I have looking into this issue for quite some time now and the
undisputed fact is that the government is in the counterfeiting money
"business". If a person could look at all the problems that exist today,
virtually all would all come together at this point. Nearly every single
problem that exists, or at least all the big problems, are caused or is
aggravated because of the fiat money system. This problem affects every aspect
of civilization. Unfortunately the problem is becoming more and more oblivious.
More and more problems are created or attenuated to divert attention to the
grandest problem of all. This is no different than a magician drawing a
persons attention from the right hand so no one will watch the left.
That the government Monetizes the DEBT and calls it money is the biggest FRAUD
in the history of the WORLD! At some point it the very near future it will be
impossible to hide it no matter how many reality shows, sports and news shows
that talk about the sports and reality shows in case you missed them and when
that happens, well lets just say that happened in Germany right before World
War 2. Free your mind!
OUR MONEY MADNESS
Monday, November 21, 2005
We flatter ourselves, in this technological age driven by financial
innovation and mind-boggling efficiencies, that we know more than any previous
generation. But there is lost knowledge, among which is the knowledge of what
sound money feels and looks like, what it does, who makes it and why, and how
it holds its value.
So let us revisit Robert Louis Stevensons classic story Treasure Island, and
the climatic scene where the pirates and their companions have finally found
their treasure and prepare to haul it away. The narrator reports as follows:
It was a strange collection, like Billy Bones's hoard for the diversity of
coinage, but so much larger and so much more varied that I think I never had
more pleasure than in sorting them. English, French, Spanish, Portuguese,
Georges, and Louises, doubloons and double guineas and moidores and sequins,
the pictures of all the kings of Europe for the last hundred years, strange
Oriental pieces stamped with what looked like wisps of string or bits of
spider's web, round pieces and square pieces, and pieces bored through the
middle, as if to wear them round your neck nearly every variety of money in
the world must, I think, have found a place in that collection; and for number,
I am sure they were like autumn leaves, so that my back ached with stooping and
my fingers with sorting them out.
There is more to learn about real money from this paragraph than in most
money and banking texts. Here we discover that money is international. It
matters not what nation state or private party mints it. Money can come in all
shapes and sizes. It has enduring value for hundreds of years. It can be put in
a vault and found by anyone in the future and retains its value. Its merit as
money is not dependent on the existence or persistence of any single
government.
The regimes that minted the coins may be long forgotten but the money they
made stays as a permanent part of the economic landscape until it is melted.
What this suggests is independence for the people who have, hold, and use the
money. They are not roped into any regime as such. They go about their economic
affairs as independent people. Their money, which cannot be destroyed by the
actions of a central government or a central bank, testifies to their status as
free people.
And what is it made of? Gold, silver, or any precious metal, something or
anything that will cause a back to ache and the fingers to hurt from sorting
them out. Money is heavy, robust, durable, divisible, enduring. It is treasure.
It worth hiding when one is in trouble and worth hunting for if one stumbles
upon a map to guide you there. As to when it was minted and by whom, it doesnt
matter. Money lasts. Money is true. It transcends the generations. It
transcends the nation. It transcends the state.
As for any money minted or printed in the last fifty years, some of it may
have value as a collectible but its value would vanish to near zero if it were
melted. As for the paper, it would be truly worthless. One can imagine the
scene in Treasure Island had they opened the trunk to discover wads of paper
currency from defunct governments. Lets just say the story would have ended
very differently. It might have looked more like that scene in Lawrence of
Arabia where the warriors trek hundreds of miles across the desert for treasure
only to find crates full of paper cash, which the plunderers promptly throw to
the wind. Lawrence wisely departs the scene on a horse, promising to return
with real money.
Incidentally, I do think there is a point to buying children coins for
presents. Just to hold an older coin of gold and silver imparts a lesson of
sorts. It illustrates the reality of a history that is different from our
present. Ive never seen a child disregard a nice gold or silver coin. They
keep it in a safe box, show it to their friends, and reflect on the sense of
personal empowerment they experience from owning it. Children know what
treasure is, even if central bankers do not.
