[Editor’s Note: The following essay was written in early October, but not distributed or posted until mid-December. In the interval, two additional observations occurred to me. First, implicit in the term “bailout” is the assumption that it be a “government” bailout. Although there could be such a thing as a “private, voluntary” bailout, that is beyond even the pale of the imagination of most Americans. Thus, in the context of voluntaryism, to be opposed to the government bailout is to be opposed to the “government,” not the bailout per se (e.g., a voluntaryist’s opposition to government schools is to the government, not to private schools, per se.) We are opposed to the means, the coercion; not the end, which in these cases would be “saving” a business organization or schooling. Second, another reason to oppose the “bailouts” is that it sets a precedent for the bailout of every other industry. If a bailout is good for the Big Three carmakers, why not bailout the airlines, the franchised car dealers, all the local used car lots, the few surviving buggy makers, and the mom and pop groceries? There is no principled way to answer the question, except to say there should be no bailouts for anyone unless done voluntarily.]
The recent financial turmoil (circa September 2008) should, once again, remind us that the institutions of government money and fractional reserve banks are systemically unsound and inherently dishonest. To realize how far from reality we have actually strayed, consider the facts that the United States dollar was originally defined as 371.25 grains of fine silver (roughly three-quarters of a troy ounce). Until 1933 it was possible to exchange 20 government paper dollars for a $20 gold piece (containing 96.75% of a troy ounce of .999 gold) at the US Treasury. Today (October 4, 2008) it takes more than ten government dollars to buy an ounce of silver and eight hundred government dollars to buy an ounce of gold. Furthermore, the only thing the government will give you for its paper dollars is more paper dollars. In short, government paper money is an IOU and the only thing that the government will give you in exchange for it is another one of their IOUs. The value of the government dollar rests on confidence: confidence that others will accept them in exchange for real goods and services and an expectation that the government will continue in existence and accept its own IOUs in payment for the coerced tribute (taxes) it levies. When people lose confidence (as when the government issues so many IOUs that hyperinflation sets in) or when the government disappears (as when its territory is taken over by another government after an unsuccessful war), then those government IOUs become valueless.
When money was real (had an intrinsic value) and banks were warehouses for gold and silver, the expansion of the money supply could only come about through the discovery and mining of new metals. A false expansion of the money supply could come about by the fraudulent issue of warehouse receipts in excess of the gold and silver on deposit in the banks. When fractional reserve banking became a governmentally chartered and legally sanctioned activity, bankers began lending the government money in exchange for government bonds. Thus, the stage was set for an expansion of the money supply (and for enslaving the taxpayers by way of forcing them to pay interest on government IOUs [literally created out of thin air as bookkeeping entries]). This, in turn, caused the boom/bust scenarios described by the Austrian theory of the business cycle. When the mal-investments created during the boom are discovered, the bust occurs. The bust (or depression) is a healthy phenomenon because it represents a recognition of and return to reality. Anything that delays that catharsis is unhealthy.
The federal government bailout of late September and early October 2008 is only an attempt on the part of the government to continue its stimulation of the economy. ANY such stimulation is inherently misguided and will ultimately prove to be counterproductive. In other words, there is no such thing as a sound or wise government intervention in the economy. Consequently, the bailout is wrong for numerous reasons:
1. It is wrong from a practical and economic point of view because more government intervention to solve the problems caused by earlier government intervention is never a solution. Government intervention always produces unintended and unforeseen consequences, which, even from the point of view of the government, are undesired.
2. The bailout is wrong because it will significantly contribute to the supply of fictitiously-created government IOUs circulating in the economy.
3. It is wrong from the point of view of personal responsibility for one’s actions. If some people and organizations make mistaken investment decisions, in the natural course of events they should shoulder the burden of their mistakes. If a group of gamblers goes to Las Vegas, they should garner their winnings, but they should also shoulder their losses. Under no circumstances should others be forced to pay their losses.
4. The bailout is wrong because it permits the US Treasury to spend other people’s money in ways that many of them would probably not choose. Anyone who wants to contribute to a bailout fund may do so. However, it is clear from public opinion polls that nowhere near $ 700 billion would be collected voluntarily.
5. The bailout is wrong because it will inevitably lead to more graft and corruption in the government circles responsible for dispensing such huge sums.
6. The bailout is wrong because it, for all practical purposes, makes the Secretary of the federal treasury the economic dictator of the economy and increases the powers of the US federal government over the national economy.
7. The bailout is wrong because it steals from some and gives to others. And it makes no difference if it is the poor stealing from the rich, or the rich stealing from the poor. It is the stealing that is wrong; not what or how or to whom it is dispensed. Spending other people’s money is wrong because you cannot rightfully spend what belongs to someone else. Spending other people’s money without their permission is simply theft.