It is important to remember, nations don’t trade with each other, people do.

In the case where wealth is exchanged directly, for instance an apple for an orange, this balance occurs instantaneously. In other words, one apple will leave the country for every orange coming in. This would then be a balance of trade assuming that the orange and apple are of equivalent economic value. However, where money is involved, there may be periods, where countries become net importers where goods and services flow into the country and money is flowing out. This will then be followed necessarily by periods of net exports, where goods and services will flow out of the country. The country receiving the exported goods will pay for them with the money they received for their previous imports. This then balances the trade.

If a country is importing more than they export, many tend to think this is “bad” for the importing economy and that the nation must be losing wealth, while the exporting nation is gaining it. However, this is not the case. Again, if these transactions are voluntary, it is assumed that they are exchanging the equivalent amounts in terms of wealth. If the country is exporting goods and services in return for money, the exporting nation assumes that the value of that money is equal to the goods and services it is exporting. This is one reason the faith in a nation’s currency is vitally important.

The misunderstandings dealing with trade deficits tends to lead people toward the absolute conclusion that exports are good and imports are bad. This then leads to the belief in economic protectionism, such as “Buy American” campaigns and even protective tariffs. These practices actually tend to harm domestic economies by restricting free trade, which reduces options for exchange. This reduces the efficiency of wealth exchanges and artificially promotes domestic products including some that are of poor quality or low value for the sole reason they are made in the USA. Think, Ford Pinto. Was there any reason to purchase that vehicle versus another of better quality at a comparable price, regardless of where it was made? The bottom line dealing with purchases or exchanges is that both parties should look to maximize the value of the wealth they have created by purchasing the highest quality or valued product for the lowest price, regardless of where it is made.

Why should a nation be concerned with their trade balance with a particular nation on the basis of prosperity, anymore than I should be concerned with my trade balance with my local grocery store? It is assumed that each transaction with the grocery store is balanced. If we looked at the trade balance between myself and the grocery store the same way some people see the trade balance among nations, I am getting a really bad deal! However, this is not the case. My concern should be that I am producing enough of my own wealth to exchange with the grocery store for items that I need or want (their wealth). It is assumed that the grocery store will use that money to buy other goods and services, which will in turn “balance the trade” since it will be spending money in the same system from which I will be producing wealth and exchanging it for cash. This same principle applies to nation’s economies and their own wealth and relative exchanges. If all parties involved are producing enough wealth to pay for their exchanges, a balance will eventually occur.

America’s Cause for Concern

What should give the US cause for concern is its true capacity to produce wealth. Much of our importing capacity comes by way of debt. We are either borrowing from other countries or the Federal Reserve. Just as the case with the grocery store, it should not be of much concern that I am exchanging money for their goods. As long as I am producing wealth and can continue to pay them with the money I have exchanged in return for my production, I am on a sustainable course. However, if I am financing my purchases with credit cards and IOU’s. I should be greatly concerned. Instead of borrowing more money, I should immediately figure out a way to begin producing enough wealth in order to pay for my “trade deficit” with the store.

Artificial Demand for Foreign Goods

With regard to trade, we should call into question the issue of self sustainability and related economic vulnerability in times of crisis. If we are on a desert island which is next to a very large population of clams producing high quality pearls, but the island has very little ability otherwise to produce all the things that we need for survival, we will need to rely more heavily on imports of crucial resources in order to sustain a certain level of economic well being. We may be able to produce a lot of wealth in pearls, but we will need to import much of our food, raw materials and goods. Notice, our net export of pearls balances the goods we import. However, if a war breaks out and we can no longer receive some crucial resources, we may find ourselves in a very difficult situation. We may have a lot of pearls, but little food. One thing comes to mind for the US in this example and that is energy.

This then calls into question a situation where the domestic government is artificially preventing domestic wealth production by regulation or other restrictions artificially forcing a higher level of importation of certain goods and services. For example, the US has enough energy supplies within its borders for its own needs in the form of oil, oil sands, oil shale, coal and natural gas; but there are heavy restrictions from accessing and using them. This is artificially decreasing the wealth generation capacity of the US economy by placing extremely onerous restrictions on domestic energy production, this forces the US to import as much as 70% of its daily petroleum needs in order to meet its energy demands. Whether the US is producing enough wealth in order to make up for this artificial loss in energy production does not remedy the risks of the artificial dependency on foreign oil.

