Armstrong Economics TM

There have been p l e n t y of a r t i c l e s a s k i n g whether C a p i t a l i s m i s now dead. The problem i s the question already presumes an outcome and f a i l s t o r e a l i z e t h a t we are s t i l l i n the middle of the g r e a t e s t Economic Transformation i n the h i s t o r y o f mankind. What we face i s f a r more complex than mere c a p i t a l i s m . To s e t the r e c o r d s t r a i g h t , c a p i t a l i s m i s a two s i d e d c o i n . F i r s t , there i s the f r e e market s t u f f of which Adam Smith argued against the P h y s i o c r a t s who h e l d t h a t a l l economic wealth of a n a t i o n was i n nature and l a n d . Hence, manufacture by a blacksmith tending t o the horses of the farmer d i d not c r e a t e wealth but e x p l o i t i t . Smith argued t h a t the wealth o f a n a t i o n was i t s t o t a l c a p a c i t y t o produce and a farmer standing w i t h a blacksmith who both s o l d t h e i r product t o France, e q u a l l y returned w i t h gold c o n t r i b u t i n g to the wealth of the n a t i o n . This i s not the only scope of c a p i t a l i s m . The o t h e r s i d e of the c o i n was the i n v e n t i o n of something very f o r e i g n to the average person i n the middle-ages. That money i t s e l f c o u l d work and earn more money without hard l a b o r of the i n d i v i d u a l . This d i s c o v e r y t r u l y c r e a t e s the essence of c a p i t a l i s m and gave b i r t h t o f i n a n c i a l panics w i t h the " T u l i p Bubble" i n the 1630s t h a t introduced the p u b l i c t o t r a d i n g t h e i r f i r s t o p t i o n s ( d e r i v a t i v e s ) s i n c e the f a l l o f Rome. T h i s was f o l l o w e d by the famous South Sea Bubble t h a t took place along s i d e the M i s s i s s i p p i Bubble i n France t h a t both c o l l a p s e d i n 1720. However, these investment booms sparked wide­spread s p e c u l a t i o n throughout Europe. The shares i n France o f Compagnie de Indes rose from 500 to 18,000 l i v r e s c o l l a p s i n g i n r u i n a f t e r g i v i n g b i r t h t o the term -" m i l l i o n a r e . "

T h i s i s not a simple question of whether C a p i t a l i s m w i l l s u r v i v e . What i s r e a l l y a t i s s u e i s S o i o a l i s r a - and that embraces the very nature o f Western Govern­ments. T h i s i s more than the demise of j u s t l a b o r unions. L i f t i n g t h i s rock allows the scorpions t o s u r f ace. i t i s more a k i n t o opening Pandora's box and a l l o w i n g a swarm of e v i l s t o escape and torment mankind. We have no c h o i c e but t o speak very f r a n k l y , f o r unless we t r u l y understand the nature o f events, there i s no way t o c l o s e the box and make i t a l l b e t t e r . As S a i n t Jerome s a i d o f Rome: "When Rome f e l l , the Romans were s t i l l l aughing." They had no idea of what was t a k i n g p l a c e and j u s t assumed Rome was impregnable. We can stop an event, i f we recognize i t i s happening.

I f we are a f r a i d t o ask the c o r r e c t question, then perhaps we are too biased to comprehend what we have done and take r e s p o n s i b i l i t y f o r our own a c t i o n s ? To paraphrase Edward Gibbon i n h i s memorable e p i t a p h on Rome: We were the c a p i t o l of democracy, the c i t a d e l of the e a r t h , the t e r r o r of t y r a n t s , i l l u s t r a t e d by the f o o t s t e p s o f so many triumphs, enriched by the l e a d e r s h i p i n economic freedom t h a t was the beacon t o so many n a t i o n s . This s p e c t a c l e , how i s i t f a l l e n ?

Copyright M a r t i n A. Armstrong A l l Rights Reserved December 11th, 2008 Comments Welcome: Armst.rongEconomics@CMail.COM I n t e r n a t i o n a l l y

The Great Economic

Transformation

0 1200AD

1400AD• 16Q0AD-

1800AD 2000AD-

I t may seem strange, but we have been undergoing a b a t t l e of economic philosophy t h a t transcends so many concepts, t h a t unless we step back, most have d i f f i c u l t y understanding the trend. This b a t t l e has o f t e n been l a c e d w i t h e f f o r t s to c o n t r o l mankind. For w i t h i n t h i s b a t t l e , we w i l l f i n d r e l i g i o n , p o l i t i c s , s c i e n t i f i c i n n o v a t i o n and progress spanning technology i n a l l areas, but a l s o i s s u e s t h a t i n c l u d e both s l a v e r y and l a b o r t h a t a l l c r e a t e what has become known as our economy.

Sometimes we are too c l o s e t o a problem t h a t i t i s j u s t i m p o s s i b l e t o see. When man landed on the Moon and sent the f i r s t p i c t u r e s of E a r t h r i s i n g , o n l y then c o u l d we see what our world honestly looked l i k e . We are f a c i n g the v e r y same problem. The change t h a t we now see and a r e debating, i s s t i l l from the view of a f l y on an elephant's back. We do not know we are even on an elephant o r what i s an elephant.

Our s o c i e t y i s s t i l l growing and changing. We are going through puberty where the youth r e b e l s a g a i n s t the parent. The profound change, the Great Economic

Transformation, became b l u n t l y v i s i b l e back i n 1989 where the world economy began t o u n r a v e l w i t h the f a l l of Communism. That fundamental change was t r u l y an economic transformation wave as a contagion and now i s spreading causing the c o l l a p s e o f even what we view as s o c i a l i s m i n the Western n a t i o n s . What we are f a c i n g i s c o n f u s i n g . Nevertheless, i f we want t o see the elephant, i t i s time t o take f l i g h t .

