Original author: @Web3 Mario
This week was really exciting. On January 18, two days before he officially took office as president, Trump personally issued a coin, and the price rose by 400 times in just a few days! First of all, I would like to congratulate all the friends who seized this wave of wealth opportunities, and I also wish you all a happy new year in advance. There have been many discussions about the potential impact of this phenomenal event in recent days, and the author also hopes to use this opportunity to start a discussion. In general, the author believes that Trumps coin issuance marks the official return of neoliberalism in the United States, and survival of the fittest and wild growth will become the main theme of this new era. More specifically, in the context of deregulation, Web3 will carry the banner of financial innovation in the new cycle of the United States.
The development history of mainstream economics in American history - the continuous exploration of the relationship between government and market
In order to help you better understand the impact of this change, I think it is necessary to make a brief review of the changes and developments in mainstream economics in American history. In fact, the history of the development of economics is a history of exploring the relationship between government and market. With the different internal and external contradictions of society in different historical stages, modern sovereign states often adopt different economic strategies to cope with internal and external pressures, to ensure social stability internally, and to maintain relative competitive advantages in international geopolitical games externally. The so-called mainstream economics is the abstract summary made by some of the most insightful people based on specific economic phenomena, which provides a theoretical basis for the policy-making of policymakers. They are not some eternal truths in science, but more belong to the category of sociology, and are applicable to a specific area at a certain historical stage.
After clarifying the above premise, lets take a look at the development history of mainstream economics in American history. In fact, it can be roughly divided into six stages:
1. The colonial era in the context of the Puritans’ departure from Europe: the process of resistance to colonial economic exploitation by the colonial powers under mercantilism (1600-1776)
Friends who are familiar with Western history will know that, unlike most nation-states, the United States is an immigrant country. The uniqueness of immigrant countries lies in the fact that their birth usually depends on certain irreconcilable contradictions within the immigrant country under a specific background, which leads to the large-scale migration of disadvantaged interest groups. This means that the cohesion of immigrant countries at the beginning of their establishment is usually much higher than that of nation-states. There are two reasons. First, this is a group of screened interest groups with common ideology and values. Secondly, because at the beginning of the establishment of immigrant countries, the distributable benefits are still in a state of abundance, and all classes can enjoy objective distribution of benefits, so there is a strong sense of satisfaction.
The birth of the United States can be traced back to the colonial era when the British Puritans evacuated the European continent and searched for a new promised land. The iconic event here is naturally the well-known Mayflower incident, which established the first virgin colony of the British Puritans in North America, Virginia. Here we need to talk about the background of the Puritans in detail. We know that the medieval period on the European continent was the so-called theocracy period. The background of this stage was that the Western Roman Empire, from the perspective of interests and costs, used foreign mercenaries to resist the invasion of barbarians, which led to the decline of its own military power and gave rise to the prosperity of the barbarian kingdoms on the European continent. In order to cope with this background, the rulers of the Western Roman Empire chose to use the surplus value of the empire, transform their identity and ruling mode, and use the promotion of Catholicism from the Middle East to find legitimacy and authority for their rule, so as to alleviate the embarrassing situation of insufficient military strength. As a result, with the conversion of most of the barbarian kingdoms, the old ruling class of the Western Roman Empire was transformed into the Roman Catholic Church, and the ruling mode was changed from military suppression to ideological control.
How is this done? This is because although the barbarian kingdoms have an advantage in military force, they are not good at culture. Therefore, no matter in the East or the West, when the barbarian kingdoms rely on military force to govern certain areas where culture is dominant, they will be assimilated. Whether from top to bottom or from bottom to top, once most of the group is assimilated by a dominant culture, the source of authority of its ruling class will not be autonomous, and will have to rely on external intervention. Specifically, since most barbarians converted to Catholicism, such as Germans, Gauls, Celts, and Ansas, the legitimacy of the ruling class of its sovereign state will not rely on national consciousness, but on the coronation of the Roman Catholic Church to give it legitimacy. This model is actually similar to the Western Zhou Dynastys control over the vassal states through Zhou rituals.
