Removing The Velvet Glove
Removing The Velvet Glove

Malcolm Greenhill
March 23, 2013

A lifetime ago, in a college political science course, I remember spending an inordinate amount of time studying the concept of ‘legitimacy’, how people come to believe in the authority of government and what makes them obey or feel loyal toward their governments. In earlier times legitimacy may have been conferred by, say, a belief in the divine right of kings or an averred social contract between the ruler and the ruled. But, in the U.S. today, legitimacy stems from a belief in one of the central tenets of the Declaration of Independence, that “governments derive their only just powers from the consent of the governed”.

Without significant legitimacy governments would quickly collapse, overwhelmed with the task of using brute force instead of voluntary compliance to ensure implementation of their program (see Syria today). Consequently, most governments go to great lengths to bolster their legitimacy, surrounding their leaders with the trappings of wealth and power, ensuring that schools teach an ‘approved’ curriculum, particularly history, and making sure that the media apply the correct spin to their reports.

Unfortunately, political legitimacy has been on the decline in the U.S. since the New Deal transformed government in the 1930’s. Today, only 25 percent of U.S. voters think the federal government has “the consent of the governed”. This should not be surprising as we have come to accept as routine the capture of government by a slew of different interest groups ranging from congressmen, banks and public sector unions, to corporations, environmentalists and the military. This concept is the polar opposite of the original meaning of “consent of the governed”.

As legitimacy wanes so the disquiet of civil society waxes. Governments with a high degree of legitimacy have no need to station soldiers on street corners, close down non-compliant newspapers or websites and/or confiscate the property of its citizens. As a result, for most of the time, the iron fist of government remains well concealed in its velvet glove. However, when a government decides, as the government of Cypress did last weekend, to close the banks and rob even small investors of 10 percent of their savings at a stroke, to help pay for the profligacy of both banks and government alike, the rubber hits the road and the velvet glove comes off. The fist of the state is now in the face of the people and most people have no doubt what they are looking at.

The strategies of financial repression are many and varied including debt default, protectionism, exchanging retirement accounts for worthless government bonds, foreign exchange controls and travel restrictions. One day we will be Cypress. If and when the U.S. government decides to remove its velvet glove and implement financial repression, at what point, if any, would you choose to withdraw your consent to be governed?