Centralism Versus Decentralism

Centralism Versus Decentralism

Thomas Allen

    Wilhelm Ropke in The Social Framework of the Free Market (1958, translated by Elizabeth Henderson, 1960) compares centralism and decentralism and describes the differences between the two. (Page numbers in parentheses are references to his book.)
    In the American political economy terminology, centralists (whom Ropke calls centrists) promote the Hamiltonian-Lincolnian political economy, which is what the United States have today, and the decentralists (whom Ropke calls decentrists) promote the Jeffersonian-Calhounian political economy. To the centralists, America is an idea, an abstraction. To the decentralists, America is a place, concrete.
    Centralism and decentralism apply to all social, political, and economic aspects of life. In general, they express a great contrast in ideals and views of society. Centralists emphasize the larger community: the state, a puissant central government, the collective, big businesses, central banks, and even the utopian world state. Decentralists emphasize the smaller community: the individual, the family, voluntary associations, small businesses, and local and State or provincial governments. Hierarchical churches like the Catholic Church where religious power is concentrated falls under centralism. Churches like the Baptists where religious power is dispersed falls under decentralism. Thus, centralists favor the consolidation and the concentration of political and economic power. Decentralists favor the dispersion and deconcentration of political and economic power.
    The following list compares centralism and decentralism:
Government
    Centralists believe, favor, and prefer:
        –    a strong central government with the globalists preferring a puissant global government.
        –    people dependent on the government; thus, welfare programs and national health care.

    Decentralists believe, favor, and prefer:
        –    federalism and local government.
        –    people not dependent on the government.

Economy
    Centralists believe, favor, and prefer:
        –    macroeconomics.
        –    large-scale industry; technical and organizational rationality.
        –    centralized planning enforced by the government.
        –    large-scale governmental intervention in the economy, collectivist economy, socialism, and monopoly.
        –    dependent wage earners; workers in a subordinated and dependent relation to centers of decision.
        –    the vertical, close, and personal relation of subordination and authority of big business and socialized industry, i.e., vertical, organizational dependence.
        –    a market that depends on the boss.
        –    people occupying positions that are above and below each other; subordination of people.
        –    trade unions, which subordinate workers to union bosses, instead of independent workers.

    Decentralists believe, favor, and prefer:
        –    microeconomics.
        –    the peasantry, crafts, middle class, and small firms.
        –    a wide distribution of private property.
        –    a free market, free enterprise economy.
        –    an economy planned by the markets, competition, and free prices.
        –    decentralization of economic decisions among millions of separate producers and consumers as the indispensable condition of freedom, justice, and well-being.
        –    independence of workers.
        –    independent market parties where the buyers and sellers are horizontal and loose if not impersonal, i.e., horizontal market dependence.
        –    dependence upon the client or the supplier through a market that is wide enough to do away with rigid personal relationships.
        –    people occupying positions side by side with each other.

Society
    Centralists believe, favor, and prefer:
        –    huge associations, giant cities, and urbanized areas.
        –    social rationalism, i.e., the individual is small and eventually dwindles to a statistical figure, a building brick, a mathematical magnitude encased in equations, something that can be "refashioned."
        –    optimism about the success of his constructions and refashioning.
        –    equality and uniformity.
        –    mobility.
        –    socialization of education.
        –    the welfare state, especially one that extends well beyond the truly needed.

    Decentralists believe, favor and prefer:
        –    the lovers of nature and of the human scale.
        –    rural areas and small towns.
        –    thinking and acting in terms of human beings and knowing and respecting history.
        –    skepticism or pessimism thus basing his arguments realistically and unsentimentally on human nature.
        –    inequality, diversity, multiformity, and social articulation.
        –    stability.
        –    stratification of society with respect for natural developments, a modicum of variety and of horizontal and vertical social articulation, family traditions, personal inclinations, and inherited wealth.
        –    men having the happy feeling of being in the place where they belong.
        –    variety and independence in every sphere, but not particularism or parochialism.
        –    personal responsibility and private charities to aid the needy.

Philosophy
    Centralists believe, favor, and prefer:
        –    doctrinaires, dogma, doctrines, and ideologies.
        –    man centered.
        –    man can perfect man.

    Decentralists believe, favor and prefer:
        –    established principles: a hierarchy of norms and values established by reason and sober reflection instead of by passions and feelings.
        –    ultimate and absolute convictions that require no proof because it is absurd not to believe in them.
        –    God centered.
        –    only God can perfect man.

    Ropke does not specifically discuss the armed forces under centralism and decentralism. Centralists favor a large standing army and a navy and air force large enough to project power regionally and, if resources allow, even globally. However, centralists prefer a disarmed citizenry (a heavily armed citizenry can thwart the centralists’ plans and their lust for power). Conversely, decentralists prefer a heavily armed citizenry and a small armed force. The armed force should be sufficient to defend the country from invasions, but not large enough for offensive wars or foreign adventures.
    Decentralism is not particularism or parochialism with “a narrow-mindedness which can’t see the forest for the trees” (p. 233). According to Ropke, a decentralist is a convinced universalist who “keep[s] his eye on a larger community which is all the more genuine for being structured and articulated” (p. 233). However, God is his center, “and this is why he refuses to accept human centers” (p. 233). The decentralists “should cultivate a universal approach to all intellectual, political, and economic matters and reject narrow views and actions and, above all, intellectual, political, and economic regionalism and nationalism; on the other hand, we should prize variety and independence at all levels and in all spheres, on the basis of the common patrimony of mankind, which is beyond all levels and spheres” (p. 234).
    The centralist is a moralist. Ropke describes the moralism of the central as follows:

