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A quick trip from Locke and Smith to Keynes and Krugman

(c) 2012 Earl L. Haehl Permission is given to use this article in whole as long as credit is given. Book rights are reserved.

This is part of a manifesto I was writing before I realized I’m too old to lead a social movement.

A free society depends, not upon its political class, but on a general understanding of its principles by the majority.  These principles do not reflect entitlements or “goodies” but rather opportunity and duty.

Along with the so called Tea Party, I believe we need to cut the power in Washington and the power to Washington.  We are engaged in a domestic battle which so far involves attempted government takeovers of health care, banking, education and industry.  There is also an attempted takeover of our Constitution which has been going on since 1901 with the repeal of the Militia Act of 1792.  Since 1968 there has been an increased attempt to federalize and militarize law enforcement.  But this goes back to the Benjamin Harrison/Grover Cleveland era and anti-trust legislation.
Progressives love the Commerce Clause of the Constitution and Alexander Hamilton. What they ignore is the agenda of Hamilton and Madison in the commerce clause itself. What Alexander Hamilton and James Madison wanted in the Commerce Clause was elimination of barriers to trade among the States–to be specific the states having power to restrict, whether by tariff or prohibition or unreasonable regulation, the lawful movement of goods from one location to another.  The example was that New York could not grant a preferred status to goods from New Jersey as opposed to Connecticut or Delaware by means of tariff and excise.  It had nothing to do with Federal Regulation of hours of work, wages or other terms and conditions of employment.  It had nothing to do with the regulation of sales of firearms or ammunition to individuals, with a federal scheme of licensing and regulating dealers, with regulation of medical equipment, with federal regulation of pharmaceuticals and the food supply.
If we go back to the areas for takeover, we can examine each.  We must realize that much of the industrial and banking infrastructure predates the progressive movement which some trace to Thomas Woodrow Wilson’s essay on the transcendent constitution.  It even predates Lincoln and the Transcontinental Railroad, as well as the Land Management Act.
Hamilton believed in the free flow of commerce to the extent that he supported the Democratic Republican/Clintonian candidate, Morgan Lewis, over the Democratic Republican/Federalist candidate, Aaron Burr.  Burr was of the Federalist faction like Hamilton, but had allied himself with the secessionist faction within the faction.  Hamilton realized that the dream of free commerce would be destroyed by a breakup of the Union and therefore he supported the successor of his old political enemy George Clinton.  There was bad blood between Hamilton and Burr regarding their banking rivalries–Burr’s family had incorporated the Manhattan company to provide water to Manhattan, but had also gotten authorization to issue notes.  They were on opposite sides of the National Bank debate.
Hamilton also believed in the excise power of the government.  He was influential in getting Congress to pass the gallonage tax on production of whiskey in 1791.  This was a cause of the 1794 Whiskey Insurrection.  In his papers he claims credit for inciting the rebellion because he felt it would demonstrate the inadequacy of reliance on militias rather than a national army.  The performance of Governor Lee and the combined militia force supplied by Virginia, Pennsylvania, Delaware and Connecticut disproved this on a small scale.  The excise power has been the subject of much mischief over the years as well as the commerce clause.
While this seems a digression, the study of history cannot be complete without the dots to connect unless you have a coloring book where the colors show up when you brush water on the sheet.  Much of the history taught in schools follows this latter pattern with the dyes drawn into the paper by leftist interpreters. The national bank proposal of Hamilton, for example, was only the first of many resulting in the Federal Reserve in 1913.  Hamilton, while a financial player, would probably not recognize the Creature from Jekyll Island.  Nor for that matter would Nicholas Biddle, David Crockett, William Henry Harrison or other 19th Century Whigs.
So let us start with the regulation of banking, Wall Street, mortgages, credit cards, etc. Back in the seventies and eighties (the 1980s–I’m not that old) there was a crisis in agricultural property foreclosures.  The banks were generally willing to work with the farmers but FmHA wanted to clean the books.  As usual Congress acted with the Emergency Farm Mortgage Act to help farmers delinquent on mortgages through the Farm Credit Service.
The fact is that a lot of farmers lost their land anyway.  An exception is that German anabaptist farmers (Mennonites, Amish, Brethren, Hutterites) did not have delinquencies or foreclosures because they avoided major debt.  They were able to purchase some foreclosed land which temporarily caused some resentment among the “English.”  This is an example of the banks following social mandates in lending and then having negative consequences for which they are blamed.  The primary culprits in the recent “mortgage meltdown” are the quasi-governmental twins (Freddie and Fannie) and the “affordable housing movement” which had the effect of putting people into properties they could not afford.
A friend of mine, the late John R Kuefel, observed that the whole federal loan program of student, home and business loans has the result of placing large numbers of individuals in a state of villeinage.  Villeins were indebted individuals whose freedom was limited by those holding the debts.  They were outside of society and considered to be of a criminal class, hence the term “villain.”  As an experiment try getting an exit visa or visa waiver to leave the United States if you are delinquent on a student loan.  For an example of the impact of villeinage on a society, read up on the Peasants’ Revolt of 1381.
