The Federal Reserve was founded in 1913 to control inflation and the interest rate. In 1913 a group of top bankers including JP Morgan and several congressmen went to an island to discuss the details of the creation of The Federal Reserve. Then right before Christmas the bill to create the Federal Reserve was brought before congress and was voted on with little debate. The president subsequently signed it into law. Before the creation of the Federal Reserve we had a National Bank that was created by George Washington and Alexander Hamilton in 1791 to serve as a central repository for federal funds and congress voted to abandon the bank's charter in 1811. The second National Bank was created in 1816 and it was dismantled by president Andrew Jackson in 1833. The National Bank proved to be only helpful for the nation's wealthy.
The Federal Reserve has several instruments for controlling inflation and the interest rate. Lowering the interest rate during a recession increases the flow of money and spending. Raising the interest rate during prosperity is meant to reign in high inflation, tighten the flow of money, and decrease spending as to encourage saving. The Federal Reserve can change the interest by changing the discount rate or the interest rate at which the Federal Reserve loans money to banks. The Federal Reserve can also print money to buy United States Treasuries to lower the interest rate and sell them to raise the interest rate. Lowering the interest rate tends to cause a bubble in the stock market. Financial people tend to get concerned about an asset bubble when the Federal Reserve lowers interest rates while economist tend to want the Federal Reserve to keep interest rates low until the economy fully recovers.
In the 2008 recession the Federal Reserve brought bonds to lower interest rates this program became know as quantitative easing (QE). A few years ago the Federal Reserve began to gradually decrease the rate at which it was buying treasury bonds until it was not buying any. Recently, the Federal Reserve has been slowly raising interest rates. The Federal Reserve is meant to keep inflation and interest rates stable not help the overall economy. Some economist say the Federal Reserve has a dual mandate of inflation and unemployment. Those economists are technocrats and unfortunately the ideology of the technocrats are being used to formulate monetary and economic policy. For example, in Europe when there was a recession caused by a debt crises in Greece the European Central Bank lowered the interest rate in an attempt to help the economy. Debt was also severely high in other countries such as Italy, Spain, France, and Ireland. Only productive activity in the real economy will lead to long term sustainable economic growth.
Tuesday, November 27, 2018
Types of Capitalism
The word capitalism gets tossed around a lot and it losses its meaning. The different types of capitalism get confused in people's minds. Dr. Joseph p. Farrell contributed much of the information in this blog by answering a members vid chat question in November 6, 2017. I described Dr. Farrell's work and the members vid chats in my blog "Introducing Myself".
1. Crony Capitalism.
This developed in the late middle ages and early renaissance. A charter to perform spepecific functions to a group of people calling themselves a corporation. This goes back to theology and the ideas of person hood, natural functions, and rights. The udergirding of the corporation is metaphysical in nature. The corporation receives special privileges and favors from government or perhaps in the renaissance religious authority. These corporations developed into cartels. The policies of these groups have always been mercantilist in nature. They seek out special privileges from secular and religious authority. Also, they get bigger and bigger then drive out competition using economies of scale. Economies of scale is when a business producing a large volume of a good it brings down the cost per unit because overhead costs such as electricity stay the same.
2. Trust/Monopoly Capitalism.
The corporation tries to control the entire process of the industry not necessarily the industry itself. In the late 1800s John D. Rockefeller's company Standard Oil accomplished by controlling the oil drilling, oil refining, the railroads, and the distribution. Globalism is a euphemism for these types of corporations. Their not legitimate and they survive by privileges not the free market.
3. Finance Capitalism.
In a trust at least they make a physical product. In financial capitalism they make money off of money and by speculating on financial instruments. Their not producing anything. George Soros got his start as a currency trader. This is not a types of capitalism Austrian economic thought or Adam Smith would support. Recently, finance has become a larger portion of economy and high frequency trading is conducted by all major financial firms. Artificial intelligence (AI) and algorithms are being utilized for high frequency trading.