There i s a very core s t r u c t u r e t o the economic s o c i e t y o f man. The I n d u s t r i a l R e v o l u t i o n was not j u s t a slogan. I t i s hard f o r modern man t o look back from where he now stands and comprehend the meaning o f " r e v o l u t i o n " as i t was t r u l y expressed. The way o f l i f e p r i o r t o the I n d u s t r i a l R e v o l u t i o n remained e s s e n t i a l l y t he same from Greek times, Rome, middle-ages, and the b i r t h o f the United S t a t e s . The word "Economics" was an E n g l i s h t r a n s l a t i o n o f a book w r i t t e n by a great mind and a d i v e r s i f i e d man o f tremendous experience - Xenophon (ca 431-350 EC). Xenophon was a b r i l l i a n t p r a c t i c a l man. He began l i f e e a r l y on as the commander o f the e l i t e Greek f o r c e known as the "Ten ThousandXenophon admired Socrates profoundly, and developed a d i s l i k e f o r extreme democracy f o r the very crime i t had committed by o r d e r i n g Socrates t o be executed f o r h i s i d e a s . Xenophon wrote three works on the subject c a s t i n g Socrates i n a d i f f e r e n t l i g h t from t h a t of P l a t o - the "Apology" -'Symposium" - "Memorabilia." yet i n the f i e l d o f f i n a n c e and economics, h i s p o l i t i c a l work i s what perhaps the most powerful ccmmittee on C a p i t a l H i l l i s named a f t e r -"Ways and Means" w r i t t e n around 351 BC advocating peace r a t h e r than war between the Greek s t a t e s . But we owe the very word "Economics" t o the t i t l e o f h i s t r u l y master work - "Oeconomicus" t h a t simply meant i n a n c i e n t Greek - how t o r e g u l a t e the household.- I t was a How To Do Book f o r Gentlemen Dummies that e x p l a i n e d how t o manage your e s t a t e from growing crops, managing s l a v e s , and your w i f e .

What does t h i s have t o do w i t h the I n d u s t r i a l Revolution? E v e r y t h i n g ! L i f e as s o c i e t y knew i t was completely d i f f e r e n t before the 19th Century. The Romans c a l l e d them " v i l l a " and we c a l l e d them " p l a n t a t i o n s " t h a t are a s s o c i a t e d w i t h s l a v e r y . But t h i s i s how s o c i e t y operated. There were independent e s t a t e s t h a t were v i r t u a l l y s e l f - s u f f i c i e n t . Whether the work force was composed o f s l a v e s purchased a f t e r b a t t l e i n a n c i e n t times, o r s e r f s i n the middle-ages, o r imported A f r i c a n s l a v e s

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a f t e r t a k i n g the c i t i z e n s of a conquered nati o n as workers f e l l out o f favor. The King of England had even used the c r i m i n a l laws to c r e a t e labor. Any misdemeanor allowed the King to s e l l you as a l a b o r e r f o r a c e r t a i n p e r i o d . Instead of p r i s o n , you were sent at f i r s t to America. When the American R e v o l u t i o n began, the d e s t i n a t i o n changed t o A u s t r a l i a . Nevertheless, i t was the same model t h a t e x i s t e d f o r thousands of years - a s e l f contained f a r m - l i k e enclave. Our C o n s t i t u t i o n forbid, indentured s e r v i t u d e , as the King once c a l l e d i t .

H i s t o r y i s punctuatedwjfb r e v o l t s and disturbances from s l a v e s . There was the famous s l a v e army l e d by S p a r t i c u s i n Roman Republican times. What made Rome a great N a t i o n a l Empire, i s i t began to a l t e r the course of t h i s l a b o r . Rome began t o create the concept of c i t i z e n s h i p and bestowed upon s e l e c t e d nations the d i g n i t y of Roman c i t i z e n s h i p . This was the s t a r t of a very gradual change t o the long-standing economic model where the s p o i l s o f war included the c a p i t i v e s being s o l d as s l a v e labor. This i s why Rome l a s t e d as long as i t d i d .

The economic model of the v i l l a was s u p e r i o r t o p u b l i c s e r v i c e and s e r v i c e jobs. During the 3rd Century AD, money became r a r e f o l l o w i n g what was a h y p e r - i n f l a t i o n . T his caused tremendous hoarding & a economic c o n t r a c t i o n strengthening the v i l l a model. The Roman Emperor D i o c l e t i o n (284-305AD) t r i e d , t o r e v i v e the empire l i k e Ronadd Reagan & Margaret Thatcher, but o b v i o u s l y created much of the p r a c t i c e s s t i l l employed today. To be a b l e to c o l l e c t taxes, passports were created and people c o u M not move without permission. To t a c k l e i n f l a t i o n , he s u b s t i t u t e d wage and p r i c e c o n t r o l s as d i d Richard Nixon. He redesigned the e n t i r e monetary system, i e Bretton Woods 1944.

When Rome f e l l a f t e r 476AD, the concept of the v i l l a p r e v a i l e d . L i f e s u r v i v e d because o f t h i s s e l f - c o n t a i n e d economic model. This evolved i n t o feudalism during the 9th and 15th Centuries due t o the increase i n p o p u l a t i o n and the i n a b i l i t y to acquire wealth t o e s t a b l i s h a v i l l a . Towns would form and the l a n d l o r d became the n o b i l i t y . C a s t l e s were constructed because of the l a c k of s e c u r i t y . Charlemagne (742-814) began t o reconstruct the o l d Roman Empire. This economic model rece i v e d i t s f i r s t major shock t h a t not even the f a l l of Rome had i n f l i c t e d , i t was the Black Plague i n the 13th-14th Centuries t h a t k i l l e d about l / 3 r d o f the population making l a b o r scarce and caused l a n d l o r d s t o s t a r t t o pay wages i n a d d i t i o n t o a percentage of the crop and f r e e housing. This l e d the monarch o f England t o begin t o t a x wages and we see the f i r s t l a b o r r e v o l t l e d by Wat T y l e r i n 1381 over t h i s new t a x a t i o n . Yet, predominantly, the economy was s t i l l a g r a r i a n and the model was s t i l l the v i l l a .