The Trade Balance on its own is not sufficient to determine the productivity and related prosperity of an economy. In a true free market where the government maximizes economic freedoms such as economic development and trade, there should be much less concern regarding the trade balance, especially for the US since it has many diverse resources and therefore, the ability to produce a variety of products, goods and services. What we should really begin to examine however; are the artificial restrictions to wealth creation by the central government and its unnecessary effect on the balance.

“I consider the government of the United States as interdicted by the Constitution from meddling in religious institutions, their doctrines, discipline, or exercises. This results not only from the provision that no law shall be made respecting the establishment or free exercise of religion, but from that also which reserves to the states the powers not delegated to the United States. Certainly, no power to prescribe any religious exercise or to assume authority in religious discipline has been delegated to the General Government. It must rest with the States, as far as it can be in any human authority.”
– Thomas Jefferson (letter to Samuel Miller, Jan. 23, 1808)

This was written 6 years after the earliest known reference to the coined phrase “Separation of Church and State”, by Thomas Jefferson . Most of us have been taught that Jefferson was adamant about an absolute separation between religion and government. So, did he change his mind? Of course not.

Jefferson was consistent by referring to the State as in the “General Government”, which was another common reference to the Federal Government at the time.

Earliest known reference to Separation of Church and State:

“Believing with you that religion is a matter which lies solely between Man & his God, that he owes account to none other for his faith or his worship, that the legitimate powers of government reach actions only, & not opinions, I contemplate with sovereign reverence that act of the whole American people which declared that their legislature should “make no law respecting an establishment of religion, or prohibiting the free exercise thereof,” thus building a wall of separation between Church & State.”
– Thomas Jefferson, Letter to Baptists from Danbury, Connecticut, 1802

Jefferson references the 1st amendment of the US Constitution:

“Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.”

The 1st Amendment begins with “Congress shall make no law”. This unambiguously applies this restraint against the Federal government (general government) and not the Individual States themselves.

Bill of Rights

What is little known about the Bill of Rights is that they were all originally intended to apply as restraints ONLY against the Federal Government, but thanks to the Incorporation Doctrine of the 20th Century, this interpretation according to original intent has been changed so that the Supreme Court has slowly been incorporating the Bill of Rights so that some apply against the States as well. What many believe to be an expansion of freedoms, has been a violation of them by removing from us our right to self governance, which was a paramount concept at the time of our founding and crucial in preventing tyranny from the central government.

Consider the Bill of Rights Preamble (which is rarely studied):

“The Conventions of a number of the States, having at the time of their adopting the Constitution expressed a desire in order to prevent misconstruction or abuse of its powers, that further declaratory and restrictive clauses should be added: And as extending the ground of public confidence in the Government will best ensure the beneficent ends of its institution.”

Consider the Supreme Court Decision of Barron vs Baltimore 1833

The courts decided according to original intent that the Bill of Rights, including the 5th amendment did not apply to the States, but only the Federal Government.

Consider the quote by Thomas Jefferson in his letter to Samuel Miller at the top of this page:

Thomas Jefferson referenced the 1st amendment and 10th amendment, but he also makes the point that even in exclusion of these amendments the Constitution grants no authority to regulate religion, therefore the Federal government has no such power. This also applies to the limits of the entire Bill of Rights according to original intent.

Why the Lie?

Why then have we been told that the founders, especially Jefferson intended for there to be a “Separation” between all government and religion? Why weren’t we told the complete truth? Why weren’t we told the simple truth that the FEDERAL government was never to interfere with religion, which includes necessarily morality, but the STATES could? Why didn’t we just read the Constitution for ourselves and see what was in black and white? Why didn’t we just read the original words of Jefferson in their proper context?

For those who are concerned that Liberty is being violated by an ever expanding Central government. The States are your strongest legal safeguard. Allowing the Federal government the ability to force the “Bill of Rights” upon the States ironically threatens your rights, it does not secure them.

Just look at your “freedom of religion”, it has been all but chased out of public life, even on the State level. This was not the founders’ intent, not even Jefferson himself!

Consider your other rights, do you think the Federal government is protecting them or is it a direct threat to them? Our founders knew any centralized authority would eventually become a threat to our Liberties, which is why they delegated very few and defined powers to the Federal government. Ironically, the protection of our “liberty” wasn’t one of them, except from the threat of foreign enemies. The protection of our “liberties” otherwise, was to rest with the people and to be administered by the individual States under directives of their respective citizens.

