5 posts tagged “gold”

Mr. Justin Raimondo at Anti-War.com writes about "The Bubble Boys."

“The Greenspan bubble benefited the banks, the real estate moguls, and, most of all, the war profiteers.”

***

Monetary socialism is an evil not only because it generates----through the Federal Reserve's artificial lowering of the interest rate via credit expansion----chaotic booms-and-busts in the economy, but is also an evil because it's an essential part of the military-industrial complex and the U.S. Empire. They rely on the Fed for sustenance.

This is why I believe it is very important for those of us who value liberty and, as a corollary, peace to point out to the public the need to eliminate the Fed and unbacked fiat money. We must all show the public the importance of a 100 percent gold dollar (or other equivalent free market money).

Ending monetary socialism is the only way to severely limit the State in its war making powers. If there is something the peace movement should rally around, it should be this. It would take away what feeds Leviathan's wars. It would help extirpate the fascistic influence of neoconservatism. Future neocon (and left-liberal) elective wars would not be an option as easily as they are today.

And ending monetary socialism is the only way to cure our credit addiction. It is the only way to promote the conservative work ethics of thrift. It is the only long-term solution to our current financial crisis. To paraphrase Mr. Lew Rockwell: We must all stop living in and believing in an illusion and a lie.

Government bailouts and other regulatory interventions can only result in prolonging and deepening today's recession. But the recession is not the problem. We should not be getting angry about that. The problem was the bubble that was created by the Fed in the first place. It was that creation that made the recession inevitable. And it is the recession that leads us out of our current mess. This is how the market is trying to correct the economy. The market must bring man back to reality and away from the unreality of the Keynesian fairyland of bubbles.

I thought this for many, many months now (actually, maybe longer), and I very much hope I am wrong, but I think it is 50-50 in terms of some kind of depression developing. My fears seem justified. Today's politicians appear to be copying what Hoover and FDR did. They tried to stop the market from correcting the socialist distortions, as readers of the late Murray Rothbard know. But by continually not allowing the market to fix the economy, it resulted in the Great Depression.

All of you one or two regular readers of The Paleo Blog know the economists of the Austrian school predicted this entire mess. There is a library of scholarly and popular work on this subject available at Mises.org for all to read. Correct ideas do not spread on their own. They need educated men to spread them.

I think it is about time to listen to those who have been right all along, like the Austrian economists and like Dr. Ron Paul. They all say that the bailouts and regulations are a wrong move. The default reaction by the statist establishment to "prevent" any kind of recession is a wrong reaction. What the politicians are doing now will be felt in the future, and it will not be pretty. Hopefully the politicians will not do any more destructive intervening. If they do implement more socialist schemes, well, the Austrians can say "We told you so" ...again.

Watch, Read, and Listen:

• Ron Paul on what the State is Guaranteeing.
• Read Ron Paul's Statement.
• Put the Time & Effort into Reading American's Great Depression by Murray Newton Rothbard.
• See The Bailout Reader at Mises.org.
• See The Recession Reader at LewRockwell.com
• Mr. Charles Goyette on Anti-War Radio. (Charles, please come back to radio soon.)
• Listen to Dr. Frank Shostak at Mises.
• Listen to Dr. Joseph Salerno at Mises.

The Free Market Economy is the Engine of Civilization: From Barter to Money.

Money is a crucial feature to any advanced civilization, notwithstanding how much it is looked at negatively and portrayed as intrinsically a nasty thing in "progressive" culture. Now before man can attempt to answer questions, such as, What is money?, Why do we have it?, or How does money develop in society?, there first must be an understanding of why there is any trade at all.

Comprehending that is reasonably straightforward. After that, we all will endeavor to answer those questions raised in regards to money. In so doing, the important connection money has to civilization and liberty will be concretized in the mind. Finally, we will look at the forces that undermine money, and thereby undermine civilization and liberty.

