Iceland forgives mortgage debt of its population
Does everyone realize that that is the literal
opposite of "
liquidating" such debt?
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As the German economist Wilhelm Lautenbach (himself a supporter of the American System of political economy, as discussed below) told a meeting of the Friedrich List Society in Berlin in September 1931 called to discuss ways of ending the depression and preventing Hitler’s seizure of power, there are basically four policy courses which are open to a nation state in a time of acute economic breakdown crisis. These policy options essentially exhaust the available choices for a modern economy and banking system. Whatever we think we may be choosing in the current depression, it is almost certain that we will in fact be choosing one of these four courses. Therefore, let us examine each one carefully, with all the diligence of a life and death decision.
Deflation and budget cutting, liquidationism. The first policy option consists of letting the depression take its course, with minimal government intervention. Since this means letting the entire banking system sink into insolvency, and letting the supply of credit dry up completely, this approach leads to massive deflation of the type experienced in the US between 1929 and 1933, with astronomical rates of unemployment, widespread bankruptcy of small business, factory closings, and general immiseration, including widespread death by malnutrition and starvation. Deflationary policies are often accompanied by budget cuts and austerity, explained by the alleged need to balance the budget. Special targets of these austerity measures are social programs like unemployment insurance, food stamps, old-age pensions, government health care programs, and the like. This entire package is often justified by propaganda about doing away with the excesses of the speculative boom, punishing incompetent management, teaching the population to live within its means, and generally purging excesses from the system. In reality, deflation and budget cutting represent a policy which appeals to wealthy plutocrats of the criminal type. These are people who have money, and who believe that they will continue to have money, no matter what happens to the rest of the economy. Because of their inhuman cruelty and greed, they imagine that they will be able to buy up valuable distressed assets for pennies on the dollar, and that they will be able to employ skilled labor for coolie wages. These wealthy sociopaths are especially keen to target government run unemployment, food, and health programs so that starving and desperate workers can be forced to work for almost nothing to avoid starvation. For such plutocrats, every depression is an opportunity to institutionalize the low-wage, sweatshop economy.
The high priest of liquidationism was the sinister Andrew Mellon, the ultra-reactionary Secretary of the Treasury who dictated many aspects of financial and economic policy in the interests of a tiny cabal in Wall Street to Presidents Harding, Coolidge, and Hoover during the 1920s. Andrew Mellon is almost identical with today’s monetarists of the Austrian, Chicago, or supply side persuasion. Mellon’s favorite litany was: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate … It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people ….” Mellon demanded that the full fury of the world economic depression be visited upon a virtually defenseless US population. Don’t interfere with the depression, Mellon argued, and the crisis would turn out to represent nothing more than “a bad quarter of an hour.” Naturally, this approach gives no thought to the large numbers of persons who may lose their lives or their health during the crisis, nor to a generation of young people and working people who may be crushed into permanent despair by disastrous economic conditions. Indeed, liquidationists aim at the permanent lowering of the standard of living of the entire population as a positive good. Liquidationism is also prominent among the possible interpretations of the “creative destruction” slogan of another reactionary economist, Joseph Schumpeter. “Creative destruction” has generally been touted by those who did not expect to be destroyed.
Implicit in the demand by Austrians, Chicago Boys, and supply-siders that the depression be given free reign to do its disruptive work is a mystical notion of the so-called business cycle. For example, the Wall Street propagandist Miss Calamity Shlaes of the Council on Foreign Relations has developed a spurious argument, religiously repeated by right wing radical radio talk show hosts, to the effect that the Roosevelt New Deal “prolonged” the depression of the 1930s. Prolonged it in comparison to what? The Calamity Shlaes argument is evidently that the Great Depression of the 1930s would have ended automatically on its own at some point before the end of the decade if nothing whatever had been done to mitigate its devastating effects. It is notable first of all that Miss Shlaes does not ask anything about the human toll in terms of morbidity, mortality, ruined lives, despair or the permanent lowering of the living standard which her recipe of benign neglect would have entailed. She thinks that depressions are part of the business cycle and that they end up more or less automatically. In reality, there is no guarantee whatsoever that the descent into the trough of an economic depression will be followed by any kind of upswing or rebound. Quite the contrary. If we look at the 1930s, we see immediately the root cause of the collapse of world trade was the bankruptcy and default of the Bank of England on gold payments for the British pound in September 1931. This was a moment not just of collapse but true disintegration, meaning that the only world monetary system for financing trade which the world possessed at that time had been totally destroyed. World trade could not and did not revive until a new world monetary system was created under New Deal auspices at the Bretton Woods conference in New Hampshire in 1944. In order for that new world monetary system to be created, the Axis powers had to be defeated, and resistance from Great Britain and her satellites had to be drastically reduced by the de facto bankruptcy of the city of London. The new Bretton Woods monetary system, certainly not perfect but the most effective in human history up to that point, was in fact the indispensable prerequisite for a world economic recovery. If the very reactionary Miss Shlaes wanted to prove an automatic laissez-faire recovery from world depression, she would have to cite some country where Austrian school monetarist methods of opening the door wide to depression had in fact brought about a recovery before the middle of 1941. In fact, no such country existed.
