In analyzing the history of humanity, one aspect becomes clear: humanity must be governed. The natural question is, by whom or how? Thankfully we have plenty of options to consider. Different forms of government include monarchy, Communism, Serfdoms, Imperialism, Fascism, Nazism, Stalinism, Theocracy, and lets not forget the Social Democracy and Capitalist Democracies. The majority of these governments are inefficient and countless numbers of people have lost their lives in these systems. However, there has been one form of government which is the oldest, the strongest, has accepted a large number of others from different cultures, has corrected many of its internal injustices, and has freed many peoples from despotism over the decades. I speak of the American Republic.



Government is a bureaucracy, with the power of the masses either taken by force or given voluntarily to this bureaucracy to rule over the land. Government is gauged by two extremes. On the extreme left is complete government, everyone is equal and all means are distributed equally. It is where Socialism and Democracy are fused together. On the extreme right is anarchy. There is no government; every individual fends for his or herself. History has shown that anarchy, if ever established, has a very short life; a strong dictator usually destroys it. Ironically, that is the sign of an inferior government, it is usually replaced by a strongman who rules the country until either a democracy is formed or another strongman replaces the original. As the gauge goes from the right to the left, personal freedom of the individual becomes more and more limited. When the governments demands for the people increase and freedom diminishes, the further left the governments destination is. Ironically, a true socialistic country has the least personal freedom, the health of the state trumps the freedom of the individual. France, a government to the left, is a socialistic-centralized government where the unions have great sway over the government and much money is taxed from the private sector and redistributed to the masses. Left of France would be Communist Russia or any kingdom. It is interesting to note that a socialist country and dictatorship are equivalent in their essence. They both restrict personal freedoms. What distinguishes the dictatorship from the socialist government is the right to vote. When the masses have no voice in government they are a step to the left of anarchy. In the middle of this spectrum is the American Republic, a bicameral republic that has both leader and elected body. The American Republic has a federal government which controls the majority of people, but to keep this federalism under control are the states who have their own independent rights. The question now arises, of all these governments mentioned, which is the most superior?



The only accurate measurement of this superiority is human happiness, which is wedded to personal freedom. It is what ultimately drives humanity. Millions of people throughout the world want to live in the USA because of the many opportunities that are presented in this country. What makes the USA so unique in the world is the system of government. The American Republic of both Federal and State arenas allows 280 million people to live in many diverse environments while simultaneously working together to produce many goods. As impressive as this is, whats more impressive is the injustices that the government has repaired. This government forced many of the natives that lived here to move, and in one part of the country, slavery ran rampant. However, the descendants of those native people are currently being subsidized by the federal government and slavery was eliminated at the cost of half a million lives. As a result, the USA is the most feared, hated, and admired country in the world.



A distinction must be made between the United States of Americas Republic and that of the Republic of Egypt. In the former, open dissent is allowed, while in the latter the government represses any form of opposition. The American Republic has within itself numerous fail-safes, or checks and balances, in addition to three divisions of government: Executive, Legislative, and Judicial. This format is preferable to that of a Parliament, because the president can maintain some distance from the political pursuits of his party. While in a Parliament, the position of Prime Minister is too close to that of his party politically. Although the position of President over the years has been far from multi-partisan, the President does maintain some independence from his party of choice.



Is the American Republic the pinnacle of human government? Who knows, but its by far the most efficient form of government. Countries all over the world should model it. There is no other country in the world where a great number of people from different cultures have come to live under one government and the country has not stagnated but has become a forerunner in the world. The reason for this success can be found in two basic facts: the United States allows a somewhat free economic system; and the three divisions of government: federal, state, and municipal, allow a delicate balance of power to exist between the people and those individuals in government presiding over them.



What keeps all forms of government working properly is the economy. It is the test which shows government which programs work and which should be discarded. No matter what type of government it is or the overall philosophy of its rulers, if the economy stalls or becomes stagnant, that government will quickly cease to exist. A clear example is the fall of the Soviet Union, a government which had hundreds of millions of people to serve under it. Soviet authority was never jeopardized militarily but the main reason for its demise was its inability to sustain both a strong military and its denizens. The failure of centralized governments economies, like the Soviets, is not uncommon. The reason is that centralized governments often sap the economy from its private resources for government excesses. No matter what types of benefits the government may provide for the masses, the cost of whatever the government produces will be higher than if a private party produces it. The reason behind this is that, unlike the private party who has a limited amount of resources to produce the good, the governments coffer is almost unlimited because of the taxes they take from the public. A government if it wishes its economy to excel at its highest level, will do its best to keep the market as free as possible. Thus, the best government is decentralized. It has an appropriate checks and balance system, with an economy which is free to set its wages and costs. The nations culture and character, which by nature is malleable over time, will fit in place.



