By Paul A. Cleveland

When asked whether or not they wish to be free, everyone will say yes. However, when pressed to explain what they mean by freedom a wide variety of explanations will arise. Why? To address this question it may prove helpful for us to examine two quotations. First, Voltaire made the observation that, “Man is free at the moment he wishes to be.” Second, Sigmund Freud observed that, “Most people do not really want freedom, because freedom involves responsibility, and most people are frightened of responsibility.” If we assume there is some truth to these two quotations it would seem that most people prefer a freedom that never has and cannot exist. Namely, people generally prefer a freedom without responsibility.

This disregard of the true nature of freedom has resulted in two distinct views of human life and the purpose of government. One view embraces freedom with responsibility while the other seeks for the security of a kind of paternalism that actually destroys freedom and leads to oppression. Consider the Bible. When Moses penned the first five books of the Bible, he told his audience in chapter one of Genesis that God had created them in His own image. What does this mean? The concept of bearing the image of God was known at that time, but only applied to Pharaoh. Moses told the people that they all were sovereign and were meant to be free. So the battle between Pharaoh and Moses centered on this issue of freedom. Moses advocated freedom with responsibility while Pharaoh offered the perversion that enslaved the people to his will. But, consider further the ongoing struggle during the exodus of the Israelites from Egypt. No sooner had they left their slave chains behind and ventured out into the hard reality of living in freedom than did they begin to complain about the situation and long for slavery. Overlords are all too willing to take advantage of this situation and to oppress such people and this has been the general condition in which people have lived throughout the ages.

The two chief means of oppression are to tax people directly and to tax them indirectly. The main means of taxing people indirectly is to destroy the value of the money they use to trade amongst themselves. Indeed, this last means of taxation is often the most effective means ruling over people since most people will not understand the penalties imposed on them. In order to extend taxes further, the overlord will typically propose some grand public works project or point to some present crisis that needs to be addressed. Groucho Marx observed, “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies.” So rulers must promote a hodge-podge of falsehoods and half-truths to extend their rule. When these are believed, ignorance reigns. Moreover, as Will Rogers observed, “When ignorance gets started it knows no boundaries.”

Promoters of lies for the purpose of extending state control have acted upon this throughout the ages and destroying the value of the money is fundamental. Even John Maynard Keynes understood this. In 1919 he observed, “There is no subtler nor surer means of overthrowing the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

The reason that this is true is that monetary inflation benefits debtors and penalizes creditors. As a result, a political cadre of debtors will always embrace the scheme in order to short change the savers in society. In terms of the biggest debtors, governments, commercial banks, and speculators are typically the biggest debtors who form the lobbying effort to support such inflation. This erodes the saving of private individuals which destroys their financial well-being. At root, our propensity to be cheated stems from this underlying desire to have security without responsibility. It makes of us willing dupes who openly embrace our being cheated and oppressed by our overlords. As such, the cause of defending and protecting genuine freedom, which embraces one’s responsibility, is a daily task.

It is not necessary for us to live in slavery if we are willing to embrace a sound economic understanding of money and banking. The first economists sought to push back the frontiers of economic ignorance by articulating such sound principles. One of the champions of economic freedom was Jean Baptist Say. Say correctly noted that money cannot be too scarce which merchants are prone to assume during a downturn. In what has come to be known as Say’s Law, he wrote:

“It is common to hear adventurers in the different channels of industry assert, that their difficulty lies not in the production, but in the disposal of commodities; that products would always be abundant, if there were but a ready demand, or market for them. When the demand for their commodities is slow, difficult, and productive of little advantage, they pronounce money to be scarce; the grand object of their desire is a consumption brisk enough to quicken sales and keep up prices. But ask them what peculiar causes and circumstances facilitate the demand for their products, and you will soon perceive that most of them have extremely vague notions of these matters; that their observation of facts is imperfect, and their explanation still more so; that they treat doubtful points as matter of certainty, often pray for what is directly opposite to their interests, and importunately solicit from authority a protection of the most mischievous tendency.”

Say went on to observe that market prices serve a crucial role in the economy. Coupled with the forthcoming profits and losses of businesses, prices serve as effective signals of what is and what is not economic. Profits are signals that wealth is being created and losses the sure sign that wealth is being destroyed. In this way, Say observed, the market is always a self-correcting process that can function of its own accord since the process is merely one in which individuals are free to trade with one another on mutually agreeable terms. This is a truth that must be obfuscated by oppressors if they are to successfully cheat people out of their economic wherewithal.

Despite this economic truth, governments and their minions have succeeded in clouding people’s minds and inflating the money supply. In modern times this has generally meant a paper money inflation whose issuance is promoted by a legal tender law. This sets in motion Gresham’s Law whereby the bad paper money drives sound money out of the market place. Such paper invariably leads to a boom/bust cycle. The easy paper money initially promotes what appears to be an economic boom. However, because prices are distorted by the money this boom is short lived and must eventually give way to economic reality.

