Drifting into fascism

Most people regard governments and their central banks as forces for the good. Financial crises and suchlike are therefore blamed on capitalism, and people believe our leaders do their best to pick up the pieces from market failures, because they are elected to promote the public good.

The reality is very different, with governments acting not in the interests of their electors, but in the interest of the preservation of the administration. And the size of the administration is proportional to its degree of control over the people, so it and its burden on ordinary people just grows and grows with ever-increasing intervention and micro-management.

The logical end-point in the reach of government is either state ownership of all private property, which is communism, or state control over what people do with their property, which is fascism. With communism discredited, the world is moving inexorably towards the latter. Every business is regulated in some way or other, and economic freedom is being progressively restricted with ever-tightening regulations.

From a government’s standpoint, lack of control over private activities equates with risk to the state and its objectives. The more that people are directed in their actions, the more certain the state’s security becomes. We see this in attempts to remove cash-money from circulation, because the use of cash cannot be controlled. It can be used for activities beyond government’s knowledge, it can be used to evade paying taxes, and it can be used to undermine a bank’s solvency. Many people who are financially aware probably thought this was a trend only to be seen in the advanced nations, but it is equally true in emerging economies, as the recent experience in India has dramatically shown.

Unfortunately for Indian nationals, the Indian government’s clumsiness in banning R500 and R1,000 notes is certain to lead to an economic and financial crisis. Looking on the bright side, it might lead to the collapse of the Modi government. If that happens, it may delay the same medicine being dispensed by other governments to nations in a similar state of development and tempted to pursue similar objectives.

An impartial observer is bound to ask, what drove Modi to be so stupid? To understand government motivation in emerging nations, it is important to realise they have become two-speed economies. The first is the modern city, requiring expensive infrastructure. Skyscrapers are shooting up everywhere, international businesses are setting up offices, an elite has been educated and qualified as accountants, lawyers, bankers, and in every skill deployed in city economies in the advanced nations. These welcome developments produce tax revenue for governments, along with expenses. Above all, they fire up a politician’s desire for further development, whether people want it or not. And their focus is turning to private sector activity which is cash-based, unbanked, and untaxed.

Even in cities like Kuala Lumpur, there is a trading underclass in which most of the population participates. Bringing these activities into the statistical and tax network would bolster Malaysia’s GDP and the government’s tax revenue. The same is true of everyone outside the major cities. Indonesia has 250 million people, most of which are unbanked, untaxed, and whose business activities are similarly unrecorded. Word is that Indonesia’s central bank is planning to do away with all cash within five years. The expected gains to the state are obvious, and one can see why politicians will favour the deployment of financial technology, such as mobile banking, to achieve these ends.

Cash is just one aspect of government control over its citizens. Tax is another. According to an Ernst & Young report, few governments “are not investigating the incalculable benefits of digitalising their tax systems”. It includes deploying software that automatically calculates taxes due. Brazil, it seems, is leading the way, with a digital software system that accesses a company’s bank accounts, financial filings, daily invoices and sales slips to calculate taxes which become immediately due. And it’s not just companies, but individuals who are increasingly subjected to this intrusion as well. The result is Brazil’s tax revenue has been increased by some 12.5% annually, without any increase in tax rates.

It appears all countries are going down this digital route. And when anyone objects about the loss of personal freedom, the response is predictable: people must be made to pay their fair share of taxes, and all tax evasion and avoidance must be stopped in the interests of the honest taxpayer. It is essentially the argument that India’s Modi put forward to justify banning the cash notes likely to be used for black market activities that evade taxation. Forget any argument about personal freedom, infringement of personal rights, or the economic benefits of tax competition.

What’s particularly concerning for the individual is the way nations appear to be ganging up together into an unelected unaccountable super-state. Surely, it’s no accident that several unrelated countries are pursuing the same objectives of banning cash, and working on plans to automate tax collection. A vital executive component, which swaps information internationally, is domestic security, with every move an individual makes increasingly tracked by video and number-recognition cameras. Further movement-tracking is through payment systems, including public transport ticketing, and mobile phones. Security tracking has been enhanced and justified because of the requirement to control and bring to justice national nasties, such as child-molesters. We can expect more moves to streamline extradition to complete state monitoring, not just for paedophiles, but for anyone deemed by the state to be worth watching.

We are already used to the state controlling the interest we pay and receive on our money. Banning cash increases the depth of this control, with savings and deposits being taxed through negative interest rates. The super-state’s cabal of central banks coordinates managed interest rate policies, either by liaising directly, or through the forum of the Bank for International Settlements. Quantitative easing, the direct control of bond prices through central bank purchases, reduces the risk that the market will challenge central bank policies, at least for the short-term.

The western world is further down the road to national socialism than people realise, and because the journey has been so subtle, it has happened with minimal civil disturbance. Ex-communists and Marxian socialists now fully endorse fascism without realising it. It is ironic that the world fought a war seventy years ago against fascism, yet we are all sleep-walking into implementing the same ideology. But we cannot say there is a deliberate fascist plan at the highest levels. More likely, government politicians and functionaries are unaware that their mostly honest attempts to protect us from real and imagined threats amount ultimately to the same thing.

Eventually, governments will destroy themselves following these political and economic policies, because the states and their experts delude themselves that they understand economics. They do not wish to understand the reasons why markets free of government interference lead to prosperity, and why government micro-management always ends in tears. Consequently, they do not see the risk to statist domination, because it comes not from private individuals, but from the states themselves. Banning cash will almost certainly speed up the decline of an electronic currency’s purchasing power, because its public rejection has the potential to become instantaneous.

Just watch how the cashless rupee behaves. Compare the potential for price inflation in a cashless economy with the Weimar or Zimbabwe inflations, when cash generally had to be obtained before it was spent. Rudolf Havenstein, President of the Reichsbank in the early-1920s, had the printing-presses working twenty-four hours a day churning out currency notes to meet an escalating cash shortage. Today, not only is access to money instant, but it is to credit as well. Currency collapse could be the greatest threat to planned national socialism. During a currency collapse a state’s liabilities will rise along with everyone else’s. The growing demand to fund escalating state liabilities simply destroys the wealth upon which future tax revenue relies. A prosperous economy is one where individuals keep and invest their wealth productively, as all experience has shown. Perhaps Donald Trump understands this, but can he stand up to the forces that will be arraigned against him?

We have learned from Brexit that any gain the people make against statist plans will be temporary, because the establishment merely replaced David Cameron as Prime Minister with a former Home Secretary, who has overseen the greatest loss of personal freedom in Britain to date. Apart from the Brexit debate, it is business as usual, with a British government continuing to tighten its control over use of cash, coordination of information to enhance tax collection, and the removal of privacy over personal affairs.

In Euroland, there will doubtless be economic and financial disintegration, and maybe the destruction of the euro, to be replaced by the original currencies, many of which will destroy themselves even faster. By rebelling against the status quo, ordinary Italians, French, Spanish and Dutch electors will merely intensify pressure for state control, as the politicians defend their rock-solid belief that the European Union must survive all challenges, even if ordinary people become impoverished in the process.

It is, however, no less than what would have happened eventually if the fascists had not lost the Second World War.

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