I n R u s s i a , the seeds o f the 1917 Revolution were sowed during the r e i g n of Ivan IV (the T e r r i b l e ) ( 1 5 3 0 - 8 4 ) , when he c o n f i s c a t e d lands o f .his enemies t o q i v e to h i s supporters. Ivan found the lands worthless once the s e r f s f l e d . He then decreed t h a t the s e r f s would be bound t o the land f o r l i f e i n order t o maintain i t s value. He made a l l Russians on farms e s s e n t i a l l y slaves of the s t a t e . This e v e n t u a l l y created the pool of discontent t h a t f u e l e d i n t o the b o n f i r e o f Revolution years l a t e r .

Of course i n the United S t a t e s , the s l a v e r y i s s u e was recognized as wrong and a r e a l problem, e s p e c i a l l y a f t e r the language w r i t t e n by Thomas J e f f e r s o n i n the D e c l a r a t i o n o f Independence. T h i s i s s u e dominated e a r l y p o l i t i c s , and perhaps came to a head when the Supreme Court showed i t was indeed as Judge Posner r e f e r s t o i t , the P o l i t i c a l Court. In 1857, the Supreme Court h e l d t h a t b l a c k s were j u s t property i n the case o f Dread S c o t t who sued f o r h i s freedom when h i s master t r a v e l e d t o a s t a t e t h a t d i d not allow s l a v e r y . The C i v i l War was not over racism. I t was over the c o l l a p s e of the economic system of labor. Racism aueryed more so as a b i t t e r response by the South a t t a c h i n g blame f o r t h e i r demise t o the freedom o f the s l a v e s .

There i s yet another l a y e r to t h i s onion. We can see t h a t s l a v e r y was a very ancient p r a c t i c e as o u t l i n e d by Xenophon i n "Oeconomicus" that was the supply of

l a b o r i t s e l f . I t was how the v i l l a model maintained i t s economic v i a b i l i t y f o r thousands of years. The treatment of slaves v a r i e d g r e a t l y from humane as members of a f a m i l y t o personal objects f o r t o r t u r e . The l a t e r was more pronounced due to the i n t e r v a l of indentured servants t h a t were c r i m i n a l s . In Greek times, by law, i f a s l a v e was t o be a witness, he must be t o r t u r e d f o r i t was presumed he would l i e otherwise. I n Roman & Greek times, the economy was 90% a g r a r i a n , t h a t d e c l i n e d t o 70% i n the 1870s, 40% i n 1929, and f i n a l l y 3% by 1980. I t has been t h i s v i l l a model t h a t was undergoing the Great Economic Transformation t o the I n d u s t r i a l R e v o l u t i o n . C i t y d e w e l l e r s , were o f t e n p u b l i c servants o r the poor.

The Great Trans formation has been the growth of s o c i e t y through progress and technologies. We have been e v o l v i n g even i n our understanding o f economics, s i n c e the nature o f the economy i s i n f a c t changing w i t h each passing year. We must look a t t h i s t r a n s f o r m a t i o n and understand t h a t as the changes i n lab o r have taken p l a c e , e v e r y t h i n g e l s e i n our world a l s o changes. Had i t not been f o r the B l a c k Death, there would never have been a shortage i n l a b o r g i v i n g b i r t h t o wages t h a t l e d to p a y r o l l taxes.

Uke Settle U*e* „

We have not bothered t o n o t i c e what even caused the b a t t l e between communism and c a p i t a l i s m . Yes, we can a t t r i b u t e t h i s t o K a r l Marx (1818-1883). T h i s does not e x p l a i n why Marx came t o the conclusions t h a t he d i d and s e t i n motion decades of g e o p o l i t i c a l c o n f l i c t s t h a t has c o s t the l i v e s o f countless m i l l i o n s ! Imagine f o r one minute, somebody invented a new technology making p h y s i c a l l a b o r o b s o l e t e and t o s u r v i v e you need t o understand how t o make a machine move w i t h your mind. The young c h i l d r e n adapt q u i c k l y and emerge as the new work f o r c e . You cannot even be now t r a i n e d t o do the j o b w i t h your mind, and there i s no place f o r you t o earn any l i v i n g a t a l l . Would you h o t be angry a t t h i s new transformation?

We must understand t h a t from the school o f P h y s i o c r a t s who b e l i e v e d t h a t a l l wealth was created o n l y by nature, we end up w i t h the runaway idea t h a t man can c r e a t e utopia - the imaginary world where man c o u l d l i v e i n d e f i n i t e l y under the p e r f e c t p l a n . This i d e a was sparked by S i r Thomas More i n 1516 t h a t c r e a t e d a whole c l a s s o f t h i n k e r s who b e l i e v e d i n t h i s uptopian world was p o s s i b l e . S i r Thomas More (1478-1535) was a major i n f l u e n c e and c o n t r i b u t e d t o what we now face today under S o c i a l i s m .

Marx r a i l e d a g a i n s t the change from the a g r a r i a n s o c i e t y t o the i n d u s t r i a l r e v o l u t i o n s i d e of c a p i t a l i s m . He d i d not see the s t a t e as the i s s u e . What he saw was that t h i s new economic model would l e a d to paid workers i n f a c t o r i e s who would be e x p l o i t e d t o make a p r o f i t f o r the employer. Marx saw t h i s new' economic model as changing the world t a k i n g people from the t r a d i t i o n a l farm and t u r n i n g them i n t o consumers o f products manufactured, but that t h e i r employers would be so greedy, they would d e c l i n e t o pay the worker and e v e n t u a l l y t h i s new system th a t was changing the world would c o l l a p s e because the greed o f the employer would suppress the income of the l a b o r e r , and t h a t would r e s u l t i n the c o l l a p s e o f t h i s new e v i l experiment - i n d u s t r i a l c a p i t a l i s m .