Is it any wonder our Federal government has gotten wildly out of control? We have abandoned the structures of government that our founders carefully put in place, we have abandoned their warnings. The primary reason for which is that we simply don’t know them. It is about time we begin to relearn history with an objective lens. It is time that we dust off the sources of history and rediscover the true intent of our founders for ourselves.

Why not start today? Check out our basic Study Guide. It is a collection of simple videos and articles to help you learn the basics of our founding principles.

“Educate and inform the whole mass of the people… They are the only sure reliance for the preservation of our liberty.”
— Thomas Jefferson

“On every question of construction, carry ourselves back to the time when the Constitution was adopted, recollect the spirit manifested in the debates and instead of trying what meaning may be squeezed out of the text or invented against it, conform to the probable one in which it was passed.” – Thomas Jefferson

“We have the greatest opportunity the world has ever seen, as long as we remain honest — which will be as long as we can keep the attention of our people alive. If they once become inattentive to public affairs, you and I, and Congress and Assemblies, judges and governors would all become wolves.”
- Thomas Jefferson

To answer this question, we have to look at the basics of economics and it starts with the concepts of wealth and money.

What is the basis of wealth? Production, which is a result of time, resources and energy/labor.

What is money? A universal medium of exchange, a storage mechanism of wealth.

If a person buys something from a foreign producer for $100, is that person and the  related domestic economy losing their wealth? Only if that person is foolish enough to exchange $100 in cash for a product or service worth less than what that $100 can otherwise purchase.

If I buy $100 worth of wheat from a domestic producer or foreign producer, that transaction doesn’t change the net wealth of the nation with which I reside, nor the wealth of the nation from where it is purchased. It does not even change my personal wealth. Keep in mind however; If that wheat is in my possession, any consumption or destruction (theft, fire, degradation) of that wheat does reduce my wealth. Taxation of that wheat also reduces my wealth, but that deals with the price of government as another topic.

Note: Assuming prices include all necessary transportation costs.

Let’s take a look at the two possibilities and respective balance sheets of a domestic and foreign purchase.

1. I buy $100 worth of wheat from the foreign producer:

Before the transaction:

Domestic producer has $100 worth of wheat, I have $100 in cash.

— US balance sheet = $200

Foreign producer has $200 in wheat.

— Foreign balance sheet = $200

After transaction:

Domestic producer has $100 worth of wheat, I now have $100 in wheat.

— US balance sheet = $200

Foreign producer has $100 in cash and $100 in wheat.

— Foreign balance sheet = $200

2. I buy $100 worth of wheat from the domestic producer:

Before the transaction:

Domestic producer has $100 worth of wheat, I have $100 in cash.

— US balance sheet = $200

Foreign producer has $200 in wheat.

— Foreign balance sheet = $200

After transaction:

Domestic producer has $100 worth of cash, I now have $100 in wheat.

— US balance sheet = $200

Foreign producer has $200 in wheat.

— Foreign balance sheet = $200

There is no difference in wealth. In both cases the beginning and ending result was a US balance sheet of $200 and a Foreign balance sheet of $200. If simply selling your product (converting it to cash) doesn’t make you rich, what then that makes you more wealthy? Wealth production! That is assuming that you are not violating other individual’s property rights by force, fraud or abuse to acquire the wealth they have produced.

How can both countries become more wealthy? They can increase their production of wheat or other forms of wealth. Money isn’t wealth itself. This is the most common misconception regarding money. What good is money if there is no bread to be bought?

Production, which is the combination of time, resources and energy/labor is the basis of real wealth.

Buying Less for More

Take the dogma of nationalism out of it. Let’s change the geographic boundaries, since they are only relative in this debate. Is it somehow more prudent for you to buy a product that is made in your State or even local community regardless of quality or value? Does this make your community better off? No, it makes your preferred economy poorer by subsidizing the producer of low quality/value goods or services and deprives you and the community of either more value or higher quality, in other words, the ability to maximize the return on your own wealth production.

Notice, the question above related to the premise that we are buying locally regardless of quality or value. If the local producer happened to provide the highest quality or value, it would be by accident that your local economy is not suffering a loss.

Let’s put this in terms of wheat again for consistency. If I buy a certain product from my preferred economy as a matter of geographical bias, but I happen to be buying that product which is of lesser quality/value. Can we agree that it is the same as buying a lesser amount of wheat for the same $100 as before?