[The centralist is] a moralist of the cheap rhetorical kind, who misuses big words, such as freedom, justice, rights of man, or others, to the point of empty phraseology, who poses as a paragon of virtues and stoops to use his moralism as a political weapon and to represent his more reserved adversary as morally inferior. Since, again, he looks at things from on high, well above the reality of individual people, his moralism is of an abstract, intellectual kind. It enables him to feel morally superior to others for the simple reason that he stakes his moral claims so high and makes demands on human nature without considering either the concrete conditions or the possible consequences of the fulfillment of those demands. He does not seem capable of imagining that others may not be lesser men because they make things less easy for themselves and do take account of the complications and difficulties of a practical and concrete code of ethics within which it is not unusual to will the good and work the bad. The “left” moralist all too often reaches the point where his big words of love and freedom and justice serve as a cover for the exact opposite. The moralist, with his lofty admonitions, becomes an intolerant hater and envier, the theoretical pacifist an imperialist when it comes to the practical test, and the advocate of abstract social justice an ambitious place-hunter. These moralists are a world apart from the decentrists’ attitude . . . that man does not primarily exist for the sake of human society but for his own sake, “and if each one of us exists in the best possible manner for his own sake, he does so for society as well.” . . . The centrist’s moral ideal frequently enough amounts to a desire to make the world into a place where . . . everyone is nursing his neighbor, which presupposes a centralized compulsory organization (p. 230).

(His description of the morals of the centralist is essentially the description of the morals of the Yankee and the Puritan.)
    Ropke strongly opposes the concept of equality and believes that trying to achieve it and even the chimera of “equality of opportunity” results in disaster. About trying to achieve equality of opportunity via socialization of education, he writes:

[I]f equality of opportunity is to be achieved by socializing education, envy and resentment will only be acerbated. If everybody has the same chances of advancement, those left behind will lose the face-saving and acceptable excuse of social injustice and lowly birth. The weakness of mind or character of the overwhelming majority of average or below-average people will be harshly revealed as the reason for failure, and it would be a poor observer of the human soul who thought that this revelation would not prove poisonous. No more murderous attack on the sum total of human happiness can be imagined than this kind of equality of opportunity, for, given the aristocratic distribution of the higher gifts of mind and character among a few only, such equality will benefit a small minority and make the majority all the unhappier (p. 223).

(Perhaps, this explains the problem that the country is having with Blacks, especially those involved in Black Lives Matters, Antifa, Social Justice, and other similar groups. Not only have Blacks been given “equal opportunity,” laws have been written and are enforced that give Blacks more than equal opportunity. Blacks are given a legal and social advantage over Whites. Yet they still fall behind, not because of any discrimination, but because of their innate, genetic, inabilities.)
    Unfortunately for mankind, centralization is much easier than decentralization. Moreover, expanding the powers of the government is much easier than contracting them. The centralist’s “path is bound to lead to regions where the air of freedom and humanity becomes thinner and thinner, until we end up on the icy peaks of totalitarianism, from which nations can hardly hope to escape without a fall. The trouble is that once one takes this road, it becomes increasingly difficult to turn back” (p. 234).
    A major danger of centralism is that it encounters no checks on itself. Its obsessions become uninhibited. Moreover, it comes to know no limits. Centralism leads to loss of freedom, humanity, and the health of society. (Examples are Germany under the rule of the national socialists and Russia, China, North Korea, and other countries under the rule of the communists.)
    Ropke quotes John Stuart Mill’s description of centralism:

If the roads, the railways, the banks, the insurance offices, the great joint-stock companies, the universities, and the public charities, were all of them branches of the government; if, in addition, the municipal corporations and local boards, with all that now devolves on them, became departments of the central administration; if the employes of all these different enterprises were appointed and paid by the government, and looked to the government for every rise in life; not all the freedom of the press and popular constitution of the legislature would make this or any other country free otherwise than in name. And the evil would be greater, the more efficiently and scientifically the administrative machinery was constructed (p. 235).

    One of the dangers of centralism is that many centralists do not want to be centralist and many do not know that they are centralists. They are the classical liberals (as opposed to neo-liberals and progressives) or conservatives who reject federalism, the anti-collectivists who flirt with monopolies or government intervention in the economy, and humanist and others who support the economic integration of countries. (To Ropke’s list, can be added free-market economists like the Friedmanites who support centralized banking and a managed monetary system in lieu of the classical gold standard and decentralized banking. Also, classical liberals, conservatives, and libertarians who are racial nihilists can be included in the list.)
    Ropke comments on the work environment under centralization:

People used to occupy positions side by side with each other, but now they are above and below each other, and the relation is charged with the constant tension of close personal contact within a limited, fixed group. With the diminution of individual independence, this is becoming the fate of the masses, and we all know the strain it puts on human relations. Intrigues, place-hunting, informing, ill will, bootlicking, envy, jealousy, and all the other poisons of close contact spread like the plague in all large organizations and companies, as experience has shown again and again. Neurotics are in a position to make life hell for hundreds and thousands of people, and . . . there is a more than even chance that it will be precisely neurotics who get to the top and into a dominating position, because of their assertiveness and officiousness (p. 236-237).

