David Raboy, a Washington-based economist, has come up with an unconventional view of the inflation and subsequent depression of Andrew Jackson’s day. Jackson’s war on the Second Bank of the United States had nothing to do with the case. It was the British substitution of opium for silver in making payments to the Chinese for tea and silks that caused Jackson’s troubles. The opium released silver, to flow into the United States. When Britain later encoun tered difficulties at home, the withdrawal of silver caused the panic of 1837.
Thus events that are not comprehended by politicos control the course of history in ways that mock fiscal and monetary policies. Herman Kahn, in his The Coming Boom (New York: Simon and Schuster, 237 pp., $14.95), though he approves of much that the Reagan Administration has been doing, thinks that America is about to experience a revitalization no matter who occupies the political seats of so-called power. Things are happening for cyclical reasons that control individual and group psychologies, and the spill-over into economics will be of happy consequence no matter what transpires on the Potomac.
Kahn admits that the federal spending of the past thirty-five years has been unfortunate, but he doubts that it will prove fatal. For, while the spending has doubled in constant dollars, the Gross National Product has tripled. Expenses at the local level may be a far more troublesome problem. Kahn counts on a sobering period in which people will rediscover the ideas of caution and discipline. Holding a job is now something to be prized. The work ethic is no longer despised. The feeling that there are no overwhelming material limits of growth (as contrasted with socially imposed limits) has induced a new optimism. Books such as the Club of Rome’s Limits to Growth and the Global 2,000 report that was instigated by Jimmy Carter have been discounted.
Energy costs have figured in many a recent price increase, but the OPEC energy cartel has lost much of its menace. Kahn thinks its ability to set prices has peaked, and we can count on two decades during which a $40 top for a barrel of oil will be unobtainable. Meanwhile the abolition of price controls will insure significant discoveries of new sources of oil and gas in non-OPEC countries.
The “New Class”
Kahn worries a bit about the so-called New Class of “liberal” intellectuals who encourage an unwise distortion of market forces for non-market purposes. As children of their own parents’ affluence, the members of the New Class command incomes ranging from $25,000 to $100,000 a year. Satisfied with their own status, they work to impose laws and regulations that keep others from achieving the golden circle. In the name of ecology they fight the uncovering of new sources of minerals, forest products and energy. But they have been losing ground lately. Blue collar workers who are interested in holding old jobs or getting new ones no longer follow the dictates of the “liberal” elite in matters pertaining to environmental purity. Trade-offs have become respectable, and cost-benefit analyses are the new order of the day.
Kahn puts a lot of trust in the fact that the young grow older. The children of the “baby boom” period are now reaching the “nesting age,” which has conservative implications. Faced with the need to spend on durable goods, they have a sudden interest in fighting inflation.
“High Tech”
Kahn is quite aware that our old basic industries—steel, automobiles—are in trouble. But we are in the early stages of a change to “high tech,” which will surely expand the economy in thousands of still unplumbed ways. Using the new shorthand of the silicon chip age, Kahn speaks of C412 technologies. The “C4” stands for “command, control, communications, computing”; the 12 for “information and intelligence.” The new systems make remote library access available to everybody. The advent of C412 systems add new dimensions to the procurement, processing and use of intelligence. Companies such as General Electric use computers and existing telephone networks to achieve instantaneous and inexpensive communications with major cities around the world, drawing at the same time upon files stored in a single location.
The new dynamics of high tech are destined to pound some new common sense into union leaders who have spent the past thirty years in devising new ways of milking the industrial cow without feeding it. Roger Smith, the chairman of General Motors, has said that “every time the cost of labor goes up $1 an hour, 1,000 more robots become economical.” The use of robots will probably increase by 35 per cent a year through the 1980s. Thus high tech will come to the rescue of traditional industries that are fighting hard to live in the same world with the Japanese, the West Germans and such newly emergent industrial nations as Taiwan, Singapore and South Korea.
In matters of military defense Kahn derives solace from situations that other people have deprecated. When four or five powers besides Soviet Russia and the United States have nuclear missile capacity, the need to keep a wary eye on “swing” military establishments may help mitigate the confrontational zeal of the biggest powers. Russia and the United States might even have an interest in promoting a general “freeze” that would not only extend the peace but save everyone a lot’ of money.
Commodity Bonds and Unconventional Finance
Kahn doubts that a return to the gold standard is in the immediate offing, but he thinks the United States might experiment with bonds payable in gold. He also champions what he refers to as commodity bonds. An oil bond, payable in a certain amount of oil, might be issued to facilitate the build-up of an oil reserve, with the stored oil providing a guarantee that the bonds would be cashable on maturity. Since payment would be in a stipulated quantity of oil, inflationary worries would disappear. Bonds could be issued with mineral backing other than gold. Kahn hasn’t gotten anywhere yet with his commodity bond idea, but he has his hopes. He thinks we are just beginning to explore the wide possibilities of what he calls “unconventional finance.” Contracts don’t necessarily have to be written in terms of money—or “! owe you nothings,” as John Exter would have it, referring to the world’s fiat currencies.
By the year 2,000 A.D., says Kahn, we will be able to do things that would have seemed miracles or magic 200 years ago. It is an exciting world that waits for us if the presuppositions of The Coming Boom stand up.