So, let’s say that outside of my preferred economy I could receive 10 bushels of wheat for $100. But, my neighbor is offering me only 5 bushels of wheat of otherwise comparable quality for $100. Why would it make me or my community better off if I were to implement a geographical bias toward my neighbor’s wheat?

My neighbor would be better of because he could then take that $100 and buy other products and services truly worth $100, but as for me and the rest of the community. We’d be the poorer for it, because it would require us to produce twice as much in wealth in order to overpay for our neighbor’s crummy deal. We would have produced $100 in wealth, only to receive $50 in return or produce $200 in wealth, only to receive $100 in return.

Let’s look at this in terms of the balance sheet:

I buy $50 worth of wheat from a local producer for $100

Local producer has $50 worth of wheat, I have $100 in cash.

— Local balance sheet = $150

Foreign producer has $200 in wheat.

— Foreign balance sheet = $200

Regardless of whether I buy from the foreign or local producer does not change either community’s balance sheet. While I personally will be better off if I buy from the foreign producer, the single transaction itself is not what makes the local community poorer. The lack of production is making it poorer.

Notice that in the 1st set of examples the “local/US” balance sheet was $200. With the latest example, it is $150. Why? Because the local producer is producing $50 less in wheat (wealth). If the local community subsidizes this lack of value by over paying for their product or service, versus promoting producers that produce at full value, the community will be the poorer for it. The rest of the community will have to produce more wealth in order to subsidize the lack of production quality/value of the local producer, or simply go without that additional wealth and be the poorer for it. However, if the community is going to increase its wealth production, it is best if they buy from the better supplier outside of town or only buy from the local producer if he lowers his price to reflect the actual quality/value he is creating. The extra wealth that was produced can then be used to buy from the foreign supplier, which will maximize the value of that extra wealth generated.

If the local/domestic producers provide the highest quality product/service at the least cost, there is no reason to buy elsewhere, but biased protectionism that argues that we should buy local/domestic products and services for no other reason than geographic preferences, destroys the wealth of that economy, even if it is a value loss of $1, there is no gain for the community, there is a net loss in wealth relative to buying from the another producer that is either providing the same product or service for for less money, or a higher quality/value product for the same amount money.

For further consideration, what if the foreign producer moved to your local community, who would you buy from now? Why would it change? It is always to your advantage and to that of your relative economy to make the highest use of your wealth and that necessarily involves maximizing the value of your wealth in exchanges (purchases).

A Perverted Conclusion

Keep in mind, in the example that the local producer was not producing to their maximum potential, some Statists come to the conclusion that we should force that producer to increase their production. Not only would this violate the Liberty of that individual or company (property of the individual[s]). It has been shown that force does not increase economic productivity. To the contrary, the promotion of economic freedoms provides for the most productive environment to maximize prosperity.

When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.

…

And for the support of this Declaration, with a firm reliance on the protection of Divine Providence, we mutually pledge to each other our Lives, our Fortunes, and our sacred Honor.

— John Hancock

New Hampshire:
Josiah Bartlett, William Whipple, Matthew Thornton

Massachusetts:
John Hancock, Samuel Adams, John Adams, Robert Treat Paine, Elbridge Gerry

Rhode Island:
Stephen Hopkins, William Ellery

Connecticut:
Roger Sherman, Samuel Huntington, William Williams, Oliver Wolcott

New York:
William Floyd, Philip Livingston, Francis Lewis, Lewis Morris

New Jersey:
Richard Stockton, John Witherspoon, Francis Hopkinson, John Hart, Abraham Clark

Pennsylvania:
Robert Morris, Benjamin Rush, Benjamin Franklin, John Morton, George Clymer, James Smith, George Taylor, James Wilson, George Ross

Delaware:
Caesar Rodney, George Read, Thomas McKean

Maryland:
Samuel Chase, William Paca, Thomas Stone, Charles Carroll of Carrollton

Virginia:
George Wythe, Richard Henry Lee, Thomas Jefferson, Benjamin Harrison, Thomas Nelson, Jr., Francis Lightfoot Lee, Carter Braxton

North Carolina:
William Hooper, Joseph Hewes, John Penn

South Carolina:
Edward Rutledge, Thomas Heyward, Jr., Thomas Lynch, Jr., Arthur Middleton

Georgia:
Button Gwinnett, Lyman Hall, George Walton

Truly, it was neither.

Each gave some appearances of a recovery, but it wasn’t until our men returned home from WWII, capital was given some time to reset and wealth production resumed, that America saw an actual recovery. However, the effects of the New Deal continue with us to this day, where our Federal government continues to induce artificial prosperity with a perpetual spending dive that is taking us closer to the bottom.