CENTRALIZED VS DECENTRALIZED



The majority of governments in the world are centralized, be it a dictatorship or top-heavy government. The citizens of a centralized democracy elect their politicians and then have little involvement until the next election cycle. A major trait of a centralized government is high taxes. This allows the government to retain control of the domestic market and stifle any private competition. The groups of people who profit most from such an arrangement are unions who can bargain with one central authority. Individual representation is secondary; what is best for the state is beneficial for all. A heavy tax burden makes it harder for those who are paying their taxes to continue their lives. Since the majority of tax funds come from the private sector, increased taxes make it harder for families to retain their lifestyles, while simultaneously encouraging them to hide their money in tax-free investments. As families break down under the pressures of taxes and welfare, moral constraints tend to dissolve, mobility and anonymity increase, economic transactions become less traceable and the temptation for concealed and undocumented income grow. High taxes produce rage and demoralization.



The situation is different in a de-centralized government where individualism is rewarded. In this environment, the majority of businesses are privately operated and taxes are lower. Business thrives because taxes are lower and people have more money to spend. How they spend the money depends on the individual who can either buy goods on the market or invest it in business. In a de-centralized government, there is more involvement for the individual which means less control over the masses by the government.



There are extraordinary differences between the two systems of government and the most striking realistic example can be found in post-war Germany. After Hitlers government fell, an arrangement was made between FDR and Stalin to split the country into two parts. The federal system in West Germany pushed market economy principles to their extremes: prices and wages were uncontrolled, foreign trade was free, nationalized industries were returned to private lands, restraints of trade opposed. At the same time, a leaden mantle was being dropped over East Germany. Everything was patterned on the Soviet model. Centralization was absolute.



Were the German people so malleable that a chance political division could transform those on one side of the line into adepts of the most radical kind of decentralization while those on the other accepted absolutely systematic centralism? Unbridled liberalism on the one hand and the strictest planning on the other? If one people, separated into two by the hazard of history, could agree to two opposing systems, wasnt this proof that a given cultural compost could produce utterly different harvests?



Nowhere was the arbitrariness of luck more striking than in that part of Germany called Thuringia. American soldiers had reached there first, in 1945, and had begun to settle in. But at Yalta, a few strokes of Roosevelts and Stalins pens put Thuringia into the Soviet zone. The GIs turned their barracks over to the Red Army, whereupon the Thurnigans were suddenly introduced to the system of state-owned enterprises, the single party, political commissars, watchtowers, an omnipresent portrait of Walter Ulbricht flanked by those of Marx, Engel, Lenin and Stalin. Had the mood at Yalta been different, the same Thuringians would have been wooed for their votes by Christian Democrats, Social Democrats and Free Democrats communing in the spirit of free enterprise and limited power for the state.



But when looked at a little closer, the Germans on one side of the line were not adapting to their system as spontaneously as those on the other. Whereas the West German image was one of total consensus, the East Germans seemed to show an equally widespread dislike of the system theyd been saddled with. To cross into East Berlin, peoples faces were gray, the passers-by listless, employees in the state stores unhappy. In the Western sector, the streets seemed gay, the woman prettier and more chic, the men livelier. Every day, hundreds of young people left the Soviet sector to seek refuge in the West. If asked if they were employed or fed well, the response would be yes but they would lament over their lack of freedom. Less than in Hitlers time? Surprisingly, much less.



West Germany was the society of confidence. In it, the individual, trusted by his society, took confidence in himself. Persons and groups were free to undertake things, to join together, to reach agreements. Sovereign, the citizen only partially and temporarily delegated his power to his leaders, and then under his control; authority emanated from him by a free and renewable act. In a de-centralized government, everyone answers for himself and his actions. The individual adapts himself spontaneously, looks for success only through his own efforts, takes the initiatives circumstances authorize, and transforms an innovative idea into a new reality.



Opposed to a de-centralized society is the society in which mistrust seems dominant. The individual depends on various hierarchies for all the actions of his life. They command him, judge him, and indicate what he must do, because they know better than he where his happiness lays. Authority is exercised from the top down. The leaders character is sacred. The person higher up in the social pyramid always can do, know, live more than the one below him. Thus groups, like individuals, are discouraged from taking initiative. The citizen feels himself surrounded by prohibitions and falls back on routine. He can free himself only through criticism, aggressiveness and sometimes by revolt.



