 
# THE GOLD WAY TO

# FREEDOM AND PROSPERITY

### Dimitry Krasil
License Notes

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# CONTENTS

Executive Summary

Preface

Introduction

How Republicans Became Pro-Gold Standard

How the Movement Began

Gold Road To Plenty

What is Government? Government is Force

The History of Government

How the States Originated

Income Tax as Part of Modern Day Slavery

Checks and Balances

How to Enslave People You Cannot Conquer: a Historical Study of the Aztecs and Apache Indians

What is Money?

The Difference Between Currency and Money

Evaluating Money and Credit

Gold and Economic Freedom

The Problem of Economic Calculation

How the Power Structure Deceives You

History of the Legal Tender: a Story of How Citizens' Rights Become Their Obligations

Serfs of the Leviathan

Small Bank Notes

Mesmerizing the Laboring Classes

Tormenting Widows and Orphans

From Double Standard to Double Dealing

Short History of the Abandonment of the Gold Standard

The War Against Conservatism

Why Greenspan Opposes The Gold Standard

Human Freedom Rests On Gold Redeemable Money

Redemption Right Insures Stability

Paper Systems End In Collapse

The Budget and Paper Money

Raids On Treasury

Taxpayer the Forgotten Man

Is Time Propitious?

How Americans Fought the Bankers

The Battle Between You and The Power Structure

Legal Tender Legislations of 1909

The Most Sinister Consequence of the Legal Tender Laws of 1909

The Economy of the 20th Century

The Great Depression: Its Causes and Solutions

The Forgotten Depression of 1920

The Central Bank Policy Versus Reality

Government Cannot Be Run Like a Business

Markets Today: Are You an Investor or a Speculator?

Demand or Supply?

The Real Cause of Unemployment

Job Creations

Why Should There Be Any Unemployment?

Propaganda: Retirement and Social Security

Some Additional Facts About Gold Standard

# EXECUTIVE SUMMARY

The current monetary system as a wealth transferring mechanism from producers to banks.

We have been sold a lie that our democracy is _people-oriented_. Although the US government was originally instituted to serve the ultimate good of the people, it has reneged in upholding those ideals especially to the working class citizens of the country. The goal of this book is to introduce the reader to the concept of what money actually is, and to point out the fact that what he currently considers and uses as money is designed in such a way that the wealth, created by the economy, is transferred to large banks and multinational corporations, and not to the savers and pensioners like it was while the system was under the gold standard. The average American working class, savers and pensioners have been misled by the government and very few of them seem to have noticed this guile.

The Gold Standard which proved beneficial to Americans was completely abolished in 1971 and from that time on, instead of getting higher wages as they used to under the gold standard, they now earn embarrassingly lower wages even if their nominal wages are growing. We will cover the reason why since 1970, the real purchasing power of the US wage earner has been diminishing and how the US government has not only used different mechanisms to force that exploitation on its own people, but has also maintained, for purposes of propaganda, that this modern form of slavery is actually good for its people.

Why it's impossible for most people to save up for retirement under the current system.

This book will show you why it is almost impossible for most people to save for retirement in the current economic system, while the case was different under the gold standard when retirees had their retirement income exceed the pre-retirement salary by 64% (a person's salary of $100 turned to $164 in the typical retirement income).

We will expose the real reason for the creation of the social security administration.

This book will expose the real motives of the banking cartel that was behind the creation of the social security program. It will also show that while the social security idea was promoted to the US population, the best propaganda minds of Madison Avenue were unable to explain to the American public why it was such a good idea.

Where does unemployment come from?

What are the root causes of unemployment? This book will show you the true reason why unemployment was practically nonexistent before the 20th century and why it is now prevalent at this time. It also intends to show the ways and the things that needs to be done so it will disappear again.

What is the legal tender law?

You will discover what its original meaning was and how the government changed it. The book will also teach the reason why the original public benefit of the law was changed to a law that allows the government to exploit its own citizens.

The gold standard is for peace, and paper money is pro-war.

The book will reveal the reasons why the gold standard is the best instrument which peace-loving people can ever have, and why no major war is even possible under the gold standard. You will learn why the gold standard can also be called the 'peace standard', and why it is the case that if you want to start some really big major killing campaign (sorry, I meant if you need to bring "democracy" to other nations), then you must have fiat currency system. However, if you really want peace in the world, you will surely love the gold standard.

What actually led to the decline of the gold standard? Why and how was it abandoned? Who really gained from the "New Deal"?

This book also intends to teach the reader on the reasons why the gold standard was abandoned. To fully teach these, it would reveal the identities of the people who sponsored its abandonment; the individuals who wrote and paid for the legislation and why they did it; where the majority of Roosevelt's election funding came from; and the losers and gainers of Roosevelt's "New Deal".

The main goal of the gold standard is stabilization of the interest rate.

The main goal of the gold standard was not the price stability as is popularly believed; rather, it was focused on the stabilization of interest rates. Price stability came as a bonus.

The traditional gold standard idea was always a liberal idea.

Anyone touting that the gold standard was a conservative idea is wrong as it was never a conservative idea. The gold standard is for the pro-working man and small business owner. This book will show you why the traditional gold standard was always a liberal ideal and why it was always opposed by bankers.

Today, the majority of the general public believes that the gold standard is supposed to be promoted by the conservatives from the banking cartel; however, this notion is false.

The time has come to take away the paper money privilege from the banking cartel.

The main aim of this book is to promote the idea that the public needs to take away the political privileges of bankers who gain from tax payer's money. By putting forward the details behind the assertion that that the working class do not gain anything from their labor because the bankers take home the full slices of the wealth, this book intends to awake the docile mind of the general working class public. The book also intends to explain that this privilege is a political favor, gained and kept by political power. Therefore, if you are not a banker or related to any banker, and you make use of a banker's currency, you are one of the losers.

The gold standard is a decentralized system.

The book intends to show you that the gold standard system is a decentralized system that is hugely beneficial to the working class and pensioners. It will also show the way and explain the reason why it was free from governmental controls and how this decentralized economic system made America very rich.

Why centralized systems can't win the war against a decentralized system

The contents of this book will demonstrate why a decentralized system is more efficient than centralized systems. It will also show you, with examples and explanations, the reason why the centralized coercive system (be that a company or the government) cannot win the fight against the totally decentralized systems where the people hold a strong conviction that they are right.

How to revive the growing economy

This book will share the proposal on how the whole economy can be revived. It will show how a decentralized parallel economy can be created amidst the currently existing system. The contents would also put forward the ways to create a totally decentralized organization that would allow for the parallel economy to function. The reader would be introduced to the proposal to use for the transitional economy (transitional unit of account) that would be issued by the system in a form of company shares/cryptocurrency, but based on and linked to USD. After attracting enough users and economic activity, users would be able to vote for the switch from USD-based economy to the gold-based standard.

You will find answers to questions like, why do we need a transitional currency?

You would find an answer to the question "Why not just take an existing cryptocurrency (like Bitcoin) or why not use the gold right from the beginning?" The main answer is that currently, most businesses have based currency as their local fiat currency. These currencies could be USD, Euro or any other paper money. Because of this, it is very difficult for them to earn their income in one currency and make expenses in another currency because it may, in the beginning, fluctuate heavily in value in relation to their base currency.

Hence, in order for us to attract those businesses, we need to make it easier for them by lowering the volatility between incoming funds and obligations. That's why we have this transitional arrangement for transitional currency.

You will also be able to answer:

  * What really is the term 'government' and the history behind it? What was the real reason behind its initial creation and what it can teach us?

  * What is slavery and what are its current forms in the modern world?

  * Questions on the decentralized system. Why is it better, more stable, and more effective than the centralized system?

  * What is the new proposed parallel economy and its proposed starting point. You will also learn how the new economy will start and work.

  * How can you profit from the coming new decentralized economy and additional ideas on how to become very rich with it.

  * Why it's very important for the country to fight for the separation of school and state. We'll discuss the history of the American school system, how and why it was designed, and the reason for its initial introduction and its continuous "reforms".

  * The cartelization of an American economy. How did it come to be? And the reasons why it is destroying the productive parts of the economy.

  * The history of statism in the United States.

  * How to become your very own mint by issuing your very own currency, and by so doing, help to make America great again.

  * A general overview of the businesses you can start or where you can join the others in the new parallel economy movement.

  * How money differs from currency and credit.

  * How the Federal Reserve System has done nothing but destroy the economy of the United States by making it spend billions of dollars in resources.

  * How Americans have been deceived by the power structure.

  * Valuable insight into what the chairman of the Federal Reserve, Alan Greenspan, actually thought about the connection of Gold standard to human freedom.

  * Thoughts on Gold redeemable money and human freedom by Congressman, Howard Buffet (the father of Warren Buffet).

  * The history of how the Wall Street defeated the main street America in the fight against the banking cartel.

  * Fallacy of the Keynesian theory of Demand and Supply.

  * What the economy is meant to achieve.

  * How a select group of decentralized people succeeded in changing the law in what was, at the time, the greatest empire on earth.

# PREFACE

The Central Issue is Money

" _It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."_

\- Мark Тwain

Some people make things happen, some watch things happen, while others don't even know how it happened. These are the three categories of people in life: the achievers, the spectators, and the novices. In spite of their social placing, these three categories are intimately connected in the economic cycle. This discrepancy in the food chain has been present since the dawn of human memory, and to understand why, we need to glimpse at the distant past. Money is a vital aspect of human civilization.

