Our Current Economic Crisis

I have been reading, studying, and thinking alot about the economy lately. My daughter is having to read a book entitled Whatever Happened to Penny Candy? for her high school economics course and the wife and I have been reading it also. Like all economics books, it is not perfect. But, especially the first several chapters are very good, and should be required reading for every single person in America (that is if I were the dictator type - but I guess the fairness doctrine would insist that everyone also read Keynes or Marx or something).

I have also been re-skimming Honest Money by Dr. Gary North, and What Has the Government Done to Our Money by the late Professor Murray Rothbard. If you get a chance, you need to read any or all of these.

Yesterday while out and about, I stumbled on a radio program which featured a guest named Thomas Woods. His insight into the situation was fascinating. A brief article about his book can be found here: http://www.pointofview.net/site/News2?page=NewsArticle&id=8531

Woods main argument, one that is echoed in the works of Rothbard and others, is that an unfettered free market is NOT the cause of the problems we are facing, and government intervention of one form or the other is NOT the solution. In fact, the exact inverse is true.

The current situation, like that of the Great Depression of the 1930s, has been caused by irresponsible governmental monetary policy.

The books mentioned above make this claim as well. In reading my version of Penny Candy which was dated 2005, I was fascinated by the relevance to the current situation. The author demonstrates how throughout history, governments have turned to the same currency devaluing schemes to try to continue to prop themselves up, ultimately leading to their inevitable downfall, and the downfall of the society they were suppose to be protecting. The same thing is happening now at a terribly alarming rate.

Money is simply a medium of exchange. Nothing more. Nothing less. The natural state of things has always led in civilized society to the use of precious metals ( hereafter referred to as PMs), specifically gold and silver, as this medium of exchange. The reasons for this are many. PMs have real value in and of themselves. They can be broken down into usable quantities (from large bullion to small coins). The amount of them available in society can not be quickly, nor infinitely increased. In short, they provide value, ease of use, and stability.

Monetary units (such as dollars) are simply known quantities of some precious metals. By definition, a dollar was the equivalent of one ounce of silver. (The British Pound Sterling was just that - a pound of sterling silver). At the time of the formation of the U. S. Constitution, gold was considered to have roughly twenty times the value of silver - hence a 'dollar' was also one twentieth an ounce of gold, or an ounce of gold was twenty dollars. That is, the value of gold or silver did not fluctuate in terms of dollars, but the value of a dollar would fluctuate if the value of gold or silver fluctuated. Things were essentially this way for the better part of 150 years. If you had a dollar, that meant you had an ounce of silver or a twentieth of an ounce of gold. If silver or gold for some reason increased or decreased in value, your purchasing power increased or decreased with it. However, due to the nature of things, rapid or large fluctations in the value of precious metals rarely occur.

In times past, such as during the late stages of the Roman Empire, governments would devalue the currency by 'clipping' the coins. That is, they would collect coins (through taxation or whatever means), shave off portions of the gold or silver, then mint new coins with the shavings. A coin that was say one ounce, may then be 0.9 ounce, but, have the same 'face value' even though the real value had diminished. Also, there were now more coins made from the same amount of PM.

Now suppose you were a Roman merchant who was selling an item for an amount equal to nine ounces of PM. Previously, you collected nine 1 ounce coins. Now, to obtain the same quantity, you needed ten 0.9 ounce coins. (Obviously, I am simplifying here). The result? There are more coins (therefore, supposedly more 'money' available for exchange) in the market, but prices have gone up. That is, the currency has been devalued. Prices have risen. People may seemingly have more 'money' in their pocket, but, their purchasing power has not improved. This is inflation.

Please note, inflation is not a rising of prices. The rising of prices is a result of inflation. Inflation is the devaluing of the currency.

Over the centuries other innovations have made this practice more convenient for the government devaluers (counterfeiters) to ply their trade. The most useful innovation has been the introduction of paper money.

Paper money began as what could be termed bank notes. Someone may not want to store their reserves of PM in their own home. Businesses which were essentially warehouses for PMs developed. One could deposit his PM in the warehouse, and the warehouse would issue him a paper receipt or receipts. Suppose I deposited 25 ounces of gold and 100 ounces of silver in the warehouse. I get receipts stating that I have this (maybe I get twenty five receipts each worth one ounce of gold, and 100 receipts each worth one ounce of silver). Now, I do not carry all this gold and silver around with me, but I can redeem any or all of my receipts whenever I desire. If I buy an item priced at one silver ounce, I could trade my receipt for it. Now, the merchant I traded with can redeem that receipt upon demand and receive the actual silver. (Likely, the warehouse (bank) would charge some type of holding and processing fee for this service.)

Now, these banks began to get creative. They determined that rarely if ever did they have a run on all deposits. At any time, they had the overwhelming majority of deposits on hand. Therefore, they began 'loaning' some of the reserves that they had. This is called Fractional Reserve Banking. So, just using my deposits for example. I may come in and out occasionally and deposit more, or withdraw some, but on the whole, my balance is staying somewhere near what I originally deposited. The bank may then write out another receipt against my deposit and give it to another individual as a loan that must be repaid. So, now for my one deposit, there are two sets of receipts in circulation. The borrower then goes and somehow invests this, trying to make a return. He may go turn his certificate over to a merchant who sells him some equipment that he uses to provide a good or service to make more money. If he makes a return, he pays back the borrowed credit, with interest. The bank has made money. As long as I, and the others who are now holding certificates against my deposits do not demand our PMs at the same time, the bank is safe. However, obviously, the larger the overlending verses the amount actually on reserve, the larger the risk the banker is taking. Also, the riskier the investment, the more risk of the bank failing.

Fractional reserve banking has caused some problems during economically troubled times in the past. In fact, it has actually caused some of the economic problems themselves. For one, this has inflated the currency (If the banker 'loans out' receipts equal to my original deposit, he has essentially doubled the currency in circulation, thereby lowering its value, much like the coin clippers of old)

During much of the 19th century, American politicians struggled with these issues. On the one hand were the bankers, licking their chops to use fractional reserve banking, along with the politicians they backed to help foster the system. On the other hand, were more economically conservative politicians who fought against this system.

Finally, in 1913, perhaps the greatest debacle in the history of American economics occured. The Federal Reserve system went into effect. Since that time, they have continued along a path that has gone further and further in the direction of currency devaluation.

The climax of this has been to utimately remove all ties from our paper money to any PM, along with the passage of 'legal tender' laws. Not too many years ago, your paper money had a noted on it saying it could be redeemed for 'real money' (i.e. silver or gold). That is no longer the case. Now, it is simply a note that we are forced by law to accept as legal tender for all debts. In reality it is nothing but a worthless piece of paper. (And nowadays, often it is not even that, but is simply an electronic blip on a computer program). You could have piles and piles of hundred dollar bills, and they are absolutely worthless in and of themselves (unlike silver or gold) and the ONLY reason they have value is because the government by law forces everyone to accept them as tender.

So, now the 'value' of a dollar is not tied to PMs. It therefore can fluctuate tremendously. As stated previously, one of the major reasons why PMs became used as a medium of exchange is because they could not be quickly and easily devalued by a sudden large influx. (It is not impossible that this could happen, as it happened in Spain when they obtained huge amounts of gold from the Americas during the 16th century - another story for another post at another time!) However, it can not easily and frequently happen.

However, when paper that is printed solely at the governments discretion and is forced to be used as legal tender is the only allowable legal tender, the government can inflate the currency at will. A huge influx of this so called money into the economy does not add one whitt of wealth to the economy, but only devalues the currency.

Our wealth as a nation is the sum total of all our productivity. In reality, money is only a medium of exchange for that productivity. If suddenly the government prints one trillion dollars and injects that into the economy, it has not increased our wealth one iota. All it has done is make the buying power of each unit (dollar) that much less. This can cause widespread destruction.

Suppose you are 70 years old, have worked hard all your life, have saved, invested, and smartly handled your money and you now have a net value of one million dollars. Sounds like a lot of money, doesn't it? However, if the government suddenly prints and circulates trillions of dollars into the economy, now your one million dollars is worth a fraction of what it once was. All your hard work and intelligence just went down the drain. This is happening to millions of Americans right now.

Well, in our current hard financial situation (which has been caused by the very monetary policies we are talking about) the Messiah's, uh, I mean the President's plan for fixing it is to inject tons of money into the economy. See how utterly senseless this is?

Not one person in a hundred understands this. The average Joe, while possibly thinking something might be amiss in what is going on, at least on some level thinks that injecting money to 'jump start' the economy is a good thing.

In actuality, it is a travesty - and one we will be suffering from for a long time to come.