The American experience provides ample evidence of this process. There has never been a real free market in banking here. Paper issues based on fractional reserves by both private banks and governments have created such booms and busts. For example, to finance the Revolutionary War, the Continental Congress issued a paper currency. The paper was issued from 1775-1780. The monetary inflation was so rapid that the value of the Continental dollar had dropped to 168 to 1 by the spring of 1781 leading to the widespread use of the phrase, “it’s not worth a Continental.” A compounding problem for the U.S. once it was established was legally adopting a bimetallic standard setting the exchange rate of gold for silver. This set in motion Gresham’s law since there is no reason for this rate to remain fixed. In addition, state chartered banks engaged in fractional reserve lending leading to various monetary crises. Moreover, there were always present those in America whose views of money were driven by the older mercantilism that the economists were attacking. The most noted figure in this regard was Alexander Hamilton whose push for a national bank served as a destabilizing factor. Our forays into fractional reserve banking leading eventually to the creation of the Federal Reserve System is a sordid story of the destruction of the value of our money and the enslaving of the American people. Once again, however, we need not live here. We can be free the moment we choose to be free.

Paul A. Cleveland is an author and professor of economics at Birmingham-Southern College. He is the author of “Understanding the Modern Culture Wars” and “Unmasking the Sacred Lies.” He also co-authored “Basic Economics” with Clarence B. Carson.

As August 2 approaches, you’ll likely hear increasingly urgent debate over the nation’s debt ceiling. That’s the approximate date by which the Treasury estimates it will no longer be able to borrow under the current $14.3 trillion limit. Treasury officials have warned that if the Treasury can no longer borrow money, the U.S. might default on its existing obligations–in other words, be unable to make payments it already owes, whether those be for Treasury securities or government programs.

President Obama, Treasury Secretary Timothy Geithner, and Federal Reserve Chairman Ben Bernanke have warned that not raising the debt limit would have severe consequences. Leaders of both parties have said that the issue must be addressed, and have put forward proposals for tying any increase to tackling the country’s budget deficit. However, they differ on how to begin to reduce that deficit.

While the debate is taking place right now, here are some answers to frequently asked questions that might help you understand the issues involved.

What is the debt ceiling?

The debt ceiling represents a limit on the amount the U.S. Treasury is allowed to borrow to manage the national debt (the total amount currently owed by the U.S. government). Before World War I, Congress often approved the terms of individual debt instruments issued by the Treasury to pay for spending authorized by Congress, including maturities, interest rates, and the types of financial instruments used. Eventually, members decided in 1939 to set an overall limit on the total amount the Treasury could borrow to pay the nation’s bills without congressional authorization.

An increase in the debt limit does not authorize additional governmental spending; only Congress can approve future spending. However, Treasury officials have said that if the limit is not raised, the government would not be able to pay bills that have already been incurred. According to the Congressional Research Service (an arm of Congress), the debt ceiling has been increased 78 times since 1960 (10 times just since 2001), under both Democratic and Republican administrations.

The national debt has two aspects. Debt held by the public occurs when investors buy debt instruments sold by the Treasury to finance budget deficits and pay bills; it represents almost two-thirds of the current debt. Debt held by government accounts is created when the Treasury borrows from government accounts such as the Social Security, Medicare, and Transportation trust funds.

What would happen if the debt ceiling isn’t raised?

There’s no way to know the precise or full impact, since a default on the country’s obligations is unprecedented in U.S. history. However, the Treasury is responsible for payment of a broad range of obligations that include not only Treasury bonds, notes, and bills, but also Social Security and Medicare benefits, military salaries, interest on the current national debt, and tax refunds, to name only a few.

Technically, the $14.3 trillion ceiling was exceeded in May. However, the Treasury has been able to use certain accounting measures to temporarily extend the nation’s ability to borrow.

Bond rating agencies have already warned that an interruption in or curtailing of payments owed by the U.S. government would harm the nation’s credit rating, which is currently among the highest in the world. If that happened, or if the country actually had to default or restructure payment schedules, greater uncertainty about the United States’ ability to pay its bills would mean that both domestic and foreign investors would likely demand higher interest rates for buying Treasury securities.

Those higher interest rates would increase the country’s borrowing costs, making the national debt problem even worse in the long term. They might also result in higher interest rates for other, nongovernmental loans such as mortgages, which some observers worry could hamper economic recovery. And even if there were technically no default, the mere absence of an agreement that addresses the issue before August 2 would likely raise the global anxiety level substantially.

Haven’t we survived government shortfalls in the past?

Governmental funding gaps have occurred more than a dozen times in the last three decades, according to the Congressional Research Service. The most recent was in 1995-1996, when the failure of the Clinton administration and the Republican-led Congress to reach agreement on a spending bill led to a temporary government-wide shutdown. However, never in the country’s history has it failed to pay its legal obligations–one reason why Treasury securities have historically been considered one of the safest investments in the world.