In this context, since there was no option of intimidation by force, in order to ensure the stability of its rule, the Vatican had to design complicated religious rituals to achieve absolute control over peoples thoughts and completely dispel the idea of resistance from these barbarians who had armed forces. Therefore, we can find that in the context of the Middle Ages, there was basically no bottom-up resistance similar to that in Eastern civilization on the European continent, because the thoughts of the lower classes were firmly controlled by Catholicism.
However, as religion is a metaphysical subject, different people will naturally have different views due to their different life backgrounds. Once another opposing idea is formed, it is bound to have a fatal impact on the authority of the old mainstream idea, and this opposition is irreconcilable. Therefore, throughout the Middle Ages, the so-called chaos was not the chaos of the internal order of society, but the long-term and meaningless bloody wars between national alliances with different religious views due to differences in metaphysical values.
As the brutal war brought great impact to the society, some progressive people reflected on this situation, which gave rise to the Enlightenment and Renaissance. The cultural changes with liberalism and rationalism as the core began to impact the Catholic system in all directions. The so-called Puritans were the product of this background. They refer to a group of religious radicals in the UK. Their radical ideas focus on the ownership of the right to interpret the Bible. They believe that the Bible is the only authoritative one. Everyone can interpret the Bible, rather than the traditional official church designated by the Holy See. This was naturally suppressed by the Catholic group, which led to the expulsion of these radical religious people from the church, so they were called Puritans. At that time, it coincided with the Age of Exploration. The European navigation technology developed rapidly. These suppressed interest groups with anti-authority and pursuit of freedom chose to come to the distant North American colonies to rebuild their own promised land. This is the beginning of the story, and it also laid the foundation for anti-authority, self-consciousness, and pursuit of freedom as the national spirit of the United States.
After introducing this background, we can understand why Americans seem to have a certain paranoia about liberalism. Back to the point, although there was an environment of religious freedom, economically, the North American colonies at that time were still under the colonial economic system of their mother country. At this time, Britain was promoting mercantilism. The core idea of mercantilism was that the country should use policies and the application of force, and use gold and silver as the two precious metals as the standard of measurement, so that exports should be greater than imports, thereby achieving the improvement of national power. On this theoretical basis, Britain usually requires colonies to focus on raw material industries such as agriculture and mining, and curb the development of its manufacturing industry. In this way, with the help of imported raw materials and exporting industrial products with higher added value, the plunder and control of the colonial economy can be achieved. This is the so-called colonial economy, such as restricting the freedom of trade in the colonies through the Act of Navigation. Therefore, at this time, a landlord class dominated by agriculture and a group of progressive people who advocated getting rid of the economic control of the mother country through the development of industry gradually formed in the North American colonies. A large number of landmark events in this stage revolved around the contradictions between progressives and the mother country, such as the Boston Tea Party. Finally, after a series of struggles and tugs of war, as well as the influence of Frances strong intervention in North American affairs, the United States was officially born, marked by its victory in the War of Independence.
2. The early years of the founding of the nation with the integration of the main ethnic groups: the struggle between agrarianism and industrialism (late 18th century to mid-19th century)
After gaining independent sovereignty, the United States was actually still very weak and had to rely on its alliance with France to gain a certain sense of security. At this time, two mainstream economic theories gradually flourished in the United States. In the above, we have discussed the formation of the two classes of progressives and traditional landlords. The two economic theories were supported by these two groups of people respectively.
In the southeastern United States, due to its superior agricultural development advantages, its economic system is mainly based on slave agriculture and planting, which naturally gives the landlord class a clear advantage in the social class in the region. And this coincides with the honeymoon period between the United States and France. France was at a disadvantage in the colonial competition with Britain at this time, so it changed its mercantilism and proposed physiocracy. There is a big difference between physiocracy and mercantilism. First of all, physiocracy believes that only agriculture is the only industry that produces value, because the raw materials of agriculture are natural and free, such as sunlight, rain, land, etc., and the output of agriculture is valuable. This is a process from nothing to something, while industry is only the processing of raw materials, which only changes its form, and no value is generated in this process. Therefore, the measurement of national strength should be based on the evaluation of its agricultural output, which is very different from the idea advocated by mercantilism that the accumulation of precious metals represents national strength. Second, in terms of the attitude towards the market, the physiocrats believed that although industrial products did not generate value, they were the lubricant of economic operation, affecting the efficiency of value circulation. A relatively free market system was beneficial to enhancing turnover efficiency, which was also very different from the practice of mercantilism that encouraged exports and curbed imports. Of course, from the perspective of hindsight, we can also see that physiocrats were more suitable for the optimal choice when the industrial technology was relatively backward compared to Britain at that time, but there was a demographic dividend. It is conceivable that the landlord class in the southern United States would naturally support this doctrine.
