July 4, 2020
AliExpress WW
Governments Have Crippled The World's Economies, Revolution May Soon Follow

Governments Have Crippled The World’s Economies, Revolution May Soon Follow

AliExpress WW

Posted by Thorstein Polleit through the Mises Institute,

AliExpress WW

The world seems to be on fire. A couple of months ago, economic growth was still steady, production increased, and unemployment declined. Everything changed with the advent of the coronavirus or, to be precise: everything became very bad with politically determined blockages. In response to the spread of the virus, the governments of many countries ordered the closure of shops and firms, and people to stay at home. The inevitable result was close to the complete collapse of the economic system. Hundreds of millions of people fell into complete despair; in India alone, 120 million workers lost their jobs in April 2020.

Economic collapse threw an irreparable paper money system into a tailspin. Borrowers were unable to service their debts, and banks did not want to extend loans with maturity, not to mention the provision of new funds to struggling debtors. The whole credit pyramid was supposed to collapse. To prevent this from happening, governments and their central banks went all-in, providing huge sums of money to pay for lost people’s incomes and evaporating company profits. Of course, governments do not have the money they promised to spend.

Central banks began to use electronic printing machines, releasing a large amount of newly created money in the banking and financial sectors, as well as introducing new balances into people’s accounts in banks. In other words: as production is greatly reduced, the amount of money is greatly increased. This is, without a doubt, inflationary policy, because inflation should be understood as an increase in the amount of money. One of the possible results of the policy of increasing the amount of money is price inflation: an increase in the monetary prices of goods and services.

Another result of money supply growth is the redistribution of income and wealth between people. Not all people will receive a share of the newly created money at the same time, as there will be early recipients and late recipients. The former can buy goods and services at fixed prices. The latter, however, lose: they can only buy affordable items at already higher prices. As a result, early recipients of new money become richer than later recipients. Thus, investing means redistributing income and wealth.

The huge amounts of money that central banks issue to protect against the symptoms of the crisis will create winners and losers. It will make some people richer, and it will make many others poorer. This does not create a win-win situation. It can be expected that banks, the financial industry, big business and governments, as well as their environment and close beneficiaries, will benefit. On the contrary, medium and small businesses, average workers and retirees may be the losers. In any case, printing more and more money increases economic inequality.

This is no longer the hard work, ingenuity, frugality and customer orientation on the part of the person who determine his economic fate, but proximity to the printing center of the central bank and meeting the requirements for obtaining government services. In times of economic growth, opposition and protest against social injustice, which is accompanied by the printing of money, are suppressed – most people see that their piece of cake is increasing, at least to some extent. However, the recession changes this: it lays the foundation for direct opposition and rebellion.

As Ludwig von Mises (1881–1973) insightfully observed:

Constant mass unemployment destroys the moral foundations of the social system. Young people who have finished preparing for work, are forced to remain inactive, are the source from which the most radical political movements are formed. The soldiers of future revolutions are recruited into their ranks.1

Opposition and rebellion against what?

Nowadays, most people blame job loss and a difficult income situation for capitalism – an economic system in which the means of production are in private hands. They argue that capitalism makes the rich richer and the poor even poorer, and capitalism is inherently unstable and causes repeated economic and financial crises. However, this is a completely misinterpretation. First of all, neither in the USA, nor in Europe, nor in Asia, nor in Latin America do we find capitalism in the pure sense of the word.

Economic systems around the world are an interventionist system. Governments severely restricted the work of free market forces through taxes, directives, laws, and regulations. Wherever you look, that little remains of the capitalist order is under siege and is eliminated further. A fairly obvious point is the monetary system: money production was monopolized by central state-sponsored banks that issue licenses to private banks to participate in creating money that is not backed up by real savings.

Robust economics teaches us such a monetary system causes big problems: it is inflationary, causes boom and bust cycles, makes the economy fall into excessive debt and allows the state to become more and more great, turning into a deep state. Indeed, there should be no doubt that without a paper money system without support, today’s governments could not have become as big, encroaching, and oppressing as they are. A system without paper money is, so to speak, an elixir for creating a tyrannical government.

Unfortunately, those who blame capitalism bark at the wrong tree. Despite all their criticisms of inflationary money, economic difficulties and growing inequality are direct results of a successful government war against capitalism, which has been replaced by a system of interventions. The free market system has been replaced by a system of decrees and prohibitions, which in the true sense are incompatible with capitalism. Against this background, the question arises: why do people blame all capitalism and not on interventionism-socialism?

Of course, there is such a thing called the “anti-capitalist mentality.” Many people do not like capitalism, because under capitalism those who serve consumer demand best are economically rewarded: making a profit is the result of producing something that others want to buy. Those who are less willing to serve their brethren must accept lower incomes. This inescapable truth is a breeding ground for resentment, envy and hostility. And these emotions can be easily instrumentalized by demagogues.

This is exactly where socialist ideology comes from. It appeals and pleases people with resentment. Capitalism is declared a bad guy, the culprit of their dissatisfaction. In this sense, capitalism becomes a kind of “screen of hatred”, against which people are invited to direct all their grievances. Most importantly, anti-capitalist policies, socialism programs, are praised and promoted as useful for the discontented, to crush the rich and ensure a more even distribution of income and wealth.

Without a doubt, the current distribution of income and wealth was caused by interventionism-socialism, and not pure capitalism. One of the strategies to eliminate it is to direct people’s discontent in the right direction – to make it clear that the call for less interventionism, less socialist politics and deconstruction of the state (as we know today) is the way forward, and not pushing the free market system off the cliff and allowing a deep state to become even bigger. Without a doubt, this is a gigantic educational task.

Much depends on progress on this issue, as It would be a catastrophe if capitalism continued to be responsible for the economic, social and political problems that were actually caused by a system that might best be described as anti-capitalism. Saying goodbye to capitalism, people put peace and prosperity in serious danger, jeopardizing the existential future of the vast majority of human lives around the world. Nevertheless, protecting capitalism from its destructive enemies is of utmost importance.

This is not only a time of economic crisis. Looking back, it may also look like a confrontation between those forces that want to advance further to socialism, and those who are trying to return to capitalism, and perhaps also like the time of the social revolution. We hope that the revolution is against encroaching socialism in the form of ever larger and even more powerful governments. We hope that this is a revolution in which people seek to regain control of their lives by putting an end to left-wing ideologies, be it political globalism, interventionism or outright socialism.

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