Just like the process of learning to read and count, money is synonymous with basic human development. It has helped to further the course of history, as well as marred certain periods in it. We often wonder why only a few members of society have it at their disposal. Money is critical to the economy, but in spite of this significance, the average person cannot answer simple questions such as:

Where does our money come from?

Who has the authority to issue it?

What gives it value?

How is it regulated to serve the public good?

The reason for this ignorance lies in the exploitive nature of the system because the interest of the rich minority has always been served at the expense of the poor majority: A bourgeoisie vs. Proletariat fight as Karl Marx would describe. The "New Deal" ideology of taking from the rich to give to the poor remains an ideology at best, as the rich always get richer and the poor get poorer. However, this action would be impossible to pull off without the help of the media through which the privileged disseminate their ideology and enslave the minds of the masses.

To this end, the educational system, religious groups, advertising, and the entertainment industry are introduced to shape the masses' perception of themselves and their expectations in life. However, through a subtle means, the media has been used throughout history to influence culture, and through it, from an impressionable age to adulthood; the masses are subjected to diverse mental conditionings which determine their social placing through life. Thus, in talking about exploitation, we draw on its significance to politics and not merely figures.

Getting the masses to exercise their voting rights is one thing, but upturning the status quo is another, as most economies subsist on the exploitation of the masses. This appears to make no sense as the majority has the strength of numbers over the minority. History proved this right in 1789, when French paupers took up arms against the aristocracy and succeeded in a matter of days.

In the long haul, the French Revolution also succeeded in altering modern history and triggering a global decline of absolute monarchies among others. Seeing that it was in the ratio of 100 paupers to one aristocrat, one begins to wonder why it took them 1,500 years to fight back. From this critical standpoint, it becomes clear that ideology and exploitation are intimately interwoven. The human mind is a viable resource which has been exploited from the inception of time to sustain culture. Such is its force that when properly harnessed, there is no limit to what can be achieved.

Thus, in stating the means through which the media has been used to propagate ideas like Western Cultural Imperialism, we see how the masses are defeated psychologically. And this is just one among diverse mechanisms of the power structure and the inevitability of exploitation. Studies show that when the educational curriculum is specially designed to train students to be prospective members of the working class, it is impossible to have such students aspire to be entrepreneurs later in life. Therefore, in promoting hard work, diligence, and other attributes of the working class, the media conspires to keep the workers stagnated.

These conditionings are subtle, and without knowing it, individuals live their lives just as it has been scripted by the ruling class. Considering the irrational nature of the human subconscious, experts would say that most, if not all, human actions and inactions are products of the subconscious. Thus, the motivations for human actions are mostly irrational. Having mastered the human subconscious and its predisposition to subtlety, we see ways in which education, the press, advertising, and broadcasting are collaborators in this business of exploitation.

Thus, subtle messages are targeted at the subconscious mind, influencing our perception of ourselves and others in relation to our environment. Hence, without knowing it, diverse forms of mental conditionings and internalizations are going on, down to the excruciating details which we are not aware of. This can also be used to analyze diverse social pathologies, as psychic and social wholeness are products of perceptions, self-assessment, and self-esteem.

Thus, through the dissemination of false ideas, the masses are conditioned to be subservient to the ruling forces. Bear in mind that all power structures employ the services of intellectuals and researchers to evolve these ideas. Hence, equally equipped researchers must be employed in our quest for the emancipation of the masses and the ultimate good.

Having hinted earlier that money is the medium through which the higher power structure exploits weak (or bourgeoisie exploiting the proletariat), we now understand why the ruling class keeps the average man ignorant of the concept of money. Since this is the exclusive reserve of the ruling minority, they keep information – such as the origin of money; the holders of the authority to issue it; the reason it is loses its value; and the predators and preys of the economy - classified.

This system was set up in a series of political conflicts between December 1913 and August 1971, and constitutes the moral fiber of the institution called _Paper Money_. Just like the medieval serfs, it is important that you, the working class or pensioner remain ignorant. If you understand these things, you would speak out, rebel, and destroy the existing system from 100 to 1. Learning from antecedents, it is necessary for freedom fighters in the 21st century to spread the knowledge of money in order to upturn the modern power structure. This brings to mind the story of a young man in a world enslaved to superstitious beliefs.

At a certain time in his life, this young man dared to challenge the mythical beliefs and ended up being at loggerheads with the authorities. When his life was threatened, he crossed over the boundary where monsters were believed to exist. However, instead of monsters, thick black darkness, and certain death, he actually found sunshine, beauty, and people who had overcame imaginary fears and slavery. He found out that his chains were not real after all, as they are figments of the imagination.

Freedom, therefore, is for the brave, but it comes at a cost. To debunk these myths, we are made to believe certain things about money, and it is incumbent on us to be educated about it. Thus, the first task of this book is to give you the knowledge of money and to protect your freedom and assets from the power structure of today.

# INTRODUCTION

In the middle Ages, usury was unethical. Thus, lending money at any interest rate was frowned upon. In the 18th century however, the Industrial Revolution revived the concept. With the development of the science of economics, any transaction between consenting adults was regarded as ethical; lending at an interest inclusive. Thus, if a person consents to an offer, it is believed to be in his interest, and if it was not, he was the best person to safeguard his own interests. Hence, the liberal economists defended usury, with the conclusion that if it was between two consenting adults, then it was most likely in the interest of both parties. Today, no one wants to delay gratification; we want it, and we want it now. Giving a loan means you have to delay gratification, sacrifice your time preference, and it is only right that you should be compensated for it.

The man who borrows, on the other hand, indulges his time preference. He consumes a value which he usually would not earn until later, and it is for this reason he pays back with interest. Interest has become quite important in the exchange of capital, and legalizing it has aided industrial civilization. In the last century however, a system was set up to get rid of interest and take us back to the Middle Ages. Studies show that in the past 84 years, the real interest rate (nominal interest rate - inflation) on safe investments like bills of the United States Treasury has been 0%, yet some economists insist that there is nothing wrong with the present state of affairs. This book is as much a manual as it is a manifesto for those who choose to go with the 19th century American practice of retiring in their old age, and then living off their pent-up savings. It is dedicated to the rebirth of the 'Rentier', a term which will be explained later in the book.

Fundamental definitions and facts

This book is pro-liberal in nature that is, in favor of the working class. It is classical because it is pro-gold standard, which guarantees higher wages for the working class and good retirement funds for the elderly. Secondly, paper money was a cause for war, while the gold standard, a force for peace. A gold standard would then advance liberal causes, thus anyone who is for the gold standard has to choose between their conservative alliance and pro-gold conviction, as it was simply impossible to have both. Real American liberalism was in support of hard money and had men like Andrew Jackson, who stated in his message vetoing the central bank that, "It is to be regretted that the rich and powerful too often bend the acts of the government to their selfish purposes... Every man is equally entitled to protection by law, but when the laws undertake to add artificial distinction, to grant titles, gratuities, and exclusive privileges to make the rich richer and the potent more powerful, the humble members of society - the farmers, mechanics, arid laborers - who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their government."

Conversely, the Locofocos insist that '"the true remedy for the people, which will reduce the price of all the necessaries of life, is that every workingman refuse paper money as payment for his services, or demand specie of the banks for all notes paid to him." By specie, they meant gold or silver.

American liberalism possessed one of the greatest political leaders of all time, Thomas Jefferson, who stated "The sum of what has been said is . . . that specie is the most perfect medium, because it will preserve its own level; because by having intrinsic and universal value, it can never die in our hands, and it is the surest resource of reliance in the time of war; that the trifling economy of paper, as a cheaper medium, or its convenience for transmission, weighs nothing in opposition to the advantages of the precious metals that it is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted. Instead of yielding to the cries of scarcity of medium set up by speculators, projectors, and commercial gamblers, no endeavors should be spared to begin the work of reducing it by such gradual means as it may give time to private fortunes to preserve their poise, and settle down with the subsiding medium."

Unfortunately, the modern Democratic Party has deviated from this noble cause.

# HOW REPUBLICANS BECAME PRO-GOLD STANDARD

It's really a strange world where the Republican Party with their initial origin from Northeast with their support of major corporations and banks, would also become the supporter of the gold standard. How was it possible to connect in one party interests of big banks and largest corporations on one side (beneficiaries of the paper money) and average workers (beneficiaries of the gold standard) on another side?

In his book " _History of Money and Banking in the United States: The Colonial Era to World II"_ Murray N. Rothbard wrote:

" _The presidential election of 1896 was a great national referendum on the gold standard. The Democratic Party had been captured at its 1896 convention, by the Populist, ultra-inflationist, anti-gold forces, headed by William Jennings Bryan._

The older Democrats, who had been fiercely devoted to hard money and the gold standard, either stayed home on Election Day or voted, for the first time in their lives, for the hated Republicans.

The Republicans had long been the party of prohibition and of greenback inflation and opposition to gold. But since the early 1890s, the Rockefeller forces, dominant in their home state of Ohio and nationally in the Republican Party, had decided to quietly ditch prohibition as a political embarrassment and as a grave deterrent to obtaining votes from the increasingly powerful bloc of German-American voters. In the summer of 1896, anticipating the defeat of the gold forces at the Democratic convention, the Morgans, previously dominant in the Democratic Party, approached the McKinley-Mark Hanna-Rockefeller forces through their rising young satrap, Congressman Henry Cabot Lodge of Massachusetts. Lodge offered the Rockefeller forces a deal:

The Morgans would support McKinley for president and neither sit home nor back a third, Gold Democrat party, provided that McKinley pledged himself to a gold standard. The deal was struck, and many previously hard-money Democrats shifted to the Republicans. The nature of the American political party system was now drastically changed: previously a tightly fought struggle between hard-money, free-trade, laissez-faire Democrats on the one hand, and protectionist, inflationist, and statist Republicans on the other, with the Democrats slowly but surely gaining ascendancy by the early 1890s, was now a party system that would be dominated by the Republicans until the depression election of 1932."

