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Monday, July 12, 2010

Why they warmonger: the longer a war lasts, the more centrally planned and government-controlled the entire economy becomes

Inflating War
Central banking and militarism are intimately linked

(The American Conservative) -- by Thomas DiLorenzo --

“One can say without exaggeration that inflation is an indispensable means of militarism,” Ludwig von Mises wrote. “Without it, the repercussions of war on welfare become obvious much more quickly and penetratingly; war weariness would set in much earlier.”

This explains why American politicians have always resorted to the legalized counterfeiting of central banking to finance wars, the most expensive of all government programs. If citizens had a clearer picture of the true costs, they would be more inclined to oppose non-defensive intervention and to force all wars to hastier conclusions.

Government can finance war (and everything else) by only three methods: taxes, debt, and the printing of money. Taxes are the most visible and painful, followed by debt finance, which crowds out private borrowing, drives up interest rates, and imposes the double burden of principal and interest. Money creation, on the other hand, makes war seem costless to the average citizen. But of course there is no such thing as a free lunch.

As a general rule, the longer a war lasts, the more centrally planned and government-controlled the entire economy becomes. And it remains so to some degree after the war has ended. War is the health of the state, as Randolph Bourne famously declared, and the growth of the state means a decline in liberty and prosperity.

As Robert Higgs wrote in Crisis and Leviathan, among the effects of World War I were “massive government collusion with organized special-interest groups; the de facto nationalization of the ocean shipping and railroad industries; the increased federal intrusion in labor markets, capital markets, communications, and agriculture; and enduring changes in constitutional doctrines regarding conscription and governmental suppression of free speech.”

Inflationary war finance inevitably leads to calls for price controls, which inflict even greater damage on the private enterprise system by generating shortages of goods and services, which are falsely blamed on capitalism. The state uses this excuse to grant itself even greater central-planning powers. Inflating the currency as a method of war finance is often a first step in the adoption of what is essentially economic fascism...

Alexander Hamilton was the real founding father of central banking, as the Federal Reserve Board declares in one of its publications. His Bank of the United States (BUS), established in 1791 after a momentous debate between Hamilton and Jefferson over its constitutionality, was partly intended to finance “sudden emergencies” like war, in Hamilton’s own words. He rejected Washington and Jefferson’s foreign policy of commercial relations with all nations, entangling alliances with none. Instead, he advocated a permanent military establishment complete with a large navy and standing army that would pursue “imperial glory.” As historian Clinton Rossiter explains, “Hamilton’s overriding purpose was to build the foundations of a new empire.”

Hamilton praised public debt as a “blessing” and complained to George Washington, “We need a government of more energy!” Jefferson, on the other hand, opposed both a large public debt and a national bank, arguing, “the perpetuation of debt, has drenched the earth with blood”—a reference to European monarchs’ endless wars of conquest funded by public debt...

In the wars that have followed, central-bank financing has inflicted essentially the same kind of damage on American society: inflation, economic chaos, reduced real wages, price controls and other government interventions, and ideological attacks on capitalism rather than the real culprit, the Fed.

Adam Smith recognized the advantage of financing wars with taxes rather than public debt when he wrote, “Wars would in general be more speedily concluded, and less wantonly undertaken. The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and the government, in order to humor them, would not be under the necessity of carrying it on longer than it was necessary to do so.” Central-bank inflation renders the costs of war even more invisible than debt financing does and is therefore even more disastrous for the American public...MORE...LINK

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