(As power becomes more concentrated in the central government, ever more neurotics are drawn to the central government, especially in management positions.)
    About centralized planning and collectivism, Ropke writes:

[I]t is one of the most damning things to be held against collectivism in any shape or form that, with the exception only of the few who hold the power to plan and direct, it presses men inescapably into vertical and personal relations of subordination and so robs them of freedom. If the socialists, incorrigible centrists as they are, demand such an economic order in the name of freedom, they afford a most depressing proof of the aberrations of which man is capable when he is blinded by political passion (pp. 237-238).

    Ropke makes three recommendations to reverse the centralization of the economy:

First, we should do everything we can to brake or even reverse the process of dwindling independence whenever and wherever this is possible without real damage to economic rationality. Secondly, we should do everything we can to mitigate the rigidity of vertical subordination as much as the structure of productive organization and the nature of the market economy permit. Thirdly, we should do everything we can to strengthen the counterweights in fields other than labor dependence, the most important of these counterweights being private property (p. 241).

Moreover, decentralists should not look to government to enforce these recommendations. Instead, they must support “all the forces, whatever they be, which counteract concentration” (p. 241). To carry out these recommendations requires “[p]ainstaking research . . . to discover how, ultimately, the government itself, by means of its laws, its tax system, and its economic and social policies, continuously and injudiciously weights the scales in favor of industrial concentration and makes things difficult for small and medium firms and all others who aspire to independence” (p. 241).
    Although centralists preach the virtue of diversity, they are the destroyers of true diversity. They seek to reduce all to a uniform mongrelized oneness — one hybrid race, one culture, one religion, one government, one economy, etc. On the other hand, decentralists seek to preserve true diversity. They want to preserve the various races, cultures, and nations (people) and countries (territories) with many free and independent governments and economies (but not autarky or protectionism as that requires centralization), etc.
    Today centralism appears as:
    –    globalization with a one-world government (the United Nations and its various organizations) and one-world religion (ecumenism).
    –    the European Union and climate change treaties as steps toward world government.
    –    war on Confederate monuments to destroy history and diversity.
    –    homogenization of the male and female sexes into meaninglessness by promoting feminism to make women men, effemination of men to make them women, homosexuality, transgenderism, etc. to destroy the family.
    –    political correctness to destroy freedom of speech and thought.
    –    multiculturalism and multiracialism with large-scale, uncontrolled immigration into Europe, Canada, and the United States to destroy their race and culture as the White race and Western Civilization are the greatest impediments to global consolidation — hence, racial and cultural amalgamation.
    However, decentralization is beginning to return as evidenced by:
    –    secession movements, such as the breakup of the Soviet Union and Yugoslavia and numerous secession movements in Europe and the United States.
    –    nullification, such as California declaring itself a sanctuary State and thus defying federal law.
    –    the collapse of imperialism, at least in its more overt form.
    –    the growing populist-nationalist movements in the Western world, that is, defensive nationalism, which seeks to preserve race, culture, nation (the people), and country (the territory), and not aggressive nationalism, which is imperialism.
    For more than 150 years the Hamiltonian-Lincolnian political economy has dominated the United States, and the U.S. government has exploded in size and has become ever more powerful. With the election of Donald Trump as President, centralists are being forced on the defense. Many supporters of Trump are decentralists of the populist-nationalist movement. Even heretofore centralists are becoming decentralists as they defy the U.S. government with nullification and join decentralists with talk of secession.

Copyright © 2017 by Thomas Coley Allen.

