|
Mr Buffett Goes to Washington
According to his official Congressional biography, Howard Homan Buffett was a Congressman from Nebraska. He was born at Omaha on 13 August 1903, attended local public schools and graduated from the University of Nebraska at Lincoln in 1925. For the next fifteen years, Buffett “engaged in the investment business” and from 1939 to 1942 was a member of the Omaha Board of Education. He was elected as a Republican to the Seventy-eighth, Seventy-ninth and Eightieth Congresses (3 January 1943-3 January 1949); was an unsuccessful candidate for re-election to the Eighty-first Congress; and was elected to the Eighty-second Congress (3 January 1951-3 January 1953). Buffett was not a candidate for renomination in 1952, resumed former business pursuits and lived in Omaha until he died on 30 April 1964.
Howard Buffett’s Congressional biography omits several salient details. It does not mention, for example, that he was the father of two daughters and a son named Warren Edward Buffett. Nor does it mention that he was one of the most principled (in the sense that his devotion and adherence to the U.S. Constitution was non-negotiable) Congressmen of his era. Least of all does his biography hint that Buffett’s principles and his devotion to them put succeeding generations of politicians to utter shame. Given the bounds set by the U.S. Constitution, Buffett the Elder subjected each piece of legislation to a simple test: “will this add to, or subtract from, human liberty?”
Few proposals that crossed his desk did so: in Bill Kauffman’s words (Meet Warren Buffett’s Daddy), Buffett “opposed whatever New Deal alphabet-soup agencies and Fair Deal bureaucracies emerged from the black lagoon of the Potomac … Buffett was also a strict isolationist, denouncing NATO, conscription, the Marshall Plan (‘Operation Rathole’), and the incipient Cold War, which he believed would enchain Americans in ‘the shackles of regimentation and coercion ... in the name of stopping communism.’” As an unabashed classical liberal in the American mould, Buffett was a spirited critic of the New Deal and Fair Deal’s centralisation, socialisation and supposition that élite bureaucrats in Washington know better than millions of producers and consumers in the real world.
Fused to Buffett’s reverence of republican institutions and free-market capitalism was his innate anti-militarism and profound hatred of war. He therefore championed the non-interventionist tradition of George Washington, Thomas Jefferson and John Quincy Adams (see also Sheldon Richman’s New Deal Nemesis, Joseph Stromberg’s Mere “Isolationism”: The Foreign Policy of the “Old Right” and Charley Reese’s Let’s Revive An Old Trait). Representative Buffett was sincerely concerned for taxpayers. He also pinpointed what increasingly bedevilled them. “Far away from Congress is the real forgotten man, the taxpayer who foots the bill. He is in a different spot from the tax-eater or the business that makes millions from spending schemes. He cannot afford to spend his time trying to oppose Federal expenditures. He has to earn his own living and carry the burden of taxes as well … But for most beneficiaries a Federal paycheque soon becomes vital in his life. He usually will spend his full energies if necessary to hang onto this income.... The taxpayer is completely out-matched in such an unequal contest.”
Buffett championed the cause of sound money – that is to say, of monetary arrangements based solely upon voluntary contracts. In a speech republished in The Commercial and Financial Chronicle on 5 June 1948, he said “in a free country the monetary unit rests upon a fixed foundation of gold or silver independent of the ruling politicians” and is “redeemable for a certain weight of gold, at the free option and choice of the holder of paper money.” Buffett reckoned that “our finances will never be brought into order until Congress is compelled to do so. Making our money redeemable in gold will create this compulsion.” He also said with considerable foresight: “I warn you that politicians of both parties will oppose the restoration of gold [and] those elements here and abroad who are getting rich from the continued American inflation will oppose a return to sound money. You must be prepared to meet their opposition intelligently and vigorously.” Perhaps more than any politician of his generation, and certainly much more than virtually any of his successors, Buffett well understood and deeply appreciated the direct linkage between sound money, liberty and prosperity at home and peace overseas (see also Ron Paul’s Paper Money and Tyranny). He did so at a time when politicians increasingly regarded these things – as well as the taxpayers who footed the bills and wore the unintended consequences – with disdain and contempt.
