 Princely Finance
Bob Hoye
Institutional Advisors
January 1,
2004
One would have hoped that financial
rip-offs committed by medieval princes would have been permanently
shelved when liberal enlightenment ended the divine right of
kings.
Nineteenth Century liberals, so rational and principled in their
views, could not have imagined the greedy craft developed by
many modern governments in confiscating private wealth earned
by productively working citizens. Are we seeing medieval financial
tyranny replicated by today's proponents of the divine right
of bureaucrats? A look at history provides perspective.
Although outrageous when imposed, the passage of time makes early
examples of princely finance somewhat amusing: the colourful
Richard I (1189-1199) sold property to finance his joining the
crusade of Peter the Hermit. Upon returning, he took it back
on the pretense that originally he had no right to sell it.
The infamous King John (prompted the Magna Carta in 1215) introduced
the clever plan of imprisoning and ransoming the mistresses of
priests, confident that the funds he could not obtain from their
greed he would from their lust.
Edward I (1272-1307) confiscated money and silver or gold plate
from monasteries and churches, faked a voyage to the Holy Land
and, in keeping the money, refused to go.
Edward IV (1461-1483) was described as the handsomest tax-gatherer
in the country; and when he kissed a widow because she gave him
more than he expected, it is said she doubled the amount in hopes
of another kiss.
The fiscally sound Henry VII (1485-1509) approached wealthy families
with two arguments. If the household was not extravagant in expenditure,
then he attacked what they had saved by thrift; while if they
lived extravagantly they were considered opulent and could afford
any exaction. Named after his minister of finance, the ploy was
called "Morton's Fork."
A broader form of wealth confiscation capable of tapping even
the poor was accomplished by currency debasement and extreme
examples in ripping off everyone provoked severe social disorder.
No matter what method employed, financial outrage prompted the
evolution of parliament as a necessary means of constraining
fiscal ambitions of the governing classes.
The struggle between individual freedom and authoritarian state
proceeded until the late 1600s when growing commercial wealth
and political power in London began to become influential with
its financial common sense. The specific event that formalized
the victory over the ancient status quo was the "Glorious
Revolution" of 1688, which maneuvered the pro-business and
Protestant William of Orange into the British Crown and displaced
James II as the last absolutist king. How refreshing this was
is indicated by the oppressive politics of his and his predecessor,
Charles II. Starting with the restoration of the monarchy with
Charles in 1660, both kings were bribed by France to change the
culture of England - consistently in an authoritarian direction.
Scornful remarks by miffed establishment were similar to those
directed to the pro-business "religious right" today.
No matter how imaginative or despotic princely financing was,
it can't compare with the long- running compulsion to spend other
people's money by bureaucrats in Washington, unrestrained by
the checks and balances of congress, constitution, or mainstream
media.
But before expanding this point, consideration should be given
to the other event that formally ended the old world, which was
the beginning of modern finance with the incorporation of the
Bank of England in 1694. As history shows, central banking is
fine when disciplined by a convertible currency and, when not,
it becomes a tool of state ambition to confiscate wealth though
currency depreciation. That the dollar has lost 90% of its value
in only 50 years exceeds most princely devaluations and, like
those, has been no accident. Regrettably, modern financial agencies
such as the Federal Reserve and Treasury have become almost medieval
in function.
As outlined in The Federal Reserve System, Purposes and Functions,
the Fed Board of Governors touted the usual claims that high
growth in consumption and high unemployment could be accomplished
with "stable values." Obviously, price stability was
impossible due to the insatiable demands of the state which,
even with a 90% depreciation in the dollar, has yet to be satisfied.
Corruption is chronic.
Today, princely cunning really comes together with Washington's
finesse in running the currency down and moving everyone up the
confiscation ladder of "progressive" taxation. Sadly,
until recently no matter which party sat on the other side of
the House there was no serious opposition to today's intemperate
collusion of state and religion (interventionist government).
Without desperately needed constraint, the combination of currency
depreciation and bracket creep with eventually force those below
the "poverty line' into unconscionable tax rates.
Fortunately, history provides some antidotes to governmental
abuse of the productive sector. Short of rebellion, the most
effective of course has been a parliament accountable to the
taxpayer. As for those who have wrecked the currency (also a
parliamentary responsibility), Dante, in his Inferno,
reserves a special place in hell for "false moneyers."
The Anglo-Saxon Chronicles record something equivalent, albeit
more temporal:
"1125
A.D. In this year before Christmas King Henry sent from Normandy
to England and gave instructions that all moneyers ... be deprived
of their members ... Bishop Roger of Salisbury commanded them
all to assemble at Winchester by Christmas. When they came hither
they were then taken one by one, and each deprived of the right
hand and the testicles below. All this was done in twelve days
between Christmas and Epiphany, and was entirely justified because
they had ruined the whole country by the magnitude of their fraud
which they paid for in full." - The Laud Chronicle (E)
Taxpayers deserve reliable
protection and with sufficient outrage will likely move rationally
to at least limit financial adventurers in government. Eventually
the public will demand sound money and sound government.
In a world of growing financial volatility, Institutional
Advisors has anticipated most of the significant developments
in metals as well as in the credit and stock markets. For a Trial
Subscription, please check out our
website.
Bob Hoye
January 1, 2004
Institutional Advisors
E-mail bobhoye@institutionaladvisors.com
Website: www.institutionaladvisors.com
BOB HOYE, INSTITUTIONAL ADVISORS
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