I have been posed a question recently by several people, independently. I specifically remember a colleague posing the question in the following way.
People ask me if I am for illegal immigration laws, or as a libertarian, if I am for open immigration. I tell them I don’t know yet.
It’s definitely a difficult question until one can observe certain variables involved. I commend my colleague for taking reservation. By not choosing a position purely for demagogic or emotional reasons he has not pigeonholed himself into defending one side or another. He has elected to not commit until he gained more information. If only more people had this mindset.
I answered his question in this way. If we didn’t have all the welfare state safety nets in place, that non-citizen foreigners take advantage of, then open immigration (the way it was in the early years of the United States) wouldn’t even be an issue.
Open border advocates always point out that open border policies to immigrants were never as severe as they are now; however, they also fail to point out that we didn’t have the welfare programs during those “good” times. You cannot address one without addressing the other.
To the counter, a big argument against illegal immigration today is a good amount of U.S. Dollars that are being exported to Mexico. What people don’t realize is that, this is actually a benefit, not a detriment. It is excess dollars in circulation that drive prices higher. When dollars are sent abroad (or in this case south of the border), this puts a short term check on price inflation. Since all governments impose legal tender laws allowing only the local national currency to be used in every day transactions, the U.S. dollars accumulated simply sit in cash balances of foreign citizens until they wish to buy something from the United States. This helps our export industry. It also effectively creates export related jobs as demand for U.S. goods rises abroad.
I say that the check on inflation is short term because all paper currency will ultimately be used, as that is its intended purpose –to be exchanged for purposeful goods. There is no permanent form of inflation exportation (which is our biggest national industry by the way). The dollars, one way or another, will find their way back into the U.S. economy. The questions are, when, and for what purpose? Not to sidetrack the topic at hand, but if the conditions are broad and severe enough, we’ll find that dollars will come flooding back uniformly, in short order. This will unveil the true price structure of goods, in the form of dramatic price rises, within the United States. Those that currently believe goods are still “inexpensive” because prices are currently low, are engaging in an egregious amount of self-deception. However, those of us that realize the current price structure is artificial can take advantage of it while it is still in this state.
Due to the welfare apparatus, non-tax paying foreigners have access to healthcare, public schooling, colleges, grants, government subsidized food, shelter, and so on. In many cases, the illegal population has access to certain funds that actual citizens do not. Clearly we are going to find an irate citizenry hell-bent on removing this parasitic class. Unfortunately this mindset is ripe for government manipulation. As the cries aren’t going to be to remove the problem, the welfare system, instead the onus will be put on the removal of the non-citizen class themselves. With ever more government spending and bureaucratization commences, the result is government growth.
As I stated above, exportation of inflation does have short term benefits, however if this were based on a gold standard, there could never be a “flood” of money into the market because the amount of paper money printing would have definite limits. This means that even though a set number of dollars flow out of the U.S. economy, new dollars couldn’t be created to replace them. The result is U.S. dollar holders will see prices for goods fall as the dollar strengthens (few dollars in circulation).
In the pre-World War I “classical” gold standard, every currency unit, be it dollar, pound, franc, or mark, was defined as a certain unit of weight of gold. Thus, the “dollar” was defined as approximately 1/20 of an ounce of gold, while the pound sterling was defined as a little less than 1/4 of a gold ounce, thus fixing the exchange rate between the two (and between all other currencies) at the ratio of their weights.
Since every national currency was defined as being a certain weight of gold, paper francs or dollars, or bank deposits were redeemable by the issuer, whether government or bank, in that weight of gold. In particular, these government or bank moneys were redeemable on demand in gold coin, so that the general public could use gold in everyday transactions, providing a severe check upon any temptation to over-issue. The pyramiding of paper or bank credit upon gold was therefore subject to severe limits: the ability by currency holders to redeem those liabilities in gold on demand, whether by citizens of that country or by foreigners. If, in that system, France, for example, inflated the supply of French francs (either in paper or in bank credit), pyramiding more francs on top of gold, the increased money supply and incomes in francs would drive up prices of French goods, making them less competitive in terms of foreign goods increasing French imports and pushing down French exports, with gold flowing out of France to pay for these balance of payments deficits. But the outflow of gold abroad would put increasing pressure upon the already top-heavy French banking system, even more top-heavy now that the dwindling gold base of the inverted money pyramid was forced to support and back up a greater amount of paper francs. Inevitably, facing bankruptcy, the French banking system would have to contract suddenly, driving down French prices and reversing the gold outflow.
-Murray N. Rothbard, The Case for a 100% Gold Dollar
As you can see, a fixed gold relation of paper currency puts a limit to government spending, and thus welfare programs could not be possible (at least long term), without a tax base to pull from. As government tried to grow, it would be forced to downsize or go into bankruptcy. In both cases, welfare safety nets couldn’t be possible. It is only through fiat currencies (no commodity backing) and an ever increasing government spending via money printing / borrowing that welfare programs can exist. At each turn, the government expands.
It is no coincidence that the first national welfare programs really started appearing at the same time government confiscated gold from the citizenry (1933-1934) and made it illegal for citizens to own gold bullion. As the welfare programs continued to expand and put tremendous pressure on the monetary system, there were two potential outcomes.
- File bankruptcy thereby reducing government size and scope.
- Float the currency by removing the gold standard.
To recap, our problems in the illegal immigration debate stem from the social welfare state. The social welfare state exists because of government intervention into monetary affairs. The government monetary intervention exists because there is no direct limit on monetary expansion. There is no limit on monetary expansion because we do not have a commodity (gold) tied currency. If we still had a gold standard, as a result no welfare programs (or very limited ones), people wouldn’t even consider illegal immigration a problem, because there would be very little incentive to immigrate unless one wanted to become part of the culture and enjoy the idea of freedom. Any impact on the economy would actually be neutral. Any money a non-citizen would make would be spent locally, saved, or sent abroad. If it is saved or sent abroad, prices would fall. When the U.S. dollars sent abroad came back home, it would increase export demand, thus creating export related jobs.
Open immigration policies with the current welfare systems in place would exacerbate the current situation. It would be economic suicide. However, I am of the opinion that we are still on this path, only in slow motion. We will get there; it’s simply a matter of how soon.
As in all things, we must properly identify the underlying source, not the symptom, in order to rectify the problem.
Travis
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