Neither WWII nor The New Deal created prosperity. WWII was arguably necessary, depending on your study of history, but we will save that for another debate. The New Deal however, was a massive waste of money that began America on it’s perpetual debt binge.

WWII

Some say WWII got us out of the Great Depression because it created jobs and reduced unemployment. They also say it was because it created demand for tanks, ammunition, guns and so on. Yes, this is all true. However, regarding unemployment in the US. When most of your men are overseas fighting a war, what do you expect to happen to unemployment? Further, where did all of this money to pay for the troops, necessary equipment and armament come from? It was borrowed or came directly out of the real production of the economy through taxes!

War is sometimes a necessary expense, but to argue that it somehow produces prosperity is a complete fallacy. To illustrate this, let’s use an example given by Thomas Woods from his book “Meltdown”. If War Time Prosperity is true, then Japan and the US should agree to duke it out in the Pacific Ocean. Only, to avoid the loss of human life, let’s build the most sophisticated, advanced and expensive remote controlled navies the world has every known. Let’s agree to meet in the middle of the Pacific and watch the remote controlled fireworks begin. Win or Lose…we both lose economically.

Consider all of the time, resources and energy involved (capital), all of which are paid for using “money”. After the end of this battle, all of that capital invested in the destroyed navies will be at the bottom of the Pacific Ocean. If War Time Prosperity were true, Japan and America would be economic superpowers overnight and our recession would be over!

What is unseen here is all of the wealth that could have been produced with the same capital now resting at the bottom of the ocean. How many cars, tools, TV’s, computers, could be made with that capital?

WWII did not make America prosperous. War is an expense, sometimes a necessary expense, but the economic destruction that it causes because of the destruction of wealth that occurs is devastating.

THE NEW DEAL

The New Deal was simply a modern day “Stimulus Package”. It was birthed from the ideas of John Maynard Keynes who suggested that a central government could induce economic prosperity by “priming the pump”. He suggested that if the government simply spends money, that will create demand for products and services and it will jump start the economy. He famously boiled his theory down to this simple example. You can pay a man to dig a hole and another person to fill it. The fact that nothing productive is taking place doesn’t matter, the spending alone will stimulate the economy. He argued that debt spending was the best way to go, because taxes can damage an economic recovery by taking real capital out of the economy, thus defeating the purpose.

In some ways Keynes was right, but that is a complicated argument to make and filled with caveats that in the end, actually debunk his theory. One particular caveat is “time” itself. When Keynes introduced his theories there were other prominent economists, including F.A. Hayek, who would offer one damning criticism in the form of a question. “What about the long run?” To which Keynes famously replied, “in the long run, we are all dead”. As if this is some sort of joke. John Maynard Keynes knew that what he was theorizing was not sustainable, but he obviously felt that the long term negative effects were so far off in the future that they were irrelevant. The problem for us today is that you and I have reached the long run. We are paying for his misguided economic theories. Our economy is not based on the only sustainable path to prosperity, which is wealth creation, but instead, it is a marriage of capitalism and a massive amount of subsidization and central planning which is administered by the Federal Government and Federal Reserve which are ultimately funded by the US taxpayer, now and in the future.

Subsidies Include:
Direct Farm Subsidies
Welfare for the poor
Corporate Welfare
Loan subsidies and guarantees – (homes [FNMA, FMAC HUD], education, business loans)
Direct government spending, “stimulus”
Tax “Credits” – Cash for Clunkers, Home Buyer Tax Credits
etc.

Central Capital Planning:
Interest Rates (FED)
Money Supply (FED)

What we saw during the New Deal Era was a fake recovery, much like we are seeing now. It wasn’t until capital was allowed to reset, in spite of the New Deal, that real investment and subsequent production of real wealth returned. The problem is that we have been left with this legacy of economic manipulation that is ultimately making us poorer. When government intervenes and acts outside of its Constitutionally limited role, it takes wealth, whether from the present through taxes or the future through debt and diverts it as a central planning agent. This diversion of capital causes bubbles and busts, like the one we saw which resulted with the current credit crisis.

Furthermore, many point to increases in GDP under the New Deal and other economic indicators to say that it worked, much like we are seeing today. The misleading thing about GDP is that it is only a good indicator if it is solely a result of free market activity. As soon as intervention is introduced, there is no way to compare GDP or use it or any other economic indicator as a measure of real economic productivity. Under the New Deal, there were prices floors which were implemented. This temporarily caused an increase in GDP for more inelastic goods such as food and vital raw materials. Furthermore, when much of the spending is debt based and coming from the government in the first place, the GDP is inflated beyond its true level.

