decisions when it comes to allowing this unbelievable, unprecedented refugee crisis that's going on in Europe.

A great statement.

Why are these people rushing to the beauty and strength of Europe and to the United States and not rushing to their own capitals or the capitals of the Muslim world?

Because the enemy of the elite is the (nominally) Christian, white male.  Well, that, and the US (and some other Muslim countries) blew up their capitals in the Muslim world.

Regarding Trump’s “fascination for strong leaders like Vladimir Putin or Saddam Hussein”:

He respects people who are selfish about their country. Putin is a guy who is very selfish about Russia and about the Russian federation….

Nationalism and decentralization are growing in popularity throughout the west, and will continue to grow as the solutions offered by the centralizers continue to crumble.

Prelude to the Great War: Russia

[Russia] is a riddle, wrapped in a mystery, inside an enigma…

-        Winston Churchill, October 1939

While this quote is taken from a time 25 years after the beginning of the Great War, it is certainly applicable to the Russia of 1914 as well….

The Lost History of 1914: How the Great War Was Not Inevitable, by Jack Beatty.

Buchlau

In September 1908 at the Austrian foreign minister’s castle in Buchlau, Russian foreign minister Alexander Izvolski stepped into it; best to simply describe the aftermath, as who agreed to what is somewhat murky:

Russia would look benignly on the annexation of Bosnia-Herzogevina by the Dual Monarchy…. In return, Vienna would support Russia’s attempt to seek a new international agreement opening the [Turkish] Straits to its warships.

Izlovski either never agreed to this or stated he would take the proposal back to the Tsar.  After much wailing and gnashing of teeth (and after an ultimatum from Austria’s ally Germany), the annexation was recognized by Russia.

Bargaining away two Slavic provinces to the Catholic monarchy was a bit too much for many Russians to accept – a betrayal of Slavdom.

Peace at Almost Any Cost

So said Vladimir Kokovtsov, Russia’s Prime Minister from 1911 – 1914. 

Any system that produced leaders of his character could not be all bad.

He proposed many reforms to benefit the working class – even by this time Russia had seen significant work strikes and the like.  The industrialists opposed these reforms.  Eventually, a watered-down version of reforms was passed in 1912.  He also supported subordinating foreign to domestic policy; Russia needed an extended period of peace in order to properly deal with pressing internal issues.

Opposite stood the minister of war, General Sukhomlinov.  His beautiful and expensive wife apparently motivated him to accept bids (greased by bribes) from Vickers from machine guns that were priced 43% higher than competitive bids from Russia’s Tula Armament Works.  As such, Russia entered the war with one-sixth the number of machine guns that Germany had.

As early as 1912, Sukhomlinov was pressing for mobilization of the Russian army on the Austrian frontier – apparently at the Tsar’s request.  Ultimately cooler heads prevailed, and mobilization almost certain to lead to war was averted…for the time.

Rasputin

Having amazingly stopped the internal bleeding of the child Alexis, Rasputin won permanent favor in the court of Nicholas and Alexandra. 

Accusations of spying on the Tsars daughters while they changed into nightgowns; raping nuns; sinning so that the quantity of sin in the world would be reduced.  None of these dissuaded the royals from keeping trust with him.

The Money Multiplier…

John Tamny has written a book, Who Needs the Fed?  It was reviewed by Jonathan Newman at the Mises site.  Tamny is offering a rebuttal to a few of Newman’s comments.  I have decided to stick my nose in the middle of this.  I will not go point by point, as there is much more in Tamny’s post than I care to deal with.  In fact, I am only going to comment on one item.

It was regarding a Tamny post some years ago that I wrote something on the money multiplier.  It was quickly pointed out how I stepped into it; I then backed off, but did not feel completely settled.  I believe I know better today (or not, let’s see what response I get to this post).

Explicit in the Austrian view of banking is that $100 deposited in Bank A is loaned to another individual who deposits (assuming a 10% reserve requirement) $90 in Bank B, and then Bank B lends $81 to an individual who deposits the funds in Bank C. To Austrians $100 deposited with a bank quickly becomes $271; presumably on the way to infinity.

Missed by Austrians focused on the lending of money among many is that with the previously mentioned scenario, there's still only $100. To save is to give up use of money to someone else.

Tamny argues that there is no money multiplier – in my previous post I agreed.  In this post I will agree…and disagree.

My mistake in my first post was that I was thinking of an all-cash economy – no checks, no debit cards, no credit cards.  In this case, Customer A deposits $100 with (in reality loans $100 to) Bank B.  It is physical cash that Customer A deposits (for this example to be meaningful, the physical cash must be backed by something – even if it is backed only by the risk that the bank defaults due to issuing too much of it).  Customer C borrows $90 cash from Bank B.  The bank is now holding $10 cash and has a note from C for the $90 owed to B.

There is no multiplier.  And for this, I don’t care about the balances held in each individual’s account (or the sum of the two balances: $190).  What matters only is the cash drawn from the accounts.  There is only $100 ($10 with the bank and $90 with C) and some notes – a note from Bank B to customer A for $100, and a note from customer C to the bank for $90.  There is no multiplier if all deposits and withdrawals – meaning also all payments – were made in cash. 

But we do not live in an all cash world, and this is where I believe I went off the rails the first time.  In today’s world, A has a bank balance of $100; C has a bank balance of $90; and, to complete Tamny’s example, D has a bank balance of $81.

To keep it simple, I will focus on debit cards – not credit cards, not checks, not Apple Pay, not PayPal.  With the debit card, each use results in a simultaneous transfer of funds from my account to someone else’s account.  (This unlike cash, where I go to the bank, withdraw $10 and walk around with it for a while, and always keep a balance of cash in my wallet.)

At the same moment, all three of us (A, C, and D) could spend our entire $271.  To keep it simple, let’s say we spent it with each other, thus draining and replenishing our bank balances simultaneously.  To keep it simpler, we all bank with the same bank.

We were able to spend $271, not $100 (technically, not $90 – as the bank is keeping $10 for no one to spend).  No one “[gave] up use of money to someone else,” yet both the depositor and someone else received balances to use.

The balances never leave the system.  Every withdrawal is a simultaneous deposit, and all $271 can be withdrawn simultaneously because it is also deposited simultaneously.  This is impossible in a cash economy, but possible with debit cards (and, with slight twists, all other electronic forms of deposits / withdrawals).

Now, back to my simplifying assumption – all three of A, C, and D trade only with each other and they all bank at Bank B.  It turns out this is not a simplifying assumption; it is reality.

…while I'm all for ending the Fed simply because it doesn't and never has served any useful purpose…

But it did and does serve a “useful purpose.”  Among many other “useful purpose[s]” overlooked by Tamny, the Fed offers a completely closed-loop system – no chance that funds leave the system (other than the almost trivial physical cash balances held).  Everyone who uses US Dollars trades with each other; everyone who uses US Dollars banks at the Fed.

The Fed has eliminated competition; the Fed (along with government deposit insurance, which technically is not necessary given the powers held by the Fed) ensures no risk of damaging bank runs.

Conclusion

So, in my previous post I was right – there is no multiplier – but I should have added: in an economy where all withdrawals and deposits are made in cash.  Individual bank balances might say one thing, but balances available to spend are strictly based on cash held.

I was also wrong – there is a multiplier in an economy where virtually all (or even some meaningful portion of) deposits and withdrawals are electronic and the system is closed-loop.  It is this world in which we live.

I am willing to be right…or wrong about any and all of this; let me know.