But first, imagine, following the lead-----I'm just attempting (please understand!), as a midget, to stand on the shoulders of giants-----of Murray N. Rothbard's work, that egalitarianism was not a "revolt against nature." That is, if all men were exactly alike in every single way imaginable. That even land was distributed in a homogeneous way in which every acre of land had an exactly equal proportion of resources. And, also, imagine that Mother Nature behaved in a way in which her affects were always and everywhere the same across the world in a homogeneous-collective manner as against one in which her behavior, so to speak, was different at different locations. And so on. Man in this world would be little different than a robot produced out of a mass production factory. Every man, being of identical nature, confined to his land, being of identical nature as well, would produce and consume exactly the same thing, in the same proportions as every other man. Clearly a division of labor qua society would not develop. To quote Ludwig von Mises (as Rothbard did on this subject): "No social life could have arisen among men of equal natural capacity in a world which was geographically uniform."

The real world, in which we live, is not like this at all. Rothbard is therefore absolutely correct when he said that egalitarianism is a "revolt against nature." Men, on the contrary, differ vis-à-vis each other. Land, too, is heterogeneous. Neither is Mother Nature a fan of egalitarianism. As Erik von Kuehnelt-Leddihn wrote, "'Nature' (i.e., the absence of human intervention) is anything but egalitarian; if we want to establish a complete plain we have to blast the mountains away and fill the valleys; equality thus presupposes the continuous intervention of force, which as a principle, is opposed to freedom. Liberty and equality are in essence contradictory."

Man would obviously not trade with his neighbor if his neighbor had everything he had. Man instead trades with his neighbor because his neighbor has something he does not have. More fundamentally, it is recognizing that trade in the second of the two cases is better or more profitable than trying to produce everything in isolation. A world with an extreme household protectionism would have extremely low standards of living. The population number would be nowhere near the number it is today.

It is the fact that engaging in a market economy with others is more profitable than not to engage that explains why barter developed. Man's needs and wants can be better fulfilled in the market economy. It is based on exchange and in production----production to be used in future exchange. Society is hence not an end to itself; it's a means. Men come together to do things together.

Now explanations of this development, from famous economists like Adam Smith, according to economist Hans-Hermann Hoppe, that pronounce the market economy developed for reason that man has an instinct to it and an inborn like of other men is erroneous. Both of these assumptions are not needed to explicate the development.

Trade may take place between two men, who might actually dislike each other, who rationally, opposed to instinctively, see the advantages of this type of interaction. If these two men trade with each other, then it is because the first man has something the second man wants and the second man has something that the first man wants. (Feelings of friendship, when voluntary cooperation has been established, can then truly develop!) This is not, though, the consequence of them viewing what they trade as equal to each other. No trade would result if that was the case. The trade is the consequence of them viewing these traded goods as having a different worth. One man ranks one thing higher and the other man ranks the other thing higher. Hence both trade because they see themselves as becoming better off than not trading.

This is the beauty of what Robert Nozick called "capitalist acts between consenting adults" (whose line the economist Walter Block often quotes). The mutually beneficial nature of all capitalist acts inter partes is logically implied when they take place (ex ante). It is because it is logically implied----because it must be logically implied----that such acts take place. Voluntary exchanges all logically imply it. For this reason, no empirical testing is required (and how would man go about that testing?) and no empirical testing can show this to be false. This logical deduction of action is not technically observed, but is implied even for an observer----who is an actor----who wishes to observe anything----i.e., it is implied in the way one observes anything----and for this reason cannot be refuted. It is the prerequisite (or praxeological precondition) for any voluntary exchange to take place. It is the foundation of these exchanges.

("Socialist" acts, contrariwise, we can call "acts between non-consenting adults." They imply something quite different than capitalist acts. Whereas capitalist acts take place because they are seen as advantageous for both parties, socialist, non-consenting acts are acts where one party aggressively forces his will on another. One party benefits; the other party has a loss to what was taken away. Furthermore, institutionalizing socialism above individual acts of random physical invasion is to make matters even worse for a society than "unsystematic socialism." Since institutionalized socialism is a systematic attack or redistribution of wealth from those engaging in capitalist acts----who under systematic socialism cannot rightfully defend their property from attacks----to those engaging in socialist acts, the costs of engaging in capitalist acts will be higher, and therefore there will be less capitalist acts in society. Consequently, there will be less wealth and wealth creation.)