The b a t t l e begun by Marx between h i s Utopian i d e a l o f Communism v. C a p i t a l i s m i s not over. The Communistic system t r a n s f e r s power to the s t a t e as does S o c i a l i s m . T h i s has sanctioned the power of a c e n t r a l government a t the expense o f the economic freedom of C a p i t a l i s m . What we are r e a l l y saying when we ask whether C a p i t a l i s m i s dead, i s should we abandon freedom and run behind the walls o f the c a s t l e s i n c e the state i s the modern-day l a n d l o r d ? Do we reverse t h i s Great Economic T r a n s i t i o n , or uiiderstand what i s going on for j u s t once?

A

Ml o I— co

1787 1857 1886 1887 1890 1892 1894 1896 1897 1902 1905 1922

in

Shay's R e b e l l i o n Dred S c o t t D e c i s i o n Hay Market R i o t f o r (8 hr day) I n t e r s t a t e Commerce Act Sharman A n t i t r u s t Act Homestead S t i l l M i l l S t r i k e Pullman S t r i k e W i l l i a m Jennings Bryan Speech Coal S t i k e Bureau of Census formed I n t ' l Worker Union Coal S t r i k e

1935 WPA & S o c i a l S e c u r i t y Formed 1946 S t e e l S t r i k e (750,000) 1946 Mine Workers S t r i k e (400,000) 1947 Taft-Harley Labor Act

Marx began a class-warfare t h a t could yet t a r e the very f a b r i c of our s o c i e t y t o shreds. A t r a d i t i o n a l 72 year c y c l e o f p o l i t i c a l trends shows th a t from the f i r s t r e a l l a b o r r i o t i n 1886 that took place on May 4th, 1886 known as the Haymarket R i o t , 72 years l a t e r we come t o 1958 t h a t t r u l y marked the beginning o f the end f o r the l a b o r union movement. The T a f t - H a r l e y Labor Act o f 1947 was designed t o take away the power o f the unions. By the 1960s, we have the i n c i d e n t o f Jimmy Hoffa and the unions are then c a s t i n the l i g h t as being e v i l and c o n t r o l l e d by organized crime. This c r i t i c a l s h i f t i n perception, c u r t a i l e d the union movement a f t e r j u s t one 72 year p o l i t i c a l c y c l e .

This was the culmination o f the Utopian P h i l o s o p h i e s of c r e a t i n g the p e r f e c t world t h a t even Marx a s c r i b e d to by e s s e n t i a l l y t a k i n g a l l the toys away from the £>eople and transform them i n t o one g i a n t c l a s s l e s s s o c i e t y . T h i s stands as a c l e a r warning t h a t we cannot j u s t run toward ideas w i t h our eyes c l o s e d . We must look a t an idea from a l l perspectives and w i t h an unbiased eye. That i s so hard to do f o r i t r e q u i r e s the " d i s t i n t e r e s t e d " mind that can see the world f o r what i t i s , not from a personal perspective.

The c o l l a p s e o f General Motors i s the c o l l a p s e of the l a s t v e s t i g e of Marxism -the labor unions. This i l l u s t r a t e s that we are not seeing the c o l l a p s e of c a p i t a l i s m , but we are i n the f i n a l stage o f the deatli o f s o c i a l i s m . Governments w i l l r a i l f o r i t has been the source o f t h e i r power - vote f o r me a/id you get something. We are i n the f i n a l Phase-Transition t a k i n g the form o f a tsunami of spending to make i t a l l b e t t e r . What we must be concerned about, w i l l be who get s blamed when i t f a i l s ?

The f o r e i g n auto-manufacturers have set up shop i n the South where the labor laws were f a r more favorable to create non-union work forces t h a t have been q u i t e s u c c e s s f u l .

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The f o r e i g n car manufacturers have demonstrated that unions are a bad idea from the dreams o f Kark Marx th a t unleashed class-warfare. The union movements had t h e i r points from the o u t s e t . But working c o n d i t i o n s should have been attacked i n a p o l i t i c a l context (democracy). Onions assumed the mantle o f ccmmunism c r e a t i n g c o n f r o n t a t i o n and t r a n s f e r r e d the power from management t o l a b o r . I t d i d not solve the problems and o n l y became l i k e a drunk who then had the keys t o the l i q u o r s t o r e - s e l f - d e s t r u c t i v e .

The reason why unions were a bad experiment, was because they merely turned the employer i n t o a s l a v e and a l t e r e d the f r e e markets t h a t was con t r a r y t o the nature o f mankind. H i s t o r i c a l l y when the crops f a i l e d i n a a g r a r i a n model, people simply migrated. The P h i l i s t i n e s o f the B i b l e were most l i k e l y Greeks who migrated due to crop f a i l u r e s at the F i r s t Heroic Age. Invasions o f the Goths,Germans,and even A t t l i a the Hun were a l l caused by the grass i s greener on the o t h e r - s i d e b e l i e f . Unions•jj.ust promoted increased wages r a t h e r than s k i l l s d i m i n i s h i n g the i n d i v i d u a l m o t i v a t i o n t o l e a r n new s k i l l s and migrate between j o b s . This i s the same reason why Communism d i e d . C r e a t i n g a system where o n e - s i z e - f i t s - a l l , promotes a d e c l i n e i n human growth t h a t i s then manifest w i t h i n the economic d e c l i n e .

