Socialism, the Perpetual Money Machine

Fludd's Perpetual Motion Machine (Wikipedia)

Fludd’s Perpetual Motion machine, circa 1600, courtesy of Wikipedia

Perpetual motion describes hypothetical machines that operate or produce useful work indefinitely and, more generally, hypothetical machines that produce more work or energy than they consume, whether they might operate indefinitely or not.

There is undisputed scientific consensus that perpetual motion would violate either the first law of thermodynamics, the second law of thermodynamics, or both. Machines which comply with both laws of thermodynamics but access energy from obscure sources are sometimes referred to as perpetual motion machines, although they do not meet the standard criteria for the name.

Despite the fact that successful perpetual motion devices are physically impossible in terms of our current understanding of the laws of physics, the pursuit of perpetual motion remains popular.”

WIKIPEDIA

Yes, it does. Several inventors claim to have developed machines that take a small amount of energy input, and put out a much larger amount of energy, usually in the form of electricity. None of these inventions has resulted in a marketable product that has been shown to work.

Of course, the fundamentals of conventional physics don’t allow for more energy to be produced by a closed system than is put into it, period. Grumpy and intractable physical limitations like entropy and friction keep perpetual motion in the realm of fantasy, wishful thinking and investment scams. Barring the discovery of utterly new physical principles, perpetual motion remains in that realm. Energy and mass are conserved. All of the energy in the universe eventually degenerates to heat.

Most people understand that, at least intuitively, if not intellectually. Of course, there are enough credulous customers to draw scammers and opportunists to the smell of money. After all, “A fool and his money are soon parted.”

Why then, do so many people accept without question the existence of  a perpetual money machine, also known as socialism? Too many of the people who know better than to believe there is a way to something for nothing from a perpetual motion machine, willingly accept that government can somehow produce wealth without consuming wealth — a perpetual money machine.

Yes, taxpayers furnish the energy input to government’s machinery, but there is only so much taxpayers’ money. When government pays out more than it collects, debt ensues.

Margaret Thatcher painted a neat bulls eye on the fundamental flaw of the perpetual money machine when she was describing in an interview the damage a socialist government in Britain had done to the economy:

Socialist governments traditionally do make a financial mess. They always run out of other people’s money. It’s quite a characteristic of them. They then start to nationalise everything, and people just do not like more and more nationalisation, and they’re now trying to control everything by other means. They’re progressively reducing the choice available to ordinary people. — (Thames TV Interview, February 5, 1976. Emphasis added)

Does this ring a bell with anybody?

When the taxpayers are paying all they can, many modern governments just keep on paying it out, and damn the debt torpedoes. When it becomes difficult to borrow money from individuals, organizations and other countries, some governments just invent money out of thin air, or try to. They fire up a perpetual money machine.

Our government has just issued bonds (borrowing from lenders with the promise of repayment with interest), and then issued “money” to buy those bonds back from the lenders. The “money” is “money” in quotation marks, because it has no inherent value, like gold or land, and it is only worth what the government can convince people it is worth.

It is also referred to as “fiat money,” not because it can only be used to buy one brand of Italian car (whose name has been said to be an acronym for, “Fix It Again, Tony!”), but because “fiat” is Latin for, “Let it be done.”

When a government issues a fiat, questioning its validity draws the same answer a child may get from its parent, in lieu of a rational explanation:

“Because I said so!”

Parents sometimes exercise such autocratic power over their children, when there is not time for a rational explanation, or when they assume that the child needs to believe the parental pronouncement regardless of the child’s capacity to understand the explanation. Autocratic governments often exercise the same sort of authority over their subjects – uh, citizens.

“This dollar will buy you a loaf of bread, because the government said so.”

When individuals issue “money” to pay debts, it’s called “counterfeiting,” and it is regarded as a crime, because… because… only governments are allowed to issue worthless money. The whole sum of money in circulation is reduced in value because of the loss of faith in its value. Faith is all that supports the value of fiat money.

Counterfeiting, in other words, is a government monopoly.

Sooner or later, the worthless money becomes recognized as such, and it no longer will buy anything, or anything much. Where a “dollar” used to buy a loaf of bread, inflated “dollars” will only buy a slice. When potential sellers of goods and services realize that money is, in fact, “fiat money,” hyperinflation may result, and a wheel barrow full of dollars may only buy breadcrumbs, if anything at all.