Gary North, in an article entitled Gold Standards: The Good, the Bad and the Ugly, observes “there is great confusion about the gold standard, for the same reason that there is great confusion about the free market: hardly anyone understands it. This includes academic economists.” North also notes “there are proposals for various monetary systems that are in some way tied to gold. There have been a lot of these proposals over the centuries. They all have one thing in common: they are ignored today by academic economists, commercial bankers, central bankers, national governments, the general public, and CNBC. Well, perhaps not ignored. More like ridiculed.” Similarly, Alan Greenspan – of all people – has written “an almost hysterical antagonism towards the gold standard is one issue which unites statists of all persuasions. They seem to sense, perhaps more clearly and subtly than many consistent defenders of laissez-faire, that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.”This series of circulars reasons from first principles towards Howard Buffett’s conclusions regarding monetary arrangements and their consequences for human liberty, the size and scope of government – and the unintended and negative consequences of governments’ actions. It concludes that Representative Buffett has much to teach us about the sources of today’s difficulties.
Why Gold?
In countries like Australia, money has for more than a century been the common denominator of virtually all contemporary transactions. Money is universally acceptable to participants in an exchange economy as payment for goods or services. As the medium of exchange, it can be used as a standard of market value and a store of value (i.e., as a means of saving).
Money is a precondition of a division or specialisation of labour. If there were no commodity of objective value that people accepted as a medium of exchange and store of value, then they would have to revert to barter or return to self-sufficient (i.e., subsistence) farms. Either way, they would have to forgo the inestimable advantages of commercial specialisation – and their standard of living would therefore plummet. If there were no means to store value and save, then, as demonstrated in Robinson Crusoe and the Distemper of Our Times, civilisation would scarcely be possible.
As a medium of exchange, money is a special kind of commodity. The medium of exchange that will be voluntarily acceptable to all participants in an exchange economy is not determined arbitrarily (see in particular Carl Menger, Principles of Economics, New York University Press, 1870, 1981, ASIN: 0814753817). Clearly, the medium should be durable.
In a primitive society, where exchanges occurred most during and immediately after the harvest, leaving no surplus to store, wheat might be sufficiently durable to serve as the agreed medium. But where store-of-value considerations are important – as they inevitably are in richer, more civilised societies – the medium of exchange must be an imperishable commodity. Historically, given the free choices of producers and consumers, a metal is generally chosen as a medium of exchange. Because a metal can be purified, it can be rendered homogeneous and divisible: every unit is the same as every other, and the commodity can be aggregated or disaggregated into any quantity. Historically, the commodity chosen freely by buyers and sellers as a medium of exchange also tends to be a luxury. This is because human desires for luxuries are boundless but their supply is limited; hence luxury goods are always in demand and will therefore tend to be acceptable as media of exchange. The very term “luxury good” implies scarcity and high unit value. Having a high unit value, such a good also tends to be easily portable. Clearly, “luxury” is subjective: what is regarded as a luxury at one place and at one point in time need not be so regarded elsewhere and at other times. Equally clearly, however, if one were to compile lists of what are regarded as luxuries at various locations, cultures and points in time, these lists would shall several common elements. Most prominent among these “universal” luxuries would be certain precious metals and jewels.
In the early stages of a developing money economy, several media of exchange might be used. This is because a wide variety of commodities would qualify as homogenous and divisible luxury goods. If, however, it is more widely acceptable as a medium of exchange than its competitors, then one of the commodities will gradually displace all others. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it reduces the costs of transactions and makes exchange possible on a far wider scale.
Depending on the context and degree of development of a given economy, whether the single medium of exchange is gold, silver, sea shells, salt, cattle or tobacco is immaterial. Indeed, each of these commodities has been employed at various times and in various places as a medium of exchange. Wheat is not a luxury not in a prosperous society; but it is in civilisations which subsist from harvest to harvest. Similarly, cigarettes would not normally serve as money – but they did in prisoner of war camps and post-war Europe, where they were considered a luxury. In many societies two major commodities, gold and silver, have distinguished themselves as media of exchange (see Murray Rothbard, Man, Economy and State: A Treatise on Economic Principles, 1962, 1993, Ludwig von Mises Institute, ISBN: 840212232).
During the nineteenth and early twentieth century gold distinguished itself as an unrivalled medium of international exchange. Gold is relatively scarce and has in many countries always been considered a luxury good. Further, it is more durable, portable, homogeneous and divisible than virtually any other commodity, and for these reasons has significant advantages over other media of exchange. Representative Ron Paul puts it this way: “all great republics throughout history cherished sound money. This meant that the monetary unit was a commodity of honest weight and purity. When money was sound, civilisations were found to be more prosperous and freedom thrived. The less free a society becomes, the greater the likelihood its money is being debased and the economic well-being of its citizens diminished.”
....continued in Part II
 
Designed & maintained by
Artist Web Design
©1999-2010 All Rights Reserved |