We have t o understand, t h a t the f a t a l f l a w i n Crmnunisra was t o d i m i n i s h the essence o f mankind. They say n e c e s s i t y i s the mother of a l l i n v e n t i o n . That i s so t r u e . I f we t r y t o c r e a t e u t o p i a , we de s t r o y the very engine t h a t c r e a t e s progress. T h i s i s the same flaw that had l e d t o the d e s t r u c t i o n o f American j o b s . Do not f o r one minute t h i n k t h a t a l a b o r union i s any d i f f e r e n t t h a t the Communistic Model. I t i s not. Where i n a normal economic model, t o earn more one improves h i s s k i l l s , the Communistic Model promotes advances i n income without improvement i n s k i l l s . When that s h i f t i n power became too obvious, even the Government turned a g a i n s t t h i s trend i n 1947 w i t h the passage o f the T a f t - H a r l e y Labor Act. T h i s system indeed stymied n a t u r a l economic progress and cr e a t e d much damage t o the b e n e f i t s o f the I n d u s t r i a l R e v o l u t i o n . I t f r o z e the n a t u r a l economic e v o l u t i o n and began a t r e n d toward t r a n s f e r r i n g jobs overseas. T h i s was o n l y a c c e l e r a t e d by the i m p o s i t i o n o f the p a y r o l l t a x t h a t e s s e n t i a l l y i n c r e a s e d the co s t of l a b o r . Where h i s t o r i c a l l y mankind migrated i n an a g r a r i a n s o c i e t y causing him t o populate the world, t h i s very same trend s t i l l takes p l a c e today. Instead of the work f o r c e m i g r a t i n g t o b e t t e r lands, the Communistic Model reversed the r o l e s and caused the employer t o migrate. What government d i d not n o t i c e , was t h i s trend was not caused by the "greed" o f the employer, but by the I n v i s i b l e Hand o f Adam Smith- Labor demanded the h i g h e s t wages w i t h the lowest p r o d u c t i v i t y , and consumers demanded the lowest p r i c e w i t h the highest r e l i a b i l i t y . The employer migrated t o s u r v i v e . Throughout h i s t o r y , human nature has never migrated f o r no reason. M i g r a t i o n s take p l a c e when prodded by the f i c k l e f i n g e r of n e c e s s i t i t y .

Communism, when implemented as a government p o l i c y , l a s t e d o n l y one 72 year p o l i c t i c a l c y c l e . I n 1917, we f i n d the Russian Revolution and Sun Yat-sen s e t up the r i v a l government i n China a t Guangzhou as the N a t i o n a l i s t s . 72 years l a t e r , we come t o 1989 and Tinananmen Square f o l l o w e d about 5 months l a t e r by the f a l l o f the B e r l i n W a l l . These changes were economically d r i v e n . The stagnation of the human s p i r i t l e d t o the steady d e c l i n e i n p r o d u c t i v i t y . T h i s i s the same t r e n d we have seen i n the American l a b o r unions.

What we must understand i s t h a t o n l y when people lo s e t h e i r s e c u r i t y , then and only then do we see p o l i t i c a l u nrest. J u s t as humans d i d not migrate without reason, a l l p o l i t i c a l unrest i s unleashed f o l l o w i n g economic implosions. The c o l l a p s e o f the M i s s i s s i p p i Bubble s e t i n motion a i r r e s p o n s i b l e government p o l i c y regarding the money supply - the i n v e n t i o n of paper money. T h i s c o l l a p s e o f a European-wide specu­l a t i v e boom i n 1720, s e t the stage f o r the great wave o f r e v o l u t i o n s t h a t toppled the l a s t v e s t i g e o f Feudalism - Monarchy. I t was not j u s t the American R e v o l u t i o n ^ w i t h i t s slogan, "No Taxation Without Representation," but a l s o 72 years l a t e r we come t o 1792 and the overthrow o f the French monarcy.

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Since the unions f a i l e d because they diminished progress i n the same way as d i d Communism, can even S o c i a l i s m s u r v i v e ? Once the s t a t e gathered the power as i f i t were the l a n d l o r d s i t t i n g i n h i s c a s t l e , there became a vested i n t e r e s t so t l i a t the s t a t e w i l l always argue i t i s the s o l u t i o n . T h i s s e t s up the danger o f a c o n f l i c t t h a t would once again r e t u r n t o Revolution i f the economy f a i l s i n the hands of the s t a t e . The p l a y e r s may change, but today we have e l e c t e d m i n i s t e r s r a t h e r than the t i t l e of monarchs. S t i l l the i n t e r e s t s are no d i f f e r e n t ! I t always b o i l s down t o "he who has the power, makes the r u l e s . "

Let me s e t the record s t r a i g h t . I do not approach t h i s s u b j e c t from a p o l i t i c a l p e r s p e c t i v e . I do not subscribe t o the extreme r i g h t nor the extreme l e f t . I f u l l y understand that the o n l y reason humans group together i n t o herds l i k e any v a s t body o f many mammals with few exceptions, i s f o r p r o t e c t i o n , companionship, and t o act c o l l e c t i v e l y t o create a working s o c i e t y . I f a i l to see why i f these are the very b a s i c reasons why we group together, then there should be no d i s p u t e t h a t there i s a n a t u r a l c o l l e c t i v e b e n e f i t from such a grouping p r a c t i c e . We can c o n t r i b u t e t o c r e a t e a mutually b e n e f i c i a l system o f roads, communications, h o s p i t a l s , schools, and things l i k e a f i r e company as w e l l as u t i l i t i e s . This i s a common good and the core reason why we gather together. Thus, we presume there i s a n a t u r a l o b l i g a t i o n t o c o n t r i b u t e c o l l e c t i v e l y t o f u r t h e r those ends.