Humanity must ask itself whether it wishes to be free and in control of its destiny or to be under the thumb of a government which grows more distant as it grows larger.



SUPPLY-SIDE CAPITALISM



With the freedom a de-centralized government gives its people comes the opportunity for an individual to pursue his happiness in an open economic market. It is true, money does not buy happiness but it certainly is a means for an individual to feed his or her family and acquire the possessions to feel secure (car, house, etc.) and enjoy life a little more with the comforts of modern technology (TV, stereo, etc.).



Capitalism consists of providing first and getting later. The demand is implicit in the supply. Money bears a presumption of faith and a grant of freedom. Without money all exchanges must be partly predetermined. It is the willingness of man to give (or work) without a specific reward that allows liberty. Money in a planned economy tends to be a deceit or false promise because the purchases are mostly preordained. The ruble in Soviet Russia can be used only for a very limited list of consumer goods in essentially predetermined amounts.



The country can profit best from those who work most, to which monopolistic companies do not contribute much because they have no fear that their trade might be disturbed. The monopolistic Greenland Company made little profit from fishing, as much because of its great expenditures on equipment as because the oil, fat and whalebone were not very well kept and because they were stored in warehouses and not distributed soon enough. Private ship-owners, on the other hand, were more sparing in their equipment, they were wholly diligent in fishing as promptly as possible and making everything pay, deriving profit from everything, seeking new places to sell (their wares) at higher wages.



In a capitalist economy, every worker and businessman knows in the marrow of his bones that his buying power consists of his supplying power, no more, no less. For example, he goes to the store and buys a book, not in essence with money, but with work translated into money. He exchanges his work, his productive services for those of the editors, artists, copy readers, printers, truck drivers, construction workers, who in one way or another were paid for their part in producing the book he just purchased.



Capitalism production entails faith, search and you will find, give and you will be given to, supply creates its own demand. It is this cosmology, this sequential logic that essentially distinguishes the free from the socialist economy. The socialist or centralized economy proceeds from a rational definition of needs or demands to a prescription of planned supplies. In a socialist economy, one does not supply until the demands have already been determined and specified. Rationality rules, and it rules out the awesome uncertainties and commensurate acts of faith that are indispensable to an expanding and innovative system.



Socialism is an insurance policy bought by all the members of a national economy to shield them from risk. The capitalist by giving before he takes, pursues a mode of thinking and acting suitable to uncertainty. The socialist makes a national plan in which existing patterns of need and demand are ascertained, and then businesses are contracted to fulfill them; demand comes first. One system is continually, endlessly performing experiments, testing hypotheses, discovering partial knowledge; the other is assembling data of inputs and outputs and administering the resulting plans.



French economist Jean-Baptiste Say essentially maintains that the sum of the wages, profits and rents paid in manufacturing a good is sufficient to buy it. This does not mean that the same people who make a thing will necessarily buy it, but that they could. The sum of money paid to the factors of production for the making and marketing of an automobile, for example, is precisely enough to purchase it. Therefore, across an entire system, purchasing power and producing power can always balance; there will always be enough wealth in an economy to buy its products. There cannot be a glut of goods caused by inadequate total demand. Producers, collectively, in the course of production, create demand for their goods. This idea is simplistic in many ways, but it bears a number of key economic truths and implication never refuted by Keynes or anyone else. These truths are the foundation of contemporary supply-side theory. The argument against this system is that a person can save more than buy more. However if this were true, economies should stall endlessly by insufficient buying power, stagnant savings, and hoarded funds, all untapped by the magic wand of entrepreneurship. Keynes and others did not fully understand that investment collapsed during the Great Depression not merely because of a decline in spirit, but of many factors. These factors include a collapse of the international trading system as a result of the Smoot-Hawley Tariff Act, a sever contraction of the money supply as a result of bank failures and Central Bank errors, a sharp rise in real interest rates (that is, nominal rates adjusted for inflation), and a series of tax-rate increases.



The essential of Says law is supply creates demand. There can be no such thing as a general glut of goods. There can be a glut of bads, but in the world of necessary scarcity in which the very science of economics finds its meaning, an apparent glut of all goods merely signifies a dearth of creative production, a lack of new supplies and fresh demands. Saving, in fact, signifies a commitment to the future, a psychology of production and growth. Without a flow of new products, the market place can be filled with stale items, produced with ever great efficiency, continually redesigned in trivial ways, repackaged in brighter colors, and marketed with a more expensive and harder sell. Corporations grow chiefly by purchasing proven firms.



Originating in a liberal effort to respond to the popular will and relieve the pressures of poverty, demand-orientated politics ends in promoting unemployment and dependency and creating a less open and accessible economy and a more stratified and hierarchical political order.