Today we think of money as something to possess for instrumental purposes,
but something otherwise created and managed by the government to keep the
economy going.
The new Fed chairman, Ben Bernanke, was grilled at his Senate confirmation
hearings as if he were a magician who could pull rabbits or squirrels out of
his hat, depending on his mood that day. All the questions related to whether
he would tend to prefer the rabbit of employment over the squirrel of
inflation. The goal of these politicians was to prod him into admitting that
squirrels are far to be preferred to rabbits, and if he would just admit it and
swear to it, they would give him a free pass and let him perform, while
Congress and president provide the necessary smoke and mirrors.
And by the way, Bernanke also promised to keep the Fed completely free from
politics. "I assure this committee that, if I am confirmed, I will be strictly
independent of all political influences and will be guided solely by the
Federal Reserve's mandate from Congress and by the public interest."
When ex-Fed chairman Arthur Burns arrived at the Bonn airport as ambassador
to Germany, a reporter asked him how he could have agreed to Nixons desire to
inflate so massively? The Fed chairman must do as the president wants, he
answered, or the Fed would lose its independence.
Here is a rule of thumb. If an institution has a dot gov in its email
address, as in FederalReserve.gov, it is not independent and it is not free of
politics.
One politician summed up the Feds mandate this way: "guiding the economy to
create broadly shared prosperity."
Herein we find the perfect summary of what is wrong with Washingtons view of
economic life. It imagines the economy to be guided by the Fed, and that
prosperity is created by its printing press. Bernanke, however, was not in a
position to correct the record, for he has himself spoken about the wonderful
and limitless power of the Fed to create as much money as it wants to.
Thus spake Bernanke to those worried about deflation: "the U.S. government
has a technology, called a printing press (or, today, its electronic
equivalent), that allows it to produce as many U.S. dollars as it wishes at
essentially no cost. By increasing the number of U.S. dollars in circulation,
or even by credibly threatening to do so, the U.S. government can also reduce
the value of a dollar in terms of goods and services, which is equivalent to
raising the prices in dollars of those goods and services. We conclude that,
under a paper-money system, a determined government can always generate higher
spending and hence positive inflation."
What awesome power! Are we really supposed to believe that a government that
possesses the ability to create unlimited amounts of money will wall off the
institution that does the creating from any political influence? Surely not.
The independence of the Fed is just a mask that the government uses so that it
can avoid taking responsibility for any downside that comes about from the
Feds awesome power.
I suppose that if I had a counterfeiting machine, I too would want it kept
out of the house and run by someone I could appoint who would nonetheless swear
to be completely independent if caught in the act.
The Bernanke hearing was a despicable display in more ways that we can count.
That there is a direct relationship between inflation and employment was never
questioned, even though that relationship does not exist as a matter of history
or economic law. To use the printing press to drive down unemployment is to
risk not only inflation but radical economic instability and business cycles
that can end in the worst of all worlds. And the idea that low unemployment
as a symbol of a growing economy needs constant infusions of paper money
inflation from the Fed is belied by the whole of the 19th century, as well as
by economics.
What did Bernanke and his examiners agree on? They agreed that the Fed should
be all powerful in matters of macroeconomics. They agreed that there should not
be any ironclad rule for the conduct of monetary affairs, but rather that smart
guys ought to wing it day to day to achieve the right mix of policy options.
And that the prevention of deflation, meaning a fall in the general level of
prices, ought to be the number-one priority. So when you hear that Bernanke
favors "low inflation," remember that the emphasis is on the noun and not its
modifier. It means that he prefers any amount of inflation to a condition of
deflation.