This inflationary monetary policy is actually harmful in many many more ways than I can even begin to talk about here. This policy, and not the unfettered free market, causes the business 'boom and bust' cycles we have seen throughout our history. We have just come out of a long 'boom' and are now going into a huge 'bust.' The best that our current policy of stimulous can do is to continue to artifically lengthen the aritificial 'boom' and forestall the inevitable 'bust,' while making the eventual 'bust' just that much more severe. I fear we are near a breaking point where no matter what happens, soon the 'bust' will be irreversable - perhaps leading to a total cultural meltdown. The only way to fully and finally recover is to allow the 'bust' to run its course - as painful as that may be, then to restore a sound monetary policy in its wake.

Austrian economists (see the Woods link above, or that of the Mises Institute or Lew Rockwell Report to the right) have been saying this for years, only to be labeled lunatics. However, I think it is undeniable that the only solution to this situation is to somehow someway get back on some sort of Precious Metal ("honest money") monetary system with little or no government intervention.

Further Thoughts on the Upcoming Election

The closer we get to the election, the more uncertain I become of which way to go.

In brief, here is my delimma:

I absolutely do not like and can not support Obama/Biden. They clearly represent everything I am against, and are against everything I represent.

I do not care much at all for McCain. I am not real sure what it is he does represent. I don't care for his personality, such as it is. On a great variety of issues I see no huge difference between him and Obam/Biden.

I am very intrigued by Sarah Palin.

On the whole from what I know, Chuck Baldwin of the Constitution Party would be far closer to what I would feel comfortable supporting (though he/they are not perfect). But, he has exactly zero chance of winning the election.

The struggle is this - is the addition of Palin enough to make me vote for the Republican ticket?

Palin has in her favor in my mind several things which the liberals scoff at her for:

1. She is a biblical literalist (I do not know exactly what her interpretive principles are and if they are the same as mine, but just the fact that she accepts the Bible as God's inerrant word to be taken seriously is good for me) I know a great many would question what in the world this has to do with being a national leader, but I would say it has plenty. She also has the guts (if she were a man, I would possible use another bodily reference) to state this publically and stand by it. This colors a lot of her other views in a positive light, some of which I'll mention here.

2. She is VERY pro-life. Not kinda sorta in a politically correct way when it is convenient, but solidly staunchly biblically pro-life as best I can tell. She also lives consistently with this, giving birth to a Downs Syndrome child and having her daughter carry her pregnancy through. It is not as if she says one thing then acts another way.

3. She has pursued action in Alaska consistent with not pushing the gay agenda - including wanting to rid the schools of pro-gay readings.

4. Most consistently, she has publically stated her belief in the literal reading of Genesis - meaning God created the world in six days not so very long ago. Adam and Eve were real people, etc. I recently read a liberal columnists which used this as reason enough to be scared silly of her. She must just be stoopid to believe that fairy tale, ya know!

These things makes me tend to want to have huge respect for her. Maybe even God is using this time of wimpy men to raise up another Deborah, as Douglas Wilson pointed out. (Deborah had to deal with a wimpy leader named, of all things, Barak!)

However, I do have a few reservations about making her VP, and with a certain turn of events, eventually President.

1. This may sound silly, but the fact that she is sided with John McCain makes me uncomfortable. I know Joseph had to work for the Pharoah. I know Daniel had to work with the leaders of his day. But, these great Godly leaders did not have to politically bow to the leadership direction they served under. Quite the opposite, Joseph and Daniel rose to the top by staying faithful to God even when it was unpopular, even dangerous. I have know idea what the level of faith of John McCain is, but some of his positions are not what I believe someone who understands biblical government, our constitution, and the relation between the two would be. The political reality of our day is that a VP has to be almost an exact echo of the Pres. How far is Palin willing to compromise? Or is that even a compromise for her? Is she politically comfortable with McCain?

2. A specific example was displayed to me in an interview I recently heard. I believe it was Sean Hannity who repeatedly asked her what was the problem with the economy, and what was the solution. Her consistent answer was that THE cause of our current economic woes was corruption on Wall Street and that THE solution was more government in the form of regulation. Now, I do not at all deny that there is some corruption on Wall Street. Only an imbecile, and Ayn Rand would. And I do not even deny that the government has a legitimate role to play in dealing with corruption (its job being to administer justice). However, the totality of our current economic problems is really a long and complex result of over one hundred and forty years of bad economic policy and too much government. There are so so many other things she could have more accurately stated as being major causes of our current economic woes and so many other directions she could have taken to point the way out. But, instead, she says that THE problem is Wall Street corruption and THE solution is more government. She even mocked the idea of 'self regulation' stating that it was actually 'no regulation.' My question to this is always then, who regulates the regulaters? At some point somewhere, someone is 'self regulated.' For all the dangers associated with the money of Wall Street, I feel much better with them being 'self regulated' than with the government empowered regulaters being 'self regulated.'

All this fits in nicely with McCain's own direction. He brags that while he is a Republican (presumably pro-big money interest) he has attacked Wall Street, Big Oil, Big Tobacco, Big Money Campaign Financing, etc. If McCain is a "Maverick" it is because in what little difference there is in the actual direction of the Republican and Democratic parties, there are some issues in which his rhetoric is that of Democrats instead of Republicans.

So, in the end, I am uncertain if I can swallow all of this and vote for McCain/Palin or if I should cast a protest vote.

Any help would be appreciated!

A couple of Political Vids

Just for your general interest.

http://www.youtube.com/watch?v=VtxRU2QXJ8Q&NR=1

http://www.youtube.com/watch?v=trqB6p02Kek&feature=related

Youtube

I like youtube...for the most part. A while back, I linked a bunch of youtube vids to this blog - found over to the right. However, since then, I have gone back and looked and a lot of my linked vids are no longer available on youtube. This is mostly due to copyright lawsuits.

If you read my economic posts, you will probably figure out that I am basically in agreement with this. Say a movie company makes a movie. Someone - the movie company, the actors, etc. actually 'own' the product. Not just anyone can then 'broadcast' this product. The production company has invested its money, as well as the time and talents of its workforce in the production. The actors have invested their time and talents. These are the people who whould reap the financial reward, if any, from the viewing of the product. They have taken the risk of their time and money - they get any reward. They - someone in this chain anyway - own the rights to broadcast the piece when and where they choose.

Now, if someone, without permission, 'broadcasts' snippets from the movie on a site like Youtube, they are doing something they have no legal right to do. I guess I also have no legal right, therefore, to link to the youtube post so that my millions and millions of readers can see the snippet. Often then, when someone posts a two minute segment they find funny or meaningful on Youtube, sooner or later the owners of the piece file against youtube and have it removed. All well and good. Philosophically I do not have a problem with their petitioning at all.

However, I tend to think it possibly a bit unwise. Watching a two minute segment on Youtube will not prevent anyone from spending the money on the product. It might actually encourage it. Watch a two or three minute segment and think its funny and you might actually go rent the movie. You might even come across a movie you were unfamiliar with before, then go watch it. Actually, rather than gripe to Youtube to have the snippets of their work removed, the production companies need to right Youtube a thank you letter. Really, what it is, is FREE ADVERTISING! Then, when I link it to MY blog, its even more free advertising. You, my loyal millions of readers, might actually go rent a movie, or by a CD, or something because of a link on my blog. Why do you think every small time rock band or filmmaker in the world posts their work for free on Youtube or other web based sites? It gives them a chance at a sale!! Just see my own kids stuff on there!

At any rate, I just removed about half the links I had to Youtube because they were no longer available. Bummer. You guys, the millions of followers of the Groaning Philosopher are the real losers in all this!!

Reading List

This post is a continuation of the previous post below. There, I talked about the lack of knowledge of the general population in the area of economics. I ended by stating that I would continue with a brief reading list. Before perusing this list, you may want to read the previous post to get an idea of where I am coming from.

I do have a few of caveats concerning this list: 1) This list is not to suggest that any and every thing said by each of these is absolutely without error – this is not a wholesale endorsement of any or every of these writers and their work 2) some of these writers are Christian of one stripe or the other, and some are not. Ultimately, I do believe that real truth is only to be found in God, its author. Therefore, real truth on earth can only be ascertained by those who faithfully believe in Him. However, this does not mean that unbelievers are not capable of getting glimpses of this truth or teaching it to others. An absolute atheist may be able to calculate the distance between the earth and sun, but have no comprehension of the maker of the earth and sun. 3) I have not myself read all of these. In fact, there are a great many that I have not. However, I am familiar enough with most of the authors to comment. I will try to comment on these issues where appropriate.

Henry Hazlitt

The first place that I send every person I can to get an overall, simple, easy to read explanation is to a book entitled Economics in One Lesson by Henry Hazlitt. (I have absolutely no idea what his religious views, if any, were) This is a relatively short work made up of numerous, relatively short and easy to understand essays on a variety of topics including some of those listed above (minimum wage laws, etc.) His "one lesson" is essentially what I have written about in the previous post, but in his words it is stated thusly: "From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists of looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

He then goes on to do just that, tracing the consequences of various policies and ideas for all groups. I can not recommend this work highly enough. If you never read another work on economics in your life, please read this one.

