"The theory of Communism,” wrote Karl Marx and Friedrich Engels, “may be summed in one sentence: Abolish all private property.” When the Communists took over Russia in 1917 they attempted to practice Marx and Engel’s “theory.” By the spring of 1918 the Russian economy had reached a state of collapse and civil war broke out. Vladimir Lenin later admitted his mistake. He didn’t know how to build a Communist economy, so the Soviet regime retreated into “state capitalism.” The theory of Communism, plain and simple, signified economic collapse.
In 1987, when I was in graduate school, a remarkable discussion occurred during a seminar on political economy. A fellow graduate student, attracted to socialist ideas, suggested an experiment. “Let us attempt to run the world’s economy without money, without a medium of exchange.” Nobody raised an objection, so I said the following: “If you attempted to run today’s world without money, billions of innocent people would starve to death.” The graduate student looked at me coldly and said, “So what?”
Those who seek the destruction of capitalism have typically favored policies leading to despotism, starvation and mass killing. The socialist revolutionary announces his benevolent intentions to everyone. He intends to build a better society, based on unselfish cooperation. He denounces the greed of the capitalists. His real agenda, let us be clear, is self-aggrandizement predicated on envy.
The envious Lenin once suggested that the surest way to destroy the capitalist system was to debauch the currency. About this idea, Lord Keynes wrote: “Lenin is certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
The state capitalism embraced by Vladimir Lenin and carried forward today under Prime Minister Vladimir Putin, has immunized itself against the machinations of financiers and the collapse of the dollar. Russia is preparing for an economic storm. Capitalism contains, within itself, the germs of its own destruction. The dollar has become a paper currency and the collapse of the dollar is therefore inevitable. This collapse may not happen today or tomorrow; but one day, it will happen. The fever of financial crisis has already raised our collective temperature. Real estate values are falling. The stock market cannot remain high. There is a banking crisis, a credit crunch, an energy crunch and more. An economic unraveling has begun. Once this process becomes full blown the unity of the Western world will be undermined. The free world will become unstable. Demagogues will rise to power. Violent political passions will be engendered. Russia will be powerful again.
The president of the Federal Reserve Bank of Philadelphia, Charles Plosser, has warned that attempts to stabilize the banking system are distorting markets and preventing asset price corrections. Worse yet, financial stabilization policies “subsidize risk-taking” by leading financial institutions.” Such policies, says Plosser, risk systemic instability through the promotion of moral hazard.
The whole financial system has become an exercise in moral hazard: massive indebtedness, consumption on credit, out-of-control social entitlement programs, protections for investors, corporate bailouts and the greatest moral hazard of all – our fiat currency. But who will admit this final, devastating truth? “In dictatorships,” says Natan Sharansky, “you need courage to fight evil; in the free world, you need courage to see the evil.”
We cling to comfort, refusing to see the problem. Are Lehman Brothers, Merrill Lynch and Morgan Stanley sitting at the bottom of a credit crater? Have they “overused” hybrid securities? What is low quality capital, anyway? Shut your eyes and plug your ears. There is “nothing to fear but fear itself.” It’s no big deal if real estate values are falling faster than they did during the Great Depression.
Is it a national shopping spree yet?
According to economist and Nobel laureate Robert Mundell, the U.S. dollar is headed for a major crisis. “I see the problem coming maybe in the next recession,” he explained. Credited as one of the “intellectual fathers” of the single European currency, Mundell is presently advising the Communist Chinese. “The swings in the dollar–euro exchange rate are big problems,” he noted, “and the problem is exacerbated by the fact that the Americans get the benefit of these swings and Europe gets the wrong end of the stick.”
Beware the green-eyed monster!
Perhaps the day is coming when oil-producing countries won’t accept dollars in exchange for oil. Perhaps they’ll want real money instead of paper. Behind the “new financial instruments” intended to save the banks we find paper. Behind the paper we find the dollar. That is to say, more paper. The U.S. Constitution is also made of paper. What previously backed all this paper was character; a willingness to work hard and accept pain – as well as painful truths.