Keynesian economics is a sort of pyramid scheme. It can work or give the appearance of working until either a.) the government can no longer borrow (see Greece) or b.) capital has been so miss-allocated that a massive economic collapse occurs as a result. Yet, we continue down the same road building new bubbles and subsequent busts, each successive bust is worse than the one before it.

The most common misconception dealing with wealth is that money = wealth. This is not true. Wealth can be measured in money, but that does not mean that the unit of measurement is wealth itself. If money equals wealth, countries could simply print wealth and their citizens would just sit around all day drinking beer. One problem, where is that beer going to come from? The only way to true and sustainable prosperity is through wealth creation (production). We know this by this simple example: Which country is more wealthy? The one who is producing bread, shoes, clothes, tools, cars, etc. Or the one who produces “bank notes”?

What good is money if there is no bread to buy? The one temporary exception to this is an economy based upon debt, like ours. 70% of the US economy is based upon consumer spending. That is why following 9/11 President Bush told everyone to go shopping. Why didn’t he tell us to go produce wealth? Because that is not how our economy has been constructed. America has been producing some wealth, but not nearly enough to justify its rate of consumption. We could be as wealthy, if not more wealthy than we currently appear. But we have allowed the Federal government to squander and destroy our wealth and that of future generations through the justification of Keynesian economics.

Government spending does not create prosperity. Government is an expense to any nation, it is a necessary expense when it is confined to its legitimate role of simply protecting natural rights from legitimate foreign enemies and domestic criminals, but when it ventures beyond this role and takes on the powers of economic manipulation, it destroys wealth which is the basis of prosperity. Instead of making us richer, it actually makes us poorer for it.

In both cases, whether dealing with the New Deal or WWII, a point should be made clear. Most of the money that was used to pay for these activities came from debt spending. It was from this era that perpetual debt was no longer something to be avoided, it was something to be embraced. Not only is  of perpetual debt unsustainable, it is immoral. Thomas Jefferson felt that it was immoral for one generation to generate debt which it was unable to pay off itself.

Prosperity doesn’t come from government spending, even when it comes from the illusion that is created by debt spending. One day, someone will have to pay up. This is the generational version of a ponzi scheme, it really is a scam and irresponsible. We are not leaving posterity with a better life, we are leaving them poorer.

“I sincerely believe… that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.” –Thomas Jefferson to John Taylor, 1816. ME 15:23

This series is based on the book “Economics in One Lesson” by Henry Hazlitt.

Related Chapters:

Broken Window: http://jim.com/econ/chap02p1.html

Blessings of Destruction: http://jim.com/econ/chap03p1.html

Public Works Mean Taxes: http://jim.com/econ/chap04p1.html

Disbanding the Troops: http://jim.com/econ/chap09p1.html

The Mirage of Inflation: http://jim.com/econ/chap23p6.html

The bottom line comes down to the concept of wealth itself. Wealth is production, if a process is made more efficient it can be produced at higher frequency for the same cost, same frequency for less cost or higher frequency for less cost. Any one of these increases of efficiencies increases the wealth and prosperity for all involved in that economy, including those associated through foreign trade, because the price of each new unit produced will now be cheaper, which will now require less wealth in exchange for this product/service.

For those who are replaced can retool to learn a new trade or adapt to the new production system as some suggested before to fix, repair or even make the new machines.

For those who doubt this argument. Let’s destroy all machines so that more people can have jobs! This is part of an argument by Karl Marx from an erroneous Labor Value Theory, who suggested that services and products derived their value from the cost that was required to provide/produce them. This theory is actually a base of his communist/socialist theories and the mantra “workers of the world unite”.

OK, so back to destroying machines. Let’s start with locomotives. Instead of having locomotives move those train cars, let’s get the equivalent man power to move the millions in tons of freight across the country. Can you imagine how many we could employ to do this job? Let’s go a step further and destroy the machines that are the freight cars themselves! Wow, we’re all going to be rich! So many people will now be employed!

One problem, the opposite will now be true. We will all be the poorer for it. Can you imagine the cost of transporting these goods, raw materials and so forth? Can you now imagine what the cost of these finished goods will be as a result? It would require a massive amount of wealth (production) to purchase any good that relies on trains to either receive raw materials for production or to ship out their finished goods to the market.