Why the hysteria against deflation? We are faced with a real puzzle here. In
the whole of the private sector, the number one focus of retailers these days,
particularly those dominant retailers such as Wal-Mart and Home Depot, is low
prices. This they emphasize above all else because they know that this is what
consumers want.
And yet in the public sector, we find exactly the opposite: an ironclad
promise that prices will not be low but rather will be continually rising. So
if Wal-Marts slogan is "Always Low Prices," the slogan of the Fed and the
government should be "Always Higher Prices."
The question is why. Why is it that Congress, the Fed, and the presidency all
agree that deflation is something to be avoided at all costs? The experience of
the Great Depression looms large but, as Murray Rothbard has shown, low prices
were just about the only good economic trend that was happening throughout the
1930s. Imagine if you had all the same disasters occurring all inspired by
bad economic policy but with high prices on top of it all! Here is a test. We
all know people who lived through it. Ask them today if they would have been
better off if all goods and services had been two or three or ten times more
expensive.
No, the trouble with the Great Depression was not low prices. Nor were low
prices and wages the cause of the economic downturn. As Rothbard further
showed, the downturn was a correction of a previous inflation, a macroeconomic
version of the dot com bust, and one that was made ever worse by governmental
attempts to fix the problem. As for the Fed, it did not pursue a policy of
benign neglect but rather desperately attempted to inflate the money supply and
was unable to do so.
The real blame for the Great Depression lies with precisely the policy that
Bernanke favors, that is, a steady and relentless increase in the money supply
to keep the economy humming while not sparking price increases that are
politically objectionable.
This inflation targeting is precisely the problem since it sends false
signals to capital-goods investors and borrowers, skewing the production
structure forward in time to a greater degree than underlying savings can
support.
Not knowing what the Austrian School says, Congress and the Fed might believe
that a policy of low-grade inflation is the best protection against depression.
But I dont believe that this is why they favor such a policy. Nor do I think
that the desire to boost employment is the reason, since there is no evidence
for anything like a long-run tradeoff between inflation and unemployment.
The reason the government and here I speak of Congress and the presidency
favors a loose monetary policy, a discretionary rule at the Fed, and ongoing
low-grade inflation is the most obvious one of all. It pays the bills. In other
words, the reason is no different from that of private counterfeiting. They
like to have money without having to work to get it. That is essentially what
the Federal Reserve provides the government. It doesnt have to worry about its
bond rating collapsing or its credit standing falling. It doesnt have to
bother with taxing people. It can hide the costs of government in the
complications associated with monetary affairs.
Looking back at the history of inflations in the United States, we can detect
a single event that, more than any other, prompts the government to engage in
inflationary finance. I wish I could report to you that inflationary finance
was an invention of the modern regime with its endless wars and welfare
expansions. Sadly, America was born in monetary sin, so to speak. The
Continental Congress financed the Revolutionary War with paper money, beginning
in 1775.
The currency was supposed to be retired in seven years with a pro rata tax
levied by the states. But once the government got the hang of the magic of war
finance, it forgot about the pledge and endlessly expanded the currency.
Between 1775 and 1781, the Continental went from trading on par with $1 in
specie to being nearly worthless. It was a tragic incident because it benefited
all the worst people in this young country, the very group that later pushed
for the Constitution to replace the Articles, and backed the creation of the
first central bank, to enrich themselves.
In some way, this war, which was undoubtedly just and involved a meritorious
secession from a distant government, was the beginning of the end, precisely
because it unleashed a horrendous inflation and schooled a new governing elite
in the benefits of inflationary finance.
It has been war that has been the driving force in monetary depreciation
throughout history. If Bush had been forced to raised the hundreds of billions
that he has spent on his Iraq caper through taxation, his supporters would be
far less supportive, and his policy more honest. Instead, he has been able to
count on the inflationary finance of his friends at the Fed to make it all
possible. Monetary policy has been the handmaiden of empire in other ways too,
as the dollar is used as political leverage against nearly every country in the
world from Argentina to China to Russia.