# HOW THE MOVEMENT BEGAN

In the year 1933, the gold standard had been abandoned and hard money advocates were reassured by the requirement of a 40% gold backing for the Federal Reserve note, which was later reduced to 25% when this backing requirement got in the way of further expansion. In 1968, however, the 25% requirement was later eliminated when it got in the way of further expansion. Also, after the Bretton Woods System of international gold convertibility interfered with the paper money expansion of 1971-1972, it was abandoned altogether with all the means to pacify the sound money advocates - that in the long haul, the creation of new paper money would be ended just when it was about to take effect.

For a long time, the supporters of sound money were deceived by these long-range measures, and no effective political action was launched. But in 1972, after the abandonment of the Bretton Woods System on August 15, 1971, several movements to restore hard money jump-started. Most prominent among these, were the Committee for Monetary Reform and Education, the National Committee to Legalize Gold and the Committee to Reestablish the Gold Standard.

From its inception in the early 1970's, the gold standard movement was plagued by the Keynesian belief that the gold standard was a conservative (republican) position. So deep was its impact that some individuals with conservative persuasions about money believed they ought to be pro-gold. This was a grave discredit to the movement, as many of these conservatives actively opposed the gold standard because it conflicted with the interests of their Wall Street and banker friends. Their opposition was more effective coming from within. Events began to climax when a sound money supporter was taken in by this Keynesian myth and believed that he, being a gold advocate, ought to be conservative.

In addition to Henry Hazlitt, a good example of this type was Ludwig von Mises, one of the great economic thinkers of this century who was conservative enough to serve on the board of the John Birch society, but old enough to remember the old political categories: hence, he called himself a liberal until his death. Jesse Helms, Phil Crane, Steve Symms and Larry MacDonald appear to be in the same category.

The Committee on Monetary Research and Education was an older group of genuinely sound money people who never questioned the fact that they were meant to be conservative. While they would not admit that a gold standard was their goal, they simply posed as an educational group. Of course, the Keynesian intellectuals did not need any education. These people understood the essence of the issue (in their own terms) and had chosen to side with the bankers. This was not a choice they could admit publicly. Instead, they pretended to disagree with the CMRE on philosophical grounds. This was not effective in getting the issue off dead center. The National committee to Legalize Gold was a direct-action group, operated by younger people, and it quickly succeeded in its limited goal of legalizing gold ownership. This was intended as a first step to establishing a full gold standard.

Unfortunately, after achieving this first step in 1974, it fell apart, with the mainstay of the group moving into the conference business and reaping profits from the gold bubble of the late 1970s. This group was also taken in a conservative direction; it kept getting bound up with apologists for the old South African Government and with Wall Street speculators and bankers (the very people who -via Foster and Catchings - gave us the Keynesian ideology). It thus became perverted, and by the late 1970s, many gold coin dealers, advisors, etc., were admitting that an actual gold standard would put them out of business.

The intellectual force behind the gold conferences was Harry Browne, author of "How You Can Profit from the Coming Devaluation". Browne's knowledge of economics is excellent, but his bias against political action led him into a major error. He argued that it was possible to protect one's self from the depreciation of the currency by clever financial planning (like owning gold, as in the early 1970s,). Indeed, paper money is a privilege of the bankers (which they share with their friends, the big corporations); it is their privilege to create money out of nothing. They gain unearned wealth from this privilege, and if they gain, then someone else has to lose.

If you are not a banker (or a banker's friend) and if you use the bankers' money, then you are one of the losers. If you try to protect yourself by buying gold, eventually the gold will go up in direct proportion as the currency; but it will not yield you any interest. Bankers thrive on getting interest on capital they did not create; you, on another hand, is deprived of interest on the capital you did create. It all boils down to the political privilege granted to banks by political power and you can imagine the loss they would suffer when they are deprived of the same.

# OLD ROAD TO PLENTY

" _Money is gold and nothing else."_

\- JP Morgan 1912

As clearly stated, if the bankers make unearned gains, then the people suffer corresponding losses. If the people must keep what they earn, then the bankers' privilege must be taken away. But we must first understand that this privilege is a political favor, gained and kept by political power. Therefore, any attempt to end this injustice must be confronted with political opposition. Thus, to secure the people's freedom to use independent money that is not created by the bankers, it must enter the political arena.

What we need is the competitive coinage where people would have the right under the current U.S. law to invest ounces of gold which cannot be created out of nothing by the bankers and which will not depreciate throughout one's lifetime. But while it is not in your best interest to pay gold, it is in your interest to be paid gold by others - especially in long-term contracts. This is the essence of this discourse; a door to freedom has been opened, but it is only for those who understand the gold coin and who know how to use it as money. This is the thrust of this book: your road to plenty.

# PART II
# WHAT IS GOVERNMENT? GOVERNMENT IS FORCE

"Government is not Reason, It is not Eloquence — It is Force."

\- George Washington

As George Washington appropriately captures it in the above quote, the government is a force –a brute one for that matter. Its power is near limitless. Anyone who dared to point an accusing finger against the government risked losing his life. Most who have dared to have sad tales to tell. Unlike everything else in the society, the government is the only institution that can legally coerce and initiate violence. Under the guise of the law, its officers may use both physical and lethal force - not necessarily in defense of innocent lives but against individuals who do not pose any threat to their fellow citizens. Therefore from all indications, things will remain as they are, no matter how many paper checks and balances or bills of rights are thought to contain it. Given these traits, then why isn't everyone wary of the State?

Progressives and Conservatives alike have certain areas where they wish to see the force of government unleashed. Each then regards anyone else's wariness as a defect. Take for instance the so-called "conservatives" and the "progressives". While both secretly crave to take advantage of the force the government can unleash, they publicly accuse each other of wrongdoing. While the conservatives sought to witch-hunt those they felt constituted nuisance to freedom and free enterprise, they so preached, but were eager to trust the power of the government when the objective was policing the world, hounding unauthorized immigrants and persecuting manufacturers, merchants, and consumers of unapproved substances. The progressives, on the other hand, claimed to be interested in protecting the privacy, but have no problem for example, with intrusion into the most personal of matters: medical care. Here they trust power and dismiss rational fears of arbitrary bureaucratic control over health and life.

Come to think of it, why is it that no one questions the use of force by the government? This is somewhat surprising because we have all being conditioned to believe that force can only be used in self-defense. We were taught not to hit other people or take their things. Yet, as we grow, we are expected to believe that one institution gets to operate by different rules, but no one can really explain to us why.

Even if you dared to ask, no reasonable explanation would be provided, except for some false explanations like "You choose to live here and those are the rules; love it or leave it" we are yet to receive a satisfactory explanation for this anomaly. Moreover, this argument implies that the government owns the country, including your property and the assertion that we all agreed to be coerced is ridiculous, and how giving consent is even possible when the withholding of consent is impossible.

Maybe the answer lies with Crispin Sartwell. In his opinion, any individual who is put under duress is left with no choice but to act as expected even if it is against his consent. In his book, Crispin Sartwell wrote:

"Consent is always compromised by force; the mere existence of effective force dedicated to some end, constitutes coercion toward that end, whatever you may think or want. If I consent to abide by the law when that law is enforced by a huge body of men with guns and clubs, it is never clear, to say the least, whether my consent is genuine or not... It will always be prudent for me, under such circumstances, to simulate consent, and there are no clear signs by which a simulation could be distinguished from a genuine consent in such a case. That I am enthusiastic in my acquiescence to your overwhelming capacity for violence—that I pledge my allegiance according to formula, sing patriotic songs and so on—does not entail that I am not merely acquiescing.

The mere existence of an overwhelming force by which the laws will be enforced compromises conceptually the possibility of voluntarily acceding to them. Or put it this way: the power of government, constituted by hypothesis under contract, by which it preserves the liberties and properties of its citizens, is itself conceptually incompatible with the very possibility of their consent."

The standing threat of overwhelming force ensures that any individual's performance is made under duress, ruling out the preconditions for any genuine consent.

Lysander Spooner is of a similar opinion. In his book, he opined: _"In truth, in the case of individuals, their actual voting is not to be taken as proof of consent even for the time being. On the contrary, it is to be considered that, without his consent having ever been asked, a man finds himself environed by a government that he cannot resist; a government that forces him to pay money, render service, and forego the exercise of many of his natural rights while under peril of weighty punishments. He sees too, that other men practice this tyranny over him by the use of the ballot. He sees further that, if he will but use the ballot himself, he has some chance of relieving himself from this tyranny of others, by subjecting them to his own. In short, he finds himself, without his consent, so situated that if he uses the ballot, he may become a master; if he does not use it, he must become a slave. And he has no other alternative than these two._

_In_ self-defence _, he attempts the former. His case is analogous to that of a man who has been forced into battle, where he must either kill_ others _or be killed himself. Because, to save his own life in battle, a man attempts to take the lives of his opponents, it is not to be inferred that the battle is one of his own choosing. Also in contests with the ballot – which is a mere substitute for a bullet – because, as his only chance of self-preservation, a man uses a ballot, is it to be inferred that the contest is one into which he voluntarily entered; that he voluntarily set up all his own natural rights, as a stake against those of others, to be lost or won by the mere power of numbers._

_On the contrary, it is to be considered that, in an exigency, into which he had been forced by others, and in which no other means of_ self-defence _offered, he, as a matter of necessity, used the only one that was left to him._

Doubtless, the most miserable of men, under the most oppressive government in the world, if allowed the ballot, would use it, if they could see any chance of thereby ameliorating their condition. But it would not be a legitimate inference that the government that crushes them, was one which they had voluntarily set up, or ever consented to.

