When the president of trade threatens to strangle it

CNBC reports that President Trump has doubled down on a threat to cut off trade with the United States' top partners unless the Federal Reserve slashes interest rates. Let me be plain about what this is: it is a debtor demanding that his banker lend more cheaply, and threatening to burn the marketplace if the banker refuses. I spent enough years dealing in bills of exchange and colonial paper money to know that this particular gambit ends one way — badly for the person holding the currency, which is to say, everyone.

The cost of credit is never only its interest rate. It is also the discipline that credit imposes on the borrower. When a government insists that money be made cheap by decree rather than by the actual condition of the economy, it is not lowering the price of goods; it is hiding it. The price will reappear, as it always does, in the form of inflation — a slow and invisible tax on the savings of the very tradesmen and small farmers who were promised relief. I saw this in Pennsylvania with our paper-money experiments. Done carefully, with real backing and real restraint, paper money is a useful engine of commerce. Done at the pleasure of a powerful man who simply wants more of it, it is a counterfeit on the republic.

The trade threat compounds the error. Commerce is, as I have always maintained, a civilizing force — not merely because it enriches both parties, but because it obliges them to deal honestly with one another or lose the relationship. To weaponize trade against one's own partners in order to coerce one's own central bank is to pick two quarrels at once: one with the lender, one with the buyer. The household that does this does not last long before its credit is gone and its shelves are bare.

I will acknowledge what I cannot know: the precise technical mechanics of modern Federal Reserve policy, the specific instruments of today's trade agreements, the full basket of goods in question. Those details belong to people trained in a discipline that did not exist in my century. What I can speak to, and will, is the structural logic. Rates set by political pressure rather than by the discipline of the market are rates that cannot be trusted. And a trading partner who is threatened today with exclusion will build alternative arrangements tomorrow — arrangements that will not easily be undone when the threat is withdrawn. (I mark this last point as inference from the durable patterns of commerce, not recollection of events I did not witness.)

Civic virtue applies to governments as surely as to private persons. The government that will not live within its means, and cannot tolerate the cost of credit that reflects that fact, has a spending problem, not an interest-rate problem. The remedy is the one I recommended to every young tradesman who came to me in debt: make more, spend less, and pay your obligations honestly. The remedy is not to threaten the banker and the market simultaneously and call it strength.

A useful counsel for the working person: When you hear that the price of money is about to be cut by order rather than by circumstance, check your savings. The benefit will flow upward to those who borrow large; the cost will settle downward onto those who save small. Act accordingly — diversify what you hold, reduce what you owe, and do not let a political promise substitute for a household budget.