Clarence Carson

Another writer who is not known to the major portion of the general populace, but who is worth seeking out is Dr. Clarence B. Carson. Dr. Carson was from small town rural Alabama, received an education from Auburn University and Vanderbilt University, taught at both high school and college level, and wrote numerous books and countless articles. His main area of study was history. However, in this he developed an interest and aptitude in economics. Dr. Carson’s most important contribution to this field was, in my opinion, his book The War on the Poor. This book was written in the late 1960s during the peak of President Johnson’s "Great Society" program. Carson demonstrated, both theoretically and with empirical evidence, that all these programs aimed supposedly at helping the poorer people actually causes them harm. (Again, this is Hazlitt’s ‘one lesson’ of economics.) Thus, the so called "war on poverty" of LBJ was actually a "war on the poor." This work is mostly unknown and overlooked. I think it should be essential reading in our classrooms today. Dr. Carson also wrote a book entitled Basic Economics. This is more an overall view of economic thought with the various economic theories explained. I do believe Dr. Carson was a man of faith, though I am uncertain his denominational affiliation.

Gary North

Dr. Gary North is a controversial figure for numerous reasons. I will very briefly mention them here, but without any personal bias. Dr. North is a very conservative Christian with ties to certain minority wings within the reformed Christian right. This alone, of course, makes him at the very least a little suspect to those anywhere to the left of Jerry Falwell. However, the biggest problem within the circles he has run in seems to be in-fighting. All points theological and otherwise are firmly marked out and anyone within those circles who steps outside the lines then becomes outcast, or makes the others outside their own lines out to be the outcast. North has probably been on both sides of the "I’m the real reformed Christian" arguments.

As an example, North had strong ties with Dr. R. J. Rushdoony - probably the most important man in the circles in which he runs. He even became Dr. Rushdoony’s son in law. However, North and Rushdoony eventually had a falling out from which they apparently still had not mended at the time of Rushdoony’s death a few years back.

Dr. North is also noted for his sensationalism which is sometimes a bit over the top. He was one of the louder voices forecasting the Y2K disaster. He even personally staked his own professional reputation on his being right about the pending doom stating essentially that if he was wrong about it then no one should ever listen to anything he had to say again. Many of his followers spent tons of money preparing for the disaster. Of course he turned out to be wrong. Of course he keeps on opining on a variety of topics and of course a large contingent of his followers were unswayed by his inaccuracy.

Although I have never met nor spoken to the man, I know several who have had direct contact with him. My understanding is that there can be a lack of Christian love, humility and charity in his personality.

All the above is simply expanding on my caveats that I started with. I know Dr. North is a Christian and I do not question the sincerity or orthodoxy of his faith for one minute. However, I would be very uncomfortable totally aligning myself with his name.

That said, Dr. North has done a tremendous amount of work in the area of Biblical economics (which seems to be his area of special expertise.) If we ignore him because of the above stated reasons we may be missing out on some thoughtful insight. Some of Dr. North’s books include his being publisher of a series of books called Biblical Blueprints. In addition to being the publisher, he was the author of several of the volumes. Pertinent titles in this series include Inherit the Earth: Biblical Principals in Economics; Honest Money:Biblical Principals of Money and Banking; In the Shadow of Plenty; Biblical Principals of Welfare and Poverty (Written by George Grant). In addition to this series, Dr. North has written An Introduction to Christian Economics and Coined Freedom: Gold in the Age of the Bureaucrats. Finally, Dr. North’s lifelong project has been to produce an economic commentary on every book of the Bible. This is a very ambitious project and will likely not be completed. However, he has produced several such commentaries. Dr. North also writes numerous newsletters and has various websites he either runs or contributes to.

I have read several of his works and find them to be solid in the area of economics and would recommend them. This is not a wholesale endorsement of everything he has ever said, nor even of the theories of economics laid out in these books. However as part of forming an overall understanding of economics from a Christian perspective, Dr. North is very valuable.

I would absolutely recommend Honest Money as being almost as indispensable as Hazlitt’s work.

David Chilton

David Chilton was a theological writer who produced one of the greatest comentaries on the book of Revelation ever written. He was also for a time closely associated with Dr. North. (I think they ended in a theological squabble.) While he was working with Dr. North, Chilton produced a book entitled Productive Christians in an Age of Guilt Manipulators. This book was a biting, somewhat sarcastic response to a book published previously by Ronald Sider entitled Rich Christians in and Age of Hunger. Sider’s thesis was that it is a disgrace that there are Christians (mostly American) who are rich while the world is full of poverty. His solution, of course, was government programs. He attempted to use scripture to justify this position stating that God is always on the side of the poor and against the rich. Chilton demolishes this thesis biblically.

Because of his sometimes caustic wit, this book is often looked down upon as negative. However, if one can read through the biting humor, one can learn quite a bit about biblical economics here. Chilton’s book is not anti-poor, nor anti-charity. It is anti-forced governmental solutions to these problems. If you are somewhat sympathetic to his views, this will be one of the most entertaining books on economics you will ever read. If you are not sympathetic to his views, I would not recommend reading this until you have had a full cardiac exam.

Ludwig von Mises

Mises was, as far as I know, not a Christian. I am not even sure I understand exactly where he is coming from. Mises did not necessarily see some form of moral correctness or superiority of the free market, honest money system. He simply saw very clearly that the outcomes of this system were always superior to the outcomes of any form of planned or managed economy. On the one hand, therefore, he wrote from an empirical standpoint. We can study the theories behind the various economic systems and come to definite conclusions. We can then study these systems in practice and see these outcomes.

On the other hand, Mises was, correctly I believe, doubtful of the ability of the economist’s ability to empirically study a specific effect of a specific economic activity. That is because unlike with the physical sciences, economic factors can not be isolated in a laboratory type setting. We can not, for instance, hold all things constant while varying minimum wage, then measure the effects of the minimum wage. This is impossible. The economy is dynamic, not static. The whole economy is constantly changing. How can we therefore, amidst all this change, measure the effects of minimum wage? However, minimum wage can be shown very definitely in theory to have a negative impact. We can look at the overall economic policy of a nation and determine if it is sound or not theoretically. We can then look and see if our predicted effects are generally coming about in the economy.

The system of economics that Mises is associated with is called the Austrian School of Economics. This line of thought is not necessarily religious. However, the economic theories on paper are quite similar to what some see as the biblical system of economics (sound money, limited government intervention, etc) Because of this, Mises and his crowd were known to at least cross paths with Rushdoony, North, and their crowd.

Mises wrote tremendous volumes. I mentioned several of them previously. Human Action, The Anti-Capitalistic Mentality; Socialism; The Theory of Money and Credit are among his most widely read works. Much can be learned about Mises and the Austrian School from the Ludwig von Mises Institute located in Auburn, Alabama. They also have a website. It may be worth researching.

Murray Rothbard

Rothbard was a student of Mises. He was not a Christian, though apparently he had a great deal of respect for the Christian tradition of the West. Of interest are his book America’s Great Depression and his magnum opus Man, Economy, and State. He wrote many others as well as countless articles and essays.

His America’s Great Depression absolutely demolishes the myth that the depression was caused by the free market and that the nation was rescued by government intervention. The actual truth is that the depression was caused by government intervention, made longer and deeper by further government intervention, then masked by yet further government intervention which continues to this day.

Other writers who may be of varying interests include Dr. George Grant, Thomas Sowell, Llewellyn Rockwell and others. Do some internet searches. Also, the standard historical read for economics students would be Adam Smith’s The Wealth of Nations (1776).

Generally speaking then, I would recommend the following:

Start with Hazlitt to get a simple, easy to read, easy to understand introduction into general economic thought. Next read Carson’s Basic Economics to get a broader, overall view of the study of economics, followed by his The War on the Poor. From there, if you are still interested, read some of North, et al Biblical Blueprints series, at least the ones that are economic in nature. Particularly Honest Money is a must. From there, go where you may, including possibly some of the others listed above, or others I have not listed.

The Dismal State of Economic Knowledge

I guess about half of what I have posted on here is about how I do not have time to post!!! Unfortunately, I don’t. I have attempted start regular posts on a variety of topics (music, etc.) but have been unable to do anything regular at all. So, I’ll just give up any pretense at regular posting, and just come and go as I can!

The one thing that the nation needs is a religious revival. Every area of life is corrupted by sin, and can only be redeemed by true religion. It has happened before, both on this continent and abroad. It can happen again. If it does, we can expect to see every area of life show signs of redemption. If it doesn’t….well….I’m afraid to speculate.

Religion, faith, God, etc. encompass every single area of life. One area of life that definitely needs redeeming right now is education. Specifically, I am thinking of the level of knowledge and understanding by the general public of economic issues.