4. Mercantalist Capitalism.
In this form of capitalism governments have protective tariffs, subsidies to domestic producers of goods, and quotas on imports or a limit on the amount of a good that can be imported. This originated in the 1700s when the European colonial powers believed that a nation's wealth depended on having a large amount of gold bullion. They acquired gold bullion by having a trade surplus. To accomplish this the British made a law that it's colonies can only trade with Britain.
5. Dismantling Crony Capitalism.
We need trust busting on a massive scale. A century ago even conservatives wanted trust busting because it preserved the free markets. YouTube and police do not care about protecting the work of small authors under copyright laws. If you make a minor violation of a copyright law on a big corporation they will come down on you with everything they have. The corporations are in it for themselves. Austrian economic thought says that all of the first four types of capitalism I described will fail because someone will come up with a better idea. Also, large corporation do not keep up with innovation as well because they have enormous bureaucracy and they do not try things that take many tries before they work. The corporations suppress technology and development because they do not want to have to spend the time and money developing it.
6. Local Placed- Based Finance and Industry.
In this form of capitalism you can see and talk to all of the people that you buy all of your goods and services from. All of the businesses, factories, and banks that you receive goods, services, and loans from would be in your local community. This would mean local industries and local entrepreneurs. It would lead to a boom in the local economy and wages would go up. Also, poverty would decline. Catherine Austin Fitz emphasizes the importance of implementing this form of capitalism on The Solari Report. Austrian economic thought supports this system.
1. Crony Capitalism.
This developed in the late middle ages and early renaissance. A charter to perform spepecific functions to a group of people calling themselves a corporation. This goes back to theology and the ideas of person hood, natural functions, and rights. The udergirding of the corporation is metaphysical in nature. The corporation receives special privileges and favors from government or perhaps in the renaissance religious authority. These corporations developed into cartels. The policies of these groups have always been mercantilist in nature. They seek out special privileges from secular and religious authority. Also, they get bigger and bigger then drive out competition using economies of scale. Economies of scale is when a business producing a large volume of a good it brings down the cost per unit because overhead costs such as electricity stay the same.
2. Trust/Monopoly Capitalism.
The corporation tries to control the entire process of the industry not necessarily the industry itself. In the late 1800s John D. Rockefeller's company Standard Oil accomplished by controlling the oil drilling, oil refining, the railroads, and the distribution. Globalism is a euphemism for these types of corporations. Their not legitimate and they survive by privileges not the free market.
3. Finance Capitalism.
In a trust at least they make a physical product. In financial capitalism they make money off of money and by speculating on financial instruments. Their not producing anything. George Soros got his start as a currency trader. This is not a types of capitalism Austrian economic thought or Adam Smith would support. Recently, finance has become a larger portion of economy and high frequency trading is conducted by all major financial firms. Artificial intelligence (AI) and algorithms are being utilized for high frequency trading.
4. Mercantalist Capitalism.
In this form of capitalism governments have protective tariffs, subsidies to domestic producers of goods, and quotas on imports or a limit on the amount of a good that can be imported. This originated in the 1700s when the European colonial powers believed that a nation's wealth depended on having a large amount of gold bullion. They acquired gold bullion by having a trade surplus. To accomplish this the British made a law that it's colonies can only trade with Britain.
5. Dismantling Crony Capitalism.
We need trust busting on a massive scale. A century ago even conservatives wanted trust busting because it preserved the free markets. YouTube and police do not care about protecting the work of small authors under copyright laws. If you make a minor violation of a copyright law on a big corporation they will come down on you with everything they have. The corporations are in it for themselves. Austrian economic thought says that all of the first four types of capitalism I described will fail because someone will come up with a better idea. Also, large corporation do not keep up with innovation as well because they have enormous bureaucracy and they do not try things that take many tries before they work. The corporations suppress technology and development because they do not want to have to spend the time and money developing it.
6. Local Placed- Based Finance and Industry.
In this form of capitalism you can see and talk to all of the people that you buy all of your goods and services from. All of the businesses, factories, and banks that you receive goods, services, and loans from would be in your local community. This would mean local industries and local entrepreneurs. It would lead to a boom in the local economy and wages would go up. Also, poverty would decline. Catherine Austin Fitz emphasizes the importance of implementing this form of capitalism on The Solari Report. Austrian economic thought supports this system.
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