Wednesday, March 18, 2009

The Jacksonian Meaning of Corruption

It is tempting to men who are entrusted with public responsibility to steal from the public purse. Many do so, but they hide the fact from their colleagues and constituents, for they face jail and shame when discovered. This is one of the inherent evils associated with big government—politicians and bureaucrats control so much money that it becomes almost impossible to keep track of it all and, therefore, men of weak character enrich themselves. When discovered, such men are rightly shamed, drummed out of office, prosecuted, fined, and jailed. This is the modern meaning of corruption. But it is weak and paltry thing next to the meaning of corruption as understood by one of our nation’s early great leaders—President Andrew Jackson. Jackson understood that far greater damage was done by the corruption to the body politic that occurred in the light of day.
Jackson was our first president not born and raised in one of the original thirteen colonies. Although not all of the Founding Fathers were wealthy, they all were part of a tightly knit elite who knew one another intimately. With the presidency of John Quincy Adams--son of our second president, John Adams—it seemed as if this tightly knit group would pass its baton of leadership to family members and other insiders. But the American people had other ideas. Andrew Jackson epitomized what was to become almost a caricature American—one who despised privilege and valued his personal freedom above all else. Jackson saw the threat of centralized power made possible by the stealth funding provided by a central bank.
The Second Bank of the United States—the nation’s second central bank and long ago ancestor of our current Federal Reserve Bank—was the favored tool of the Hamiltonians, who relished a strong, centralized national government. A central bank can be used to abrogate power to those whom it wishes to favor. Chartered by government, it is government itself that benefits most from a central bank, primarily from the central bank’s ability to finance the government’s debt. The Bank of England was the template, granting the British crown financial power that the British people would never grant it willingly. Our modern governments could not have attained a fraction of their current size and power without the central bank’s ability to fund government debt to unimaginable levels.
The Hamiltonians created our nation’s first major political riff by forming the Second Bank of the United States in clear violation of the Constitution’s prohibitions. Nowhere in the Constitution is the federal government granted the power to form a central bank. In fact the Constitution grants the federal government the power to ensure that only sound money—which the Founding Fathers knew to be gold or silver—would circulate within our borders. It even gave the federal government the responsibility to ensure that the states did not create machines of inflation.
Nevertheless, the Hamiltonians succeeded and the Second Bank of the United States was chartered in 1817. Immediately the new bank began to "buy" the government’s debt with money created out of thin air, which sparked an inflationary credit boom that benefited the bank’s insiders and political cronies in government. Andrew Jackson was determined to end this corruption.
Notice that Jackson was not claiming that bank officials were stealing--our weak-kneed modern definition of corruption. Oh, no. But they were using the unchecked powers of the bank to ensure that their crones were the beneficiaries of the credit expansion the bank set in motion. To Jackson this was corruption, and he was determined to end it. He engaged in a titanic struggle over many years, but eventually he was successful in ensuring that the bank’s charter was not renewed in 1837.
Today Jackson would see corruption everywhere and he would understand its source—the nation’s third central bank, the Federal Reserve Bank. Here are just two examples. Last week the Wall Street Journal’s investigative reporters were able to find out who were the beneficiaries of the Bush Bank Bailout in the closing month of his administration. Among others, Goldman Sachs received $6 billion. Why is this corrupt? Two reasons. First of all, the Treasury Department tried to keep the names of the beneficiaries secret. Of course they felt they had good reasons, but no reason is acceptable to a supposedly free nation with a government "of the people, by the people, and for the people". Secondly, Henry Paulson, then Secretary of the Treasury, had been a partner with Goldman Sachs for twenty years! Yes, yes, he sold his shares in the firm, but we must assume that he had boon companions who would lose all if not bailed out with taxpayer dollars. Thusly, then Secretary of the Treasury Paulson was able to rationalize the secret transfer of billions of our dollars to his old buddies on Wall Street.
Here’s another example. Who are the recipients of the Obama "stimulus" funds? (Forget for a moment that the stimulus will not work.) If the Obamiacs really believe that it is necessary for the government to create liquidity for the benefit of the nation, why doesn’t the government send checks to all of us? Even if many of us hoard the cash, surely enough of us will spend it to stimulate the economy as the Obamiacs desire. Even those of us who might hoard the cash will place it in government insured bank accounts, which would accomplish the same thing as giving the money to the banks directly—the banks would have money to lend, thawing the so-called frozen credit markets. So why bail out the banks directly and why spend the money only on projects desired by the government? The government has given us no economic reason to justify targeted expenditures rather than a broad-based one. In fact the government’s Keynesian economists themselves imply that what the economy needs is a broad-based stimulus that would effect all geographical areas of the country and all industries relatively equally. There is nothing in Keynesian theory that suggests that only certain industries are worthy of stimulating. Yet, the auto industry is bailed out. The insurance companies are bailed out. And, of course, the bankers are bailed out. The rest of the stimulus is going to the usual suspects: unionized industries and other liberal voting blocks.
Andrew Jackson would understand this as massive corruption—spending the public’s purse to buy votes and keep friends and cohorts solvent. And Andrew Jackson was right, despite the protestations that it is all for our own good. This is nothing more than rationalizing massive corruption. And just as in the Jacksonian era, America’s central bank is the mechanism through which the government funnels America’s wealth to political insiders. Unfortunately, we have only touched upon the debts of corruption that a central bank sets in motion. In a future essay I will discuss an even more deep-seated evil that emanates from the banking sector. It is nothing less that a corruption of our morals and our civil society. Give Us Liberty! End the Fed!

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