Miss Shlaes and her co-thinkers also argue that the Great Depression was not ended by the government spending involved in the New Deal, but rather by the outbreak of World War II. We should point out that unemployment in the United States had virtually disappeared before Pearl Harbor as a direct result of Roosevelt’s Lend-Lease program of financially harnessing the credit resources of the Federal Reserve and the banking system for defense production, with first Great Britain and then the Soviet Union as the main beneficiaries of Lend-Lease deliveries. The reactionary argument against the New Deal is like saying that the depression was not ended by government spending, but rather by government spending. What the reactionaries are trying to say is that the depression was not ended by federal emergency relief for wage earners and other individuals, nor by infrastructure investments like the Tennessee Valley Authority (all of which they opposed tooth and nail), but rather by military expenditure. The entire position of these reactionaries is hopelessly dishonest, or garbled, and contradictory, and the fact is that liquidationism by itself has never led to an economic recovery, although it has inflicted untold damage on numerous societies. In the real world, you do not get out of a world economic depression through the mystical operations of some yin and yang cycle. You get out of the depression by producing your way out of it. For this to happen, it is generally necessary for the government to implement an adequate economic recovery program, since in a depression the private banking and financial sector by definition has completely struck out.
These monetarists and liquidationists demand today that the American people capitulate and surrender to the forces of economic and financial depression without any attempt at self defense. It is a doctrine of astounding impotence, callousness, and pessimism, and one which clashes most sharply with any traditional definition of American culture, which has always been founded on optimism and can-do spirit. We need to remember that, no matter how bad the economic policies of Herbert Hoover were in fact, Hoover never completely capitulated to the depression in the way that some Austrian monetarists are demanding today. During the depression, the Austrian monetarist Friedrich von Hayek produced articles demanding that all interference with the depression must immediately cease, while government spending should be cut. Hoover, despite the demands of some Republicans like Andrew Mellon, refused to fully embrace this course. As Hoover pointed out in his acceptance speech for the Republican presidential nomination in Washington, DC on
August 11, 1932, he had tried to fight the depression. Hoover claimed that if he had followed the ultra-reactionary advice, “we might have done nothing. That would have been utter ruin. Instead, we met the situation with proposals to private business and to the Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put that program into action.” At a speech at Des Moines, Iowa on October 4, 1932, Hoover pointed out that “some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom.” But Hoover stressed that his administration had “determined that we would not follow the advice of the bitter end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction.” Deflation, budget cutting, and overall liquidationism in the spirit of Andrew Mellon lives on today among the followers of Milton Friedman and his Chicago school, von Hayek and von Mises of the Austrian school, and the various stripes of supply side doctrine. Liquidationism has generally been professed by the reactionary right wing of the Republican Party, especially when out of power, including such figures as Robert Taft, Barry Goldwater, Ronald Reagan, and Ron Paul today. This is the approach of Limbaugh, Hannity, Glenn Beck, and the other reactionary radio talk show hosts of our own time. One advantage of this form of argument is that it can be based on folksy comparisons to the kitchen-table discussion of the household budget, references to belt-tightening, thrift, and the like. This permits the blurring of certain dramatic differences between the situation of an individual household and that of a national government with resources including credit, currency, and sovereignty.
Historically, a notable exercise in the sustained and ruthless application of budget cuts was the regime of German Chancellor Heinrich Bruning. As German chancellor between March 1930 and May 1932, Bruning was unable to muster a majority of the parliament and therefore used presidential decree-laws signed by President von Hindenburg to reduce wages, reduce worker benefits, cut social welfare payments, and rob workers of the unemployment insurance which was due them. Taxes were increased, and the German living standard declined sharply. Unemployment increased disastrously from 5 million in the winter of 1930-31 to 6 million in the winter of 1931-32, which represented more than 20% and was the worst in Europe by far. By the time Bruning left office, Hitler’s seizure of power was little more than a half year in the future. The application of Austrian-school monetarism under Bruning was a catastrophic failure in economic terms, and politically opened the door for fascist dictatorship. How strange that today persons calling themselves libertarians should recommend similar policies.
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In case the fundamental difference between "liquidating" debt and "forgiving" it is still lost on anyone, the former means that the private bankers who engineered this depression in the first place are allowed to
foreclose on everyone (even though they failed to provide "
lawful consideration" for any of the collateral-backed IOUs they accepted in exchange for all the non-existent "money" they loaned), whereas the latter means they are
not. So beware of anyone who
wraps the former in the flag of "liberty."