In a way, economics is like religion. That is because, like religion, it is universal. That is, economics covers every area of life as well. Every thing you do or do not do, every decision you make, all things in all areas of your life are really ‘economic.’ And since they are done under the One True and Living God who created and governs all things, they are all ‘religious.’ It might seem that if religion is all encompassing, and economics is all encompassing, then either 1) religion and economics are the same thing or 2) religion and economics are competing things. However, this is not necessarily so. To perhaps misuse the amended rules in Orwell’s Animal Farm that stated that while all animals are equal, some are more equal than others, we can argue that while religion and economics are both universal, religion is more universal than economics. Economics is ‘universal’ in that every thing you do is economic or has economic ramifications. However, it does not get to the heart of the meaning and purpose in life – not to mention life’s origins and conclusions. Religion is more broadly universal. But, in relation to our day to day life, what we see, do, act upon, etc. economics can and should be considered universal.

The idea that economics, properly viewed, is in this sense universal, was apparently the view of Ludwig von Mises, one of the leading economists of the twentieth century. While he wrote voluminously on the topic, with such book titles as The Theory of Money and Credit, Socialism, The Anti-Capitalistic Mentality, etc., his most famous work is his overall thesis on economics entitled Human Action. What is economics? Broadly speaking, the study of economics can be defined as the study of human action. Broadly speaking, then, using the term "the economy" is simply a way of speaking about the totality of all human activity. When we say that America’s economy is strong, what we are saying is that by and large, the people’s use of their time and talents is being utilized in a way that is generally beneficial to all. (there are always exceptions, of course) When we say that America’s economy is weak or struggling, we are really saying that people’s use of their time and talents is not being efficiently harnessed for the good of all. This may be for any number of reasons. However, I do believe that if our citizens had a better overall understanding of economics, then by necessity our economy would tend to be strong, rather than struggling.

I know when you think of the word ‘economics’ the first word that pops into your head is ‘money.’ Even Mises of Human Action fame, also wrote, as we said, The Theory of Money and Credit. But, ask yourself, what is money? The answer is that money is really only a medium of exchange. Money facilitates ‘human action.’ It is nothing more, and nothing less. Money is one of the means utilized by humans to allow themselves the most productive use of their time and talents, by dividing their time and talents into usable portions (e.g. dollars) to be traded to others for useful portions of their time and talents.

While every single thing we do is economic, the level of understanding of economics in twenty-first century America is disgraceful. I can not think of a topic that more people know less about than economics, while at the same time people think they know a lot about it. Yet, (other than religion) it is the most widely relevant subject there is.

It is at least partly because of this abysmal understanding of economics that our nation’s ‘economy’ is going in the tank. People do not understand the basic principle of what money is, where it comes from, and how it operates. They do not understand that as far as humans can control such outcomes (which is only so far), as a general rule those who have the most money are the ones who have the most talent and energy, or have used their level of talent and energy in the most useful and productive ways.

They also do not understand (and this is vitally important) that activity by the government, aimed at supposedly improving the ‘economy’, have never and can never actually work. Two caveats are due here. First, the economic interests and security of a people is aided by government when government sticks to what it is suppose to do. Therefore, the preceding comment is not to be taken as a call to anarchy. Property and liberty are at great jeopardy when there is no government. In fact, protecting life, liberty, and property (or even more broadly, the pursuit of happiness) is in fact the very purpose of government. When government does this, and only this, a nation can prosper. It is when government oversteps its boundary lines and tries to do all sorts of things above and beyond this, even including ‘spurring the economy,’ that real actual harm is done to the economic interests of the nation.

The second caveat is that often times what government does ‘for’ the economy does have an immediately obvious and observable positive impact. However, this is usually discriminatory (it ‘benefits’ one group of people at the expense of others), and is always temporary. The end result is always that more harm is done to the whole of society than could ever be justified by the temporary gain by a few. In the long run too, it is usually the early ‘beneficiaries’ who ultimately are harmed the most. And of course, this is usually the poorer among us.

To consider some examples of the above think of government action such as welfare payments, minimum wage laws, rent controls, price controls, public works projects, work week regulations, tariffs to protect industry, pro union legislation, windfall profits tax, and on and on. These are all economic intrusions by the government, are all aimed either at helping the lower classes or conversely ‘soaking’ the rich. They all can have immediate, obvious benefits to some group (I make $5 an hour and the government magically makes $7 an hour the legal ‘minimum’ wage – I get a $2 an hour, or $4160 per year raise – great, right???). However, all of these intrusions in the end are impossible to accomplish, hurt the overall economic system of the nation, and in the end, hurt the very people they intended to help. (Consider the worker who got laid off because he was only worth $5 an hour to his company and not $7)

What inevitably happens though, and this is why I believe our economy is possibly on the brink of disaster, is that our leaders pass such laws as these and more; they may or may not have a temporary, limited positive impact; then the longer term, wider impact is negative – economic indicators grow worse. The response of our leaders is always the same. It is not to repeal the damaging laws. Instead it is to pass yet more of the same. This does two things. First, it may (or may not) ‘spur’ the economy, or some portion thereof temporarily. Secondly, though, it makes the situation even more precarious. Economic indicators eventually take a down turn again, and the government responds with more of the same.

The long term impact of this is that of visibly perceived wealth and greatness of a nation, propped up on a horribly shoddy foundation. To use religiously charged language, it is a house built upon the sand. You know what happens to such houses? Eventually they fall, and "great is that fall."

In essence our economy is stacked up on phony money generated by phony government action. To put it in individual terms that are easy to understand, consider that you or I could live an apparently wonderful prosperous life if we had several credit cards with no or very high limits. We could spend and spend. We could also finance fancy cars and large homes, high class vacations, etc. To all the world we look rich. But one day, citi and Capital One will come calling, as will the auto financiers and the mortgage company. If we live like that there are only three possible outcomes: 1) we fall and fall hard 2) we repent of our economic sin, tighten our belt, sell off what we can and pay down our debts and begin living responsibly if it is not too late or 3) we get lucky and die before the fall, leaving it to our children and grandchildren to pick up the pieces.

Our politicians and their in-house economists are banking on number three. One of the leading economists of the last century even admitted it. When asked about the long term effects of his economic plans, John Maynard Keynes stated, "In the long run, we are all dead." That is the type of people who are planning and running our economy.

In summary, I believe our nation needs first and foremost a religious revival. Secondly, and on the heels of this revival, we need a revival of knowledge and understanding – especially in the universal area of human action known as economics. Until this happens, we will continue to get more of the same and this skyscraper built on sand will eventually fall.

To perhaps prime the pump a bit, the following post will contain a few suggested readings.

In praise of Ebay

You gotta love Ebay! I'm learning to. Been selling off miscellaneous junk around the house. I am currently selling much of my mother's treasures for her (at a commision of course!) In a couple of months, I have sold about $2K worth. I haven't even scratched the surface of mother's collection. I can't wait to see what happens.

I hear about 75 million people visit ebay's site daily. 75 MILLION!!!! What a market! Sure, I could place a classified ad in the paper - spend a lot of money and have maybe a handful of people see it.

Or, for about a nickel, I can place an 'ad' in my own store and be exposed to millions all over the world. What a great concept.

I am sure it is only a matter of time before our wonderful government intervenes and ruins it for us all like it always does. But, in the meantime, if you need glassware, antiques, or anything, stop by my store!!!!

The Vacation Property Scam

On an earlier post I wrote about the dangers of multi-level marketing (MLM). I actually have a planned follow-up to that post which chronicles further experiences I have had with the MLM "pod people" as I have heard them called. However, one of the main points of that post was that you should always be leery of any "opportunity" in which you are promised great things, but in which direct answers to pertinent questions are not given. I would like to discuss briefly another scheme that is out there that you may or may not have been exposed to, and which you may have even fallen victim to. That scheme is the vacation property scheme.

I don’t use the word ‘scheme’ here lightly. I do believe that when you are offered something in a high pressure way, told you must do it immediately, and are belittled if you don’t, there must be more than meets the eye. These things have all the characteristics of a scheme, a scam, and a sham.

Actually, my very first encounter with high pressure sales pitches had nothing whatever to do with either MLM, property, or anything of the sort. My first encounter was as a young man in my late teens or early twenties and pertained to a workout gym. I was not totally into that sort of thing (and my physique would make that clear!), but I had a friend who was. I went as his guest one time. I guess it was ok, but it was just not my cup of tea. However, someone there cornered me, and wanted to talk to me about joining. They had a ‘special deal’ that was just going on right then. If I did not sign up that day, I would never again be able to get in at that rate. I could not leave, think about it, and come back another day to sign up. I must do it right then or lose out.