Fiat currency engenders conflict of all sorts, unbalances in the economic
structure, and puts everyones savings at risk. It is for this reason that Alan
Greenspan once wrote the cause of freedom is bound up with the cause of the
gold standard.
Should our monetary system be reformed so that it is based on a pure gold
coin standard? Yes it should. This would be the single best reform we could
make to the cause of freedom. Its commercial benefits include stability,
predictability, and honesty in finance. Its moral benefits include a financial
system that does not reward living beyond ones means. From the point of view
of government, a gold standard would tie the hands of the state. They could
wish and long for wars, welfare, foreign aid, bailouts, subsidies, and graft,
but unless they could raise the money by taxing, all their talk would be
pointless. That is a country I want to live in.
For years Ive heard people suggest that the Mises Institute come up with a
detailed plan for how the conversion would work. In fact, there are many
models, from Joseph Salernos to Murray Rothbards to George Reismans to Ron
Pauls own legislation, which has been before the House for some two decades.
What is lacking is not a plan. It is the political will.
It would require that the government recognize the error of its own ways,
agree to limits its power and influence, abolish the Fed, and return control
over economic structures back to the people. And you wonder why the movement
for a gold standard struggles!
But let me just clear up a few myths about gold. It is not the case that
under a gold standard that we would all find ourselves in the position of that
young man in Treasure Island, with aching backs and throbbing fingers. Banks
would continue to exist and compete on a sound basis. All financial services
would continue to exist just as they do now, from credit cards and bank cards
to PayPal and stock portfolio checking and all the rest. Indeed, we would see
an explosion of financial innovation under the gold standard because so many of
the uncertainties associated with inflationary finance would be a thing of the
past.
Money would become truly international, or would tend in that direction as
more countries decided to make their currencies as good as gold. And if we
managed the transition properly, government would have no monopoly on the
production of money. This would be something handled by the private sector, as
suppliers competed based on beauty and design and reliability. In an ideal
world, all currencies in the world would be different names for precious
metals, all interchangeable with each other based on weight and fineness.
If that sounds complicated or unreasonable, or even completely unviable, let
us remember that all forms of freedom seem impossible in the midst of despotic
control. Many intellectuals and officials in Russian and China couldnt imagine
how society would work if people were permitted to live and work and move where
they wanted. To them it sounded like chaos. Germans cant imagine how society
would survive without strict laws on when retail shops can open and close. And
people in Britain went into a panic recently on the suggestion that pubs be
permitted to stay open longer than usual.
In our own country, we cant imagine the legalization of drugs, the
elimination of the minimum wage, the abolition of Society Security, or not
bombing someone every two years. These things seem crazy to us because we have
adapted to statism. So it is with money. We are used to the idea that
government should run the monetary system. And thats why when we say we favor
the gold standard, people think we are nuts.
But today in China or Russia, anyone who favors a return of travel and moving
restrictions is considered dangerous and deranged which is precisely how I
feel about anyone who says that government ought to be given full control of a
nations monetary institutions!
So I ask you to imagine how the world worked before the advent of central
banking and before our permanent state of inflationary paper currency. Imagine
if the money you made and saved were as good as gold a truly independent
medium of exchange that was not subject to political manipulation,
confiscation, or depreciation. The wizards at the Fed would not control our
destinies, Congresss appetite for spending would be curbed, and the president
would be a bit more cautious about embarking on wars that would cost political
capital. It would be the world of Treasure Island, where the only criminals we
would need to worry about owned boats, not fleets, and where the pirates sang
ditties about rum, not national anthems to the glory of the state.
[input] [input] [input] [input] [input]
[input] Lew Rockwell
President of the Mises Institute
Editor of LewRockwell.com
View all articles by Lew Rockwell
Thomas "Rocky" Costanzo
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"Those that seek the truth are more than friends. They are brothers."
"Predicting the future is easy, it's the when that is the hard part" Larry V.
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