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The Yankee

The Yankee

Thomas Allen

    Who is the Yankee? In his book The Yankee Problem: An American Dilemma (Columbia, South Carolina: Shotwell Publishing LLC, 2016), Dr. Clyde Wilson gives an excellent description of the Yankee. (Pages numbers in parentheses reference Wilson’s book.)
    The Yankee is a descendant of New England Puritans and their latter allies, the radicals and revolutionaries, many of whom were Jews, who fled Europe after their failed Revolution of 1848. He is easily recognized by his “arrogance, hypocrisy, greed, lack of congeniality, and penchant for ordering other people around” (p. 1). Also, he is “self-righteous, ruthless, and self-aggrandizing” (p. 2). The guiding principle of the Yankee is that he is compelled to meddle in everyone else's business, both at home and abroad. He cannot just leave people alone. Moreover, he has an uncontrollable desideratum to remake the world in his own image.
    Furthermore, the Yankee is “contemptuous of good manners, boastful, ever ready to cast away traditions for the newest idea, and see making money as the chief object of life. Equality and majority rule for them should determine everything — in society and culture as well as before the law” (p. 20). (An example of the “out with the old” and ‘in with the new” is the condemnation and overt destruction of traditional man-woman marriages while promoting same-sex “marriage.” Heterosexuals are now abnormal while homosexuals and transgenders are now normal.) He is never satisfied unless he is making changes.
    The Yankee reveals himself as “the greedy rent-seekers through government and the moralistic reformers. . .” (p. 24). Greedy-rent-seeking-through-government results in protective tariff and import quotas, subsidies for agriculture and businesses, centralized banking, and internal improvements (subsidies for building roads, canals, harbors, and airports and for urban renewal) — in short, the Hamiltonian government-business partnership made permanently by Lincoln. Moralistic reform results in abolitionism, prohibition of alcohol and tobacco, the war on drugs, the war on poverty, the civil rights movement, homosexual and transgender rights, the drive to make every religion acceptable except Christianity, which must be eradicated, etc. Furthermore, the Yankee is the “builder of the all-powerful ‘multicultural’ therapeutic state (with himself giving the orders and collecting the rewards) which is the perfection of history. . .” (pp 8-9).
    As Wilson notes, “Yankees have no civilization — only money and ideology. Without us [other Americans especially Southerners] to abuse and claim to feel superior to, they would not exist” (p. 15). Thus, Yankees are the real supremacists. Nevertheless, hypocrites that they are, they are always condemning supremacists — white and racial supremacists, male and sexual supremacists, civilization and cultural supremacists, the wealthy, etc. Moreover, continues Wilson, “The identification of God with America and the United States with infallible righteousness is Yankee stuff through and through. It is exactly the type of ‘religion’ that was used to deify Lincoln and justify the conquest of the South in 1861-1865” (p. 15). Such underlaid Bush in his war with Iraq and Afghanistan and Obama’s continuation and expansion of wars in the Middle East and Africa.
    The Yankee places great value on education and was a pioneer in public schools, government churches. However, the education that he promotes is superficial. He wants people to be educated enough to read and be swayed by a demagogue, but not learned enough to analyze what he has read. To the Yankee, the purpose of education is to train obedient servants and workers; it is not to enlighten and teach people to think and be creative.
    In the nineteenth century, Yankees were the abolitionists, prohibitionists, and promoters of protective tariffs, centralized banking, and internal improvements. John Quincy Adams, Henry David Thoreau, Ralph Waldo Emerson, Horace Greeley, William Cullen Bryant, Thaddeus Stevens, John Brown, and Horace Mann are notable nineteenth-century examples. Today, notable examples are Hillary Clinton, John Kerry, and both George Bush the elder and the younger. Other examples are Teddy Roosevelt, Timothy McVeigh, and John Dewey. On the religious side, Yankeeism appears in Charles G. Finney, Joseph Smith (founder of the Mormons), William Miller (founder of the Seventh Day Adventists), and Billy Sunday. Besides birthing Mormonism, Seventh Day Adventism, abolitionism, and prohibition, Yankeeism has also birthed vegetarianism, feminism, progressive education, and all sorts of social experiments. (Abolitionism had almost nothing to do with the plight of Black slaves and a great deal to do with hatred of Southerners.) Over the last two centuries, the Yankee has seized control of the American educational system, American history, American literature, the media, and just about every other aspect of American life. In the United States today, the domain of the Yankee is easily recognized. It is the blue states — the northeast, the upper Midwest, and the Pacific Coast.
    If one wishes to learn more about these peculiar people, Yankees, he should read Dr. Wilson’s The Yankee Problem.

Copyright © 2016 by Thomas Coley Allen.

Articles on Southern Issues.

Statists Verse Libertists

Statists Versus Libertists

Thomas Allen

    Throughout the history of America, two political and economic philosophies have competed for control of America. They are the philosophies of the statist party or Hamiltonians and the libertist party or Jeffersonians. Today, the statist party has clearly won the contest. A third but insignificant philosophy, anarchism, also exists.

    Below is a description of the statist party, the libertist party, and the anarchist party and a comparison of the philosophies of the Hamiltonians and Jeffersonians.

Statist Party
    The statist party is the party of the pietists (remaking man in the image of the pietist: hence, public schooling, anti-drug and anti-smoking laws, prohibition [ever lowering of driving under the influence standard], democratizing the world, etc.);  the progressive (remaking man in the image of the progressive: hence public schooling, welfare state, governmentally provided healthcare, democratization of the world, globalism, foreign interventionism, etc.); Hamiltonians (protection and promotion of big business: hence, mercantilism, commercialism, central banking, protective tariffs and import quotas, fair trade, managed trade, globalism, extensive regulation of manufacturing and commerce, agribusiness, warfare state, etc.), hence:

    ‒ adherents and advocates of ever-growing government,
    ‒ concentration and centralization of political power,
    ‒ welfare-warfare state,
    ‒ military-industrial complex,
    ‒ large standing armed force,
    ‒ socialism, state capitalism, corporatism, fascism,
    ‒ empire building, imperialism, globalism,
    ‒ fiat money,
    ‒ civil rights movement,
    ‒ parental government,
    ‒ false diversity and amalgamation,
    ‒ rule of man although statutes and regulations abound, etc.

    Statists trust politicians and bureaucrats and distrust the people.

    It is the party of mainline Republicans, Democrats, progressives, populists, modern liberals, New Left, neo-conservatives, living constitutionalists, socialists, fascists, communists, authoritarians, totalitarians, Zionists, etc.

    Government is the answer: What is the problem?

Libertist Party
    The libertist party is the party of the Jeffersonians (agrarianism, local business, artisanism, decentralized banking, voluntary markets [free enterprise, free markets, free trade], limited government, etc.), hence:

    ‒ adherents and advocates of small government (government restricted to the protection of life, liberty, and property from theft, fraud, and trespass; remaking man is not a proper function of government),
    ‒ dispersal and decentralization of political power (states’ rights),
    ‒ personal liberty (but not libertinism) and freedom,
    ‒ personal responsibility,
    ‒ individualism,
    ‒ self-reliance,
    ‒ home and private schooling,
    ‒ commodity money,
    ‒ laissez-faire economics,
    ‒ nationalism, localism,
    ‒ noninterventionist foreign policy,
    ‒ small standing armed force with well-armed local militias,
    ‒ true diversity and preservation,
    ‒ rule of law although statutes and regulations are sparse, etc.