What i s e q u a l l y dangerous, however, i s the assumption, thanks to Marrx, t h a t the government i s our parent and i t w i l l always be there to take care of us. We w i l l be f o r c e d t o face the f a c t t h a t p o l i t i c a n s have made a l o t of promisies. They liave not always funded those promises. I t has been: "Trust me. When the day comes, we w i l l be here!" The day has now a r r i v e d . I t i s time t o see i f the promises made t h a t are now o b l i g a t i o n s , are even v i a b l e . Can there be any way t o handle what i s u n f o l d i n g without the economic implosion? This should not be a endorsement f o r any p o l i t i c a l p a r t y f o r t h i s has been the byproduct o f both p a r t i e s with equal blame t h a t t r a c e s back to the unfunded promises t h a t began w i t h FDR, and the rampid spending of decades without c o n s i d e r i n g j u s t once, we were on a g o l d standard and t h a t meant we c o u l d not j u s t p r i n t money a t w i l l f o r we had t o pay i n g o l d . This i s what caused the g o l d standard t o c o l l a p s e . A s i x - y e a r - o l d w i t h a pocket c a l c u l a t o r c o u l d have made t h a t f o r e c a s t . I f you continue t o increase the supply of paper currency t h a t you are c l a i m i n g i s backed by g o l d at. a f i x e d r a t i o , something has to g i v e . Even the c o l l p a s e of the B r i t i s h pound from i t s f i x e d exchange r a t e t o the Deutsche mark before the Euro t h a t everyone a t t r i b u t e d t o Soros, was the same problem. The o f f i c i a l o v e r v a l u a t i o n o f the pound t h a t could not l a s t . R e a l i t y always causes readjustment. That i s what we must f e a r the most.

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Understanding the M i s s i s s i p p i Bubble & the French B a i l o u t t h a t set i n motion^ the Age o f Revolution

At f i r s t , you might ask: Why look a t something from 1720? Well the answer i s simple. The French Government was i n part r e s p o n s i b l e f o r the M i s s i s s i p p i Bubble and c o n t r i b u t e d t o the exponential r i s e at the end that i n v o l v e the Government b a i l o u t that had t o be p a i d by taxes not so d i f f e r e n t from cu r r e n t events.

The M i s s i s s i p p i Bubble was a f i n a n c i a l scheme not so d i f f e r e n t from the w i l d unbacked d e r i v a t i v e s c r e a t e d by AIG and others. The scheme was a t f i r s t engineered by John Law who was an e a r l y economic t h e o r i s t , who was f r i e n d w i t h the Duke d'Orleans. In 1716, John Law founded Banque Generale, w i t h the a u t h o r i t y t o i s s u e notes t h a t were the e a r l i e s t form o f paper currency. The f o l l o w i n g year, he founded Compagnie d'Occident ("Company of the West") with the e x c l u s i v e d e a l t o develop the new French t e r r i t o r i e s i n the M i s s i s s i p p i R i v e r v a l l e y . This e n t e r p r i s e began t o monopolized the tobacco and A f r i c a n s l a v e t r a d e as w e l l . By 1719, he then formed the Compagnie des Indes t h a t was e s s e n t i a l l y j u s t renaming the Company o f the West t o the Company of the Indes w i t h a complete monoply over a l l French t r a d e . T h i s new e n t i t y a l s o assumed the powers as i f i t were a Roman governorship, w i t h the power t o both c o l l e c t taxes and t o c o i n money. In r e a l i t y , t h i s o p e r a t i o n assumed c o n t r o l o f both the t r a d e and finances o f the French government.

I t was t h i s l i n k and e x c l u s i v e power w i t h the French government and the vast expansion o f u n l i m i t e d p r o f i t s i n the New World, t h a t c r e a t e d the image o f the best p o s s i b l e investment. The p u b l i c were naive but e x p l o r i n g how c a p i t a l c o u l d be used t o a c t u a l l y work and make more money. T h i s had been a novel i d e a f o r s i n c e the f a l l o f Rome, d u r i n g the Middle-Ages, there was no n a t i o n a l organized s t a t e t h a t promoted i n t e r n a t i o n a l investment. This was a k i n t o the f a l l of Communism and the i n t e r e s t i n i n v e s t i n g i n a new world o f p r i v a t e investment i n China and R u s s i a .

I t was t h i s e x p e c t a t i o n o f p o t e n t i a l p r o f i t s t h a t c r e a t e d perhaps what may s t i l l remain as the w i l d e s t s p e c u l a t i v e boom perhaps i n h i s t o r y . Between the d i s c o v e r y of America i n 1492 and 1700, the m a j o r i t y of investment was p r o f e s s i o n a l o r s o l e l y by the s t a t e . There was no o p p o r t u n i t y f o r the p u b l i c t o get i n v o l v e d on a s p e c u l a t i v e nature. So t h i s was the f i r s t t r u e experience of a l l o w i n g the p u b l i c to p a r t i c i p a t e i s the new f r o n t i e r . As t h i s c y c l e unfolded, i t s d u r a t i o n would be 224 years from the d i s c o v e r y t o the r e a l bust t h a t set i n motion R e v o l u t i o n . The shares of the l e a d e n t e r p r i s e , Compagnie de Indes, rose from 500 l i v r e s t o 18,000. By 1719, 625,000 shares had been i s s u e d . This boom gave r i s e to the term " m i l l i o n a r e " and then the boom was so profound, Compagnie de Indes was merged t h e r e a f t e r w i t h Banque Generale. The scheme then was expanded, l i k e t h a t of the South Sea Bubble i n England, t o r e t i r e the n a t i o n a l debt of France by exchanging shares f o r the bonds.

