The economic rise of the ‘American Ruling Class’

Understanding your dollar: Part three of seven


WASHINGTON, January 11, 2015 — In the 1960’s, “one percenter” referred to outlaw bikers. The American Motorcycle Association would say that 99 percent of American motorcycle enthusiasts were law-abiding citizens. That meant that people like the Hell’s Angels were the “one percenters, man — the one percent that don’t fit and don’t care,” as one Hell’s Angel put it in 1966.

In recent years, the term has taken on a whole new meaning.

In my last column I promised a conservative surprise. To borrow the language of the Occupy movement, there is the “one percent” and then there is the “rest of us” — the 99 percent. The conservative sees an incoherent appeal to class envy in this rhetoric. But that’s only true when the context is our current politics. When we go back to the days when the dollar actually measured our claim on the nation’s gold, and thus the money supply represented the wealth of the nation — you and me — the language of the 1 percent versus the 99 percent takes on new meaning.

The Occupy folks actually have it right – they just have not yet figured out who the “one percent” are, how they became the one percent, and what needs to be done to rectify the problem.

That is why conservatives and libertarians need to take the issue of income inequality seriously. Philosophy refers to an argument that cheaply misrepresents the real issue as a “straw man.” It is set up so that it can be knocked down. Most of what we read from conservative writers on income inequality is just that — a straw man.

When I was 16, I started out mopping the floor at the local McDonald’s for $3.35/hour. The McDonald’s CEO was making a bit more than that. The conservative straw man argument is the notion that those who decry income inequality think the CEO and I should have been paid the same. That is sheer nonsense. Worse, it serves to conceal a gift-wrapped and considerably more powerful opportunity to articulate basic conservative concepts like economic freedom.

Several recent books and studies that demonstrate the trajectory of income inequality have sparked a great deal of debate. Unfortunately, that debate misses the point entirely, a point that only becomes clear when we put another chart on top of the income inequality chart: the gross public debt.

When we do this, we see income inequality was actually declining after World War II, as were fiscal deficits. However, in the early 1970s we begin to see income inequality starting to rise, along with the gross public debt. The Vietnam War by itself cannot be blamed for this. The war was winding down as income inequality and the public debt were ramping up. There had to be more in play.

Taking the dollar off of the gold standard removed the natural restraint on the money supply. Remember the dirty little secret of the English goldsmiths: They started down this road by issuing “extra” promissory notes and lending them out at interest.

Remember also something important about the free market: Publicly traded banks are owned by their shareholders. Management is hired to return profits to the shareholders, and they do this by lending out “notes” at interest. So the more “notes” there are to lend, the more profits there are to be had.

In an earlier article I asked what would happen if the foot measure were devalued from 12 inches to six. I showed that it would quadruple your rent as well as my profits as your landlord. If I were managing a publicly traded real estate company and I could devalue a foot, I might have a fiduciary obligation to do so to increase shareholder value.

I can’t devalue a foot. But what if, as a banker — with no natural constraint on the money supply — I could devalue the dollar by consistently expanding the money supply? If I could (some might argue I would have to) that would easily enable me to return value to my shareholders.

Once we actually started down this road — increasing credit to pay for guns and butter to the point where the dollar could no longer be tied to gold — we were left with two, and only two, choices. The first — paying back the debt and restoring the dollar, as we did after the Civil War, forced by the adoption of the 14th Amendment — would have been politically costly to whichever party was currently in power.

The other choice was to roll over that debt with more debt, which was fine with the banking industry. More public debt means more profits for the banks.

And so we answer our fundamental question: Whose money is it anyway? Since we can no longer measure our claim on our gold with our money, it must belong to the people who own what it does measure: the public debt. But it does not stop there. It also belongs to those whose ambitions are tied to that same public debt.

The money supply no longer measures the wealth of the nation. It measures the wealth of the banking sector and the ambitions of the political sector, or to Occupy the Language, those “one percenters.”

It might seem an odd topic to raise at this point, but when people decry the persistent increase in the amount of money in politics, has anyone stopped to ask where all this money comes from? The political sector noticed very quickly that the financial sector was profiting nicely from an unrestrained money supply. “Hey, you guys shovel some of that new money our way so we can stay in office,” they said, “and we’ll happily allow you to continue printing more of it.”

Income inequality has followed as night follows day. This should not be hard to grasp. The people to whom you owe money will always have more of it than you.

This is why our liberal neighbors ought to take the public debt seriously. It is what has sent us down this road to income inequality. This is why conservatives and libertarians must take income inequality seriously. It is the most compelling evidence out there to the destruction wrought by taking the dollar off the gold standard.

There really is a one percent. It is the political and financial sector, which has now presumptively become the American version of the ruling class. They might think they are royalty, as indeed, they would now lay claim to the nation’s money supply. But the more I think about it, the more they look like Hell’s Angels running wild in the free market, where they don’t fit and don’t care.

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  • Tim Kern

    EXCELLENT piece, John!
    Think: if the only source of “money” is ultimately the Fed, and the only way to get it is to borrow it (since the Fed won’t buy what you’re selling), you cannot have money without incurring debt.

  • Fiji’s Best

    There is no empathy nor compassion in condemning the children of these united states further into the hock of hostile foreign creditors.