However, as an important North American trade transit center of the United Kingdom, the northern United States was naturally greatly influenced by the British economic philosophy, so the northern part naturally formed an industrial structure dominated by trade and primary manufacturing. And because of the harm of the colonial economic system, the progressives in the northern United States have a clear preference for industry, so after gaining an independent economic status, they naturally vigorously developed industry to get rid of the shadow of the colonial economy. Under the dual influence of mercantilism and colonial economy, the northern United States formed an economic theory of heavy industry, which believes that industry is the embodiment of national strength, and the added value difference brought by industrial products and raw materials is the only way to increase national strength. Therefore, the country should formulate policies such as protective tariffs and encourage the development of local industries as much as possible.
As time went on, two very different cultural groups gradually formed in the north and south of the United States. The North was called Yankee. The word originally referred to the descendants of residents in the New England region of the northern United States; later its folk meaning was extended to all residents of the northeastern United States (New England, the Mid-Atlantic states, the upper Great Lakes region, etc.), as well as northern Americans during and after the American Civil War. The South called itself Dixie, referring to the southern states of the United States and the people in the region. The cultural differences eventually led to a complete split, and the Civil War broke out in the United States, and ended with the absolute victory of the Yankee cultural group advocating heavy industry in the North. Since then, the mainstream economic theory in the United States has been dominated by heavy industrialism. The landmark event was the Manufacturing Report (1791) by US President Hamilton, which proposed protectionist tariffs and federal banks, laying the foundation for the US industrial policy. Of course, it also includes the Tariff Act of 1816 to protect domestic manufacturing from the impact of cheap imported goods.
3. The Age of Expansion of Manifest Destiny and the Roaring 20s: Laissez-Faire and Classical Economics (Mid-19th Century-Early 20th Century)
As the United States rapidly industrialized with the abundant supply of raw materials in North America, the national strength of the United States has greatly developed. At that time, a great sense of superiority and the sense of mission inherent in Christianity gave rise to a general imperialist sentiment among the American people. The United States also entered the era of Manifest Destinys westward expansion. At that time, the Midwest of North America was controlled by indigenous tribes, and most of these indigenous tribes had long-term dealings with Western colonists, especially Spain, France and Britain. The United States adopted policies such as the Homestead Act to encourage citizens to move westward on their own to seize the land of indigenous peoples. Under this vigorous westward movement, the territory of the United States started from the Mississippi River and crossed the entire North American continent.
At this time, the rise of classical economics in continental Europe also had a profound impact on American society. The so-called classical economics is an economic thought system formed from the late 18th century to the 19th century, and is also the founding theory of modern economics. It emphasizes the spontaneous regulation of the market, free competition and economic freedom, and lays the theoretical foundation for the capitalist economic system. This school mainly explores core economic issues such as production, distribution and growth.
In fact, the birth of classical economics was not accidental. It is not difficult to find out by referring to the experiences of its representative figures. Take Adam Smith as an example. He was born in Scotland and was naturally deeply influenced by mercantilism. However, under mercantilism, the states strong intervention in industry and the increasing financial pressure to maintain the colonial system also inspired Adam Smith deeply during his exchanges in France. He absorbed the core ideas of physiocracy, such as the significance of the free market, the governments attitude towards market intervention, the analytical logic of commodity value, and the governments analysis of economic conditions through mathematical models. Of course, there are also differences. For example, classical economics believes that agriculture is not the only industry that generates value, and the real source of value of commodities is labor.
