 Princely
Finance and Taxation
Bob Hoye
Institutional Advisors
December 8, 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.
Recent imperious announcements by Messrs. Greenspan and Bernanke
to use the "printing press" to inflate anything they
can should be considered startling only in the resort to honesty.
Euphemisms for currency depreciations started with the original
promoters of the Fed and the tout was that a "flexible"
currency would prevent serious financial contractions.
Regrettably, since 1914 there have been many financial crises
and the dollar has lost 90% of its purchasing power. This is
particularly ironical as the key regular ones have not been prevented.
These would be the 1920-1921 and 1990-1991 examples that ended
a long period of vigorous economic expansion and the post-1929
and post-2000 crises that ended, in such a costly fashion, a
"perfectly" managed new financial era. Recall the "Goldilocks"
pitch.
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 savings 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 and so-called "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 today's bureaucrats and politicians, virtually
unrestrained by the checks and balances of 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 purchasing
power in only 50 years exceeds most princely devaluations and,
like those, has been no accident.
Indeed, Fed announcements to "print money" could be
considered as an attempt to go for the final 10%. While many
outside central banking would consider this as infinite folly,
it is uncertain as to how long this commitment will maintain
credulity in even academic circles. Regrettably, modern financial
agencies such as the Treasury or Federal Reserve System have
become as corruptible as their medieval counterparts.
Fortunately, history provides some antidotes to governmental
abuse of the productive sector. Short of rebellion, the most
effective of course has been to force government and its financial
agencies to be accountable to the taxpayer. As for those who
have wrecked the currency (also a government 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)
Fortunately, history indicates
that the public will eventually figure out that no matter how
beguiling the claims about currency management and taxation are,
the gambit has been mainly to confiscate private savings. They
will then demand the return of sound money and accountable government.
Bob Hoye
Institutional Advisors
E-mail bobhoye@institutionaladvisors.com
Website: www.institutionaladvisors.com
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