But, from the fact that these initial barter (direct) exchanges necessitate a situation where there is a double coincidence of wants (i.e., the first man has something the second man wants and the second man has something that the first man wants), there is a major hurdle to which man has to jump through to exchange with another. It might turn out, for example, that one man sees that another man has in his ownership something he himself very much wants, but cannot trade with him because he himself has nothing that this man wants. In each and every exchange there is this hurdle. The range of man's potential capitalist exchanges will be limited. Thus, the division of labor cannot be complex and diverse under barter. Specialization, like we have today, is not a possibility.

This is why indirect exchange develops. To fulfill man's desire to trade, as elucidated above, man must find ways to facilitate it in a way to overcome the difficulties of barter. Man wanting to expand his trading opportunities, by overcoming the lack of double coincidence of wants, must find goods that are greatly marketable. These are goods that are popular; that are in high demand; that many, many people want and value. By obtaining these goods a man has therefore opened up his trading opportunities to a higher degree. And the higher this degree is, the more wealth creation prospects he has. The value he places on these goods, unlike other goods, is that they help him in acquiring services and other goods. He values it for its exchange value as opposed to its potential use value. It also follows that he will have the incentive to find a marketable good that has divisibility (without losing value), which will allow him to divide it up so as to more easily purchase more than one item and to easily purchase both expensive and inexpensive items.

Uncertainty, it should be noted, is what pushes man to adopt money. It is the uncertainty of knowing whether or not one is able to trade. (Only a world of "perfect certainty" would money not be needed.) As long as at least one entrepreneurial man can perceive all of this, a society can then start to economically evolve out of the primitive barter stage. Other men will see this. They will see that he who does such progresses upward in the hierarchy of wealth. There will therefore be an increasing demand for goods qua a medium of exchange. The interconnection of the market will increasingly intensify. It will push other men, who otherwise might not be bright enough to see the advantage of doing so, to follow the lead. "The result is a reinforcing spiral," wrote Murray Rothbard. "[M]ore marketability causes wider use as a medium which causes more marketability, etc. Eventually, one or two commodities are used as general media----in almost all exchanges----and these are called money."

This reinforcing spiral will result in the choice of a commodity that is demanded (valued), dividable, durable, homogeneous, portable, scarce, stable in supply, etc. Money is dependent on man's valuing it in terms of its, to quote Rothbard, "preexisting prices on which to ground demand." It depends on its barter demand. Unwinding the spiral by a regression, one finds that the evolution of a good (or two) to the position of money is the result of it being originally valued by man as a good in itself to be consumed. Hence, money can only originally develop through the free market as a commodity. And, hence, the only way government can enter the picture of money is if it does so on top of the necessary market development of money. Fiat paper money, by itself (with or without government force), could never get off the ground; anymore than if you took a clean sheet of practically worthless paper, applied some ink to it, and tried to buy something with it. Money, like language, is a product of freedom. That is, of free interaction, association, and discrimination. The State did not create money; anymore than it created language.

With the development of money, to iterate, the severe limitations of barter go away. The market economy becomes integrated. "Capitalist acts between consenting adults" can happen right away with money. Practically everything can be bought and sold in terms of money, without the problem of double coincidence of wants. There will thus be more exchanges and productions of goods and services. The standard of living will thus rise.

Money, moreover, allows man to easily calculate. Cardinal calculations are possible. (But the development of this, which man has to place value on, is itself an ordinal choice or ordinal value. Further, it is the feature of a market money's homogeneity that makes these cardinal calculations possible.) Exchange ratios arise. The question of how to direct scarce resources to fulfill the most wanted desires of man becomes possible to answer with a common, universal medium of exchange. The entrepreneur can now more easily see what lines of production are (relatively) more profitable than others. He can compare them. Of course this, too, raises the standard of living exponentially. The businessman can see his profits and losses. He can calculate his capital and income. Money thus develops the pricing system, which helps direct the traffic of the market. Any complex society needs the pricing system to direct scarce resources which have alternative uses. The only alternative is chaos.

The Transformation of Capitalistic Money to Socialistic Money.

Increases in the supply of money, once money has been established in society, is of no particular importance in terms of net living standards. Unlike other goods and services, an increase does nothing to make society wealthier. Only insofar as an increase of the particular money confers a non-monetary benefit to be consumed (either directly or, as a capital good, in the production of a future consumer good), can such an increase be said to raise living standards. A greater supply of money, ceteris paribus, just means a smaller purchasing power. A lesser supply of money, ceteris paribus, just means a larger purchasing power.