Such economic theories are obviously more suitable for the enlightened West in the new era, which has completed the Enlightenment. And with the acceleration of the human rights movement, aversion to government intervention has gradually formed a social consensus. At this stage, most Western countries have
Pursuing as little government intervention as possible, a more open international trade policy, and relying on the power of the market to allow the economy to develop freely. This policy is also called laissez-faire. This also gave rise to the rapid rise of the capitalist class. Influenced by Ricardos theory of comparative advantage, countries also supported their own advantageous industries based on their own industrial advantages. At this stage, like most countries in the Western world, the United States various industries developed comprehensively and showed a thriving trend. However, the contradictions between the working class and business owners brought about by industrial development gradually increased, and a red cloud shrouded the sky over the European continent.
The introduction of Marxist economics is a kind of inheritance and dialectical criticism of classical economics. Its core idea continues the labor theory of value in classical economics. With the help of materialism, it explores production relations and develops into the theory of surplus value to reveal the mechanism of capitalist exploitation. Its essence is a change in the political system. In order to respond to the criticism of some phenomena in classical economics pointed out by Marxist economics, classical economics has also evolved. By introducing the marginal theory, some deficiencies in classical economics have been improved. For example, the analysis of commodity value has transitioned from the labor theory of value to the marginal theory of value, and how the market regulates prices. This is also called neoclassical economics. But in fact, both ideas have entered the stage of independent development. Marxist economics has found the soil for its dissemination in the East, while neoclassical economics runs through the development of the West.
4. The Turbulent Depression Era: Big Government and Keynesianism (1929-1980)
Along with the rapid development of industry, the pace of financial innovation has not stopped. The most representative example is the booming development of the US stock market. Due to the free market concept emphasized by classical economics and the minimization of government intervention, capital development has become out of control.
In the 1920s, also known as the Roaring Twenties, the U.S. economy experienced rapid growth and the stock market was highly prosperous, but much of the growth was based on speculation and excessive credit expansion. Moreover, with the rapid development of industry, most industries showed a certain oversupply, but residents income growth lagged and purchasing power was insufficient. With the blessing of these two situations, the U.S. stock market entered a stage of irrational prosperity, with the value of most corporate stocks far exceeding their actual value, and speculation accounting for a very high proportion.
This capital feast ended with the Great Depression, which refers to a global economic crisis in the 1930s, centered in the United States, but had a profound impact on the worlds economy and society. This period was characterized by economic depression, soaring unemployment, and widespread social unrest. On October 24, 1929 (Black Thursday), the stock market began to collapse and a large number of investors went bankrupt. The decline accelerated on October 29 (Black Tuesday), marking the beginning of the Great Depression. Until 1933, the unemployment rate in the United States was as high as 25%, and industrial production fell by nearly 50%. Thousands of banks collapsed, depositors lost their deposits, and credit markets froze. Many families were unable to pay their mortgages and basic living expenses, and a large number of homeless people emerged.
The crisis also had far-reaching effects around the world, with the economies of Europe, Latin America and Asia also being hit hard. International trade was on the verge of collapse, with global trade falling by about two-thirds. It is no exaggeration to say that the trigger for World War II was this.
In response to this crisis, Keynesian Economics was born. Keynesian Economics is one of the most influential economic theories in the 20th century, proposed by British economist John Maynard Keynes in The General Theory of Employment, Interest and Money published in 1936. The theory focuses on how to achieve full employment and economic growth through government intervention, and is a criticism and revision of the self-regulation of the market in classical economics.
Since the trigger of this crisis was the stock market bubble caused by insufficient demand and excessive speculation, the core theory of Keynesianism is mainly built around these two aspects. The first is the effective demand theory. Keynes believed that the root cause of economic recession was insufficient effective demand, not production capacity. Effective demand is composed of four aspects: total consumption (C) + total investment (I) + government expenditure (G) + net exports (NX). Therefore, when private behaviors such as consumption, investment, and net exports weaken and the economy shows signs of recession, the government can intervene and boost social effective demand through government intervention. The second is that the government should give strong supervision to capital expansion to avoid excessive speculation in the financial market, thereby causing systemic risks.
The New Deal marked the official establishment of Keynesianism as the mainstream economic theory in the United States. President Roosevelt adopted large-scale intervention measures in the economy through the New Deal. For example, many public infrastructure investments stimulated domestic demand, rebuilt the financial credit system, promoted financial system reform, established a new regulatory framework (such as the Securities and Exchange Commission), and strengthened control over the financial market. This is the well-known SEC.