Back in the eighties the Kansas Legislature passed a law requiring that the state pension fund make investments to increase local business development in Kansas.  Mainly they were looking a urban based development that was having trouble getting funding in the private market.  A number were also associates of the governor and legislators sponsoring the program.  The executive secretary of the pension fund recommended strongly against the legislation because it would compromise the fiduciary integrity of the system.  When, as usual, this turned out badly, the executive secretary took the fall.  A law professor with an impeccable reputation as a judge and cabinet officer (for the governor who supported and signed the bill) was appointed to investigate.  Charges were brought against some businessmen for defrauding the fund.  No culpability was assigned to either the governor or legislators who promoted the bill that opened the system up to the scam.
Pension funds took a hit in 2009 when the Obama Administration interjected itself into the bankruptcy proceedings of General Motors and Chrysler with proposals that benefited the United Auto Workers union to the detriment of stockholders.  The new beneficiaries are the “stakeholders” preferred by the regulating power.  Among the preferred stockholders who got left out were pension funds that are heavy investors.  There is a movement to nationalize all private and state pension funds.
Stock brokers began to be regulated after the “crash” of 1929 when the Federal Reserve, without a signal from the economy jacked up interest rates.  There was a panic on Wall Street and some of the reverberations came from the turning bones of Alexander Hamilton in the church yard at Broad and Wall.  The “crash” however did not start the Great Depression other than being about 17 months prior to the recession of 1931, the proximate cause of which was Smoot-Hawley tariff act.   As the recession was beginning to abate, Franklin Delano Roosevelt took office with a plan that involved Secretary of Labor Frances Perkins and National Recovery Administrator Hugh S. Jackson.  Their approach to the ills of the country was a massive set of federal agencies and regulations based on The Corporate State by Benito Mussolini.  The Commerce Clause ceased to be about the free flow of goods and services, and more about federal power to intervene in the employer-employee relationship.    This view of the Commerce Clause is best epitomized by William O. Douglas and William J. Brennan.  Brennan expanded his view of the Commerce Clause to include state and local governmental activities as “commerce.”
The twentieth century was all about War.  In 1898, the United States Congress, at the behest of William Randolph Hearst and Assistant (read Acting) Secretary of the Navy Theodore Roosevelt, declared war on Spain.  Roosevelt involved himself in the Cuba campaign which also doubled as the beginning of his campaign for Governor of New York.  McKinley was not in favor of a war but Congress declared it and at least he had Roosevelt out of his cabinet.  Roosevelt was planning to run for reelection for governor but the powers that be decided he could do less damage as vice president.  Unfortunately for the establishment, McKinley was assassinated and TR became a reality to be dealt with.  He continued the occupation of the Philippines, created the general staff, and sent the Great White Fleet around the world.  He was prepared to use the Marines to protect Panama’s “independence” to build a canal across the isthmus.  Out of the malaria that plagued the workers came the Public Health Service.  “I took the Canal Zone and let Congress debate about me.”
While there was a four year lag in the “progressive” movement under William Howard Taft. Then in 1913 Thomas Woodrow Wilson came into office largely as a result of the “Bull Moose” campaign of TR that took electoral votes and made Taft the second incumbent in history to come in third.  Wilson soon had the Federal Reserve act, the ratification of the income tax, the ratification of direct election of Senators, and troops in Mexico.
The sixteenth amendment says, “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” This basically gives the government the means to expand without raising tariffs and to engage in military adventurism,  The Wilson administration was responsible for the occupation of Mexico, our involvement in World War I, and the 1920 invasion of the Soviet Union to interfere with the Bolshevik revolution.  Also on the plate were the Sedition Act of 1917 and the Intelligence Bureau (modeled after the Soviet Cheka) to break up socialist and anarchist gatherings.
The post war economic downturn was due to loss of about 40 percent of the industrial work force between the “Great War” and the Camp Funston flu.  The first outbreak of the 1918 flu was at Camp Funston, Kansas.  What the government did about this downturn was, in a word, nothing.  The recession ran its course and by 1925, America was back at full production.  Admiral Yamamoto who took his master’s degree at Harvard warned Japan that America would ultimately triumph because of industrial might.
But after eight years of limited government in the twenties, the United States turned to Herbert Hoover, a Rooseveltian progressive.  Since that time the power struggle has basically been between styles of progressivism.  Kennedy and Reagan were Rooseveltian progressives (TR) with some conservative and occasional libertarian tendencies.  But it has been a steady movement of more alphabet soup agencies and restrrictions for the good of the people.   Remember castor oil?  It was part of every grandmother’s medicine chest and it was derived from the toxic castor bean,
So that is how we get from John Locke and Adam Smith to the disciples of John Maynard Keynes, J.K. Galbraith and Paul Krugman.
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