Assuming that the money chosen was gold, as it has been in modern times, in a free "society, one can acquire money in only three ways," said Rothbard:

(a) by mining more gold [which, by the way, is an expensive and slow process that will generally not lead to "price inflation"---my note]; (b) by selling a good or service in exchange for gold owned by someone else; or (c) by receiving the gold as a voluntary gift or bequest from some other owner of gold. Each of these methods operates within a principle of strict defense of everyone's right to his private property.

In the world in which we live this might look a little foreign, no doubt. So obviously something happened to the development of capitalistic money to turn it into the socialistic money we have today. This is an involved subject, but economically speaking the transition follows a precise pattern.

Before this blog entry briefly gets into that, however, it is very important to understand that one can try to acquire wealth by counterfeiting money. This activity of fraud is in direct violation of private property rights. As such, it is not part of the three acceptable ways to obtain money, which Rothbard described above.

The societal development of money brings the formation of banks. Their job is the storage of money and to provide for increased transactions between savers and entrepreneurs. Banks can either obtain income legitimately, as covered above, or illegitimately. They can facilitate transactions between savers and entrepreneurs legitimately or illegitimately, as well. Fractional reserve banking is an example of illegitimacy. All banks might have the desire to engage in this activity, but their desire will be limited indeed as long as there is open entry into competition (with no government central bank regulating this away in which this limit or check is eliminated [see below]). In addition, with a free market it will be limited because of the possibility of bankruptcy. (Profit and loss is both salubrious and necessary for an economy. [Bank runs are beautiful.]) Only the government can change matters. It and only it can take away competition by force or can attempt to prevent bankruptcy when bankruptcy occurs. Either of the two interventions will create moral hazard (i.e., there will be more financially risky behavior) and encourage the practice of fractional reserve banking.

Fractional reserve banking occurs when a bank issues more paper receipts (titles) than actual commodity money they possess. A one-to-one ratio (one hundred percent reserve banking) does not exist. From this it should be straightforward to see that if a bank engages in the handing out of more paper receipts (called "fiduciary media") than gold it holds in storage, it is no different ethically than a garage storage place taking one's items away from their customers while they promise to guard them. This is a violation of private property and makes the given bank financially bankrupt. That is to say, if each and every customer would come to the bank to demand their money, the bank would not be able to fulfill its contracts. Those interested in a just and free society, then, must want the law-contract enforcement agents that be to prevent these kinds of practices.

Put in another way, there will be more titles representing money property than actual money property. It tries to make two equal to one. It is an attempt to create physical property from nothingness. Because these titles have no value except insofar as they serve as a function to represent what they are titles to, the notion of free and contractual fractional reserve banking seems to make little sense. When man A deposits x amount of money, it cannot be said that x amount of money is also owned by man B at the same time. Only if it was contractually loaned (or voluntarily given) to B can it be his, but it cannot be exclusively owned both by A and B at the same time.

But, as stated, it is free banking, with no central bank, that has a build-in major economic limitation to fractional reserve banking activity, even if the enforcers of law do nothing about it. Interactions do not just occur with one customer and his respected bank or two customers of the same respected bank. Interactions can happen between one customer of one bank and another customer of another bank. That is, one man of Bank A can write a check to a man of Bank B. The second bank, with the new check, will demand the money (all of it) from the first bank. If Bank A has been reckless in engaging in fractional reserve banking, it will not be able to fulfill Bank B's request. To cut to the chase, this associational environment will thus put a major constraint on this fraud. The more banks there are, the more this constraint will increase. (Another limitation is a public that is aware of fractional reserve banking and is very untrusting of any bank that engages in it.)