With the launch of Roosevelts New Deal, the United States quickly got rid of the Great Depression, and after the two world wars, it became one of the two poles of the world. Keynesianism also established its historical position.
5. The era of stagflation under the bipolar cold war: neoliberalism and supply-side economics
As time went on, after World War II, the world entered the bipolar Cold War stage under the Iron Curtain. At this time, the main theme of world politics and economy was the left-right struggle, the confrontation between the socialist camp and the capitalist camp. Although there was no direct conflict between the United States and the Soviet Union, proxy wars occurred frequently. After each experienced rapid development brought about by post-war reconstruction, the United States took the lead in encountering a bottleneck period in the 1970s. This was the advantageous stage of the socialist camp. After the defeat in the Vietnam War, the United States entered a stage of strategic contraction and defense. There were also two fuses at this time. The first was the collapse of the Bretton Woods system (1971). With the United States abandoning the dollar and gold peg (Nixon shock), the fixed exchange rate system collapsed, leading to the instability of the international economic system of the capitalist camp. The second was the oil crisis caused by the Middle East war, which caused oil prices to soar, further raising inflation.
Against this backdrop, the United States suffered from severe stagflation, economic growth came to a standstill, while inflation and unemployment continued to rise. In response to this dilemma that Keynesianism could not solve, the economics community proposed another solution. A group of economists represented by the Chicago School and the Austrian School proposed the so-called neoliberalism, of which the former was mainly committed to the construction of economic theory, while the latter focused on the criticism of the political system. Since the core idea of neoliberalism believes that the cause of stagflation is excessive government intervention, it has seriously affected the vitality of corporate innovation, which in turn has led to higher production costs for companies on the supply side, and the market has not entered a state of full competition. Therefore, it advocates returning to a small government, avoiding excessive regulation, advocating the reduction of corporate taxes, and controlling government spending to revitalize the supply side, so it is also called the supply school. Of course, at the theoretical level, the biggest difference between neoliberalism and Keynesianism is that it advocates the use of monetary policy rather than fiscal intervention to achieve economic regulation.
In 1979-1980, the inflation rate in the United States was close to 14%, far higher than the historical average. The unemployment rate rose to 7.8% in 1980 and reached 10.8% in 1982, the highest level since the Great Depression. Republican candidate President Reagan won the US election and chose neoliberalism as the basis of his administration, vigorously promoting Reaganomics and combining it with the monetary tightening policy of Federal Reserve Chairman Volcker. The United States finally got rid of the dilemma of stagflation and eventually won the Cold War. I would like to add that Trumps policies have always been widely compared with Reagans policies.
6. The era of massive money printing after the subprime mortgage crisis: quantitative easing and post-Keynesianism
This period of history is more familiar to everyone. With loose monetary policy and relaxed regulatory policies, the US economy, driven by financial and technological innovation, entered a stage of rapid global expansion. Financial institutions dispersed risks around the world through innovative products (such as asset-backed securities), and the global financial system was highly interconnected. At the same time, the US real estate market experienced sustained price increases in the early 2000s and was considered a safe investment area, attracting a lot of capital.
Under this double resonance, the United States created a huge asset bubble based on subprime loans represented by high-risk housing mortgages, combined with numerous financial derivatives. However, we already know the ending of the story. With the surge in subprime loan defaults and the decline in collateral value, the value of a large number of asset-backed securities has shrunk. The dominoes began to collapse, and eventually Lehman Brothers, the fourth largest investment bank in the United States, filed for bankruptcy protection, marking the climax of the crisis and triggering turmoil in global financial markets.
The impact of this financial crisis is far-reaching. The American people are extremely dissatisfied with the Republican governments laissez-faire attitude towards capital, which has caused such a crisis. This has also affected the readaptation of mainstream American economics, and post-Keynesianism has announced its return. A core argument of neoliberal economists criticism of Keynesianism has always been based on the assertion of rational economic man. If monetary policy and fiscal policy are predictable, economic entities will adjust their behavior in advance to offset the policy effects. Therefore, it is ineffective to boost the economy through fiscal policy.
