It's Not a Political But an Intellectual Crisis

By Mwarang'ethe

Following the salary increment or the attempt by our law breakers, every voice - the president, the PM, Kenyatta, the press, the pulpit, the civil society and the masses are united in repugnance, horror, indignation and disgust. We are with them in all this, but, not in one thing, astonishment. The history of state being what it is, and its testimony being as invariable and eloquent as it is, one is obliged to say that the naive tone of surprise wherewith we complain of these matters strikes one as a pretty sad reflection on our collective intelligence.

In a famous You tube awareness test, we are asked to count the number of passes made by the white team. As one concentrates on counting the passes, it is very easy to miss the guerrilla which does Michael Jackson's moon dance. You can see it here. When it comes to the saga of the MP's salaries, we think Kenyans are missing the dancing guerrilla. In our earlier article, we wrote this:

“In conclusion, what we have sought to explain is this. Law makers are only known to invent new taxes and only conquer the pockets of their subjects. It is for this reason; they have diverted the need for reforms on right of property into creation of offices which will preserve their power (read 349 mps idle mps to be paid by those who labour).”

In our last piece, written just before Akiwumi released his report, we warned that:

"More so, the new constitution provides that, before the Dear Leader distributes the goats, beans and maize which he shall confiscate from the wealthy to the needy, he shall pay himself first a salary. This salary, the Dear Leader shall decide himself or appoint a well paid committee of experts made up of his minions to decide his take. The committee of expert on Dear Leader's salary shall ensure that, the net income is as high as it was in the old constitution. Thus, the gross salary will be high enough to leave good net income as the Dear Leader is used to have. In any case, all the Bondo citizens wanted was for their Dear Leader to pay tax. To meet such stupid demands, the gross salary will be set appropriately so as to leave the net income as it was when the salary was untaxed under the previous constitution. Voila!" U can read it here:

This brings us to the related issues of the 2010/11 Kenyatta’s budget deficit, the attempt to control prices, see price control debates here and more so, the welfare state we are constructing under the new constitution. The 2010-11 budget theme was Towards Inclusive and Sustainable Rapid Economic Development. Muna Wahome of DN summarised the verdict of the nation this way: Uhuru dishes goodies in improved stimulus package.

To finance these goodies, Kenyatta has a deficit of Sh 228.4 billion. Out of this, he will borrow locally Sh 102.7 billion. These deficits are the moon walking guerrilla which Kenyans do not see as they focus on what is in vogue. Without endorsing the gold standard in any way, we use writings of Mr Allan Greenspan, the immediate former chairman of the USA Fed to demonstrate that these deficits and the welfare state we are constructing are more destructive than the “small” issue of mps salaries which we are all talking about.

In 1966, Mr Greenspan wrote an article entitled: Gold and Economic Freedom. Whenever there is word gold, please insert sound/honest money for we do not think gold is necessary to have sound money. He started this way:

"An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other. In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.”

He then added that:

"A free banking system based on gold [honest money] is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state)."

He added that:

"Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale."

He further wrote that:

"Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit."

Further,

"They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves [BELIEVES] that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion."

At this stage we inquire, if Kenyan government can issue a shilling bond, why can't it issue a Kenyan shilling bill? Isn't true that what makes a bond issued by the Kenyan government good, would also make a note good? Isn't very absurd for educated people to believe that, a nation can issue Sh 123 billion in bonds, but, it cannot issue Sh. 123 billion in currency? Aren't both promises to pay? Yes, but, one fattens the usurer, while the other would only be pocketed by those who labour. In our earlier article: Why We Reject the Proposed New Constitution, we summarised the matter this way:

"When these two conspirators are not "loaning" Wanjiku their useless paper so as to rob her, the central banker issues another paper he calls a government bond. The conspirator calling himself Equity takes this bond and in return, he gives back the useless paper he originally got from the central banker. In this modern magic, these modern medicine men tell us, the mere mortars, that, this is open market operation. By this abracadabra, they create so called public domestic debt which must be paid with usury. So as to pay back the banker, Wanjiku’s little wealth that was spared by the first ngeta/robbery, must be robbed via taxation."

Our views were dismissed as utopian. Well, one member of the committee of experts has confirmed our view as we read that: "While giving an overview of the proposed law, Committee of Experts member Ms Njoki Ndungu, admitted that the draft was geared towards devolution, placing little emphasis on generation of resources." Ms Njoki tells us that: “The constitution is a tool for governance. It endeavours to ensure equity in distribution of national resources to people at all levels in the country.” In her world and those of other lawyers, governance means distribution, but, excludes wealth creation. What rubbish from people calling themselves learned. See the details here: "Business faults proposed constitution."

Ms Njoki and other ignorant learned lawyers might not be reading, but, inquiring minds are reading that: "The European Way May be Coming to End AS Debt Crisis Mounts". Among other matters, we are told that, "the threat of bankruptcy is forcing governments to implement reforms that economists argue are necessary to help Europe prosper in a globalized world – but were long viewed as being politically impossible because of entrenched social attitudes." Among other changes we are told are "making it easier for companies to fire workers or stare down unions were until recently dismissed as simply not being the "European way."

As we have noted before, the West was able to get away with welfare for sometime because of its economic structure advantage and the ability to appropriate wealth from third world. These two advantaged are disappearing and thereby, the necessity to dismantle the welfare state. The problem is that, in trying to dismantle the welfare state, they are ignoring the contradictions inherent in modern state which necessitated welfare as a cover up in the first place. Therefore, so as to avoid what must be done, they are now left with the option of attacking the most vulnerable, rejecting free trade and eventually going into wars.

Anyway, let us continue with Mr Greenspan. He further told us that:

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves." (please note this line carefully).

He concluded the article this way:

"This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

Thus, as matters stand, the Kenyatta's deficits and the proposed state welfare in the new constitution, are nothing, but, a design for wealth confiscation. The best way to understand deficits is to appreciate that, deficits are nothing but, LEGALISED COUNTERFETTING which is worse than the “small issue” of mps salaries everyone is yapping about. This legalised counterfeiting is sanctioned by s. 211 of the “new constitution.” Many Kenyans in the spirit of voluntary servitude see nothing wrong with it. After all, having lived for a number of generations in slavery since 1885 what is the big deal?

The truth is that, counterfeiting whether done at Kirinyaga road or at the Kenyan Central Bank; the effects are the same which is destruction of the purchasing power of Kenyans. The worst hit are the poor and those on fixed wages. Ironically, we are told that, the welfare states are “designed” to help the poor. What a sick joke. However, there is one difference between the Kirinyaga road counterfeiter and central bank counterfeiter. The Kirinyaga road thug does not force you to take his note in exchange for your labour. On the contrary, the central bank priest who is an honourable citizen in the eyes of the slaves will force you to take his useless paper. If you doubt, read s. 231 of the so called new constitution although changed a bit following our submission.

If these are the undeniable facts, then, we must be forced to admit that, what we face today is not an economic/political crisis, but, perhaps the greatest intellectual failure in human history. But, it may be we are in good company. When the Egyptians were building pyramids which kissed the sky with slave labour, their priests taught them to worship frogs and crocodiles. In Nairobi, you can see a number of modern pyramids. Two of these are the Times Tower Complex owned by the central bank and the Central Bank Building both at Haile Selassie Avenue. The fact that the tallest pyramid in Nairobi is owned by the central bank and rented to a sister agency dedicated to wealth confiscation says a lot about the efficacy of modern priests.