What is more, artificially increasing the supply of money (via, e.g., bank notes, bank deposits, or "checkbook money" that people can use in their daily affairs)----which, unhappily, costs virtually nothing----will lead to a host of unintended consequences. (More will be written on this a little later. The unintended consequences will be far more pronounced when this artificial increasing of the money supply is systematically implemented via government.) There will be a redistribution of wealth, as already indicated. The greater the supply of money, ceteris paribus, the less purchasing power it will have relative to all goods and services. However, the result of inflation (i.e., the increase of the money supply without "specie" or commodity backing) is a result that comes to pass in a way that trickles through the economy. It is not an instantaneous event. Those accordingly getting the fake new "money" get it at the parasitic expense of those who get it later or not at all. After this inflationary process has trickled its way through the economy, prices will have risen (ceteris paribus) to reflect the new condition of the larger money supply. It is this uneven process that results in what are called "Cantillon effects." Effects of which have the result of redistributing real wealth.

Government, wanting to expand its revenues, can see all of this. This is why governments have sought control over the supply of money and the making of an alliance with the banking industry. Such an alliance would be beneficial to both, if only they can ideologically corrupt the public to thinking that it is beneficial to them as well. That, sadly, is not too difficult taking into consideration that the public's knowledge of economics is abysmal. Both the government and the banking industry can then engage in robbing the wealth of the public by controlling the money supply. Government can then tax in a new way, an indirect and unseen way.

The monopolization of minting by government, in a nutshell, first occurs and then the debasement (coin-clipping) of money, which is enforced on the public by means of legal tender laws. This debasement it pockets to itself at the parasitic expense of everyone else. More coins are created by the debasement and then the public is forced to act like nothing has happened. Now given that government outlaws all competition, the government has no competition to keep it in check. Government can thus keep on providing a inferior money without worry of a competitor offering consumers a superior money. Moreover, any remaining superior money will be driven off the market, since government will be forcefully overvaluing inferior money and undervaluing any superior money.

Then the government has monopolized money paper titles (bank notes) and creates a central bank (à la the Federal Reserve System). Counterfeiting can then occur uniformly vis-à-vis the banks. The central bank becomes the "bankers' bank" and the "lender of last resort." Gold, as the commodity money, becomes nationalized. It starts to lose its role, in the minds of the public, as money. And banks can inflate, with the government's blessing, off of government's inflation through fractional reserve banking with bank deposits. They can no longer issue bank notes, since the central bank has monopolized their issue, but can still issue bank deposits as a way to inflate. In this monetary socialism, they can do this without too much worry, as long as the public does not wake up to what is happening (or hyperinflation occurs). The previous free banking constraints largely disappear. At this time the government will also have the desire to get off the gold standard completely, and thus allowing this check to go the way of the dinosaurs for it to fill its power and greed ambitions. Soon all that is left is a fiat paper money system----a system very easy to counterfeit with.

The government can inflate at will with the counterfeiting apparatus. All that is done, essentially, is that the central bank buys some, say, government bonds. This money is produced literally out of nothingness. The bond dealer takes it to deposit at a bank and the bank then deposits it at the central bank. This deposit is the bank's reserves. The bank can then make deposits, through fractional reserve banking, on top of these reserves, in the amount the government allows by law----i.e., the reserve ratio. A reserve ratio that is 10:1, for example, means that the bank can increase deposits by tenfold out of nothingness on top of that original money that, too, came from nothingness.

Additionally, in the U.S., there has been the further creation of other programs that give the false impression to the public that the banking system is a sound system; instead of it being seen as a house of cards. The making of the Federal Deposit Insurance Corporation (FDIC), for instance, is an example. However, wrote Rothbard, "the FDIC itself has less than one percent of the huge number of deposits it 'insures.'" He went on: "The very idea of 'deposit insurance' is a swindle; how does one insure an institution ... that is inherently insolvent, and which will fall apart whenever the public finally understands the swindle?" And the very existence of the FDIC makes the banking system more unstable by creating moral hazard and by relieving customers their responsibility to take good care of where they put their money.

Not only will this fascistic-statist system perpetually promote inflation, it will perpetually promote business cycles leading to recessions and depressions. By perpetually declining the purchasing power of money, this system will discourage savers and encourage non-savers and debtors. Consumption, leisure, short-term thinking and planning will be relatively encouraged. The cultural characteristics and work ethics that make a healthy economy are thus punished with this system; whereas the opposite is rewarded.* Many businesses will also be thrown off course because business calculations will be distorted as a result of inflation. There will be an overestimation of profits, during the initial effective stages of inflation, and this will misdirect many businesses, and might even lead them to use up their capital on these false signals. Just as the effects of inflation will reward bad financial behavior for the individual and for the family unit, it will do ditto for private enterprise.