In response to these doubts, Keynesianism has also made new revisions, among which Price and Wage Stickiness and imperfectly competitive markets are the most influential. The former explains why fiscal policy has a lagged effect on the economy, while the latter clarifies the existence of oligopoly problems in the market and the impact on equilibrium prices under imperfect competition in monopoly markets. Of course, post-Keynesianism also incorporates the most important theory of neoliberalism, that is, to jointly influence the economy through monetary policy and fiscal policy. At the same time, post-Keynesianism goes a step further and proposes rational expectations management to solve the lag of monetary policy relative to economic crises. That is, based on the rational economic man theory of neoliberalism, through the forward guidance of relevant officials, the expectations of rational economic people in the market are affected, and then the effect of early intervention in the market is achieved, thereby improving the efficiency of monetary and fiscal policies. Therefore, the features that we are more familiar with, such as the control of 2% inflation and the observation of forward guidance from Federal Reserve officials, are all products of this background.
Of course, during this period, as the executor of post-Keynesianism, the Democratic government mainly used three arrows to solve the impact of the financial crisis, namely large-scale fiscal spending and unconventional quantitative easing policies, extremely loose monetary policies, and increasingly tightened financial regulatory measures. It helped the United States get rid of the impact of the financial crisis. The story has come to the present.
With the return of neoliberalism in the United States under Trump’s leadership, Web3 will take up the banner of financial innovation in the new cycle of the United States
Looking at the evolution of mainstream economics in the United States, it is not difficult to find that this is a process of continuous exploration of the relationship between the government and the market. Affected by different historical events, policies have been constantly swinging between the government and the market. The theory that emphasizes the former emphasizes the effect of government intervention in the economy, while the theory that emphasizes the latter emphasizes that the market is more efficient in resource allocation. Considering Trumps own life experience, the stage when his important outlook on life was formed coincided with the low tide of Keynesianism in the 1970s. The United States relied on President Reagans promotion of neoliberalism to help the United States get out of trouble. Therefore, Trumps original intention to help the United States become great again through similar strategies becomes easy to understand.
In Trump’s narrative framework, the Democratic Party’s economic policies have caused three fatal problems:
l The massive fiscal stimulus bill and quantitative easing policy have plunged the United States into a debt crisis;
l The protective policy towards Silicon Valley’s high-tech industries has led to a misallocation of resources, with excessive allocation to high-tech industries and the complete abandonment of traditional industries, weakening the US industry;
l The large amount of information asymmetry caused by the governments active intervention has led to horizontal capital redistribution between different industries, widening the gap between the rich and the poor across industries, and exacerbating unfairness;
Therefore, in this context, I believe that Trump’s issuance of coins two days before he officially took over as president was not just for the purpose of making money, but to send a signal that he hopes to set a tone for Web3 to become the core position of a new round of financial innovation in the process of its deregulated supply-side reform. The benefits of doing so are also quite obvious:
1. It can bypass the constraints of the complex interest groups that have been formed in the traditional financial field after years of operation by the Democratic Party;
2. The open, transparent and trustless nature of the Web3 technology paradigm coincides with neoliberalism. By eliminating the intervention of all authoritative organizations and adjusting the distribution of benefits entirely by market mechanisms, it will be more conducive to the implementation of neoliberal practices.
3. Currently, most assets in the Web3 world are still priced in US dollars, so promoting related assets is also of positive significance for maintaining the hegemony of the US dollar;
4. Web3’s anti-censorship features make the flow of capital more efficient and can bypass the financial policy restrictions of other sovereign countries, giving full play to the financial advantages of the United States;
Of course, the impact of doing so is also obvious. The most direct negative impact must be similar to that of 2008, and it is bound to be greater and more far-reaching than the impact of the 2008 financial crisis. Higher financial systemic risks and vertical redistribution of wealth between the rich and the poor are inevitable. But the time period for this risk to occur must be medium to long term. In summary, the author is very interested in the direction of financial innovation based on Web3 and traditional industries in the United States in the next two years, and will continue to pay attention. Interested friends are also welcome to discuss with the author.
