“Practical men who believe themselves to be quite exempt from any intellectual influence are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
– John Maynard Keynes, The General Theory of Employment, Interest and Money (1936)
Practical Objectives
Is President Donald J. Trump a pragmatic leader? Or does he exhibit traits of a madman?
These questions can be subjective. What is clear is that Trump’s decisions seem influenced by detrimental strategies from the past, often rooted in outdated economic theories.
For instance, historical decisions such as the Federal Reserve Act of 1913 and FDR’s seizure of gold in 1933 shape the current economic landscape Trump navigates. Today, we aim to shed light on the significant challenges he faces.
Trump’s tariff policies are designed to redirect production and the dynamics of global trade. His goal is to move the production of goods from abroad back to American soil, thereby rejuvenating the domestic manufacturing sector and generating new blue-collar employment opportunities.
This ambition seems practical at first glance. Clearly, America’s consumer economy has often neglected the needs of the working class. Over the past five decades, laborers outside specialized professions have experienced stagnation.
Yet, the complexities of this situation are significant. The hasty application of tariffs may not yield the desired results, and even if they do, achieving such a transformation may span decades rather than years. In the interim, chaos may loom both nationally and globally.
To understand the erosion of America’s manufacturing, it is crucial to recognize that foreign competitors have been able to produce goods more affordably. In 1953, manufacturing accounted for roughly 32 percent of total employment in the U.S.; today, that figure has dwindled to around 8.5 percent.
Consumption and Production
The staggering trade imbalance witnessed over recent decades can be attributed to the advent of fiat money and credit systems. The closure of the gold window by Nixon in 1971 severed the intrinsic link between currency, credit, and international trade.
When trade operates under a gold standard, natural limits exist on trade deficits. Persistent overconsumption leads to a depletion of financial resources, ultimately making labor more affordable as wealth dwindles. Through hard work and innovation, a nation may learn to produce domestically at lower costs than importing goods, potentially achieving a favorable trade balance.
A monetary system tied to gold—immutable in nature—allows interest rates to adjust according to the dynamics of free market trade, effectively controlling overconsumption and overproduction.
In the late 19th century and early 20th century, America was synonymous with affordable labor and rising economic prospects. As America transformed from rural farms to urban centers, manufacturing flourished, significantly increasing the nation’s wealth.
Post-World War II, America emerged as the only major economy with its industrial base intact, allowing it to dominate the global market for decades.
As wealth flowed into America, wages rose, and the populace grew accustomed to living beyond their means, mistakenly believing this abundance was an inherent American right. Labor unions championed demands for wages that exceeded the value of skills provided.
However, this era also marked the advent of artificial wealth. Excessive federal spending in the 1960s—combined with economic mismanagement—resulted in rampant inflation during the 1970s. Consistent trade deficits emerged, signifying a pattern of consuming beyond production capacity, with debts covering the shortfall.
Dollar Demand and Runaway Debt
The Bretton Woods Agreement of 1944 made U.S. dollars convertible to gold at a rate of $35 per ounce for foreign governments. However, as America began to consume more than it produced, foreign entities began converting excess dollars into gold.
In 1971, Nixon opted to end this gold convertibility. Instead of compelling Americans to cut back on consumption and accept lower wages, he altered the framework altogether, allowing unchecked debts and deficits to proliferate.
Moreover, the U.S. dollar’s role as the reserve currency for global trade has further fueled its decline. Henry Kissinger solidified this status through an agreement in 1973 that mandated oil transactions be conducted in dollars, which escalated the demand for U.S. currency.
As new markets opened in China and the Far East toward the end of the 20th century, American debts surged. Freed from the constraints of a gold-backed currency but buoyed by oil trade, credit creation spiraled out of control.
Whenever American consumers or the government faced cash shortages, new credit was readily available. However, this bred a proportionate increase in debt. Currently, total U.S. debt—comprising government, business, and consumer obligations—exceeds $102 trillion, a significant portion of which funds the purchase of foreign goods.
For instance, prior to the 1970s, U.S. trade was balanced. However, once it shifted into deficit, it has rarely recovered. In 2024, U.S. exports totaled $3.19 trillion while imports reached $4.11 trillion, resulting in a trade deficit of $918.4 billion.
Trump’s MAGA Policies of Wealth Destruction
Over the years, the United States has shifted from a nation of savers to one of debtors. As manufacturing jobs vanished offshore, many cities fell into disrepair.
Compounded by the federal government’s indulgence in unnecessary international conflicts, the advantages of currency reserve status have been squandered. The February 2022 freezing of Russian central bank assets following the invasion of Ukraine demonstrated the West’s unreliability in honoring debts, prompting various nations to reconsider their reliance on the U.S. dollar.
This growing movement toward a trade framework outside of the U.S. dollar will likely trigger a depreciation of the currency against others, and all currencies may depreciate relative to gold. As a result, imported goods may become more expensive, driving up consumer inflation, although American exports could potentially become cheaper.
This evolution appears to resonate with Trump’s vision of revitalizing domestic manufacturing. However, an enduring question looms: Are Americans prepared to work more for less and systematically reduce the nation’s debts?
The outlook remains uncertain. Over the past 50 years, the country has fallen into a deep economic pit requiring immense effort, creativity, and unity to restore the manufacturing base.
Trump seems to grasp the serious nature of America’s debt crisis better than his predecessors, being the first president to confront the issue directly.
Yet, rather than striving for a return to sound money principles, he opts to manipulate international trade through tariffs, which ultimately threatens to undermine wealth rather than generate it.
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Sincerely,
MN Gordon
for Economic Prism
Return from Trump’s MAGA Policies of Wealth Destruction to Economic Prism