It is the facilitating of transactions between savers and entrepreneurs by the artificial expansion of credit (via fiat money) that sets into motion mass business cycles. The initial "boom," in the higher-order capital goods industries----which basically operate on man's ability to develop roundabout methods of production, and willingness to hold off instant gratification so as to invest present goods in such capitalistic production, that aims at an output with a higher net total of goods (than not doing so) in the temporal future----that received the credit, is artificial and the resulting bust phase is simply the market trying to correct the distortions that the government and the banking system created. Simply put, the ratio of consumption to saving (qua investment**) in society will not be reflected. With an artificially greater supply of credit, the interest rate (i.e., the cost of the procurement of money or capital in the present) is lower than it otherwise would be on the market. Instead of it reflecting the actual time preference levels (i.e., the rate in which man prefers present consumption over the future) and, on the other side of the same coin, saving levels (vis-à-vis spending-consumption levels) that men have in society, the market is misdirected to act like the time preferences are lower than what they actually are and to act like savings are higher than what they actually are. That is, instead of the boom being created out of actual savings with a low time preference that is temporally sustainable, the "boom" is based on hot air. And, remember, an increase of fiat money most certainly does not increase wealth for society. It does not and cannot increase (real) savings or lower time preferences.

A shaky imbalance in investments is created between consumers' goods (of the lower-order) and capital goods (of the higher-order). A mass of malinvestments becomes inescapable. When the rate of interest lowers, there is a shift from lower-order to higher-order industries. There will thus be an artificially greater investment in higher-order capital goods and correspondingly less investment in lower-order consumer goods. If private property and the market was respected, then it would be just the opposite given the current time preference and saving levels. However they are not respected. Even moreover, men will be saving less as lenders (and, hence, consuming more) because the return will be artificially lower than it otherwise would be. Thomas E. Woods, Jr., an historian and economist, has pointed out that, in effect, the anti-market intervention is in a tug-of-war match in which the economy is being pushed in two opposite directions at the same time. But, in the long-run, the market will win because real resources are not there to keep the "boom" going. These resources are consumed. (Insufficient resources have been freed up for the future. Instead of saving, men have been consuming. And instead of entrepreneurs producing for such present oriented things, they were being pushed into future oriented things.) The prices of these capital goods at first go up. These investments are made to seem profitable. A bubble develops. But as the effects of inflation trickles through the economy and the bank credit expansion ends, these investments will be seen for what they are, viz., hot air investments. Now they are seen (correctly) as not profitable. The prices of consumer goods will go up (with the given ratio of consumption to saving), with a shortage of resources, relative to the capital goods and there will be a redirection, in which a recession or depression occurs, of investments back to where they would have gone (in terms of production order), and the higher-order investments dry up. Hence, this process will produce another inescapable result: wealth destruction. "In sum," wrote Rothbard,

businessmen were misled by bank credit inflation to invest too much in higher-order capital goods, which could only be prosperously sustained through lower time preferences and greater savings and investment; as soon as the inflation permeates to the mass of the people, the old consumption-investment proportion is reestablished, and business investments in the higher orders are seen to have been wasteful.

*(To note, the more wealth, the lower the time preference tends to be. That is because it is less difficult to save with more wealth than less. One would hence expect that, because there is more wealth, real interest rates would be lower than the last generation. As Hoppe notes in his must read Democracy - The God That Failed book, they are higher with today's generation. This can only be the result of a systematic increase in time preferences. That is, society is more "child-like" today. ...... Mises himself recognized that the particular statist intervention of inflation is a direct attack on what we can call "conservative" values: The cultural damage of inflation is "epically strong among the youth. They learn to live in the present and scorn those who try to teach them 'old-fashioned' morality and thrift.")

**(The issue of "hording" has no direct influence on this discussion and thus will be ignored. But understand that all this would do is increase the purchasing power of the "remaining" money in circulation. For a very quick look into the un-evilness, in both an ethical and economic sense, of misers see Walter Block's Defending the Undefendable.)