T h i s l e d t o a monumental s p e c u l a t i v e bubble t h a t spread throughout Europe. I t was so s u c c e s s f u l without r e a l l y producing p r o f i t s but was a e a r l y demonstration of how f u t u r e expectations can c r e a t e value i n a n t i c i p a t i o n o f p r o f i t s (venture c a p i t a l ) , t h a t the French government began t o get i n v o l v e d . The French government began t o i s s u e paper money i t s e l f . T his was a form of d e r i v a t i v e f o r i t was w i d e l y accepted o n l y because i t was c o n v e r t i b l e i n t o shares of t h i s new company. The t r u t h of the matter was t h a t the v a s t expansion was f u e l e d by the u n l i m i t e d i s s u e of paper currency between l a t e 1719 and the f a t e f u l time of the year - September /October 1720. I t was t h i s l i n k a g e between the shares and the government finances t h a t created a bust t h a t was the c l o s e s t t h i n g t o a mushroom cloud i n f i n a n c e . The bear market c o l l a p s e was so s i g n i f i c a n t , by December 1720, John Law had t o f l e e France. The French government was forced i n t o a b a i l o u t assuming a l l the debts o f the company, and then t o pay f o r t h e i r own f o l l y , they began t o r a i s e taxes. That s e t i n motion the resentment th a t l e d t o the French R e v o l u t i o n .

8

The e n t i r e s p e c u l a t i v e boom of the e a r l y 1700s had such a profound impact upon the p o l i t i c s , i t i s d i f f i c u l t t o f i n d WDrds to convey the s i g n i f i c a n c e . The South Sea Bubble a l s o transformed i n t o a scheme t o r e t i r e the n a t i o n a l debt of England i n r e t u r n for shares. That e n t i r e i n c i d e n t was between l a t e 1711 and burst a l s o i n l a t e August 1720. The e n t i r e c o l l a p s e was a l s o a contagion t h a t swept a l l o f Europe. The l a s t stages o f the s p e c u l a t i v e boom saw the shares r i s e from 128£ pence t o 1,000 between January and August 1720. The c o l l a p s e was f i e r c e because there was no market-makers, middle-men, o r a mature two-sided market. The concept of puts and c a l l s had developed i n the e a r l i e r s p c u l a t i v e bubble known as the Tulipmania (1634-1637) in Netherlands. But t h i s d i d not i n v o l v e a debt c r i s i s o r the government i s s u i n g d e r i v a t i v e forms of money c o n v e r t i b l e i n t o stock shares. The lack of s o p h i s t i c a t e d market fu n c t i o n s l e d to a one-sided c o l l a p s e i n both the South Sea Bubble and t h a M i s s i s s i p p i Bubble contagion w i t h i n 3 months. The E n g l i s h share c o l l a p s e d from 1,000 to 124 by December 1720 though the company d i d survive u n t i l 1853. I t was the c o l l a p s e i n debt that devasted the economy.

The French B a i l o u t & The R e v o l u t i o n (the B o n f i r e o f Discontent)

Most of us have seen the p l a y about the French Revolution, yet I doubt t h a t most of us can r e l a t e to the p l i g h t or understand a r e v o l u t i o n . The B l a c k Death th a t s t r u c k Europe w i t h such d e v a s t a t i n g f o r c e between 1347-1351, a l s o created a economic pandemic by the massive depopulation of s o c i e t y . By 1400, there was about h a l f the p o p u l a t i o n of 1300 i n England. The m o r t a l i t y of the plague v a r i e d g r e a t l y between 1/8th t o 2/3rds w i t h the o v e r a l l mean being about 1/3rd. This created an economic earthquake f o r c i n g the end of s e r f s and the beginning o f wages f o r the common man sowing the seeds of c a p i t a l i s m to come. This a l s o caused a c o l l a p s e i n revenue and thus the i n t r o d u c t i o n o f personal taxes once again t h a t d i e d with Rome. T h i s caused the f i r s t t a x r e b e l l i o n i n England l e d by Wat T y l e r i n 1381 that was b r u t a l l y crushed by the K i n g . This l e d t o a d e c l i n e i n wars as w e l l as trade. Therefore, the Black Death s e t the stage f o r modem economic growth by necessity s e t t i n g i n motion t r u l y the Greatest Economic Transformation that i s s t i l l underway. Thus the Bubbles o f 1720 come a t the end o f a 224 year c y c l e - the f i r s t that t r u l y embraced a l l of s o c i e t y post-1492 and the B l a c k Death.

The involvement o f the French government i n the s p e c u l a t i v e boom, a l s o placed the focus of r e s p o n s i b i l i t y f o r i t upon the King. The r a i s i n g of taxes t o pay f o r the b a i l o u t s e t i n motion the French R e v o l u t i o n f u e l i n g the b o n f i r e o f d i s c o n t e n t . The Revolution began w i t h the storming of the j a i l , B a s t i l l e Day (7/14/1789) as i t i s remembered today. T h i s l e d the k i n g t o f l e e t o h i s palace a t V e r s a i l l e s i n October 1789, which the people l a t e r stormed on June 20th, 1792. At t r i a l , they r e f e r r e d t o him now as " C i t i z e n Capet" and t r i e d him f o r treason on December 1792 o n l y t o be executed on January 21, 1793 followed l a t e r t h a t year by h i s w i f e , Marie-Antoinette. The F i r s t Republic was d e c l a r e d on September 21, 1792. This c i t i z e n government simply f a i l e d with 5 d i r e c t o r s i n succession f a l l i n g i n t o the hands i n Napoleon i n 1799, who e v e n t u a l l y crowned h i m s e l f emperor i n 1804.