    Libertists trust the people and distrust politicians and bureaucrats.

    It is the party of paleo-conservatives, Old Right, classical liberals, strict constitutionalists, libertarians, etc.

    Freedom is the answer: What is the problem?.

Anarchist Party
    The anarchist party adheres to and advocates the abolition of all governments and governmental authority, which are replaced by voluntary cooperation among individuals and groups and ranges from extreme individualism (adherents of economic freedom) to collectivism (rejecters of economic freedom). Anarchism is highly unstable and has seldom existed. It generally and quickly degenerates into some form of statism imposed by the stronger internal factions or by external conquering powers.

Hamiltonians Verse Jeffersonians
    Hamilton was a statist. Jefferson was a libertist. Since the adoption of the U.S. Constitution in 1789, two philosophies, that of Hamilton and that of Jefferson, have competed to control the political and economic views and policies of America. The following compares the philosophy of the Hamiltonians and the Jeffersonians.

Government.
    Hamiltonians trust politicians and bureaucrats and believe that:
    ‒    government should be highly centralized and unlimited and unrestrained;
    ‒    the best government is that which governs most;
    ‒    the purpose of government is national greatness;
    ‒    citizens are servants of the government; the government is the master of the people;
    ‒    taxes should be high with an abusive and arbitrary tax collection system and a standing army of tax collectors; taxes should be pervasive and confiscatory;
    ‒    governmental debt should be large;
    ‒    executive power should dominate;
    ‒    judicial activists should centralize all power into the U.S. government and then into the imperial president.

    Jeffersonians trust the people and believe that:
    ‒    government should be limited, restrained, and decentralized;
    ‒    the best government is that which governs the least;
    ‒    the purpose of government is to protect the lives, liberties, and property of its citizens;
    ‒    citizens of the States are the masters of the government; the government is the servant of the people;
    ‒    taxes should be minimal, and tax collection minimized with the least intrusion possible;
    ‒    government should be frugal and debt-free;
    ‒    the executive power should not dominate; the branches of government should be equal with the legislative branch being first among equals;
    ‒    judges apply the law instead of making it and ensure that laws comply with the Constitution interpreted as it is written, strictly and expressly.

Constitution.
    Hamiltonians believe that:
    ‒    the Constitution is  living, dynamic, and flexible;
    ‒    the Constitution is a grant of power;
    ‒    the Constitution grants the U.S. government implied powers;
    ‒    original sovereignty is in the nation and not the States; the U.S. government is sovereign;
    ‒    the “general welfare” clause authorizes the U.S. government to enact whatever it wants if it claims that it is for the general welfare; Congress may spend money on anything that it declares to be for the general welfare;
    ‒    the interstate commerce clause authorizes the U.S. government to regulate anything that it deems may affect commerce including intrastate commerce and allows the U.S. government to plan every economic enterprise;
    ‒    the U.S. Supreme Court decides what the Constitution means; it is the final arbitrator of the constitutionality of a law;
    ‒    no State may leave the union; any that attempt to must be forced back in.

    Jeffersonians believe that:
    ‒    the Constitution is to be construed strictly;
    ‒    the Constitution is a restrain on the powers of the U.S. government;
    ‒    the Constitution does not grant the U.S. implied powers; it only grants specific and expressly delegated powers;
    ‒    original sovereignty resides in the States; the people as States are sovereign; the U.S. government has only delegated sovereign powers;
    ‒    the “general welfare” clause grants no powers; it authorizes Congress to spend money on the enumerated powers and only if it is for the general welfare as opposed for the benefit of a specific group or region;
    ‒    the interstate commerce clause authorizes the U.S. government to regulate interstate commerce to promote free trade among the States and to prevent States from enforcing protective policies;
    ‒    the U.S. Supreme Court’s opinion does not decide the meaning of the Constitution; the President, Congress, and States are equal to the Supreme Court in deciding the meaning of the Constitution; the people themselves, usually but not necessarily acting through their respective States, are the final arbitrator of the constitutionality of a law;
    ‒    States may peacefully leave the union.

Federalism.
    Hamiltonians oppose real federalism and believe in:
    ‒    nationalism with the U.S. government being supreme;
    ‒    opposition to states’ rights;
    ‒    the U.S. government being the master of subordinate puppet States;
    ‒    the States being administrative units of the U.S. government;
    ‒    the consolidation of political power;
    ‒    the people being citizens of and owing their allegiance to the United States.

    Jeffersonians support real federalism and believe in:
    ‒    State governments being as strong as if not stronger than the central government;
    ‒    supporting states’ rights;
    ‒    the States keeping the U.S. government from exceeding its bounds;
    ‒    the States being free and independent sovereigns;
    ‒    dispersal of political power;
    ‒    the people being citizens of and owing their allegiance to their respective States.