_Therefore, a man's vote under the Constitution of the United_ States _is not to be taken as evidence that he ever freely assented to the Constitution, even for the time being. Consequently, we have no proof that any very large portion, even of the actual voters of the United States, ever really and voluntarily consented to the Constitution, even for the time being. Nor can we ever have such proof, until every man is left perfectly free to consent, or not, without thereby subjecting himself or his property to injury or trespass from others."_

To effectively keep people from exercising their declared freedoms and making them de facto serfs of their government, the government took their right to express the consent, knowing fully well that people would be left with little choice but to follow whatever is imposed on them. They did this by denying the people the right to refuse whatever term is imposed upon them, even if they wanted to. When there are no effective possibilities of refusal, there is no possibility of publicly expressing consent, and if there is no possibility of publicly expressing consent, there is no possibility of consenting at all. Since all existing states make that standard threat, no existing state rules by consent over any individual subject.

Ordinarily, no state should have the power to make a person obey enacted laws or do something he or she would be willing to do if given the freedom of choice. This is particularly true considering that the power the state exercises was given to it by the vote of the people. So, to keep people under their control, the government takes away their right to consent.

Just think about this, we only vote to determine who will run the government and not to deliberate the limits of its powers. What then is the essence of democracy when the people have no say to the extent of power that can be wielded by the government? True, efforts have been made in times past to curtail the powers of the government, but they have only yielded little fruit. To this day, effective tax representation is yet to be fully realized despite all the efforts that have been made.

Looking deeper at the theory of economics, will enable us better understand the weakness of the government. How can you explain the fact that the state will not hesitate in taking up arms to protect their interest even when it seriously frowns at violence of whatever sort? Most people would agree that the sign of an individual's maturity, rationality, and social skills, is the understanding that cooperation of others has to be obtained only by persuasion. If you want something from someone, you make an offer or an argument. You don't demand, bully, or terrorize.

Yet, we tolerate an institution that demands, bullies, and terrorizes across a wide range of matters. How then is it that we tolerate the bullying and harsh demands of the government, even though we wouldn't tolerate it ourselves? It does not only demand that we don't harm others or take their belongings. It bullies us into turning over our money for all kinds of purposes.

It is amusing to see the government pretend to protect our interest while in actual fact, they only care about their personal interest. It demands that we comply with its (ever-changing) rules about what we consume, how we manage our medical care, and in what manner we trade with others. And it increasingly terrorizes us in its brutal crusade against self-medication.

It does not matter if government officials claim to look out for our welfare, indulging in their taste for power, or doing the bidding of well-connected and well-heeled interests, the result is the same:

We are routinely hassled in our efforts to live, to cooperate, and to mutually benefit from one another. We are the economy they presume to manage. Supporters of the government would tell you that a strong government is needed to protect the weak from the strong, and the ordinary people from the well-connected. However, that appeal falls apart when one reviews the history of government and realizes that, appearances aside, power ultimately sides with the strong and the rich against the rest. What they have failed to realize is that since time immemorial, the rich and the strong has always leveraged upon the powers of the government in exploiting the masses and enriching themselves.

Indeed, power, legal plunder, and shelter from competition is the source of their strength and a good deal of wealth. Economic and social theory support wariness about the State. Even when it appears to do good, the government diminishes our freedom and humanity. Ironically, those who claim to champion goodwill and cooperation regard violence as a legitimate means to their ends.

# THE HISTORY OF GOVERNMENT

In "The Nature of Government" Ayn Rand wrote:

" _The evolution of the concept of "government" has had a long, tortuous history. Some glimmer of the government's proper function seems to have existed in every organized society, manifesting itself in such phenomena as the recognition of some implicit (if often non-existent) difference between a government and a robber-gang - the aura of respect and of moral authority granted to the government as the guardian of "law and order" - the fact that even the_ most evil _types of government found it necessary to maintain some semblance of order and some pretense at justice, if only by routine and tradition, and to claim some sort of moral justification for their power, is of a mystical or social nature. Just as the absolute monarchs of France had to invoke_

_"The Divine Right of Kings," so do the modern dictators like it_ was _in Soviet Russia and Nazi Germany or currently in North Korea, have to spend fortunes on propaganda to justify their rule in the eyes of their enslaved subjects. In mankind's history, the understanding of the government's proper function is a very recent achievement: it is only two-hundred years old and it dates from the Founding Fathers of the American Revolution. Not only did they identify the nature and the needs of a free society, but they devised the means to translate it into practice. A free_ society like _any other human product cannot be achieved by random means, by mere wishing or by the leaders' "good intentions." A complex legal system, based on objectively valid principles, is required."_

# HOW THE STATES ORIGINATED

_From our earliest days in school, we were told that the state is duty bound to serve and protect our rights as citizens while_ we, in turn, _own it our allegiance. However, history has exposed the hypocrisy of this system which makes ridiculous demands, yet denies its citizens any real rights. Without mincing words, we will agree that the government as a protector of human rights is false, empirically and logically so, as is the idea that states were voluntarily invented by citizens to enhance they own security._

Hundreds of thousands of years ago, when humanity was still evolving, there were no such thing as "government". At that time, man only produced what he could consume and there was no excess in the production of food or any other resources. However, as the human society began to advance, some ancient people began cultivating land and so the first agrarian civilizations were born. Various aspects of the economy began to advance, and so did agriculture.

For the first time in human history, agriculture allowed humans to produce more food than the farmer needed to sustain his life. No previous endeavor (hunting, gathering, etc.) allowed for that. But as with any human progress, it also comes with its dark side. Soon after, farm owners start capturing other humans and domesticating them to work as slaves on their farms. After that, as farms grew, farmers found to their advantage to cooperate with one another in capturing runaway slaves and getting new slaves for their farms. So, eventually, one family would unite other local farmers and in return for "protection", money (or other valuable consideration) (no different than what is currently done by governments or other organized crime syndicates) they provided initial government services which was to capture runaway slaves, supply of new slaves and protection from other governments, and like today, it didn't matter if you wanted it or not.

Humans were hunted and domesticated like wild animals for years after man had learned to produce excess agricultural output. Farmers owned the means of production, hence became the ruling class, who paid the brutalizing class (the police, slave hunters, and general sadists) and the propagandizing class (the priests, intellectuals, and artists) and used their physical (police) and mental (priests) force to their advantage.

The initial creation of states and governments to support and enforce slavery, created such a perfect structure that even though it changed names over the centuries, it is still with us even today. We have a new ruling class of farmers (bankers and such), brutalizing class of people like slave hunters (police), priests (intellectuals and propagandists) and slaves (paper money users).

All initial societies were in fact really just human farms, where people were hunted, captured, domesticated and owned like any other form of livestock. This was the norm for thousands of years until their monopoly was destroyed in the 16th and 17th century, when massive improvements in agricultural organization and technology created the additional wave of excess productivity. It reorganized and consolidated farmland, resulting in 5-10 times more crops, creating a new class of industrial workers by displacing people from the country and huddling them to new cities. This enormous agricultural excess was the capital that funded the Industrial Revolution. However, the Industrial Revolution did not rise because the ruling class wanted to free their serfs, but on realizing how additional "liberties" could make their livestock astoundingly more productive, they decided to harness it.

This is akin to simple agricultural tactics. When cows are placed in confining stalls, they become nervous and hit their heads against the walls, with attendant bruises and infections. So, it is in the farmers' best interest to set the cows free, thus, enhancing productivity and reducing risks to the barest minimum. But the next stop after "free range" is not "freedom'. With the rise of state capitalism in the 19th century, "free range serfdom" became popular, but this "freedom" was not granted to the human livestock to set them free per se, it was a decoy for boosting their productivity.

Of course, intellectuals, artists, and priests were conspirators in concealing this reality from the people. Under this practice, you were allowed certain privileges like limited property ownership, movement rights, freedom of association and occupation; while the government did not approve of these rights in principle - since it constantly violates them – they allowed "free range livestock" because it is cheaper to own and more productive. As mentioned earlier, ideologies are sacrosanct in the human society. They ensure strict adherence to the tenets of the ruling forces and to stall an uprising from the working class.

To keep their propaganda alive, what the government does is to teach children to dread freedom and independence. They know very well that a child will always grow into adulthood with whatever he has been taught. During the era of slave trade, slave owners made their slaves believe freedom was evil, and whoever thought of it should be put to death. No wonder some slaves chose to remain the way they were even when given the opportunity to be free. This is exactly what the government does by making us believe in Statism.

State capitalism, socialism, communism, fascism, democracy are all livestock management approaches. Some work well for long periods like state capitalism, while others like communism failed. The recent growth of "freedom" in China, India, and Asia is occurring because the local state farmers have upgraded their livestock management practices. They have recognized that putting their cows in a larger stall provides the rulers with more milk and meat.

