 Annual Christmas Editorial
Princely Finance and Taxation
(This includes a Christmas
incident and is dedicated to all "false moneyers".)
Bob Hoye
Institutional Advisors
Dec 21, 2005
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.
Last year's 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 more
than 90% of its purchasing power. This is particularly ironical
as the key regular crises 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.
Now a Fed-exaggerated speculation
has reached a precarious and therefore hazardous condition.
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, even in 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 such 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.
Dec 19, 2005
Bob Hoye
Institutional Advisors
E-mail bobhoye@institutionaladvisors.com
Website: www.institutionaladvisors.com
Hoye Archives
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