Consequently, i t was the d i r e c t involvement o f the French Crown and i t s very c o s t l y b a i l o u t t h a t r e s u l t e d i n r a i s i n g taxes and oppressing the people t h a t l e d t o the c o l l a p s e of the French economy ending i n Revolution. Looking at government t o b a i l o u t the f o l l i e s o f the Investment Banks i s a dangerous course o f a c t i o n . I t now s h i f t s the blame to the Government and r a i s e s the r i s k o f p o l i t i c a l i n s t a b i l i t y i n the long-run should the Governement f a i l to reverse the trend. What i f we end i n h y p e r - i n f l a t i o n because of massive p r i n t i n g and s t i l l t r y i n g t o fund a l l the debt (new and old) t h a t w i l l d r i v e I n t e r e s t r a t e s higher competing w i t h the common man destroying h i s a b i l i t y to s u r v i v e economically? If we to t u r n to taxes to make those wlio d i d not cause the c r i s i s pay f o r everything l e t t i n g the investment bankers o f f the hook once again, then how can we j u s t i f y t h i s vast t r a n s f e r o f wealth?

The debt c r i s i s i s always d i s t i n g u i s h e d from the mere s p e c u l a t i v e bubble. The Tulipmania d i d not change the course o f h i s t o r y as d i d the Bubbles of 1720. Likewise, the e xcessive borrowing by Spain and the desperate attempt t o invade England t o pay o f f those debts w i t h i t s Armada i n 1588, r e s u l t e d i n the c o l l a p s e o f Spain t a k i n g w i t h i t I t a l y who was i t s banker. I n the end, Spain and I t a l y l o s t t h e i r a b i l i t y t o be any s o r t of a world power. I t i s always debt t h a t destroys a n a t i o n . I t destroyed even Rome.

What we must understand i s that we have been e v o l v i n g as an economy f o r a very long time. Communism and s o c i a l i s m are a mere b l i p on a screen. Because the govern­ments have stepped i n t o b a i l o u t the c r i s i s , t h i s r a i s e s some concern. F o r had we j u s t l e t the Investment Bankers f a i l and stood behind the p u b l i c d e p o s i t s 100% i n Commercial Banks, we would have been b e t t e r - o f f . Sometimes, i t i s h o n e s t l y b e s t t o l e t the f r e e markets s o r t out the weak from the s t r o n g , because i t i s q u i t e f r a n k l y , f a r t o o complicated t o a n t i c i p a t e c o r r e c t l y - t h i s i s why Communism a l s o f a i l e d .

We have been g r a d u a l l y e v o l v i n g from the v i l l a economic model and i t has taken a very long time. Even d u r i n g the l a t e r years of the Byzantine Empire, there was a growing resentment between the v i l l a s and the c i t i e s , whereby they were s e l f - c o n t a i n e d and f e l t e x p l o i t e d t o support the unruly poor i n the c i t i e s and the p o l i t i c i a n s . There was a massive f l i g h t from the c i t i e s t h a t even a l t e r e d the economics (tax base) i n what became the f e u d a l i z a t i o n of the Byzantine Empire (we have a l s o seen the same f l i g h t from c i t i e s t o the suburbs, a word t h a t i s handed down from the l a t i n , "sub-urbium." T h i s t r e n d o f promises and excessive s t a t e debt, l e d t o the G r e a t Monetary C r i s i s o f 1092, and the v i r t u a l c o l l a p s e o f the monetary system. T h i s l e d t o Alexus I (1081-1118AD) t o p e t i t i o n f o r help from the West t h a t gave b i r t h t o the Crusades. I t has always been the s t a t e debt t h a t destroys s o c i e t y f o r never w i l l any p o l i t i c i a n l i s t e n no matter what form o f government i s i n p l a c e .

Marx r a i l e d a g a i n s t the ccming age o f the I n d u s t r i a l R e v o l u t i o n . He saw e v i l and was b l i n d t o the e v o l u t i o n o f the economy as a whole. We are s t i l l caught-up i n the philosophy o f Marx. Phase one was the c o l l a p s e of communism. Phase two, w i l l be the c o l l a p s e of s o c i a l i s m - s t a t e promises t h a t are unfunded yet seek t o s t i l l c r e a t e the world o f Marxism t o a l e s s o r degree. Somehow there i s not much d i f f e r e n c e between the s t a t e t a k i n g t i t l e t o the land, o r a l l o w i n g you t o keep the t i t l e but d i c t a t e how i t i s t o be used. Labor can no longer migrate, o n l y c a p i t a l .

The Ctommunistic/Socialistic theory of Marx i s c o l l a p s i n g . Our s o c i a l i s t i c l i f e may be coming t o an end because again our promises exceed our resources and t h i s b a i l o u t i s l i k e l y t o push the government over the edge. I f we cannot see how we make the same mistakes over and over again, what hope do we have? We can s u r v i v e as a s o c i e t y o n l y when we open our eyes. I f we cannot do t h a t , then we may be headed i n t o a new dark age of f e u d a l i s m with the break-up o f organized s t a t e s . Such a p o s s i b i l i t y would be f o r the 2030-32 area o r as l a t e as 2071. We have t o stop the debt and insane taxes b e f o r e i t i s too l a t e once again .

w h i l e l a b o r has been s t i l l undergoing the t r a n s f o r m a t i o n t o g r e a t e r s k i l l s , a t the same time we continue t o migrate from the c i t i e s as plagued Byzantium. T h i s s u b u r b i z a t i o n o f s o c i e t y i s o n l y enhanced by the i n t e r n e t - the next g r e a t leap i n the o v e r a l l trend o f the I n d u s t r i a l Revoloution. C i t i e s w i l l c a l l f o r h e l p f o r they l a c k the tax base t o s u r v i v e o r the wisdom t o manage i t . We a r e i n the l a s t death throws o f Marx's ideas o f Communism/Socialism. He r a i l e d a g a i n s t the Great Economic Transformation, because he remained j u s t a f l y on an elephant's back. We can s u r v i v e i f we a r e r a t i o n a l and o b j e c t i v e . We need to r e s t r u c t u r e o r we w i l l l o s e i t a l l .

M a r t i n A. Armstrong December 11th, 2008