The importance of Says Law is its focus on supply, on the catalytic gifts or investments of capital. It leads economists to concern themselves first with the motives and incentives of individual producers, to return from a preoccupation with distribution and demand and concentrate again on the means of production.



Through the progressive tax structure, where varying annual salaries are taxed differently, government revenue tends to come from funds that might otherwise have been invested. But in the US, Washington itself does relatively little productive investment. As the federal budget grows, much of it goes to transfer payments that are spent heavily on the bundle of goods in the rapidly rising consumer price index, from gasoline to hamburgers, and to federal pay and contracts that go to bid up the price of real estate in the District of Columbia. Some money does go to investments in public works of various kinds and in education, but many appropriations are motivated less by their economic and social benefits than by political measures.



Liberal economists say that tax cuts can reduce work effort and tax hikes can increase it. Such theorists believe that people have a target income, or a target level of savings. Keynes believed that during many historic periods land played this role. Since mortgage rates were often higher than the yield of the land in farming, it often could be purchased only by people inexpert in using it, chiefly urban speculators. Other important sinks of purchasing power have been gold, jewelry, art, and collectibles, such as stamps and coins.



The purchase of such goods, the sinking of money into these sumps of wealth, does not itself directly reduce investment, production, or purchasing power. If individual X with an ounce of gold was given six hundred dollars for it by Y, Y has simply transferred his investing or buying power to X; no wealth is lost. The problem arises when throughout an entire economy an ever-increasing number of people choose to spend their money on gold or other sumps of wealth. Then the price of gold will continually rise, absorbing more and more purchasing power. A rising price means that there is a steady increase of buyers or demands over sellers or supplies. The problem becomes worse when the sellers (in this instance X with six hundred dollars) spend it on other relatively non-reproducible objects (land, works of art, historic buildings, or durable consumer luxuries such as Rolls Royces and jewelry) and then the men who profit from these transactions also tend to refrain from creative investment and instead themselves bid up the price of gold and Van Goghs, antiques, old autos, Rembrandts and real estate. The result is a decline in the returns to productive capital and a rise in the profits of collection and speculation. The economy is reoriented away from productive enterprise and toward non-reproductive activities, away from inventions and risks and toward Caribbean resorts and early retirements. The land, the precious metals, the works of art just sit there, growing more valuable for a while, but for the most part contributing little to the welfare of the people or the productive capital of the economy.



Supplies of land and gold are inelastic, they cannot be easily enlarged, but they will always be highly prized. Their scarcity assures their value as population grows. Therefore, seeking safety and salability, people have often put far too much of their wealth into these unproductive forms; and kings and nobles down through the centuries have lived what today would seem impoverished lives amid their stores of gold and jewels and on their vast demesnes



In a de-centralized system like that in the US, political opinion can make the government more centralized. Human government rarely transforms itself from a centralized government to a de-centralized one. Quite often it is the reverse, where the masses feeling insecure elect a government prone to centralize authority and production. This occurred throughout the 1970s, government reward went to the displaced enterprise of bureaucrats. In the hands of the state, the return on capital seemed deceptively higher and surer than in the hands of authentic entrepreneurs, because it was guaranteed by the power of progressive taxation. Over the decade, government steadily acquired most of the characteristics that Keynes listed as signs of a limitless sink of wealth. There is no obvious limit on governmental expansion or forced profitability through taxes, few supply-side constraints on its size, no tendency for demand for government to slop over onto products, and little short-run tendency for government to decline when the economy fails. When people want the Keynesian moon, which he described as liquidity but which is now better seen as security, they turn to Washington and its outland satellites. There is a new Keynesian source of stagnation and poverty in the nations of the West. What politicians are essentially selling the new liquidity is tenure and security, and there seems to be no end to the demand for these services. Yet security, too, like thrift, liquidity, and leisure, has its own paradox of aggregation. Some people can gain exemption from risk, and safety from inflation, by turning to the state. But when a majority does, the security and stability of the nation declines. In a perilous and changing world the best defense against risk is innovation and creativity, research and discovery, competition and enterprise, skilled investmentto defeat the dark forces of time and ignorance which envelop our future. As the enterprising spirit is channeled increasingly into law and other professional schools, and thence into government, its lobbies, consultant groups, and organized clientele the crucial inducement to invest once again sinks below the attractions of other wealth. People without access to the state buy gold and yachts, government bonds and foreign money, or parlay private housing (with its special government protections) into a trillion-dollar sump exceeding in nominal value all the assets of American corporations.