People holding a lot of “fiat money” in cash may find the best use of it is to burn it to keep warm.

This has happened in modern times, in places like the Weimar Republic and Zimbabwe

50-million mark Bank Note, Weimar Republic (Wikipedia)

The problem with “perpetual money machines,” socialist governments that hand out monetary favors to favored constituents without regard to where the money will come from, is a law as intractable and grumpy as entropy and friction – the law of scarcity.

Scarcity is a sophisticated name for a simple truth, which is what all natural laws are, at heart. That simple truth is: There is a greater demand for some things among humans than there is a supply of those things.

Rather than strive to understand the implications of this truth, politicians, as Thomas Sowell has said much more eloquently (and with far greater street cred), here, and, in a second installment, here, prefer to hide behind the elements of fiction that have driven public interest in drama for centuries: heroes, villains and victims.

Discussing scarcity requires an attention span and an understanding of logic that following reality television does not. Politicians are competing for an audience with “Dancing with the Stars” and the Comedy Channel, and they know that emotion and contrived drama trump rational analysis every time.

Politicians set up “big oil” as a villain, for example, casting people at the pump as victims, and themselves as heroes, with their congressional committee rooms as the backdrop. By calling oil company executives on the carpet before their committees, the politicians can compete among themselves for face time on television with stupid questions and self-important speeches, interrupting and drowning out potentially rational replies from the oil executives.

The perpetual money machine keeps cranking out dollars, passing them to favored constituents. The debt keeps rising, as do the prices of gas and groceries. Politicians keep on casting themselves as heroes, while the victims go from bad to worse.

Meanwhile, the inefficiency of government, as measured by the small fraction of each tax dollar supposedly aimed at solving problem X that actually gets to problem X, is as stubborn an impediment to the efficiency of the perpetual money machine as is friction to Fludd’s perpetual motion machine. Regulatory bureaucrats, campaign finance committees, favored contractors and unions all peel off their take before the money arrives at the people, pavement or endangered species it is supposed to be helping.

Meanwhile, the diminishing value of each dollar from the perpetual money machine is a tax on everyone who earns, saves or spends that money.

Retirees are caught in a vise. The value of their pension dollars shrinks, as the prices of the things they must buy continue to rise.

Minimum-wage employees find themselves unable to afford the gas to get them to their minimum-wage jobs, making government unemployment “compensation” more attractive, even though the money behind that “compensation” is cranked out by the same machine, with the same, ultimate cost to the unemployed and to everyone else.

The “rich,” those who have enough money left over after they pay for the essentials of life to be willing to put that left-over money to work making more money, become uneasy with the diminishing value of their wealth. They pull back the ‘extra” money, and put it where they think its value will drop as slowly as possible, so as to have more of it left when the prices of essentials rise even more. The “rich” include small business owners, and these “rich” people employ about 70% of all employed Americans. Employees the “rich” suddenly find they cannot afford, are laid off. New employees they might have hired, remain unemployed.

Crank that perpetual money machine up! There is more “money” needed to pay the unemployment benefits of those who are laid off or not hired as a result of the decreased value of fiat money. More, less-valuable money hits the street, and the value of all the money in circulation drops. Inflation continues. Economic friction continues to convert the “money” cranked out by the perpetual money machine into wasted heat.

Am I way off-base, here, to think socialism is no more sustainable than a perpetual motion machine? I don’t think so. Both are fictions based in the ignorance of the public as to immutable laws, and neither has ever worked, nor will ever work.

Perpetual motion machine scams may cause fools and their money to be parted, but socialism is a stepping stone to economic disaster.

Governments that run perpetual motion machines either fall and are replaced with fiscally conservative leadership, or they degenerate into dictatorships, like those in the last century, that were responsible for the murder and enslavement of hundreds of millions of people.

History, like immutable laws, is a dispassionate, but brutally honest teacher. Socialism, the perpetual money machine, is a scam and an inevitable, costly failure.

“They always run out of other peoples’ money.”

Zimbabwe Z$100 Trillion

$100 Trillion Dollar Bill, Zimbabwe (Courtesy Wikipedia)

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