Now, I was young and naïve. I had very little experience with such things. I was not an aggressive or assertive person. If it was anything other than money, I may have fallen for it. But, as I stated in the post on MLM, I, for whatever reason, have always been very tight when it comes to my money. And, seeing as how I was not totally fired up about paying money in order to have the opportunity to go do hard and painful exercises, I politely declined. This against the protests of the salesperson. I thought he was going to follow me out to my car and hound me all the way home. "You’ll NEVER get an opportunity like this again!!!" he said over and over.

About two weeks later I saw an advertisement in the local newspaper for that very same gym offering that exact same offer open to the public. A valuable lesson was ingrained in my mind that day. I have been leery of high pressure sales pitches ever since.

With that as a background, lets fast-forward a few years. I was in my mid-twenties, had a beautiful wife (still do!) and a wonderful young baby boy (who is now a young man in his late teens). We received a call or letter or something about coming to hear about an opportunity for a vacation property. Simply for showing up and hearing their pitch, we would receive some sort of nice prize (I don’t recall exactly what it was in this instance).

Now, as I recall it, this was a ‘resort’ being built on one of the nicer lakes in our region. We were shown a little of the property, and given promises of things that were in the works and going to be built. (Hint number one: don’t believe it til you see it. If it ain’t already built, it may never be!) After being greatly impressed, we began talking money. Frankly, I do not remember how much the money was. I do know it seemed like a whole lot to me at the time, and the thought that I was paying for a lot of possible future use in a single place that is not even completed yet gave me pause for concern. Again, I was not the most cunning of men, but somehow when it came to money, I was one of the most cautious.

Now, to paint the picture a little clearer for you, all this was taking place in a large room. There were many people there being given the same sales pitch as I. During the time I was there, perhaps five or six people actually agreed to a purchase. Each time someone did, the salesmen would stand up, ring a loud (and quite annoying) bell, and make an excited announcement. This atmosphere was similar to the ‘pep rally’ atmosphere at the MLM meeting I would attend a few years later and described in the MLM post. I guess some people really love attention like that. Not me! That actually gave me further resolve to not buy into the sales pitch.

So, I began the process of declining. This promised "no pressure" sales pitch suddenly took a turn for the worse. The guy just would not let it go. He would not take ‘No’ for an answer. I remember him pointing to my wife and my baby and saying "If I had a beautiful family like that, I know that I would want to provide them with a nice vacation place for life."

Well, that was just too much. Mess with my money and its bad enough. Question my devotion to my family and you have just gone too far. We got up, got our crappy prize, and left.

Over the years, I have had several other opportunities to go on these things. It was usually the promised prize along with a promise of no high pressure sales that got me to go. However, none of these ever seemed to work out quite like it was planned. One time, we were promised a grill and so many pounds of steaks. The grill was cheap and lousy – I don’t think we ever used it. The steaks were almost indescribable. I didn’t even recognize the cuts of meat. They were about as tender as a steel belted radial and probably less tasty.

Once, I received an invitation to one of these things that had five scratch off numbers. The instructions said that if you scratch off a series of two you get a certain prize. If you scratch of three you get a better prize. Four and five are even better prizes. When I scratched my five off, four of them were of the same number. The prize for four was some huge color television. We kinda needed a new television at the time, but I was skeptical. I read and re-read the thing over and over looking for the catch. I could not find it. I finally decided to go, knowing I would turn down the offer, and thinking I would get my great new television set for my trouble. My biggest concern was how I was going to fit that thing into my car. Yet, in the back of my mind, I feared there was still some catch to it. I just did not know what it was.

When I finally convinced the salesman that I was not going to buy, he said, "Well, give me your invitation so I can see what prize you get." Nervous, I gave it to him. He said, "Well, you have a series of two, and you get such and such prize." I don’t remember what it was, but I know it was crappy. I said, "But I have a series of four and that gives me the big TV set." "No, you only have a series of two. That gives you this crap prize."

I don’t remember the exact numbers I scratched off, but, let’s just I scratched off something like 3-3-7-3-3. Four threes, right? I get the prize for four of the same, right? No. It had to be a series. Had it been 3-3-3-3-7 then I get the TV. Instead, I just got the prize for the series of two. It was such a wonderful prize that to this day I do not remember what it was!!! Maybe this was the cheap grill and bad steaks - I really don’t remember. Actually, I do not even remember what the sales pitch was for on that particular trip.

However, I am convinced that the whole thing was a scheme. They knew that a lot of folks would think they had won the television. That got them there. Then the high pressure sales would catch some percentage of those who took the bait. What a system!

I think these offers went on for years on the basis of baiting people with the promise of a great prize, when the actual prize was not quite what you had in mind. One acquaintance of mine, who happens to love boats, received an offer that involved the prize of a sailboat. After the pitch, he asked about it and was told that they would mail it to him. How do you mail a sailboat? Turns out, it was a blow-up raft.

Another acquaintance received an offer promising a five piece entertainment system. He got a walkman, headphones, and three batteries.

Eventually, though, enough people apparently got skeptical about these tactics, and the sales people had to up the ante a bit. My further experiences did involve somewhat better prizes, but the experience itself was still very negative.

The next specific experience I remember involved a condominium that was located in my favorite vacation location – Orange Beach Alabama. We were contacted via the telephone and asked to come to the presentation with the promise of two nights at a nice hotel, a thirty dollar gift certificate to one of various restaurants, and perhaps another prize or two – I do not entirely recall. We did receive these prizes, and did enjoy them very much. My wife and I had a wonderful weekend. The gift certificate we received was even from our favorite restaurant. No complaints here.

However, the sales pitch itself was simply awful. One thing that has changed considerably from the earlier years of timeshare condominiums and vacation resorts is that now you essentially buy into the system where you can stay at resorts virtually anywhere in the world. Without going into the specific details of this particular deal (I don’t really remember them anyway), suffice it to say that we spent about an hour and a half with this lady, and the cheapest product offered to us was in the neighborhood of fourteen thousand dollars. Apparently the lady took my interest in seeing one of the rooms as an actual interest in purchasing one. Everything was fine until I repeatedly made it clear we were not buying. The last thing the lady did was very nastily say "Well, you shouldn’t take any more free vacations!!" That hacked me off!

That experience was in November, 2001. I specifically remember it because it was on the day of the University of Alabama’s last victory over Auburn in football! Only recently have I had another experience.

We had an opportunity to spend a week in Branson, Missouri free of charge at a condo of a friend. During the week their sales department called the room and offered me one hundred twenty dollars cash on the spot to listen to their pitch. Short on cash, I agreed. Basically the same pitch was given once again. Vacation paradises all over the world were mine for the asking. However, shortly into the process, our lady realized she did not have a sale. They were obligated to spend an hour and a half with us. She started basically going through the motions. It was somewhat humourous. Finally, she said, "All I can offer you is thus and so and the cost is, gulp, fifty three thousand dollars. I am quite sure that you are not interested in that, are you?" Of course we were not. Not only this, though, but they could finance this fifty three grand at credit card rates for us. Yippee!!! "However," she continued, "I’ll call John. He is authorized to give you some alternate opportunities."

Well, along came John. He was offering something quite less expensive. We were still pretty adamant that the answer was no. So, he told the original sales girl to go ahead and sign us out and get our prize. She left, and shortly thereafter an older friendly looking lady came over and began basically an exit interview. "Were you treated nicely?" "Do you understand our offers?" etc. But, slowly the questions began changing. "What is your reason for not purchasing with us today?" "On a scale of 1-10, how interested do you think you would be in buying in at some time in the future?" etc. Next thing I know, this friendly retired nurse was making the final push. She leaned over the table as if she was taking a chance telling us this and said "I’m authorized to give you this very special offer…." then went on to give one last ditch try to get us hooked. This was apparently some sort of a trial offer for only about twenty five hundred dollars. After wrestling with her for a few minutes, she finally gave up the ghost, gave me my cash, and let me go. I hated every minute of it, but I guess a hundred and twenty dollars for less than two hours of work is a pretty good rate!

Now, all of this so far has been a brief description of my experiences, but, analytical mind that I am, my real intent is to analyze in very broad and not too specific terms why one should never buy into one of these offers. It all boils down to simple economics. However, the majority of people today are totally uneducated in the field of economics. They are therefore apt to fall for something that ‘sounds’ like a good deal.

A great introductory book concerning economics is Henry Hazlitt’s Economics in One Lesson. The ‘one lesson’ referred to in the title is essentially that, when considering economic policy, one has to look beyond what is immediately obvious at first glance as a short term limited result and look further and deeper to the longer term, wider impact. He then demonstrates how this works by examining a number of faulty economic premises in light of this one lesson. For example, minimum wage law in the immediate, short term, appears to have a very positive effect in that people, particularly poor people, can make more money. However, the wider, deeper, longer-term effects of minimum wage law are in fact quite damaging to the economy as a whole, and particularly to those at the lower economic levels. To see all of this takes some fairly deep and lengthy thought processes that may not be readily available to every person.
Now, were you of a lower economic status than most and your local politician offers to raise the minimum wage, you would most likely support him in his efforts. However, if someone educated you on the damages of minimum wage law and showed you that in the long run it would in fact bring harm to you, you would likely not support it. What you may need to get to the point of understanding this economic impact, though, is time to understand the arguments and think them through.