Under the guise of education, government schools are used as indoctrination pens for livestock. They train children to "love" the farm, and to fear true freedom and independence, and to be hostile to anyone who questions the brutal reality of human ownership. Like religion, the ridiculous contradictions of statism can only be sustained through endless propaganda inflicted upon helpless children; no thanks to the intellectuals.

The idea that democracy and some sort of "social contract" justifies the brutal exercise of violent power over billions is one of the reasons for human misery. If you say to a slave that his ancestors "chose" slavery, and therefore he is bound by their decisions, he will simply respond: "If slavery is a choice, then I choose not to be a slave."

This is the most frightening statement for the ruling classes, which is why they indoctrinate their slaves to attack anyone who dares to speak of it again. The ruling class have used Statism as an excuse to steal from the people without anyone raising an eyebrow. Religion, they say, is the opium of the masses – indoctrinate a man right from his childhood and he will live by those doctrines for the rest of his life. Make him see Statism as an ideology, and he will have you to thank. Statism is not a philosophy.

Statism does not originate from historical evidence or rational principles. It is an ex-post facto justification for human ownership; an excuse for violence. Statism is an ideology, and all ideologies are variations on human livestock management practices. Religion is "pimped-out" superstition, designed to drug children with fears that they will endlessly pay to have "alleviated." Nationalism is "pimped-out" bigotry, designed to reinforce a Stockholm syndrome in the livestock; a mental conditioning that makes one love his violators. The opposite of superstition is not another superstition, but the truth. The opposite of ideology is not a different ideology, but clear evidence and rational principles. The opposite of superstition and ideology - of statism - is philosophy.

Truth, philosophy, and rationale, no matter how long they are subdued, will someday prevail against superstition, statism, and ideology.

# INCOME TAX AS PART OF MODERN DAY SLAVERY

Taxation is theft, purely and simply, even though it is theft on a grand and colossal scale which no acknowledged criminals could hope to match. It is a compulsory seizure of the property of the State's inhabitants, or subjects.

Murray N. Rothbard

Income taxation is by no means different from slavery. A man who is taxed on his earnings is, in other words, forced to put in time and labor for FREE, i.e. without being compensated – slavery in its modern form.

Slavery will always be slavery no matter how subtle it may appear. Whether the government takes away 100% of your earning or just some tiny fractions of it, you are still a slave.

_They would tell you the money they take from you will be used to help the less privileged in the society_ _._

  * First of all, it makes no difference how the money is spent and what the intent to enslave people was.

  * Second, how true is the above statement itself? Only a little bit, but mostly it's a lie. Of all the 1.48 trillion dollars collected by the Federal government in income taxes, 432 billion (or about 1/3 of the money collected) was paid out as an interest to the banking cartel as a service fee for creating Federal Reserve Notes.

  * Third, even when we talk about the money that is left from the interest payment to the bankers, the tax system used by the government is a pure scam. It is a typical illustration of "stealing from Peter to pay Paul". The system is such that money is stolen from individuals who labor night and day to provide for themselves and their families, and is then given to someone who doesn't even know where this money came from.

  * Fourth, taxation of earnings from labor is equivalent to forced labor. That is, seizing the dividends of someone's labor and time. If you object to forced labor and would oppose forcing unemployed hippies to work for the benefit of the needy and would also object to forcing each person to work five extra hours each week for the benefit of the needy, you have no moral justification to support taxes on earnings. Therefore, it's in direct contradiction of the 13th Amendment to the U.S. Constitution. The 13th Amendment says: "Neither slavery nor involuntary servitude, except as a punishment for a crime whereof the party shall have been duly convicted, shall exist within the United States, nor any place subject to their jurisdiction. Congress shall have the power to enforce this article by appropriate legislation."

To better understand this, let's first understand who the slave is. To aid your understanding of this, let's go back to the basics: the ideal definition of a slave is someone that owns neither himself nor his labor. What most people do not realize is you don't have to work on plantations or have a slave master to be a slave.

We will all agree that only a slave can be taxed 100% of his income. So, is a man taxed at a certain percentage of his income a slave to a certain degree? Thus, if the government taxes you at 50%, are you half slave or half free?

With this in mind, here is what you should ask yourself, if someone owned just 5% of your labor. Are you still a free man or a slave? Maybe partially slave?

By paying a certain percentage of your income in the form of taxes, you have become a slave. The only exception to this is when you give your income voluntarily, but we all know that when it comes to income taxation, we have no choice at all.

I find the concept of taxation problematic at best, and with the following illustrations, I will explain why.

Imagine a man decides to work for longer hours and earns more than he actually needs. He does so because he prefers some extra goods or services to his leisure. Likewise, the man who chooses not to work for extra hours; prefers his leisure activities to the extra goods or services he could acquire by working more. So, can you explain why the tax system seizes part of a man's forced labor to cater to the needy? Why should we treat the man whose happiness requires certain material goods or services differently from the man whose preferences and desires do not require such? Why should the man who prefers seeing a movie (and who has to earn money for a ticket) be required to aid the needy, while the person who prefers to look at a sunset (who requires no extra money) is not?

Indeed, isn't it surprising that redistributionists choose to excuse the man whose pleasures are so easily attainable without extra labor while adding yet another burden to the poor who must work for his pleasures? If anything, one would have expected the reverse. Why is the person with the nonmaterial or non-consumption desire excused while the man whose preferences require material things constrained?"

At this juncture, let us revisit the definition of slavery. Slavery is non-ownership of one's Person and Labor. It is involuntary servitude. A slave must work under a whip (real or figurative), wielded by his owners, with no say whatsoever on how his labors will be compensated. He has a one-way contract which he cannot opt out from. So, slavery is at odds with most freedom lovers and social ethics, based on which all human beings have a natural right to ownership of own Person and Labor. Accordingly, contracts should be voluntary and not coerced. This is would suffice in opposing slavery. However, when most people talk about slavery, they are referring to chattel slavery: the overt practice of buying, selling and owning people like farm animals or beasts of burden. Are there other forms of slavery besides chattel slavery?

Let us quantify the situation:

A plantation slave owned 0% of his Person and 0% of his Labor.

In an ideal, free world, ownership of Person and Labor would be just the opposite: 100% of both.

In this case, we have a method allowing us to describe other forms of slavery by ascribing different percentages of ownership to Person and Labor. When slavery was abolished, ownership of Person and Labor was transferred to the slave, and he became free. So, let us define the following categories in terms of individual percentage ownership:

Category Characteristics

  * Chattel Slavery: 0% ownership of Person and Labor

  * Partial Slavery: some % ownership of Person and Labor

  * Perfect Liberty: 100% ownership of Person and Labor

With this in mind, here is the question: how much of your person and labor do you own? Are you really free or a partial slave? We are not talking about arrangements that cede a portion of ownership of Person and Labor to others through voluntary contract. I submit that forcible taxation on your personal income makes you a partial slave. Thus, if you are legally bound to hand a certain percentage of your income over to federal, state and local governments, then from the legal standpoint, you only have "some % ownership" of your person and labor. The argument is whether or not ownership is ceded through voluntary contract. Do you recall ever signing a deal with the IRS promising them payment of part of your income? I doubt it; meaning if 30% of your income is paid in income taxes, then you have only 70% ownership of Labor. You are a slave from January through April – a very conservative estimate at best.One wonders where the government gets the basis for this injustice when the 13th Amendment to the U.S. Constitution contradicts such because it can be used to support an argument against a forcible direct tax on the labor of a human being.

The 13th Amendment makes it very clear that we cannot legally or constitutionally be forced into involuntary servitude. And as such, we maintain that a human being has an inalienable right to own 100% of Person and 100% of Labor, including control over how the fruits of his labor are dispensed.

A human being has an inalienable right to control the compensation for his labor while in the act of any service in the marketplace – e.g. digging ditches, flipping burgers, word processing documents for a company, programming computers, preparing court cases, performing surgery, preaching sermons, or writing novels.

A forcible direct tax on the labor of a human being is in violation of this right as stated in the 13th Amendment. However, Congress, the IRS and their Internal Revenue Code (IRC) lay direct claim to those hours (or some stated percentage) without our consent. In other words, in a free and just society:

  * Human beings are not forced to work for free, in whole or in part.

  * Human beings are not slaves to anything or anyone.

  * Anyone who attempts to force us to work for free, without compensation, has violated our rights under the 13th Amendment.

Ironically, this is not obtainable in 21st century USA, as:

  * We labor involuntarily for at least four months out of every year for the government.

  * We are therefore, slaves for that period of time.

  * The government violates our rights by forcing us to work for free, without compensation.

Just imagine how our economy would flourish if human beings owned 100% of Person and Labor, and could voluntarily invest the capital we currently pay to the government in our businesses, our homes, our schools, and our communities! It should be noted here that we are discussing taxes on income resulting from personal labor, to be carefully distinguished from taxes for the sale of material items, or excise taxes. These are entirely separate matters.

# CHECKS AND BALANCES

In the book "The Virtue of Selfishness" Ayn Rand wrote:

" _To make a society free and to keep it free - a system that does not depend on the motives, the moral character or the intentions of any given official, a system that leaves no opportunity, no legal loophole for the development of tyranny."_

The American system of checks and balances was just such an achievement. And although certain contradictions in the Constitution did leave a loophole for the growth of statism, the incomparable achievement was the concept of a constitution as a means of limiting and restricting the power of the government.