Economics.
    Hamiltonians lack confidence in the market economy and believe in:
    ‒    subsidizing business in general and the affluent in particular;
    ‒    corporate welfare; mercantilism; fascism; business-government partnership;
    ‒    governmental (centralized) economic planning;
    ‒    protective tariffs;
    ‒    centralized and highly regulated banking; banking and government partnership;
    ‒    politically controlled money supply; politics driving monetary growth;
    ‒    the government and central bank manipulating the economy, thus creating the boom-bust cycle;
    ‒    government being the best judge of excellence in manufacturing.

    Jeffersonians have confidence in the market economy and believe in:
    ‒    laissez-faire economics without subsidies or centralized planning;
    ‒    government and business remaining separate with the government functioning as an umpire to ensure all follow the same rules; no corporate welfare or subsidies;
    ‒     free trade;
    ‒    decentralized banking with minimal regulation; separation of banking and government;
    ‒    market controlled money supply; economics driving monetary growth;
    ‒    the consumer being the best judge of excellence in manufacturing.

Foreign policy.
    Hamiltonians advocate:
    ‒    interventionism and imperialism;
    ‒    a mercantilist empire;
    ‒    a foreign policy that advances the interest of the politically powerful and politically connected, i.e., multinational corporations and international financiers;
    ‒    a large standing army;
    ‒    foreign military alliances;
    ‒    foreign aid to buy and control foreign governments.

    Jeffersonians advocate:
    ‒    nonintervention (do not interfere in the affairs of other countries);
    ‒    no empire building;
    ‒    a foreign policy that defends America;
    ‒    no standing army;
    ‒    no foreign military alliances;
    ‒    no foreign aid.

Freedom.
    Hamiltonians believe in:
    ‒    the government granting, permitting, and limiting freedom;
    ‒    the welfare state, i.e., making as many people as possible dependent on the government.

    Jeffersonians believe in:
    ‒    the government guaranteeing and protecting freedom;
    ‒    the separation of charity and state; making as many people as possible independent of the government.

Copyright © 2011 by Thomas Coley Allen.

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The Silver Dollar 1873–1900 – Part 4

Gold Standard Act and Conclusion
Thomas Allen

[Editor’s note: Footnotes in the original are omitted.]

Gold Standard Act
With the enactment of the Gold Standard Act, the monetary system of the United States was formerly and clearly placed on the gold standard in 1900. This law declared that the gold dollar was the standard unit of value. It required the Secretary of the Treasury to maintain parity of all forms of money, which included the silver dollar and silver certificate. It provided for the redemption of U.S. notes and Treasury notes of 1890 in gold only and prohibited their reissue except in exchange for gold. Thus, it converted these Treasury notes, which had been used to buy silver, into government notes redeemable in gold. The law provided for silver certificates in small denominations to replace gradually the Treasury notes of 1890. Silver certificates were restricted to $10 and smaller. Also, it authorized the issuance of gold certificates, but unlike U.S. notes and gold coins, they were not made legal tender.

Although the Act did not affect the legal-tender status of the silver dollar (it remained full legal tender), it implied that by now the silver dollar had been reduced to credit money, a subsidiary coin for gold. It was no longer money in its own right. It had ceased being fiat money. The Secretary of the Treasury had to maintain the value of the silver dollar to equal a dollar in gold. He had to redeem silver dollars in gold if necessary to maintain parity.

As White notes, the silver dollar made an expensive fiat money.[1] However, it did limit the government’s ability to inflate much more than paper fiat money if the government decided not to maintain parity with gold. Its intrinsic value would be reached much sooner than paper. With silver, the government could only cut the value (purchasing power) of the currency by 25 to 50 percent. With paper, it could reduce the value to zero. At least the silver dollar gave the people some protection that the greenback never could.

Conclusion
Friedman and Schwartz sum up the silver dollar era:

The fear that silver would produce an inflation sufficient to force the United States off the gold standard made it necessary to have a severe deflation in order to stay on the gold standard. In retrospect, it seems clear that either acceptance of a silver standard at an early stage or an early commitment to gold would have been preferable to the uneasy compromise that was maintained, with the uncertainty about the ultimate outcome and the consequent wide fluctuations to which the currency was subjected.[2]

Although the last three decades of the nineteenth century were deflationary, this era was one of the greatest periods of economic growth for the United States.

A highly important question remains to be answered: Why did the gold value of silver decline so much after 1873?

Friedman and Schwartz assert that the supply of and demand for silver explains its decline, “The reasons for the price decline seem fairly clear: on the supply side, rich new mines were opened in the American West, and there was a world wide increase in productivity; on the demand side, a number of European countries shifted from a silver or bimetallic to a gold standard and sharply reduced their monetary use of silver.”[3]

The monometallists, advocates of the single gold standard of this era, claim that the increase in the supply of silver caused its fall in value. However, the fall in value began before the world’s silver stock had greatly increased. Moreover, gold production was much greater than that of silver. To which the monometallists reply that the fall resulted from an anticipation of an increase in supply.

Even today, the supply argument seems weak. In recent years (decades), the increase in the supply of gold has been greater than that of silver. During this time, the demand for silver seems to have been much higher as its usage has been higher. Yet the value of silver generally lags that of gold.

Laughlin opines that the abundance of gold caused silver to lose value relative to gold.[4] With the discovery of gold in America, enough gold became available to supplant silver coins. People preferred gold to silver because it had more value per unit weight. As the demand for gold grew, so did its value. As the demand for silver fell, so did its value. Moreover, the supply of silver began increasing after 1872.

