In his famously doleful, dystopian novel, Nineteen Eighty-Four, George Orwell described a world enthralled to what was functionally a “permanent war economy,” an “economy existing by and for continuous warfare.”
Today, on the heels of a debt ceiling increase calculated to forestall a federal-government default, we both are witnessing and are yoked to the many indispositions of what could be characterized as a permanent debt economy.
The Federal Reserve System, as the radix and arguably most defining component of the American economic paradigm, is fostering a scourge on productive activity that has metastasized through society to a now-catastrophic degree.
As a malignant growth eating away at the foundations of prosperity and freedom, the state, together with its parasitic courtiers, could not survive without the debt and insolvency that Congress’s latest actions have endorsed.
Behind the spurious language of compromise and pragmatism, the Washington power elite have damned Americans to what a talk by Mises Institute president Doug French styled “The Culture of Debt and Despair.” The state’s fraudulent system, grounded on the fool’s paradise of an ever-expanding monetary base, is perfectly adapted to engender an indissoluble condition of dependency in the great majority of Americans.
Though mainstream commentators scarcely ever acknowledge it, there is a critical causal relationship between the banking system that prevails in the United States and the ballooning federal debt; the two are intimately linked in both theory and practice, a fact that has been well understood by free-market economists — and particularly the Austrian School — for generations, and that manifests itself today.
As Professor Jörg Guido Hülsmann observes in The Ethics of Money Production, within a fiat-money system, public debt increases “at a much faster rhythm” than even the distended money supply. Pointing to the United States since 1971 as an example, Professor Hülsmann notes that while the money in circulation “increased by the factor 6,” the federal government’s debt grew by a factor of 20.
This imbalance is not a coincidence. The warped incentives of the cartelized banking environment encourage the precarious imbalances of the state-privileged banker class, existing completely outside of market discipline. The commercial banks collude with the central bank in a symbiotic partnership, one in which the former group gorges itself on government-debt bonds while the bonds furnish easy money at no cost and backed by no value. We cannot hope, then, to address the problem of a snowballing federal debt without first confronting the underlying infirmity bedeviling the economy, the centralized banking framework.
In 1817, the English free marketer and opponent of protectionism, William Cobbett, percipiently recognized the unique connection between government debt and central banking. In Paper Against Gold, he wrote:
[I]t was soon found, that to pay the interest of its Debt, the government needed something other than gold and silver; which, indeed, any one might have foreseen, because the Debt itself necessarily arose from the want of gold and silver within the reach of the government. It was, therefore, supreme folly to suppose, that the government, who had borrowed people’s guineas from want, would long have guineas enough to carry on wars and to pay [its creditors] too.
In a cycle through which one illusion is built on and follows from the next, the free market’s inherent protections against systemic breakdown are overturned by the state. In a true free market,