Today, when a concerted effort is made to obliterate this point, it cannot be repeated too often that the Constitution is a limitation on the government, not on private individuals - that it does not prescribe the conduct of private individuals, only the conduct of the government - that it is not a charter for government power, but a charter of the citizens' protection against the government.

Now, consider the extent of the moral and political inversion in today's prevalent view of government. Instead of being a protector of man's rights, the government is becoming their most dangerous violator; instead of guarding freedom, the government is establishing slavery; instead of protecting men from the initiators of physical force, the government is initiating physical force and coercion in any manner and issue it pleases; instead of serving as the instrument of objectivity in human relationships, the government is creating a deadly, subterranean reign of uncertainty and fear by means of non-objective laws whose interpretation is left to the arbitrary decisions of random bureaucrats; instead of protecting men from injury by whim, the government is arrogating to itself the power of unlimited whim, so that we are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.

# HOW TO ENSLAVE PEOPLE YOU CANNOT CONQUER: A HISTORICAL STUDY OF THE AZTECS AND APACHE INDIANS

When you read this chapter, please remember about all those "free" gifts that the government doles out like Obamacare, education, welfare, social security, Medicare/Medicaid, food stamps, and every other so-called government help.

Please also remember that any "help" you accept from the government was stolen from someone else.

How History teaches us that a centralized form of government can be easily conquered while a decentralized one can't

Some 500 years ago, two men with similar ambitions found themselves in two different lands. One was Hernando Cortes, while the other was Francisco Pizarro. This two men single-handedly laid waste to two giant civilizations – Aztec and Inca. While Cortes sent the Aztecs to their knees in 1521, Pizarro replicated the same feat in 1532, but this time, it was Inca that bit the dust.

How did they do it? Simple!

Cortes, while setting his sights on Aztec, simply did what every other conquistador would do after him. He killed their leader. All he did to bring the mighty kingdom to its knees was to make Montezuma II, Aztec's leader, a deal he couldn't refuse and then killed him. After he slayed the shepherd, the sheep scattered.

Some 10 years later, the Spanish army led by Pizarro replicated a similar feat. After plundering the city of Incas, Pizarro appointed a ruler who was no better than a puppet over them. It took him just 2 years to wipe out Incas from the map of the world.

Acts like these, bolstered the Spanish army, and by the 16th century, they focused their sight on the North and targeted the Apaches. They had expected a swift victory because, unlike previous encounters, they felt the Apaches were primitive people; however, they were in for a big surprise.

The Apaches, even without an organized army, fiercely resisted the Spanish army. Every attempt of the Spaniards to conquer the "primitive" people was met with failure. The Apaches fought so hard that by the 17th century, they had come close to total freedom from the grip of the Spaniards.

This facts gets one wondering how the Apache, a very primitive society, was able to hold off an army that never for one day grew weak. The Apache did not even have an army of their own, neither were they skilled in the affairs of war. The only explanation to this puzzle is in the system of governance practiced by Apaches. Unlike Incas and Aztec before them that easily fell to the force of the Spanish Army, the Apache survived because they practiced a decentralized form of governance. This takes us to our next point of discussion: centralized and decentralized governance.

The centralized and decentralized system of governance

Maybe, a simple example would help you understand how the centralized system of governance works. You just got a job in a company or a government organization. The game here is run by just one person in charge who assumes titles like CEO, Directory General, Permanent Secretary, etc. This person (the leader) has to be there when key decisions are made. If you did anything the leader does not like, you immediately got fired, and there are no two ways about it.

It was this very coercive system of governance practiced by Incas and Aztec that made them vulnerable. The Apaches neatly outsmarted the European conquistadors because their system of governance was completely free of the elements of the coercive force. They followed by their own volition and were not forced by any law or rule.

A decentralized system is a complete opposite of a centralized system. Though they do have a leader in a decentralized system, the leader has no power whatsoever to tell a person what to do. He only rules by showing examples for others to follow. He gives the people the power to make their decisions. He does this while still maintaining order. In place of kings and governors, the Apaches had a spiritual leader, Nant'an, by title. He led the people because they wanted him to, not because they had no choice. In the Apache culture, the Nant'an had no power to command an army. He led by example. If he felt the need to fight off an intruder, he would start the fight, and his people followed suit.

This system of governance made the Apache very unpredictable. Since they had no form of central leadership, they could strike at any time and from any angle because no form of intelligence can uncover their plans. There was no such thing as capital, so key decisions could be made just about anywhere. This system gave them the flexibility to outmaneuver a centralized society such as that of the Spaniards.

What happens when a centralized system meets a decentralized and open one?

When the Spaniards left for the Americas, their goal was to plunder the Indians and steal their gold and silver. Their strategy was: strike the shepherd and the sheep scatters. It worked perfectly with societies like the Aztec and Inca but with the Apaches, they did succeed in the elimination of a handful of Nant'ans. But what they couldn't figure out was why the Apache waxed stronger even with the elimination of their figureheads. How could a strategy that worked so well on Inca and Aztec fail to yield a meaningful result? What they (the Spaniards) failed to realize was that the Apache did not attach their being to a person or place. As soon as a Nant'an is killed, another takes over; as soon as their village is burnt, they moved. Decentralization was their secret weapon.

Surprisingly, the Apache's lacked the capacity to plan ahead of an invasion. They just scattered and regrouped after being struck by the invading Europeans. They waited for no one to approve their decision, and this, in particular, frustrated the Spaniards. The Apaches valued their freedom far above everything else, and no strategy of the Europeans was going to make them succumb. The people not only survived, they thrived because they had an ideology they believed strongly in. And as long as they clung on to this ideology, no attempt by the Spaniards or later the Englishmen to subdue them succeeded. This ideology kept them going even amidst their trials and travails.

The disintegration of the Apache

The Apache remained a threat to super powers until the early 20th century – when the Americans finally succeeded in doing what the Spaniards and Englishmen could not do for several centuries. USA, being a good student of history, knew that fighting the Apache from the outside will be of no use. They changed tactics – this time, they fought the Apache right from within. They did this by offering the Nant'ans cows, a sacred commodity at that time. This poisonous gift corrupted the heart of the Nant'ans.

With time, this once noble set of individuals started craving for more material possession. Their followers (Nant'ans') who wanted these possessions lobbied hard to get them from their leaders but the Nant'an couldn't give to everyone and he was only able to give the cows to his favorites. To cut the story short, the Apaches ended up having a government – whoever was at the top wielded the most power.

The Apaches eventually became a centralized society, and this gave the Americans the level ground to attack and defeat them.

The story of the Aztec and Incas, on one hand, and the Apache, on another hand, teaches us a lesson - you become vulnerable once you concentrate power in one place. Even a decentralized organization would eventually become centralized once you have a leader who distributes "sacred gifts" to its people and has the power to distribute them as he deems fit.

# WHAT IS MONEY?

All the perplexities, confusion, and distress in America arise, not from defects in the Constitution or confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation.

~President John Adams

Judging by my interactions with people on the concept of money, I found out that many have misconceptions about money. Some of these misconceptions stem out of their inability to tell money and currency apart. So, I would like to start by citing the basic difference between them. Keep in mind that money is either the medium of exchange, a measure of value, or store of value. While currency is one of these two things: medium of exchange or measure of value. Historically, gold and silver were used as money, however, Dollars, Euros, Yen, etc. are nothing but currency, which we erroneously refer to as money.

This is so because unlike gold, they can't perform the third condition which is the store of value. As we all know, the Federal Reserve as every other central bank is designed to produce an inflation which is to decrease the purchasing power of its home currency so that with the passage of time, Dollars, Euros, Yens etc. would be able to purchase less and less merchandise. For example, as at today, the purchasing power of $1.00 USD is approximately equal to what 1 cent could purchase when the Federal Reserve was founded in December, 1913. But that was not the case under the gold standard in the days of George Washington till 1913. Except for the time of the Civil War when America went off the gold and started printing paper money, the country was on the gold standard and prices were stable; inflation was a foreign concept.

# THE DIFFERENCE BETWEEN CURRENCY AND MONEY

As long as I can recollect, I thought money was synonymous to currency. If Dollars can pay my bills, then it had to be money, I thought. But little did I know that this misconception could inhibit my financial advancement. Granted, these two share similar boundaries, but they are peculiar in their own ways. Knowing the difference between these two might be the key to unlocking wealth; as was my case. We are made to believe that finance is limited to Money, Currency, and Wealth, and in fact, not all bankers and financial accountants understand how one is distinct from another.

While most of us confuse the paper notes we carry around for real money, it is nothing but currency; fiat currency. Currency is a medium of exchange, a unit of account; usually, the number written on it indicates its value. It is portable. It is durable. It is divisible (can be changed to lesser divisions). It is fungible (interchangeable). Currency is simply paper, which is a tool for trading your time. It has no intrinsic value!

One of the demerits of currency is that the government reserves the right to print at will. This would mean having more of a total currency into global circulation which, in turn, diminishes its value. If there is more of something, it is no longer scarce, thus less valuable. The thing about currency is that it is of little value because it is in excessive supply. Worse, the government uses it as an instrument to steal money from your pocket because they can always print as much currency as they please.

It is a grave mistake to store up your wealth in paper currency. You know why? Your wealth depreciates as the value of paper money depreciates. For example, whatever $100 can buy now was what $1 bought a century ago. Are you getting the gist? Paper money (fiat currency) will always fall in value. This dilution of the currency supply is in constant interference with your own cash flow as wealth is transferred from your pocket to the government and the banking system.

