The Driver - part XII - The Driver shows the way out.

Click here for Parts 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 and 11 of my review of The Driver.

In Chapter 15, the main character testified before a Congressional committee in the aftermath of the battle described in Chapter 14. He provided a lesson in free market economics and the true resolution to any panic/recession/depression. I provide some plot spoilers here because the following exchange provides lessons for today:

Q [from the committee counsel]: But you will admit that you are very rich? . . .

[The left has been against wealth for so long, they are finally getting their wish as the "very rich" are disappearing in our own time. Being rich is something one "admits" to, much like alcoholism or crime. - editor]

A: Yes . . . I suppose I am.
Q: Well, as briefly as possible, will you tell this Committee how you made it?
A: . . . . I'll tell you. I made it buying things nobody else wanted. I bought Great Midwestern when it was bankrupt and people thought no railroad was worth its weight as junk. When I took charge of the property I bought equipment when it was cheap because nobody else wanted it and the equipment makers were hungry, and rails and ties and materials and labor to improve the road with, until everybody thought I was crazy. When the business came we had a railroad to handle it. I've done that same thing with every property I have taken up. . . . . In the next twelve months the Great Midwestern properties will spend five hundred million dollars for double tracking, grade reductions, new equipment and larger terminals. . .
Q: . . . [D]o you realize what it means for one man to say he will spend five hundred millions in a year? That is half the national debt.
A: I know exactly what it means . . . It means for once a Wall Street panic won't be followed by unemployment and industrial depression. . .

pp. 269-270 (original edition)

In the decades since publication of The Driver, the government has rigged the game so that the above scenario could never rescue the economy:

1. The government will not allow prices to fall to the point where a risk-taking entrepreneur could purchase assets and make the best use of those assets. The current administration is, at this moment, trying to reinflate the bubble.


2. Regulatory burdens prevent companies and investors from making necessary investments like those set forth in our main character's testimony.


3. Tax burdens serve as a major disincentive against new investment. This is especially true for the taxes that will be needed to finance the spending bills of just the past few weeks.

The government has removed the "driver" from the economy. We are left with unfocused public "investments," limitless public borrowing and gradual devaluation of the currency. Entrepreneurs have been marginalized and blamed for the actions of the government. They have been taxed and regulated into virtual non-existence. It is no coincidence that with the "driver" in chains, a reference to 500 million dollars as "half the national debt" would now seem quaint. Public borrowing is no substitute for a driver.


Click here for part 13 (the conclusion).

The Driver - Part VI - Economic nightmares and mass delusion.

Click here for Parts 1, 2, 3, 4 and 5 of my review of The Driver.

Chapter IV is entitled "An Economic Nightmare" and opens as follows:

You may define a mass delusion; you cannot explain it really. It is a malady of the imagination, incurable by reason, that apparently must run its course.

p. 86

Garrett was referring to the causes of the Panic, not some policy designed to "stimulate" the economy following the Panic. [Garrett writes often of 1894 even though the Panic is known as the Panic of 1893. Many of the consequences continued to be felt in 1894.]

Continuing on his theme of "mass delusion," Garrett writes of how people throughout history "have been mad together about a number of things, -- God, tulips, witches, definitions, alchemy and vanities of precept." [p. 87].

Leaving aside the issues related to the conflict between proponents of gold and silver, Garrett's words apply today as well as to panics of the past:

Either side was willing to see the government's credit ruined, as it very nearly was, for the vindication of a fetich. They did not know it. They had not the remotest notion why or how they were mad because they were unable to realize that they were mad at all. . . . . . Intelligence was in suspense. The faculty of judgment slept as in a dream; the imagination ran loose, inventing fears and phantasies. That the government stood on the verge of bankruptcy or that the United States Treasury was about to shut up under a run of panic-stricken gold hoarders was regarded not as a national emergency in which all were concerned alike, but as proof that one theory was right and another wrong, so that one side viewed the imminent danger gloatingly and was disappointed at its temporary postponement, while the other resorted to sophistries and denied self-evident things.

[pp. 87-88]

The discussion of gold and silver is instructive today for a people that have grown accustomed to paper dollars and the unspoken assumption that government paper has always been the only medium of exchange. But the discussion of mass delusion is even more instructive for those of us that wonder how the recent bubbles could have wrought so much havoc:

Delusions are states of refuge. The mind, unable to comprehend realities or to deal with them, finds its ease in superstitions, beliefs and modes of irrational procedure. It is easier to believe than to think.

