National Conservatism needs better economics

 

Senator Josh Hawley made many excellent points in his speech at the recent National Conservatism Conference, especially on cultural issues. But his economics is lacking. For example, he said, 

“In the name of capitalism, these Republicans sang the praises of global integration while Wall Street bet against American industry and bought up single family homes—so that after the banks took the working man’s job, he couldn’t afford a house for his family to live in. Then Wall Street crashed that global economy—multiple times—and the housing market, and these same Republicans kept right on rhapsodizing. And subsidizing.”

Senator Hawley should know that the US hasn’t practiced capitalism for over a century. The country followed the principles of capitalism from before our founding until the creation of the Federal Reserve in 1913 that gave it the legal authority to counterfeit money. The Fed’s massive money printing in the 1920’s caused the unsustainable bubble of the roaring twenties that gave us the Great Depression when the bubble burst. Roosevelt’s New Deal and Johnson’s Great Society piled on the socialist policies that crushed what was left of capitalism. 

In the late 1980’s, no economist referred to the US as capitalist. At best, it was a mixed economy. The mainstream media and socialist historians began referring to the US economy as wild west, no holds barred capitalism only after Reagan had removed federal price controls on transportation and banking. Since then, the Federal Register containing only new regulations has grown by over 75,000 pages per year. Such massive regulation of the economy is the opposite of capitalism. 

I consider the founding of the Fed to mark the beginning of the end of capitalism in the US because the Fed has caused enormous damage to the country. It has been responsible for jobs going overseas, trade deficits and high housing prices. When the Fed prints more money than Americans want to hold as cash, consumers use part of the excess to buy imported goods, thus sending jobs overseas. But part of the money goes to buying houses and driving up prices beyond what younger Americans can afford. As the great Milton Fridman used to say, inflation is always a monetary phenomenon. 

The Fed’s policies has caused boom and bust cycles like the country never experienced before. At no time before 1913 did the US suffer a depression like the Great one or a recession like the Great Recession of 2008. 

Fed inflationary policies increase inequality because the new money it prints goes first to the financial services industry, before prices rise. The working poor receive the new money last, after prices have risen, which impoverishes them. Plus, the recessions caused by unsustainable booms hurt the poor most as many lose their jobs for long periods and deplete their meager savings. 

Hawley complained about jobs going overseas and the high cost of housing. But he should know that freer trade barriers did not cause US jobs to flea overseas. Unions, high taxes and high healthcare costs caused by federal regulations forced many to find places with lower costs of production. 

Senator Hawley’s history needs updated, too, for capitalism is Christian economics. Theologians at the University of Salamanca distilled the principles of capitalism from natural theology and the Bible during the Reformation. The Dutch Republic implemented them and became the first capitalist nation according to Adam Smith who wrote in Wealth of Nations that the Dutch had most fully implemented his system of natural liberty. England followed a century later, then its colonies. 

Senator Hawley said, “…we must recover the principles of our Christian political tradition now for the sake of our future.” Capitalism is part of that Christian tradition. Christianity gave birth to the principles of capitalism. Nineteenth century America followed free market policies in part because the most popular economics textbook for most of the century promoted laissez-faire economics.  Written by the Baptist theologian and president of the Baptist school Brown University, Francis Wayland grounded his economics in natural law and the Bible.  

The US faces many economic challenges, but all issue from a century of creeping socialism, not capitalism.