Now, in considering the vacation property offers we discussed above, the one thing that is absolutely not available is time to think. If reading this blog accomplishes absolutely nothing else than the following, I will be satisfied: Always be leery of any offer that sounds great, yet must be taken advantage of on the spot with no time for further consideration. Perhaps that can be considered "Personal Economics in One Lesson."

Every single time I have ever gone to one of these sales pitches, (including also the one from the gym) I have been told that I simply must take advantage of it right then. I had to buy while I was there. Virtually every time when I did not buy immediately, the seller began sweetening the pot with supposedly better offers, but the pot was never sweetened with time. I always asked for brochures, literature, and further information about the costs and benefits of the plan, and have yet to receive one single bit of information that I could take home and contemplate. At least once, maybe more, when I asked about further information was asked in return "Well, what information have we not already given you?" This is a stupid question. If I knew what information I had and did not have, I would not need to ask for more. The only thing that was ever shown me (and this is eerily similar to the multi level marketing scams) is a few numbers scratched on a piece of paper by the salesperson. And even this was not given to me to take home and consider. When all was said and done, I left with no information whatsoever. Please consider that fact before you buy into one of these deals.

So, the next time you go to one of these sales pitches be sure to ask yourself: "If this is such a wonderful opportunity for me, then why do they not allow me to see all the numbers and take it home and think about it for a few days?" If it is in fact a great deal, you could determine that yourself and you would likely come back to them with a purchase.

A lot could be said, and perhaps in another blog I will say more, about how to consider offers such as this should you ever have the information needed to analyze it. It is highly doubtful that you would ever receive that information from a salesperson of this sort, but the process of analysis can still be useful in multiple situations.

The long and the short of it, though, is this: With one of these deals you pay a large, very large, sum of money up front for the right of staying in a condo in the future. The latest one I went to allowed you to buy a certain size (one, two, three, or four bedroom) and a certain amount of time per year. Actually, even this was not so simple – you actually pay for a certain number of ‘points’ that can then be redeemed for certain amount of space and time per year. That is, of course, not explained in any detail, so you really do not know how much you have bought, nor do you know how much you will specifically need in the future. Therefore, you may be paying for a lot more than you need, or a lot less. You really do not know. But, once you pay this large sum, you have some certain amount of time and space in their condo resorts for some amount of time (even for a lifetime if you buy the lifetime package).

However, in addition to this, these things always have other charges that come up annually. These are usually refered to as ‘maintenance’ fees and are supposedly used for upkeep of the property. These things tend to have a way of starting out very cheap, then going up through the years. I know of people who have bought into these things and eventually their maintenance fees go up to hundreds of dollars per year.

Now, the only way to determine if you have saved money or lost money on such a deal would be for you to know and understand exactly what it is you have bought, exactly what your needs would be for the next so many years, know exactly what the rate of increase in vacation rental space would be, know exactly what the increase in your maintenance and any other fees would be, know how much interest you could make if you did not spend the large amount up front, etc. and then make a comparison. It is almost impossible for an average Joe or Jane to know all this, but I’ll bet the accountants working for the resort sales companies have a pretty good ideal!
But, as an example, say, you spent twenty five thousand dollars now, and began paying two hundred dollars annually in fees, but that these fees go up by fifty dollars each year. Now say you could get the same room for a week this year for a total of fifteen hundred dollars. Assume this goes up by five percent each year. So, comparing your two options, you could spend twenty five thousand dollars now, and two hundred plus dollars per year increasing by fifty dollars per year each year – OR – you could invest the twenty-five thousand in a savings account, get five percent per year and take your vacations from the money in that account. These rentals will cost you fifteen hundred dollars per year going up at a rate of five percent per year. Based on these assumptions (which may or may not be realistic – I just made them up) it would take at least twenty years to break even. That is, if you purchased this plan, it would take you over twenty years to start actually saving money. Less than twenty years and you would have actually come out cheaper not buying the condo and instead just renting for a week each year. This analysis does not even consider the economic impact if you bought in and had to finance the deal at essentially credit card rates.

Now, in twenty years a lot could happen. You may lose a job, have an illness, or other financial hardship. Would you have rather spent that money on still future potential vacations, or would you rather have invested that money? What if you, or your spouse, or both, passed away ten years from now? Was that a wise investment? Essentially what you are doing on one of these offers is paying for future vacations way ahead of time. That is almost never a wise thing to do (unless you are the seller of such a plan). Would you go down to the local car dealership, and pay him twenty five thousand dollars for a car you will get twenty years from now – even if that car is then worth fifty thousand dollars? I think not. Why would you do this with rental property?
Now, it is certainly possible that some people get in at the right time, have many years worth of vacations, and in the end, spend less than they would have otherwise. In most cases this is very doubtful, but it is inevitable that a few come out very good. I am sure the sellers of the condos know and understand this. But, I can guarantee you this one thing: We have only touched on the economics of doing this. The companies that market these deals have paid experts looking at the economics of it. Do you think they have your economic security or their profit in mind? I have absolutely nothing against a company making a profit. I want to make a profit. But, these guys make huge profits by, in my opinion, defrauding their customers. They make you think that you have just gotten the deal of the century, when in fact, they are laughing all the way to the bank. You or I may not be able to fully grasp and analyze the economic impact of a deal such as this but I assure you that the selling company knows the general economic impact for the bulk of their sales. Think about that before you buy into such a deal.

In the end never ever buy into anything that you do not fully understand the terms of the deal, especially if information on the terms is not forthcoming and time is not given to analyze the terms.

The Danger of Multi-Level Marketing

Imagine receiving a phone call from a friend who begins raving about a new business plan he is starting, and he wants you to come to a meeting and hear his presentation. Upon arrival, you realize that he has invited a hundred or so of his closest friends and relatives to hear and contemplate his plan. He begins by raving how, if you are persistent in this business, with a little work over a relatively short period of time, you can earn a large and permanent income. The notion of literally thousands of dollars per month is placed before you and, money conscious as we all are, you want to learn more.

"The plan is simple", he says. "To start with, all you have to do is sign up and agree to send me one hundred dollars each month."

At this point, you obviously sense that things are not quite as they should be. "How can us sending you a hundred a month help us? If we all did it, that would be ten thousand dollars per month out of our hands, and into yours."

"Of course," he replies. "But, by joining up, you receive the right to do the same thing. You can try to recruit your friends and family and convince them to send you one hundred dollars per month as well. If you get a hundred of them, then you will receive ten thousand dollars per month, at the cost of only one hundred per month. Don't you see the beauty of this?"

The above would be an overly simple example of what is known as a pyramid scheme. Not surprisingly, as it is presented above, it is illegal. However, though filtered through an intricate array of products and services, when stripped down to their actual operating procedures, many, if not most, of the multi-level marketing plans which are out there are doing essentially the same thing. Not only that, they are doing it legally, and often they are created by supposedly Christian people, and put forth with an air of morality, helping others, and the "American Way."

However, they are not moral, they are not Christian, they are not ethical, they do not help others, and, if the American Way has to do with hard work and an honest livelihood, they certainly do not represent that, either.

Let me give you a little history. Some years ago I was approached by a friend, who had a sister, who had a boyfriend, who was involved in some sort of multi level scheme. This plan, as I remember it, involved a shopping service where one could buy apparently anything he wanted, and at an attractive price. In order to have access to that service, one would have to pay a moderate monthly fee into the system. He then would go out and convince others to come in below him and do the same thing. As an individual built his or her "pyramid", he would "earn" a certain percentage of the monthly fee from certain of the levels below them. I do not remember the exact numbers on how this system worked. However, what I do remember was that, based on recruiting (or is it conning?) two people to come in below you, and both of them convincing two people to do the same, and this trend continuing until you had nine levels in the pyramid below you (the ninth level would contain 512 people) your monthly "income" would be almost five thousand dollars. By adding more than two people directly below you, and continuing the pyramid indefinitely, you could conceivably build an enormous income.

At the time that plan was presented to me, I was just young enough and just stupid enough to have been impressed. However, by the Grace of God, somehow, I resisted. Even though it seemed to me to be a good way to make some extra cash, I realized even then that this whole idea had some problems – problems which I was not altogether ready to deal with.

First among these was that the "shopping network" you were buying into seemed to me to be entirely secondary. The primary concern was having people below you send in their monthly fee, so that you could get your share of the cash. All this served to do was create a transfer of wealth from the lower levels to the higher levels. No wealth or anything of value was created, it was only transferred.