Nevertheless, the only way to become immune to the devaluation of the currency and reinforce your purchasing power is to build a store of wealth in real money (silver and or gold). There is a historical support for this claim, as thousands of fiat currencies which were not backed by gold and silver have gone to ZERO, which puts the fiat currencies at 100% failure rate. Money, on the other hand, is a store of value and maintains its purchasing power over a long period of time. It also has all features of currency. It is a medium of exchange; a unit of account. It is portable. It is durable. It is divisible. It is fungible. It is the same everywhere. Unlike money, silver and gold have intrinsic value. Silver and gold is the optimum form of money because of its properties. It can be stored in very small areas regardless of its quantity. They are limited in quantity, which partly explains why they have maintained their purchasing power over the last 5,000 years.

# EVALUATING MONEY AND CREDIT

Having explained the concepts of money and currency, including their differences, relationship, and relevance to the economy, let us proceed to the distinctions between money and credit. Contrary to what bankers have made us believe, money is in no way the same as credit. What this means is that the savings deposit (an example of credit) we keep in banks can't be regarded as money. Again, just as people misconstrue money for currency, they cannot tell the difference between money and credit.

Bearing in mind our definition of money as the medium (middle portion) of an exchange, we will agree that money cannot be consumed directly. Under the trade by barter system for instance, if I give you shoes in exchange for corn, and then trade the corn for a pot; then I have used the corn as a medium. In such society, corn is money which is not consumed directly but accepted in exchange for another commodity. This is what we mean when we say it is the "third good" in an exchange. Credit, on the other hand, is an agreement between two parties to exchange "present" goods for future goods.

However, as explained in the passage on usury, credit transactions always attract an interest rate, except when given as a charitable act. In a money economy, credit transactions may be denominated in money, but in a barter economy, they will be denominated in terms of commodities that have commensurate value. From this point alone, we can draw the following distinction as indicated below:

Money

  1. A commodity

  2. Buys whatever is for sale

  3. Carries no interest

  4. Is not consumed in the transaction

Credit

  1. An agreement

  2. Cannot buy anything

  3. Carries interest

  4. Can be either created or destroyed by agreement

Our confusion with these two conceptions above can be traced to the early banker-economists, who came up with a theory that money and credit are one and the same thing. They vented a new version of the money supply which they called M2, having classified a type of credit (savings deposits) as money while taking for granted the fact that both have distinct traits. Savings accounts and all other time deposits are forms of credit. In agreement with the policy of a savings bank, you keep your money in their care where it yields interest, but cannot be used to purchase goods.

On the termination of the agreement however, you are allowed to take your money out of the savings account. This is just like selling a bond or stock and buying something with the proceeds. Money 'notes' is an aspect of money supply known as demand deposits, to make it sound related to time deposits. Now that banks are compensating their depositors for currency depreciation, this compensation on demand deposits is called interest.

Conclusively, we have seen how money differs from credit, and most importantly, our earlier assumption as to the concepts is misguided. One comes out with a number, but it has no significance. This is the secret of M2, M3, and all of the higher M's that may have confused you.

# GOLD AND ECONOMIC FREEDOM

The Colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the Colonies their money, which created unemployment and dissatisfaction.

Benjamin Franklin

Here is what Alan Greenspan wrote before he became Chairman of the Federal Reserve of the United States from 1987 to 2006 about the impossibility of having fiat paper money and freedom at the same time:

" _An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, and that the gold standard is an instrument of laissez-faire and that each implies and requires the other"._

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, and is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can therefore be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and therefore, luxury goods are always in demand and will always be acceptable.

Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term "luxury good" implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value will shift to the most widely acceptable commodity, which in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco, is optional, depending on the context and development of a given economy. In fact, all have been employed at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as an international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange.

If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society's divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their outstanding loans are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion.

Thus, under the gold standard, a free banking system stands as the protector of an economy's stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold, the economies of the different countries act as one, so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries.

For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the "easy money" country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard has not yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if a shortage of bank reserves was causing a business decline - argued economic interventionists - why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely - it was claimed - there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact, government-sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally), backed by the taxing power of the federal government.

Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks ("paper reserves") could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous however, was the Federal Reserve's attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable).

The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain. This would act to stop Britain's gold loss and avoid the political embarrassment of having to raise interest rates. The "Fed" succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to mop up the excess reserves and finally succeeded in braking the boom, but it was too late.

By 1929, the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930's.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain's abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed "a mixed gold standard"; yet it is gold that took the blame.)

But the opposition to the gold standard in any form - from a growing number of welfare-state advocates - was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes.

A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. However, government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates.

Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which - through a complex series of steps - the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets.

The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus, the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

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. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter, declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

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."

# THE PROBLEM OF ECONOMIC CALCULATION

Case against central planning (socialism) of the economy or why inefficiencies of the Federal Reserve wastes billions of dollars and is destroying the US economy in exactly the same manner it was mismanaged by central planners of the Soviet Union.

If having our needs met is requisite to live, then we can make an argument that scarcity is a threat to life. Throughout human history, people have devised means to stall this threat, but it seems the satisfaction of a need only creates another; and this would remain the status quo because of the scarcity of raw materials, human labor, and time. The only way to tackle this problem however, is having an economy which is structured in a way that needs are met in the order of their importance.

Thus, producing enough goods to meet people's needs is not the only problem of production, as some needs are more important than the others. In other words, the demand for meat and potatoes would be higher than that of an icing on the cake.

For instance, in a subsistent economy, where each family produces what it consumes, it would be easier to evaluate needs and allocate resources in the order of their importance. Under such system, everyone knows his own needs and tries to satisfy the most pressing of them. But economic calculation in the modern economy is more difficult because most people have specific jobs, which are not necessarily connected to their immediate needs. A worker at a construction site, for example, does not know if the steel he forges is best used for bridges or automobiles.

How many people know the significance of various sectors to the economy? How the felling of trees in Oregon and Washington, the rearing of cows in Texas and Oklahoma, and the technological advancement in San Francisco and Boston meets the society's need for lumber, beef, and computers respectively?

How many people know the number of workers allocated to various diverse productions in the order of its importance to the economy? How can we proffer solutions to problems we don't understand in the first place? This is the problem of economic calculation. However, the public is responsible for the distribution and consumption of these products. When it buys a product made of wood, it appreciates the work of the lumberjack; when it buys a steak, it appreciates the work of the rancher, etc. And in doing so, it expresses society's valuation of the product of these people's labor. But if for instance, it values wooden houses over steak dinners, entrepreneurs build more houses and raise fewer cows. This means there will be more demand for lumberjacks than cowboys. Resources are thus shifted to meet the most important needs of the consumer, and that is how the efficiency is preserved.

# ECONOMIC CALCULATION IN A FREE MARKET ECONOMY

In solving the problem of economic calculation, Ludwig von Mises pointed out that only a free economy is equipped to tackle the problem. While communist, socialist, fascist and welfare state economies erroneously use scarce resources to satisfy lesser needs, they leave their more pressing needs unsatisfied. Ludwig explains how (free market) price impacts consumer behavior such that when an individual within the economy solves the problem of economic calculation for himself, he invariably solves for the economy as a whole.

First, when a worker puts a value (money) on his labor, it is not merely an abstract, theoretical value representing what he would like to be paid however he can only get paid his worth if he can get an employer willing to pay it. If he can, then he is in the economy; if not, then he has no effect on the problem of economic calculation. Once the value of labor is determined in a society, a new person is introduced: the entrepreneur. It is the entrepreneur's responsibility to solve the problem of economic calculation in a cooperative economy. He estimates the cost of labor to produce any given commodity; hires the workers; buys the raw materials and produces the commodity at the said cost.

Meanwhile, the consumers pay a value (money) on the items they want to buy. Once again, we do not refer to a theoretical value which they would like to pay, but the actual value for the commodity. While a consumer might complain about how much he is charged, if he eventually pays the amount, his actions imply he values the item more than the money and any other item which he would have bought. With all these evaluations going on, the entrepreneur hopes that the price valuation of the consumers is higher than the sum of the cost valuations of the workers and suppliers of raw materials etc. The higher the disparity in valuation, the higher his profit; this is the essence of the system.

In allocating scarce resources to any particular product, the entrepreneur is able to generate a net gain for the society at large and in doing so the society is able to solve the problem of economic calculation. The value is calculated by the consumer and the cost value is calculated by the worker as said earlier. This is an indication that the entrepreneur is indispensable in the system. The system not only calculates what is most efficient and how resources ought to be used, it allows consumers indulge their needs.

From the foregoing analysis, it is easy to think of the entrepreneur as the person who profits more in the system but this is not always so. If he succeeds in solving the problem of economic calculation, it is likely that other entrepreneurs will emerge and thus, his monopoly begins to diminish. This competition will result in the drop of the price of commodity and wages will increase such that the consumer and the worker start to benefit. What appeared to be a huge profit initially begins to dwindle, till it finally disappears.

Think of it as a mechanized rabbit bobbing ahead of the greyhounds in a dog race, or the carrot suspended in front of a donkey's snout. This means the runner can never catch up with the incentive, and the rat race continues. In reality, this means the entrepreneur would always be the one to shoulder the loss if the enterprise fails. If consumers refuse to pay more for the product than the actual cost of production, the business collapses in the end, with the workers and consumers leaving unscathed. They move on to the next entrepreneur who is willing to offer more.