Machines make us richer by increasing the amount of wealth that we can produce with the same capital as before (time, resources, energy/labor). This goes for any increase in efficiency, assuming we are producing wealth in the first place. The savings in time, resources and energy can either be saved for further capital investment or produced into new products/services that we would not have had before for the lack of capital to produce them. (See also the broken window fallacy)

Side Note: Money/Paychecks are not wealth, which is why government stimulus is making us poorer, not richer. If we are not increasing wealth production in this country of real goods or are able to provide services to other economies which exchange a portion of their production for our services, we will not achieve prosperity, but poverty.

This series is based on the book “Economics in One Lesson” by Henry Hazlitt.

The Curse of Machinery: http://jim.com/econ/chap07p1.html

Additional Reading:

Fredric Bastiat, Essays on Political Economy

This is also related to individuals who are willing to do jobs for less cost, in our case, immigrant labor.

The most prominent reminder anymore is the Pledge of Allegiance.

“I pledge allegiance to the flag of the United States of America, and to the Republic for which it stands…”

The truth is, America is in fact a Constitutional Republic. Our Constitution clearly states it in Article IV, section 4. However, there was a push against the limits of the Constitution in the early 20th century by the progressive movement. What is now more commonly referred to as modern liberalism (not to be confused with Classical Liberalism, which everyone should look up the definition for).

This push included perverting the legal arguments in regards to the construction of the Constitution from “original intent” to the concept of a “living Constitution”. This undermined the Republic by bastardizing the contract itself. No longer did lawmakers have to go through the onerous task of changing the supreme law with amendments; they simply had to reinterpret the document to end up with a whole new meaning.

The other push that weakened our Republic was for the concept of democracy. A properly controlled Republic has many restrictions against the government. Ours in particular originally gave 99.9% of power to the States and the people,  in accordance with the concept of self governance, leaving very few and defined powers to the Federal government. A democracy on the other hand is simply mob rule, where the limits of government are arbitrary and undefined.

By first undermining the meaning of the Constitution and the limits against the Federal government, then by using populist appeals for democracy and perverting the phrase “we the people”; Politicians have succeeded in concentrating power in DC by simply promising to give away more transferred possessions to the voters with the justification they were performing under the “will of the people” and the “good of the whole”.

The truth is our representatives are to FIRST, abide by the Constitution and its limits. Then vote with the will of the people or constituency they represent.

The Constitution and our republican form of government (not to be confused with the political party) were built around the concept of Natural rights and Self Governance. Our government was to protect our natural rights to Life, Liberty and Property. It was to protect the minority from the whims of the majority. Where 99% of people could not take away the natural rights of the 1%. Keep in mind, the smallest minority is of course, the individual.

That begs the question, what “rights”? Do we have a right to a paycheck, a car, a house, food, education, health care, etc? NO!

Our Natural rights are very simple.

Life: No one can unjustly take your life, that is murder.*

Liberty: No one can unjustly take your liberty, that is slavery.*

Property: No one can take your justly acquired property, that is stealing.**

*”Unjustly”, meaning without due process of law and regard to our natural rights. If I threaten someone’s life, I forfeit my own right to life as I can be killed in self defense. If I commit crimes (violate someone’s natural rights), I forfeit my right to Liberty.

**”Justly acquired property” simply means property cannot be acquired by theft, bribes, force, fraud or other violations of natural rights to property. It must be acquired through work or voluntary exchange.

Of course, this concept of natural rights and true Liberty has been forsaken. The government has acted as an agent of theft. It has been organized into an instrument of legalized plunder as Frederic Bastiat described it in his brilliant essay, “The Law”.

“Legal plunder can be committed in an infinite number of ways; hence, there are an infinite number of plans for organizing it: tariffs, protection, bonuses, subsidies, incentives, the progressive income tax, free education, the right to employment, the right to profit, the right to wages, the right to relief, the right to the tools of production, interest free credit, etc., etc. And it the aggregate of all these plans, in respect to what they have in common, legal plunder, that goes under the name of socialism.”

“But how is this legal plunder to be identified? Quite simply, see if the law takes from some persons what belongs to them and gives it to the other persons to whom it doesn’t belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.”

This applies to all entitlement programs, social security, medicare, medicaid, welfare etc. It also includes corporate welfare such as subsidies, bailouts, government insurance etc. Again, this has all been done in the name of the “good of the whole” and “democracy”.

