Mises Daily: Monday, March 12, 2012 by George F. Smith
According to the Federation of American Scientists, nine countries account for the approximately 20,500 nuclear weapons known to exist, with the United States having 8,500 of these. Iran has none. Between 150–200 B61 nuclear bombs, the primary thermonuclear weapon in the United States, are deployed in Europe at six bases in five countries, one of which is Turkey, a border state of Iran.
By contrast, Iran has no known military bases in Canada or Mexico, nor has it imposed sanctions against the United States, as the United States and other countries have done to Iran. Yet, Iran is considered a threat to peace and stability because the International Atomic Energy Agencyissued a report last November saying it very definitely might or might not be building a nuclear device.
If the United States ends up at war with Iran, there arises the question of what it will cost and how to pay for it. Using recent history as a guide, the total financial cost of the Iraq invasion, including veterans’ support, is expected to reach $4 trillion. Yet in 2002, Bush economic advisor Lawrence Lindsey was fired for saying the Iraq war could cost as much as $200 billion, which was 3–4 times the Department of Defense estimate. Even if someone knew how much an Iran war would cost, no one would believe him. But it’s clear we do have an idea of how we would pay for it: more debt.
On Friday, August 5, 2011, S&P downgraded US debt from AAA to AA+, citing a failure of government to stabilize its “medium-term debt dynamics.” The previous Tuesday, Congress had voted to raise the debt ceiling by $2 trillion. S&P’s downgrade, as Gary North viewed it, was their way of saying, “Yes, the loud noise you heard on Tuesday really was what it sounded like.” It was a crack in the ice, a signal for smart skaters to head for shore.
Those pushing for more war and more debt are not smart skaters. How did we go from our core political principle of “live and let live” to the hegemonic “live the way we say, or we’ll bomb you back to the stone age!”? How did we reach the point where smart economists tell us the size of the government debt is irrelevant as long as we keep the tax slaves rowing faster and faster? Actually, it began right from the start.
Funding a “Just War” Unjustly
Unlike the various US invasions in the Middle East and Asia of the past several decades, there is strong conviction among many Americans about the legitimacy of the country’s founding war. A legitimate war, or what Murray Rothbard called a just war, “exists when a people tries to ward off the threat of coercive domination by another people, or to overthrow an already-existing domination.” Like all wars, a just war is laced with dangers beyond the inferno of the battles, especially if war funding relies to a significant degree on the printing press. The American Revolution is a case in point.
On June 22, 1775, the colonial delegates who were assembled in Philadelphia, under the inspiration of Gouverneur Morris, decided to print $2 million in “bills of credit” called Continentals. The plan was to begin redeeming them in 1779, not with hard coin, but by levying taxes in the Continentals themselves, which would then be retired. So appealing was the idea of printing money that by 1779 a total of $227 million had been issued. The bills were everywhere, and everywhere despised. In a letter to John Jay, president of the Continental Congress, George Washington complained that “a wagon load of money will scarcely purchase a wagon load of provisions.” By December 1779 the Continental had fallen to 42:1 against specie, and by spring of 1781 the currency was virtually worthless.
Individual states were also printing money to finance the war, and the British too adopted the printing press as a war strategy, printing Continentals and using Tories known as “shovers” to shove the imitations into circulation and thus accelerate the currency’s depreciation.
Inflationists in Congress viewed depreciation as a clever way to impose the necessary taxes to pay for the war, though Gouverneur Morris thought it was too bad Washington’s soldiers would suffer the most from this tactic. As the value of the currency rapidly approached zero, the Continental army turned to direct theft (“impressment”) to acquire their provisions when merchants balked at trading goods for something worthless.
The Continental was allowed to die without redeeming it, but in 1779 Congress began emitting “loan certificates” that were also used as money. A big chunk of this money hung around after the war as a peacetime public debt. Robert Morris, the leader of the nationalist faction, pushed for its redemption at par in specie as a means of stuffing the pockets of associates who had purchased the certificates at highly depreciated prices.
Redemption was also a way of rallying support for taxing power in Congress. Under the Articles of Confederation and perpetual Union, which was ratified on March 1, 1781, the United States of America was considered a “league of friendship” rather than a central government, with each state retaining “its sovereignty, freedom, and independence.” Although the articles recognized the obligation of Congress to pay all debts incurred before ratification, they did not give Congress authority to coerce such payments from the states.
To the nationalists, the lack of taxing power and other alleged deficiencies made the Confederation government “the laughing stock of the Atlantic world,” as historian Leonard L. Richards notes in his masterpiece, Shays’s Rebellion: The American Revolution’s Final Battle. Throughout the 1780s, they tried fruitlessly to get enough of them together to replace the Articles of Confederation. In modern parlance, what they needed was a “new Pearl Harbor,” a major crisis that could be propagandized for political ends. In 1786, Shays’s Rebellion provided the break they needed.
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