Says law final corollary: subsidized supply destroys demand. Production without a willing market is a form of disguised consumption, and despite its first appearances it does not stimulate an economy. Nonproductive government spending, even when designed to spur demand, actually soon reduces it, regardless of any statistical increase in purchasing power. The artificial stimulus much like any ordinary addiction requires even greater injections to sustain the initial effect.



When government gives welfare, unemployment payments, and public-service jobs in quantities that defer productive work, and when it raises taxes on profitable enterprise to pay for them, demand declines. Buying power does not essentially trickle down as wages, or flow up and away as profits and savings. It originates with productive work at any level. This is the simple and homely first truth about wealth and poverty. Give and you will be given unto. This is the secret not only of riches but also of growth.



This is also the essential insight of supply side economics. Government cannot significantly affect real aggregate demand through policies of taxing and spending taking money from one man giving it to another, whether in government or out. All this shifting of wealth is a zero sum game and the net effect on incomes is usually zero, or even negative. Even a tax cut does not work by a direct impact on total disposable income, since every dollar of resulting deficit must be financed by a dollar of government debt, paid by the purchaser of federal securities out of his own disposable income. Even in the short run real aggregate demand is an effect of production, not of government policy. The only way tax policy can reliably influence real incomes is by changing the incentives of suppliers. By altering the pattern of rewards to favor work over leisure, investment over consumption, and the sources of production over the sumps of wealth, taxable over non-taxable activity, government can directly and powerfully foster the expansion of real demand and income. This is the supply side mandate.



The progressive tax system, with the notion that those with more wealth should reallocate their funds for welfare programs has no basis in a free democracy. It reeks of social redistribution and has no basis in a freethinking society. It is also illogical, those who have wealth will either hide it or spend it as they see fit. With all things considered, the personal income tax structure that seems to be the most efficient is a flat-rate tax on income above an exemption, with income defined very broadly and deductions allowed only for strictly defined expenses of earning income. Abolish the corporate income tax, and with the requirement that corporations be required to attribute their income to stockholders, and that stockholders be required to include sums on their tax returns. The most important other desirable changes are the elimination of percentage depletion on oil and other raw materials, the elimination of tax exemption of interest on state and local securities, the elimination of special treatment of capital gains, the co-ordination of income, estate, and gift taxes, and the elimination of numerous deductions now allowed.



Another socialist failure has been in the development of housing projects. These projects far from improving the housing of the poor, as its proponents expected, public housing has done just the reverse. The number of dwelling units destroyed in the course of erecting public housing projects has been far larger than the number of new dwelling units constructed. But public housing as such has done nothing to reduce the number of persons to be housed. The effect of public housing has therefore been to raise the number of persons per dwelling unit. Some families have probably been better housed than they would otherwise have been those who were fortunate enough to get occupancy of the publicly built units. But this has only made the problem for the rest all the worse, since the average density of all together went up.



Minimum wage is another socialist paradox whose intent is benign but has disastrous results for those it intends to assist. By forcing companies to pay people a certain wage when they cannot afford to do so forces them to look at other countries where the laws arent so stringent. As a result, the jobs are not available for those living in the home country of the company and instead of getting a low salary, those individuals get no salary at all and go on welfare indefinitely. Also a large part of the support for minimum wage laws comes not from disinterested men of good will but from interested parties. For example, northern trade unions and northern firms threatened by southern competition favor minimum wage laws to reduce the competition from the South.



Two things seem clear. First if the objective is to alleviate poverty, we should have a program directed at helping the poor. There is every reason to help the poor man who happens to be a farmer, not because he is a farmer but because he is poor. The program, that is, should be designed to help people as people not as members of particular occupational groups or age groups or wage-rate groups or labor organizations or industries. This is a defect of farm programs, general old-age benefits, minimum-wage laws, pro-union legislation, tariffs, licensing provisions of crafts or professions, and so on in seemingly endless profusion. Second, so far as possible the program should, while operating through the market, not distort the market or impede its functioning. This is a defect of price supports, minimum wage laws, tariffs and the like.



Wealth consists in assets that consist in assets that promise a future stream of income. The flows of oil money do not become an enduring asset of the nation until they can be converted into a stock of remunerative capital-industries, ports, roads, schools, and working skills-that offer a future flow of support when the oil runs out. Four hundred years ago, Spain was rich like Saudi Arabia, swamped by a similar flood of money in the form of silver from the mines of Potosi in its Latin American colonies. But Spain failed to achieve wealth and soon fell back into its previous doldrums, while industry triumphed in apparently poorer parts of Europe.

Page 2