Transforming Socialistic Money Back to Capitalistic Money.

Money is an important cornerstone to civilization. It is, as Murray Rothbard said, the "lifeblood" of the economy. Because of this, when men look at the evil affect the State and their banking allies have on money (and all the side effects that are produced), this should be all we need to know about the State and how regulations are designed not to protect consumers but to protect special interests.

Apologists for the status quo, especially mainstream conservatives (who are not at all friends or allies of liberty----who would be aptly described as largely fascists), fail to recognize that much of big business and big media are intermingled with the government. These businesses get granted special privileges and benefits that mom-and-pop shops do not. On the other hand, mainstream liberals that respond that money is therefore to blame for this is equivalent to saying that water is to blame for the coerced drowning of a person, instead of the criminal that murdered the person with the employment of water.

In itself money, like water, is neutral. Usage can be for good and evil. As long as there is this central machine of democratic power it is only natural that those with more influence will direct its usage to their own benefit and at the expense of others. It is therefore nonsensical to think anything but rich people will have the most direct influence on government. These particular rich people want to go to the government because it has power and they do not. For this reason, the problem is not wealth or money. The problem is power. They do not go to the government because they have power but because they don't.

The banking industry got tied into the governmental system because that system has power. And government is all too happy to get more power and control. The control over money allows the State to implement an "inflation tax." The president of the Mises Institute, Llewellyn H. Rockwell, Jr., has as a result said that the central bank is "[t]he heart of the modern state." If you understand the economics of money and the outcome of statist intervention on money, then you understand the modern state.

The justifications for the existence of the U.S. Fed can only be described as hilarious: for example, the idea that the Fed "fights" inflation. But its very nature is inflation. Since the creation of the Fed, over 95 percent of the value of the dollar has been lost. Not exactly a "fighter!" "Not worth a Continental," comes to mind. Then there is the claim that the Fed stops business cycles. Again, its very nature is business cycles. We have business cycles all the time. Right now we are in one.

Perhaps it should be also quickly noted that the Fed, as many suggest, is not a "private" bank. What is needed is a private free market in the banking industry, not more of the same. The Fed was created and established by the government, it is maintained by government, the officials in the Fed are largely appointed by the government, etc. A "Fed" could not exist if it were truly private. Competition would drive it out of business in a blink of an eye by hyperinflation over the production of worthless pieces of paper, which cannot be money without monopolistic government aggression and force.

Those that favor either no government or a very small, decentralized government must then work for the separation of State and money. This means an end to central banking and an end to fractional reserve banking. It means a return to a free market commodity money. It means an end to the house of cards we have now. It means an end to artificial bubbles generating booms-and-busts in the economy. No central plan is needed to move back to a free market of money and banking. A free market is the lack of a central plan. Accordingly, what needs to be done is the elimination of legal tender laws, the allowance of man to be free to choose his money, deregulation, and, ultimately, the abolition of the Federal Reserve. (In a manner of speaking, the inverse of "Gresham's Law" would occur.) For a guide to follow, we can turn to the recommendations of Rep. Ron Paul, a scholar in the economics of monetary issues and author of Gold, Peace, and Prosperity and The Case for Gold. In times like ours, seeking fiscal sanity is more important than ever.

"Man cannot turn back the clock" might be the reply some men have to the idea of returning to a money of free market capitalism. But, to quote the great Richard M. Weaver, "I'm not turning it back; I'm setting it right."

References: I'm just striving to stand on the shoulders of giants. Hopefully I balanced the content in this blog entry successfully. Any shortcomings are my own. Above quotes of Rothbard's comes from, respectively, What Has Government Done to Our Money?, The Case Against the Fed, "Taking Money Back," and America's Great Depression. On egalitarianism, see his Egalitarianism As a Revolt Against Nature.

A number of essays and books have shaped by understanding of monetary issues (and my understanding is still being shaped). For those new to this subject, the first and best book to read is What Has Government Done to Our Money?. It is beautifully and clearly written. See the layman populist essay "Taking Money Back." Listen to this mp3 Rothbard lecture. And be sure to read his "Economic Depressions: Their Cause and Cure." Besides Rothbard, Bob Murphy provides a reading list here. Read "What You Should Know About Inflation" by Henry Hazlitt. Take a look at "The Business Cycle" in Jim Cox's The Concise Guide to Economics. See Hans Hoppe's "Banking, Nation States, and International Politics" and "How is Fiat Money Possible?." For something light and entertaining (although, slightly off topic), see "The Economics of Star Trek or What is Good for Business?" by Dmitry Chernikov.