When our founders wrote “We the People” in the US Constitution, they did not mean this in a populist sense. It was affirming the fact that the people, more specifically the individual, is the ultimate sovereign in any government. This was taken from the enlightenment writings by John Locke and others that inspired our nation and is described in our Declaration of Independence.  The concept that people existed before government and therefore our Natural rights also existed before government. In that, the only legitimate purpose of government was to protect our natural rights and any authority beyond that purpose or any authority of government that violates the natural rights of its citizens was arbitrary power. It was the duty of the people then to overthrow such power and establish a new government within its proper bounds.

We were to be a Republic, a society of laws, not of men. But, the dumbing down of our educational system, which is now primarily a product of the state, has resulted in a loss of these vital concepts. The concept and philosophy behind true Liberty and the proper role of government, which are made self evident with proper education in history, economics and philosophy, are so loosely gathered in people’s minds; Politicians are able to assemble them in any way they please, so that what they say appears to be the truth, but in reality, it is only a perversion of it.

America has been duped. If we are ever to see a true restoration of our Republic, the American people must take it upon themselves to study and learn these important concepts. If we think our salvation is in politicians or a some great leader, we are only fooling ourselves. The restoration of the Republic depends upon the American people.

“Educate and inform the whole mass of the people… They are the only sure reliance for the preservation of our liberty.”
— Thomas Jefferson

“The biggest threat to freedom is not communism, fascism, socialism or despotism. It is the apathetic beneficiaries of liberty who are indifferent to freedom itself.”
— University of Common Sense.org

Before I go on, I support the rule of law and enforcement of immigration laws, however, this article will show why premise for the argument of enforcing immigration laws is important. Supporting it for the purpose of “opening jobs” is economic protectionism and is just as dangerous as illegal immigration itself.

Deporting illegal immigrants for the purpose of “creating jobs” is bad economic policy.

However, amnesty for economic benefit is bad legal policy, because it creates moral hazard by inviting more law violators into the country, under the pretense that they will simply be forgiven.

Not all who oppose illegal immigration make sound arguments, even if they are correct in their assessment that illegal immigration must be dealt with. When the question arises as to “how” it should be dealt with, the question of “why” is extremely important and cannot be overlooked.

That goes for all issues where we use the force of government as the solution.

Deporting people for the purpose of opening up jobs (economic benefit) is a fallacy. When these people are not on the public dole for welfare and other entitlements, deporting them is not good for the economy. What about the demand that is created from those immigrants? Again, assuming they are producing wealth (not on public welfare). Increased wealth production creates prosperity. There is not a fixed number of jobs, they are not a commodity, they are a function of the demands in the economy, which is a function of the total wealth created in the economy.

The farmer’s production, baker’s production, shoe maker’s production and the tool maker’s production creates demand for other goods and services. As the production of basic needs is increased, demand for other goods and services is created, as basic needs are met, a higher degree of luxury is introduced. Again, this is all based on wealth creation. Deporting a baker, a farmer, a shoe maker, a tool maker reduces the wealth production and therefore excess wealth available for other products and services.

This, assuming that the production output of these individuals is greater than their own personal needs. ie. the farmer produces more wheat than they need, the baker produces more bread than they need and so on. The excess being brought to market and increasing the wealth of the whole economy.

Again:

Immigration policy that is argued for on the basis of economic isolationism and protectionism is bad economic policy.

Amnesty, especially without securing the boarder is bad legal policy.

Immigration policy that seeks an orderly process under the law for the benefit and prosperity of the nation by increasing wealth production is good economic AND legal policy.

That is why only “healthy” immigrants were sought in our history, so they wouldn’t be a strain on society, but instead would add to the wealth creation and prosperity of the nation.

The illegal immigrants should be dealt with, but not under any false pretense that it will help the economy by “opening up jobs”. What should be emphasized is the financial burden of some illegal immigrants in the way of entitlements for those who don’t produce wealth; as well as illegal immigrants who are creating a financial strain on our penal system who are arrested for murder, assault, theft and are not deported. The process of law should also be emphasized.

Good policy would include deporting those we find here illegally (especially those who murder, steal and break other laws), fine/punish those who knowingly hire illegal immigrants and end entitlement programs (especially benefits to illegal immigrants).

But again, none of this should be done under the fallacious arguments of economic protectionism or “job creation”, because that can lead to bad immigration policy as a whole and create a whole new set of problems.