The second thing that concerned me was that I did not see how I could have any control over what was happening more than one or two levels removed from me. If I signed up two people, presumably I could stay in touch with them to try to ensure they sent their monthly fee in and recruited others. However, at that ninth level, containing five hundred twelve people, I would have absolutely no control. I would not know any of those people or anything about them. I would only know how relatively full my "pyramid" was based on the size of my check each month.

Given this, if someone several levels below me started "stalling" the progress, this eventually could work its way back up to me, where even those one or two levels below me were no longer propagating the system. This is always a problem with pyramid schemes. Once the progress slows to a certain point, the people at the bottom start backing out. Those immediately above them would then be at the bottom and they would have to go out and recruit all over again, or get out themselves. This could eventually reach all the way back to the top of the pyramid, thereby collapsing it.

However, those who had been at or near the top of the pyramid, most likely would obtain some substantial sums of money, while those at the bottom worked at trying to recruit people and likely got little or nothing in return. The whole system really served as a vehicle for those at the top to siphon money off of those at the bottom.

Fortunately, I did not sign on to that first exposure to multi-level marketing. However, a couple of years later, I was approached by a well known company which markets household supplies through a multi level marketing business plan. I will refrain from naming the company specifically, but, suffice it to say, they bill themselves as working in a manner consistent with "the American Way." This exposure came when a former classmate of mine called informing me that she and her husband were trying to build a business, and she wondered if I would be interested in hearing about it. Always looking for a way to achieve greater financial security, I agreed.

"The first thing I will do," she continued, "is send you a tape outlining the business idea. After hearing it, call me and if you are interested, I will come to your house, fill you in on the details, and sign you up if you desire."

Within a few days, I received a cassette tape in the mail. At the first opportunity, I listened to the tape, not knowing what to expect. As it turns out, this tape told me absolutely nothing about what the business was, what product or service it involved, how it operated, what would be expected out of me, or any other pertinent information I had been led to believe it would contain. Instead, the tape was made up solely of one speaker after another, recorded at some sort of rally, going on endlessly about how much money they had made in "this business."

"I was the leading neurosurgeon in a large city," one man began. "I made over four hundred fifty thousand dollars per year. But, I never had anything until I got involved in this business." (Of course, I could only think what a horrid money manager this guy must be!) "Since being in this business, I have started making real money (as if $450K isn't real money!) and now have a huge house, drive a different car everyday of the week, etc. etc. blah blah blah."

The only hint in any of this about who or what this business was came from a passing comment one of the speakers made about making all these gobs of money "selling soap." That gave me a clue as to what company this was, but I still did not know for sure.

Within a few days, the former classmate came into my home to present the program to me. "Do you have any questions after listening to the tape?" she asked.

"Only one," I responded. "Tell me, specifically, what this business is, how it works, and how I go about making money in it." I was still young and naïve, but, fortunately, I am an overly cautious person by nature, and thus far was unimpressed with all these tales of the huge sums of money to be made in this business.

"Ok, let me explain it to you." She then went on to confirm my suspicion about which company this was. But to me, that company was a name only, and I really didn't know that much about it. As she presented the "business plan", to use the term loosely, all I remember was some scribbling on a piece of paper which included a bunch of circles, representing all those people I would help recruit, and big dollars which I would most assuredly make if I signed on. I'll never forget her asking, "Now, can you think of any possible reason why you couldn't just 'wear this business out'?"

I was dumbfounded. I did not know what to say. I could think of lots of reasons, not the least of which was, I still had not a clue how the business worked. So, I asked her again the same question I started with. "Exactly how does this work and what is the mechanism by which I can make money?"

"Well, I'll tell you what", she responded. "Let me leave you a couple more tapes to listen to. I'll come back in a week or so after you listen to these tapes, and we can talk further. These tapes will answer any questions you may have." (It seemed we were going in circles to me.) But, I reluctantly agreed to listen to the tapes, eagerly hoping to find out more specifically how this system worked.

Well, I listened, and guess what? More of the same! Speech after speech lauding what huge sums of money the participants in this business make. At least with these tapes, (which I guess were "Round 2" for those who were not sold during "Round 1") they freely and openly mentioned the name and nature of the business. But, there were no specifics, other than the required work of recruiting everyone you could. The closest thing to an honest description, one which did not try to pass it off as a foolproof get rich quick scheme, was when one of the speakers indicated that to make money in this business, you (and likely your spouse) had to be willing to work six nights per week, for at least two years.

I really did not need to hear much more than that. Given the fact that I already had a full time job, was still not all that far removed from being a newlywed, had a young son, and a brand new daughter, we had no burning desire to spend six nights a week for two years on anything, regardless of the financial outcome. Some things, at least to us, were more important than money.

At any rate, within a week or so, she returned to my house and asked, once again, if I had any question. "Just the same one", I replied. "Exactly how does this work?"

After much more trivial conversation, she finally indicated that a regional meeting was upcoming, and perhaps I should attend. There, they would discuss in-depth how the business actually operates. "If you will just come to the meeting, you will learn what you need. Then, I am sure you will want to join." This whole ordeal started sounding like a broken record to me.

So, my wife and I went to the meeting. The crowd there reminded me of a cross between a high school pep rally and a Pentecostal Church. There was much shouting and clapping and hooting and hollering. Since my wife an I are basically quiet, private people who rarely, if ever, make a public showing of emotion, this caught us entirely off guard. The first thing they did was ask us to all stand up and cheer. At the urging of our host (my old schoolmate) we were seated on the front row. I did not fill entirely comfortable standing and cheering, but also felt weird just sitting there while everyone around me were carrying on like nobody's business.

They had brought in one a young couple who were like the people on the tapes who had gotten rich from this business. Just for starters, I found it interesting that of the hundreds of people there from our area, and probably hundreds more in our area who were not present, they had to bring someone in from outside who had gotten rich enough to lead the pep rally.

During the course of the event, an interesting thing occurred. They split the women and men apart. The women went to one room while the men remained in another. The male member of the rich couple led the all-male meeting, while the female led the ladies. I have to wonder if this was some sort of divide and conquer technique. That is, the thought seemed to be if they could use a method on the females which might appeal to them, and another method on the males which might appeal to them, then perhaps they stood a better chance of convincing at least one of them to join the group if they hadn't already, or to remain in the group if they were already in but having doubts. By convincing one, perhaps they both would join or continue,

Well, this thing drug on for what seemed like hours. I kept waiting and waiting for that promised part where the business plan would be explained in detail to me. However, yet again, it was not to be. Instead, most of the meeting focused on how to get people to sign up without actually filling in the details. "Just keep showing them the circles and the dollar signs. When they ask for more information, give them more of the tapes", etc. In short, my friend was simply doing what she had been trained to do. Mislead, confuse, or whatever, but just keep waiving the money in front of the people and sooner or later they will sign up.

Well, this meeting was my last exposure for that round. It was not over until nearly midnight, far later than we had told our babysitter. My "friend" could tell I was visibly angered by the whole thing, and she never contacted me about it again, except in a panic trying to get me to send her the tapes back. I kept them for "payment."

That would have been the last of my exposure to these businesses except that later, some family members became involved in a computer version of the same business plan. Skeptical, but always willing to listen, I went to their house for a presentation. As I listened, the plan sounded vaguely familiar to me. Pressing the point, I was able to find out that this was simply the updated, computerized version of that same plan based loosely on "the American Way."

As he presented this foolproof method of making money, he, like my classmate before him, laid out a series of circles, representing the recruits I would go out and get below me, and a series of seemingly baseless numbers indicating the riches I would receive for so doing. Upon completing his presentation, I told him I could save him a lot of trouble if he would just simply tell me how the system actually worked. He said he would, but, somehow I felt that I still left empty of the knowledge I was seeking.

As I lie awake that night pondering these things, I began to put myself mentally into the position of facing my family and friends and presenting this plan to them. If I were to get involved, I would absolutely have to do some fairly serious recruiting. Of course, I felt that to do it correctly, and to do it in the only way I would feel comfortable doing it, I would not just indiscriminately propose it to all who would listen. I would choose only those who I thought would take it seriously, and pursue it diligently. Naturally, those same people would also be the ones who would be skeptical about any plan claiming to provide an almost endless source of riches. On top of that, these people, whom I was now making a mental list of, would be only those honest and above board types who would not become involved in anything remotely underhanded. This is how it should be, of course.

But, thinking along those lines reinforced in my mind my need to totally understand how the system worked. I could not present it to them not understanding it myself. If they posed the difficult questions to me, I better well be able to provide honest and adequate answers. Better still, I should be able to present the plan in its entirety in such a way to begin with that leaves little left to the questioning of the potential recruits. If this plan is really an honest, ethical way of earning an income, I should be able to demonstrate that to them through my presentation. This, of course, would mean that I would have to present it in a way different from the way the company itself apparently trains its recruiters to do. That alone gave me pause for concern.