The bimetallists, advocates of the silver-gold system with a legally fixed exchange rate between the two, claim that “demonetization” caused silver’s fall in value. They point to Germany ending the free coinage of silver in 1871, which glutted the market with silver. This action forced France and the other members of the Latin Union to abandon the silver standard, i.e., to end the free coinage of silver. The United States ended the free coinage of silver in 1873. During the 1870s other European countries ended their silver standards or bimetallic silver-gold system and adopted the monometallic gold standard. To the bimetallists, ending the free coinage of silver and by that discontinuing the use of silver as standard money caused its decline in value.

One result of discarding the silver standard was an increase in demand for gold coins. This increased demand for gold coins would account for some of the decline in the value of silver in terms of gold. Not only were countries replacing the silver standard with the gold standard, but they were also replacing fiat paper monetary standards with the gold standard.

Friedman and Schwartz opine that if the United States had reverted to the silver standard, the deflation of the 1880s and ’90s would have been avoided or at least moderated. Inflation would not have occurred. Prices would have remained stable.

The abandonment of the silver standard around the world reduced the demand for silver. As countries moved onto the gold standard, the demand for gold increased. Thus, the value of silver was pushed down and that of gold was pushed up.

If the United States had gone onto the silver standard, they would have abated much of the value change between the two metals. While reducing the demand for gold, they would have increased the demand for silver. If the United States were on the silver standard, other countries then on the silver standard might have remained on the silver standard instead of converting to the gold standard. Increasing the monetary demand for silver and decreasing it for gold would have greatly lessened the rise in the value of gold and the fall in the gold value of silver. Thus, the deflation during this era would have been significantly diminished if not eliminated.[5]

Although silver ceased to be used as standard money in most countries (China and some Latin American countries being notable exceptions), it was still used in subsidiary coins in most countries and as fiat money in the United States. If merely ending the use of silver as standard money caused its fall in value, why did gold soar in value (in terms of standard fiat currencies) when its last legal connection to money was severed in 1971? Whatever explanation used to explain silver decline in value after 1873 needs to be able to explain gold's rise in value after 1971.

(Charles Rist offers this explanation for why silver’s value declined and gold’s value rose when their free coinage ended. When the free coinage of silver ended, people replaced silver with gold. Gold adequately performed all the basic functions of money. Silver was not needed to perform any of these functions. Therefore, the monetary demand for silver declined. As demand fell, so did its value. When the free coinage of gold ended, people replaced gold with irredeemable paper money. Irredeemable paper money does not perform all the basic functions of money. As it nearly always depreciates in value, it fails as a store of value. Gold continued to perform a monetary function as a store of value. Therefore, a monetary demand for gold remained after its free coinage ended. Thus, when gold replaced silver, it fulfilled all of silver’s monetary functions. When irredeemable paper money replaced gold, it failed to fulfill all of gold’s monetary functions.[6])

The pro-silver folks are not the sole blame for the deleterious effects of the silver dollar. For the most part, they did not want fiat silver money. They wanted commodity silver money. They wanted to open the mint to the free coinage of silver.

Most of the blame belongs to the pro-gold and anti silver folks. To thwart the pro-silver folks’ attempt to allow the free coinage of silver, the pro-gold faction compromised. These compromises resulted in the Bland-Allison Act and the Sherman Act. Thus, the pro-gold folks were mostly responsible for the detrimental effects of fiat silver money between 1878 and 1900.

Politics prevented them from completely abandoning silver as legal tender. Allowing the free coinage of silver at the then-legal ratio of 16 to 1 would have reverted the country to the silver standard. Ardently, they opposed the silver standard; they wanted the gold standard that most of the world was on or moving toward.

Instead of compromising by making silver fiat money, the pro-gold should have compromised by allowing the free coinage of silver and raising the legal ratio above the market ratio. That would have preserved the gold standard until the legal ratio fell below the market ratio. However, when amendments were offered to change the ratio, they were voted down. Even better than changing the ratio, would have been to eliminate it. Elimination of the ratio was never seriously considered.

Many politicians of this era suffered from the same false delusion that has inflicted politicians throughout the ages. The ancient myth that the king’s (Congress’) edict gives money its value enthralled many of these politicians. Congress’ decree could force both gold and silver coins to circulate together at the current ratio of 16 to 1. After all, Congress had declared them to have an equal value at this ratio.

Not all politicians suffered from this superstition. Many knew that free coinage of silver at the current legal ratio of 16 to 1 would cause overvalued silver to circulate and send gold into hiding or to Europe. Most inflationists and pro-gold folks knew this outcome. It is this outcome that the inflationists wanted. It is this outcome that the pro-gold folks did not want.

In Open Mints and Free Banking, William Brough gave the best solution to the silver problem. His solution was to eliminate the legal exchange ratio and open the mint to the free coinage of silver. Thus, the mint would coin all gold and silver brought to it for coinage. Eliminating the ratio and allowing the free coinage of silver would have allowed the people themselves to decide how many silver coins and gold coins that they wanted. Both coins could have circulated together without either driving the other out of circulation. Both could have circulated side-by-side without the inflation and following depression caused by the Treasury notes of 1890. If Congress had adopted Brough’s recommendation, it would have eliminated most of the problems associated with silver in between 1878 and 1900. The most likely outcome would have been silver coins being used for day-to-day retail buying and selling and for wages. Gold would have been used for the export-import business, large purchases and investments, and long-term savings. The drain on the Treasury’s gold would have been significantly lessened. As no legal exchange rate existed between gold and silver, Gresham’s Law would not have been at work converting overvalued silver into gold for export as occurred under the Bland-Allison Act and especially under the Sherman Act. The money supply would have more closely matched the actual needs of the people.