[pp. 90-91]

Recent superstitions include the belief in 200 to 1 p/e ratios for stocks [1990's] and the notion that real estate prices would always rise [2000's]. Superstitions of 2008 and 2009 include the belief in "hope," "change" and "stimulus."

For five or six years preceeding there had been an ecstasy of great profits. The prodigious manner in which wealth multiplied had swindled men's dreams. No one lay down at night but he was richer than when he got up, nor without the certainty of being richer still on the morrow. The golden age had come to pass. Wishing was having. The government had become so rich from duties collected on imported luxuries that the Treasury surplus became a national problem. It could not be properly spent; therefore it was wasted. And still it grew. This time for sure the tree of Mammon would touch the Heavens and human happiness must endure forever.
Then suddenly it had fallen. . . . . The trunk was hollow. Everything turned hollow. People were astonished, horrified and wild with dismay. They would not blame themselves.

p. 91

If we are to survive our current crisis, we must remember how we survived past crises.
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Click here for Part VII - brief background on the Panic of 1893, its impact and how it was resolved.

Empire of Debt

There has been a recent Garet Garrett sighting in the newly published book, "Empire of Debt," by William Bonner and Addison Wiggin. "Empire" was published in November 2005.

Garrett is quoted on pp. 87-89 of the book. The authors missed a great opportunity by quoting only some anti-war comments of Garrett's. The authors failed to quote the majority of Garrett's work over the decades, much of which focuses on the very same financial issues with which "Empire" deals.

"Empire" touches only lightly on the role of the New Deal in creating an all-powerful government. Garrett's signature work, "People's Pottage" as well as "Salvo's Against the New Deal" provide much greater insight into that era and the New Deal.

"Empire" focuses heavily on World War I. But the authors get sidetracked with discussions of internal European politics and battlefield movements instead of the financial issues. By contrast, Garrett's "Bubble that Broke the World" addresses the WWI loans from the United States that worsened the war and hastened the post-WWI world wide financial crisis.

The authors also became bogged down in a lengthy discussion of Vietnam, Ho Chi Minh, French military tactics and other peripheral issues.

The authors gave the impression of having read a few mainstream books (plus one book of John Flynn) on various topics. The authors then cobbled these works together into a brief history of the world. The authors tried to do too much. The authors' goals might have been better served had the authors stuck to Garrett, Flynn, Will Durant and a few other writers not so strongly influenced by modern thought fashions.

But "Empire of Debt" does have its moments. The authors provide the following quotation on page 290 (writing about financial bubbles and their aftermath):

Generally, the force of a correction is equal and opposite to the trend that precedes it. And the pain it causes is directly propertional to the pleasant deception that went before it.

The authors also write in favor of gold and correctly identify 1971 as the year President Nixon closed the gold window. (But they ignore the numerous anti-gold steps that preceded this action, including the outlawing of private ownership of gold from the New Deal through the middle of the Ford administration). Any author that speaks of gold's history to any extent deserve some credit.

On page 329, the authors say the following:

Gold was around millions of years before the U.S. dollar was invented. It will probably be around a billion years after. This longevity is not in itself a great recommendation. It is like buying a suit that will last longer than you do; there is no point to it. But the reason for gold's longevity is also the reason for its great virtue as money: It is inert; it yields neither to technology nor to vanity.

The authors suffer also from the tendency to try to squeeze every octogonal problem into the round hole labeled "empire." The authors ignore the political reality that has pitted empire builders at home against those who seek to stop them. The authors merely label all policies since 1913 as being products of American "empire."
Garrett provides a much more realistic explanation, labeling Roosevelt's New Deal policies as imperial, while marveling at the naivite of New Deal opponents who warn that "empire" might arrive if we don't stop additional New Deal policies.

Click here for Sue Bob's commentary on "Empire of Debt".

Most importantly, the authors predict dire consequences from the current real estate bubble. These consequences will be compounded by our growing national and individual debt, the lack of manufacturing in the United States and our growing dependence on manufactured goods from China and other foreign countries.



I recommend the final chapter, if for no other reason than it contains warnings and facts regarding the financial situation of the last five years. As for the rest of the book, writings of previous "Cassandras" are more thorough, consistent and enlightening.