Realizing that I obviously wasn't going to get a straight answer from any of the people presenting the plan to me, I began simply to logically think through the plan as it was presented. The main points reiterated over and over by my presenter was that for this to work I would have to follow a threefold plan. First, I would have to do as much of my shopping as possible through the Internet site involved. Specifically, he mentioned household goods such as soaps, dish and clothes detergents, toilet paper, cereal, and a whole litany of other items. The service was not limited to these types of items, however. Apparently, nearly everything you would care to buy is available. But, it was interesting to me, and perhaps significant, that these items in particular were pushed.

While speaking of buying through this service, the recruiter was honest enough to indicate that the prices of these items was not always the cheapest. Pushing the point, it seemed to me that the truth of the matter was that these items were often actually overpriced. On top of that, there was the concern over shipping costs, as well as sales tax which was added, which oftentimes is not added to Internet commerce. Rest easy, we were told, your total shopping cost will likely still go down because you can avoid the temptation to "impulse buy" unnecessary items. Also, there is no cost associated with shopping around such as gas, wear and tear on your vehicle, and the use of your valuable time.

Well, that was little comfort to me, for impulse buying has never been a major problem. I will squeeze a penny until Lincoln grimaces. As for the costs associated with traveling to the store, I will be going to the grocery store anyway. I am sure that not all of my grocery needs would be met over the Internet. I don't know if items such as meats, eggs, cheese, milk, produce, or other things were available. However, even if they were, I don't like to buy these items sight unseen. So, there would be no savings associated with no longer traveling to the store.

As for the timesaving, I am sure it is a time consuming proposition to sort through the Internet sight and find all the various items one would need. The total amount of time spent shopping may go up or down slightly, but I don't know that the overall difference would be noticeable. Also, as far as other, non-household items, such as clothes, stereos, etc, I likewise would not buy those sight unseen. Therefore, I would have to still spend time shopping, then, leave the mall, come home, order them over the Internet (if I could find the same exact item I wanted), then purchase it at a total price which may be less, but very well may be more than I found it in a retail outlet. I was struggling seeing the advantage of this.

In the end, it seemed that locking myself down to shopping on this network would not always, or even usually, work to my favor as far as actual money spent. But, "changing the way you shop" to simply mindlessly using this service was the first, and strongest point which was reiterated over and over during the course of the presentation.

The second point of the plan which was stressed was to go out and tell others about the plan and convince them to do the same. Seeing as how I am struggling fiercely with the validity of step one, step two would be a near impossibility. How, or why, would I convince others to do what I was not convinced myself was a good thing? Would it be ethical? Could I do it while clearly telling them the parameters of what they were doing?

Step three was simply a further, more detailed application of step two. In step three, you would note those below you who seemed particularly successful at steps one and two, and work harder with them to teach them and counsel them to do even more. Step three, like step two, seems useless unless and until I can convince myself that step one, (narrowing all my shopping down to one source regardless of the price), would be beneficial. I could not find anything beneficial in that idea.

At this point, however, the obvious question arises: How do I actually make money doing this? The answer to that is not altogether simple, but will be covered here in two parts. First, remember that the goods purchased are at least sometimes of a higher price than those same items could be available for elsewhere. This fact was admitted to by all parties involved, and, the fact that sometimes this price was even significantly higher was admitted to as well. Again this is especially true when the added tax and shipping, where applicable, was added. Also, likely this is where the household item list comes in. Those household items are the things you would buy month in and month out. They are the items which the original company (the one promoting the "Amercian Way") produces and sells. These items are likely among the most overpriced items available through the system.

Now, I as an "owner" of this business which included all those who fell below me on my "pyramid" (yes, pyramids again!), would receive a cut of the money spent by those below me. The amount of this cut is unknown because it is not specifically dictated by the amount of money actually spent. The value depends on a complicated system of "point value" and "business volume." That is, someone buys an item costing a certain amount of money. That item has a point value assigned to it which is not directly tied to its cost. According to my recruiter, that point value is usually between two and three to one. That is, to receive one hundred points, someone would have to spend between two and three hundred dollars. For a given amount of "points" gathered during a month, a certain percentage of the "business volume" would be awarded.

That "business volume", like the point system, seemed to be a mysterious entity. It was not necessarily determined by the price of the item. Simply put, the combination of "point value" and "business volume" seemed to be related, as it must assuredly be, to the amount of profit margin in the given product. That is to say, the more overpriced the item was, (such as the household items offered) the more lucrative the combination of points and volume would become. In short, I receive money based on how much overpriced volume was purchased by me and those below me. In other words, money traveled "up the pyramid" from those who spent too much on items they could get for less elsewhere. It is indeed a "pyramid" where nothing of value is created, but, money is transferred from those below to those above. Just like my imaginary pyramid where I convince people to hand over their money to me, in this pyramid I do the same, only filtered through the sale of items which the consumer may be purchasing anyway, and could likely purchase at a lower price elsewhere.

This, however, raised another interesting problem in my mind. While this seemed incredibly "sneaky", it also seemed economically impossible. If someone twelve "generations" below me received a cut of what they purchased, and every "generation" above them including me and those fifteen or twenty generations above me, also received a percentage cut, it wouldn't take long to eat up all the profits from the sale of that item and then some. There is not an endless stream of money to be generated. There can not be, say, ten dollars of profit in an item, and thousands of dollars to be dispersed from this profit.

Well, further probing yielded the answer to this problem. You see, I get my cut of all those below me in my pyramid. If I have a large pyramid with a great volume, I may get a cut of thousands of dollars for that month. My percentage is based on the total point value and business volume of those below me. I, in turn, have to pay those below me their percentage cut as well.

As an example, let's say that I have a percentage level of twenty five percent, and my business volume is ten thousand dollars. I would then receive a "bonus check" for twenty five hundred dollars. But, then assume that my volume comes from four people who each have a volume of twenty-five hundred dollars and a cut of fifteen percent. I would then have to pay out fifteen percent to each of them, or a total of fifteen hundred dollars. Therefore, my net, would only be one thousand dollars. This fact is conveniently left out, or at least hidden very well, in the recruitment presentation. Whereas I may see my check as being for twenty five hundred dollars, my net business would only be one thousand dollars.

Of course, an added net income of one thousand dollars in a month is still good, right? But, how hard would I have to work, how many hours would I have to put in, convincing people to pay a higher price for goods against their better judgement, to get that type of return? In reality, it would be difficult to get ten people providing that kind of volume. Likely, for a long time, I would have few, if any, people with that kind of volume of sales. Therefore, my percentage would be much closer to the percentage I would have to pay out, and my net, would be much much smaller. Only after years of hard work could I possibly have enough people below me in my pyramid, spending more for the same goods, to receive any worthwhile income. And, as with all pyramids, at some point it will start stalling and collapsing as stated before. This does away with the notion, also presented in the recruitment information, that at some point I could stop working and simply continue to receive residual income at the same, or even ever increasing rates. The price of eternal income is eternal vigilance. I would have to continue to recruit, and ensure that those below me did the same to keep whatever income I did develop.

The end result of all this is as follows: For any given transaction, at most, twenty five percent of the "business volume" (whatever that might be) is generated to be dispersed amongst all the levels of a given pyramid. If the pyramid is one hundred generations big, those few dollars generated by the twenty five percent of the business volume is dispersed amongst those one hundred "companies." Depending on how that pyramid has progressed, there may even be those levels where the participant actually receives no net income for that purchase. At other levels, a fairly large percentage of this cut may be obtained. In general, however, it is at the upper levels that the most money is made. The net result is that for every purchase, a small amount of money built into the profit of the product is generated and transferred upward in the pyramid. If, in a given month, one hundred million dollars of "business volume" is sold, and twenty five percent is dispersed (and it will never be more), this will yield twenty five million dollars to be dispersed amongst the various levels of the pyramid. However, if the pyramid consists, in total, of one hundred thousand people (or "companies"), then, on average, each one would receive two hundred fifty dollars for that month. In reality, some few would receive substantially more, meaning the overwhelming majority would receive a mere pittance. The odds of becoming one of the small minority who do get filthy rich in this scheme are small, and require endless hours of hard work to convince others to purchase overpriced goods against their better judgment. Thanks, but no thanks.

Multi level marketing is a sneaky, un-American way to transfer wealth.

In the end, these multi-level marketing schemes are actually more heinous than the imaginary (and illegal) pyramid I started out talking about. At least in my imaginary system, the people would know up front exactly what they were getting into. They would know all the risks, and all the potentially unethical practices involved in this transfer of wealth from the lower levels to the higher. In this "business plan", all the dangers, pitfalls, and unethical practices are kept neatly hidden in a labyrinth of details, transfers, and the supposed legitimacy of pushing an actual, concrete product line. In reality, my imaginary system is far less unethical, and should come much closer to being legal, than the real life scams pushed by those claiming to be of "the American Way."