Four other changes were also desirable. First, U.S. notes, greenbacks, should have been permanently removed from circulation as they were redeemed for gold or paid into the Treasury. Second, bank notes should have been issued based on and backed by real bills of exchange instead of U.S. governmental securities. Third, the U.S. government should have ceased issuing gold and silver certificates and should have retired those redeemed. Banks and other private institutions should have assumed the task of issuing gold and silver certificates. Fourth, all legal tender laws should have been repealed.

An argument used by the silverites was that the U.S. government should not discriminate against either metal. As long as it had a legal ratio, it would always discriminate against the undervalued metal in favor of the overvalued metal. At 16 to 1, silver was overvalued and gold was undervalued. At this ratio, silver coins would have quickly replaced gold coins in circulation. If the silverites really wanted to eliminate discrimination, they should have supported the elimination of the legal exchange ratio. Then the markets would have decided how many coins of each metal were needed. As they wanted to maintain the ratio of 16 to 1, they wanted the U.S. government to discriminate against gold. If the silverites wanted silver money for the sake of having silver money, they would have accepted an offer to eliminate the legal ratio. If it were currency depreciation that they wanted, they would have rejected the offer. As the offer seems never to have been made, we may never know for sure their preference. However, based on their comments and actions, they probably would have rejected the offer.

According to Rothbard, the silver movement destroyed the hard money, limited government, laissez-faire political party, the Democratic party of Jefferson, Jackson, and Cleveland.[7] It ushered in an era, which continues to this day, of statist control of both the Republican and Democratic parties. Until 1896, the Democratic party stood for limited government with minimal governmental intervention in economic and social affairs. For the Democrats, remaking man was not a function of government.

The Republican party was the party of the progressives, pietists, and Hamiltonians (advocates of central banking, governmental protection and promotion of big business, and protective tariffs). It sought to use government to mold man into perfection. It was the party of the greenback and inflation, prohibition of liquor, the public school system to remake mankind, blue laws, Protestantization of Catholics, and high tariffs. “. . . the Republicans glorified in calling themselves throughout this period [i.e., last half of the nineteenth century] ‘the party of great moral ideals,’ while the Democrats declared themselves to be ‘the party of personal liberty.’”[8]

After Cleveland won in a landslide in 1892 and the Democrats captured both houses of Congress, the Republican party had to remake itself or remain a minority party. It remade itself. It abandoned the prohibitionists, modified its immigration policy, and moved toward the center away from its extreme pietism.

Meanwhile, the Democratic party began to fractionalize. Pietism had come into the party in the South with a call for prohibition. In the West where the silver mines were, the Democrats adopted a pro-silver stance. Moreover, people blamed Cleveland for the Panic of 1893 although it resulted from the actions of the Republican Harrison administration. Seeing that the hard-money laissez-faire Cleveland faction was weak, the pietist faction in the South and the silverites in the West united under William Jennings Bryan to gain control of the Democratic party. Thus, the progressives, pietists, and Hamiltonians gained complete control of the Democratic party, which was once the party of liberty, and have never since loosened their grip.

J.P. Morgan and other financiers through Henry Cabot Lodge offered to support the Republican party if it supported the gold standard, which was Cleveland’s basic economic issue. Otherwise, they would support Bryan. William McKinley accepted the deal, and the Republican party abandoned its traditional easy money policy.

The pietist-silverite takeover of the Democratic party caused many Democrats to sit out the election. Others voted for McKinley. Since the election of McKinley, both parties and all presidents have been statists and progressives in varying degrees. Voter turnout has trended down ever since.

The most devastating and long-lasting effect of the silver dollar fiat money was the utter destruction of a party of liberty in the United States. Since 1896, no party advocating laissez-faire economics, limited government, personal responsibility, and personal liberty has won the presidency or taken control of either house of Congress. Only a few such candidates have won congressional elections. State governors and legislatures have not fared any better.

[Editor’s note: The appendix, which contained eight tables of monetary statistics, and the list of references are omitted.]

Endnotes
1. Horace White, Money and Banking (Boston, Massachusetts: Ginn & Company, 1896), p. 204.

2. Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867-1960 (Princeton, New Jersey: Princeton University Press, 1963), pp. 133-134.

3. Ibid., p. 114.

4. J. Laurence Laughlin, The Elements of Political Economy (New York, New York: American Book Co., 1887), p. 311.

5. Friedman and Schwartz, p. 134.

6. Charles Rist, The Triumph of Gold, trans. Philip Cortney (New York, N.Y.: Philosophical Library, 1961, pp. 122-124, 151-153.

7. Murray N. Rothbard, A History of Money and Banking in the United States: The Colonial Era to World War II (Auburn, Alabama: Ludwig von Mises Institute, 2005), pp. 175-179.

8. Ibid., p. 174.

Copyright © 2010 by Thomas Coley Allen.

Part 3

More articles on money.