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We are out of money

Steve Scully, C-Span: You know the numbers, $1.7 trillion debt, a national deficit of $11 trillion. At what point do we run out of money?

Obama: Well, we are out of money now.

The United States has been an empire in decline since the 1970s. As has been the case with every other declining world power in history, there are a variety of reasons for this decline, which is why there are no straightforward solutions for reversing it. In looking at the situation, however, it is clear that there are a number of contributing factors that are more important than others. Among them include:

1. The abandonment of constitutional money

2. The expansion of the voting franchise

3. Global military aspirations

4. Transformation of the labor force

5. Mass immigration

According to the U.S Constitution, only “gold and silver Coin” can be tendered by the states in payment of debt. Since the states are explicitly barred from coining money but the federal government is expressly permitted to do so, it is obvious that the only constitutional money is gold and silver coin, regardless of what government employees have subsequently decided. Moreover, unlike the present Federal Reserve notes, constitutional money has held its value; whereas the value of an FRN has lost more than 95 percent of its value in 96 years, the first U.S. silver dollars minted in 1794 have increased in intrinsic value, being worth 11.38 times what they were initially valued 215 years ago. Since its ability to store value is one of the four major properties of money, it’s abundantly clear that the abandonment of constitutional money has come at great cost to the nation.

The expansion of the voting franchise has exacerbated the problems created by the switch to a monetary system more susceptible to manipulation. The reason the Founding Fathers created a system of strictly limited democracy was because they knew its historical flaws and wished to prevent the larger part of the masses from having a voice in their governance. The expansion of the franchise to include many parties historically denied the vote has had the inevitable, and expected, effect of permitting society’s non-productive members voting themselves the right to obtain wealth transferred from society’s productive members. The important point to understand here is not what one might think of the desirability of either equality or wealth redistribution, but rather its long-term sustainability. While history shows that a moderate amount of wealth redistribution is sustainable, it increasingly tends to indicate that democratic equalitarianism rapidly increases that amount to unsustainable levels.

While the global military actions of the United States initially contributed to its post-World War II prosperity, as the destruction of European and Asian manufacturing capacity gifted the U.S. economy with two decades of competitive advantage and expanding markets, since then they have been a serious drain on the nation’s coffers as well as a spectacular malinvestment of human and capital resources. The genuine side benefits of defense research fall far short of making up for the decades of opportunity costs they have engendered in terms of wasted talent and investment.

Immigration and the entry of middle-class women into the labor force are closely related to each other and to the redistribution issue, because as American women elect to work and cease to replace themselves by having at least 2.1 children each, the pyramid scheme of wealth redistribution requires an ever-increasing number of immigrants to delay collapse. Of course, there is no guarantee that any immigrant will be a net positive economic contributor, and, in fact, it is clear that the vast influx of immigrants over the last two decades has had a cumulatively negative effect and worsened the problem they were envisioned as helping solve. It is no coincidence that California, which has historically been a leader with regards to women’s suffrage, immigration and female labor force participation, is the first U.S. state to find itself on the verge of insolvency.

The fact that these factors can be identified does not mean that they can be reversed. Indeed, it does not even mean that they should be reversed. Forces which take decades to fully realize their impact must be permitted to play themselves out. Just as it’s not possible to construct a new building until the remnants of the previous structure have been demolished and cleared away, it would not be possible to return the United States to its position of previous economic dominance even if the political winds were not blowing in precisely the wrong direction. Rather than lamenting the national mistakes of the past, Americans who value freedom, liberty and prosperity would do well to look to the possibilities of the post-American future.