If you just stumbled into The Paleo Blog and know little to nothing about economics, then the best book to read is Economics in One Lesson by Henry Hazlitt and then, if you are still interested, read Economics for Real People by Gene Callahan. Thomas DiLorenzo provides a more historical perspective on the importance of economic freedom in his great How Capitalism Saved America. I highly recommend it. For something a bit more advanced, but still short in size, see An Introduction to Austrian Economics by Thomas Taylor. 

The Meaning of $1,000 Gold: Ron Paul tells all.

Gary North on the Upside-Down Mortgages and Sinking Home Prices and Bernanke's Mortgage Market House of Cards.

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The Revolution: Mr. McCarthy on The Tory Anarchist blog provides a syllabus for Ron Paul libertarians. Check it out!

See also his recommendations for newbies to paleoconservatism and libertarianism.

Woods on NY Times' outrage over Ron Paul Republican Murray Sabrin.

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold....This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.”

Shhh. Alan Greenspan said that. Power corrupts.

All of this talk of the gold standard and the monetary system in general brings up the issue of the New Deal and Franklin Roosevelt. The statism and neocon leftism of FDR could fill volumes. Every time I read about the man, I can get chills. It is no surprise that he is the role model of the establishment today.

To quote the great James Bovard (check out his great blog and bookmark it!) in his book Freedom in Chains:

Roosevelt announced on March 8, 1933, a few days after taking office, that the gold standard was safe. But, three days later, Roosevelt issued an executive order forbidding gold payments by banks; Treasury Secretary Henry Morgenthau announced on March 11 that "the provision is aimed at those who continue to retain quantities of gold and thereby hinder the Government's plans for a restoration of public confidence." . . . Fear of devaluation [by going off the gold standard] spurred a panic, which Roosevelt invoked to justify seizing people's gold. On Apirl 5, 1933, Roosevelt commanded all citizens to relinquish their gold to the government. No citizen was permitted to own more than $100 in gold coins . . .Gold was thus turned into the same type of contraband substance that rum had been during Prohibition. Roosevelt announced, "Many person throughout the U.S. have hastened to turn in gold in their possession as an expression of their faith in the Government ... There are others, however, who have waited for the Government to issue a formal order for the return of gold in their possession." To speak of the "return of gold" implied that government was the rightful owner of all the gold in the nation, and thus that no citizen had a right to possess the most respected source of value in history. Roosevelt assured the country that the "order is limited to the period of the emergency." But the order stayed on the books until 1974.

...Citizens who distrusted the government's currency management or the government's integrity were branded as social enemies. Shortly after Roosevelt banned private ownership of gold, he announced a devaluation of 59 percent in the gold value of the dollar. In other words, after Roosevelt seized the citizen's gold, he proclaimed that the gold would henceforth be of much greater value in terms of the dollar. Citizens who had desired to hold gold as a hedge against government polices were completely vindicated. FDR's administration subsequently did everything possible to inflate prices, foolishly confident that a mere change in numerical prices would produce prosperity. Citizens had accepted a paper currency based on the government's pledge to redeem the currency in gold at $20 per once; then, when Roosevelt decided to betray that pledge, he also felt obliged to turn all citizens holding going into criminals...

FDR's administration was filled with recklessness and manipulations throughout his control. Both the welfare state and the warfare state increased exponentially. There was little area of life, from FDR's perspective, that government should not control.

From this we can also learn that the war between gold and the State have been with us for a long while. If the State tells us gold is part of the past and is out-of-date, then why such an on-going war with it in modern times?

Some Reading Material:

• The New Deal and Roosevelt’s Seizure of Gold: A Legacy of Theft and Inflation by William L. Anderson
• Fascism Comes to America Ralph Raico
• The Specter of Fascism: Before Bush, there was Franklin Delano Roosevelt by Justin Raimondo