As important as their contributions are to the economy, most workers do not see the need to acquire new skills when the consumer needs require such. Their inability to measure up to technological advancement has a direct implication on the economy and the best way to deal with this is to kick against laziness. Once they realize that the government would not condone laziness, they acquire the new skill and get to work.

# ECONOMIC CALCULATION IN A SOCIALIST ECONOMY

In contrast, the problem of economic calculation is tackled differently in a socialist economy. The service of an economic planner is required, who draws up five-year plans. In the free market, for example, the entrepreneur has the information of prices and costs, which also reflects consumer behavior. The reverse is the case in a socialist economy, where prices and costs are arbitrary and do not reflect the choices of the people. In a free market, entrepreneurship is open to all. However, the entrepreneur bears the loss if the business fails, but if he succeeds; he shares the profit with the society and shares the market with his competitors.

Not only is there lower production in socialist economies, the goods produced are barely enough to meet consumers' pressing needs. Their meager wealth is mismanaged, and rate of poverty increases. However, it is not unusual for a socialist dictator to build a hydroelectric dam while his people starve.

Paper money system

Just like socialism, paper money system distorts economic calculation. It fouls things so that the free market cannot work, and it channels resources towards the production of less important goods at the expense of more important ones. As a corollary, we can also see how housing is affected. In 1974, the American society built 1 million houses which increased to 2 million in 1977, but dropped to 1 million in 1981. This cycle keeps recurring decade after decade, and we are forced to ask what the problem is.

Seeing that our need for shelter is fundamental and essential to life and the economy, why should housing demand fluctuate so much? These fluctuations have an impact on the economy because most construction workers become unemployed once the building projects stop. This will continue to be the reality as long as bankers continue in their pursuit of paper money and in the lowering of the nominal rates of interest, which includes the interest rate for home mortgages. We have concentrated on labor as the principal cost of production, but the interest rate, representing the cost of the time from production to consumption, is another crucial element.

By lowering the rate of interest artificially, the bankers lowers the cost of home mortgages, which in turn lowers the monthly payments on a house drastically and this ultimately leads people into buying more houses.

Resources are channeled into the production of houses. Had the interest rates remained higher, society would have produced fewer houses and more of other necessities. As long as the interest rate is altered, it would be difficult to ascertain their correct valuation. In the same vein, just as low-interest rates influence the rate of production of all goods, so are resources diverted away from the goods consumers would have chosen had there been no manipulation to consume the one in question.

Paper money fuels the capitalist system – a system in which consumers are deceived into spending money on things they do not necessarily need while turning blind eyes to their basic necessities. Thus, paper money is subtly used to accomplish what capitalism does directly. Socialism on the other hand, ensures that the government maintains a monopoly of all forces of production and they determine what best to produce for the citizenry.

In deceiving the public, it misappropriates resources and exploits the people. In influencing consumer behavior, it has detrimental effects on the economy. Simply put, it diverts the resources meant for the public's dire needs to luxuries.

Needless to say, considerations such as stated above, were completely lost on the people who constructed gross national product as a measure of the nation's wealth. Truly, they gave no thought to consumers' preference in relation to national wealth. When luxuries replaced necessities, it was not subtracted from GNP. Instead of tackling the problem of economic calculation into cognizance, they trumped up unemployment as an excuse.

Why is it that the system allows human labor and resources to lie fallow? Isn't this wasteful in itself? A study of the periods of high unemployment in American history shows that they were always preceded by a massive expansion of money and credit wherein resources are misallocated and wasted through the lowering of the rate of interest. But this waste has never been recognized by the majority of economists.

When credit expansion stops, the entrepreneur is on the receiving end of the wastefulness, which they attempt to terminate. This phase is usually followed by a period of unemployment (of both people and capital), during which entrepreneurs try to figure out how best to use the remaining resources to satisfy the most pressing needs of the public.

Waste, and not unemployment, is the major problem. Interestingly, this period of unemployment is a gain in wealth and a first step in improving the economy, because wastage in itself is the primary cause of unemployment. Re-employing the unemployed is the next step in the right direction. Money and credit expansion only proffers short term solutions, which turns out to be the fundamental cause of the problem in the long haul.

Instead of motivating entrepreneurs to employ the unemployed to satisfy society's most pressing needs, the unemployed are drawn into jobs which exist because of the distorted conditions of money expansion in the first place. Hence, when the money expansion causes a rise in prices and the government tightens again a few years down the road, the unemployed will wind up unemployed again.

In an economy where resources are scarce and limited, it follows that these limited resources can only be channeled to the most pressing needs of the society. Who then determines what these pressing needs are? It's not the entrepreneur; neither is it the worker or the state – the responsibility lies solely with the consumer. What the smart entrepreneur (and not the State or the Federal Reserve) does is to identify those needs and then channel his limited resources in fulfilling them.

# HOW THE POWER STRUCTURE DECEIVES YOU

We all have paper money at our disposal, but from our discussion so far, you will agree that the majority of the population has no idea as to how money operates; better put, the system does not want you to know, so they only tell you how much they are willing to share. Interestingly, many university-trained economists are also clueless to this fact. You may say - ours is a free society one which allows freedom of speech and based on this information, the question we are forced to ask is if this society is really free? Otherwise, why isn't anyone coming out to reveal the truth? Surely, someone must have discovered the truth and owes it to the public. Is that to say the authorities are in the same dilemma?

Most of the answers we need are discussed in Edward Bernays' books: _"Crystallizing Public Opinion_ " and " _Propaganda_ ". Having mastered the art of propaganda while working for the administration of Woodrow Wilson during World War I with the Committee on Public Information, Edward Bernay was popularly known as the father of Public Relations and the best propagandist of the 20th century. He has contributed immensely to this discourse.

The Committee on Public Information was an independent agency of the United States government, created to influence American public opinion through propaganda and, as such, encouraged the public to support U.S. participation in World War I. Within 26 months, from April 14, 1917, to June 30, 1919, it had used every medium available to stir up support for the war effort. It was able to change US public opinion from that of the antiwar and peace to that of the pro-war opinion.

Stunned by the degree to which the democracy slogan (same as it is now, ' _let's bring democracy to the Europeans'_ ) had influenced the public both at home and abroad, he wondered how this propaganda model could be employed during peacetime. He believed that the public's democratic judgment was "not to be relied upon" and fearing that the American public "could very easily vote for the wrong man or want the wrong thing, so that they had to be guided from above". Ultimately, Bernay did not only lift social taboos like selling cigarettes to women, but also his writings on public relations would become a tool of the Third Reich.

Despite his Jewish descent, Bernays' writings had attracted many admirers in the American society and abroad. Among one of his great admirers was the minister of the propaganda for the Third Reich, Joseph Goebbels. For him, Bernays' methods came in really handy. For example, by using his techniques, he was able to create a "Fuhrer cult" around Adolph Hitler.

However, not everyone was impressed by his methods; Supreme Court Justice Felix Frankfurter once described Bernay and his colleagues as "professional poisoners of the public mind, exploiters of foolishness, fanaticism, and self-interest." This is not to say that propaganda is a 20th century invention because diverse democratic governments have used 'persuasion' to secure power; although it was not officially recognized as a concept until the 17th century.

In the Middle Ages, in similar fashion like today, people had their beliefs. At that time there was the popular belief that the earth was flat and the universe was geocentric, which meant that the earth was the center of the universe and other bodies moved around it. Until the likes of Copernicus, Johannes Kepler and Galileo proved that the earth was round and that the universe was heliocentric , which meant that everything revolved around the sun, everybody believed the earth was flat because of the individuals in authority positions (for example, the Pope) said so. Scientists who discredited this claims were tagged as Heretical as penalty for challenging the church. Also, during the Crusade s, witches and other dissents were burned at the stake; but on further enquiry, it was found that these people labeled as witches were actually free thinkers who would not conform to the church.

In primitive times, human sacrifice and other heinous rites were performed to avert famine, yet the authority figures were revered by their people. This is exactly what we see in our society today. People have so become ignorant about how money is created and used, that they end up falling victims of fraud executed by those who know. Until we learn to seek the truth ourselves, we will fall victim to those who created that lie.

In America, like most democratic societies, power is structured in a way that authority flows from the bottom up and not the other way around. This means that people vote those who, they feel, best appeals to them into power. Following this, if the majority is superstitious and irrational, it is obvious that the person they vote into power will share their sentiment. This means that public opinion is fickle, as ignorant public votes are based on appearances. They cannot tell the true intent of the person they are voting into power; who in turn tells them what they want to hear while the man who stands for the truth is unlikely to get into power.

America was formed by men who refused to accept the truth peddled by other men: instead, they chose to seek the truth themselves. In the year 1620, a man in Europe claimed to be the supreme authority on the subjects of morality and the nature of the universe. Everything he said was believed to be the ultimate truth and no one dared challenge him.

However, a small group of Englishmen, who called themselves 'Independents', insisted that each man must judge the truth for himself based on his own conscience and convictions. This led to their expulsion from England, forcing them to settle in America where they were free to hold up their convictions.

Had we upheld this principle as laid down by the Founding Fathers, our economy, among other things, would not be on the decline. The money problems faced by Americans can be squarely laid at the feet of our refusal to seek the truth themselves. From their point of view, the truth is whatever they have being told by authorities.

As we fail to personally understand the fundamental concept of money, we relinquish our place and have it exploited by the authority figures (as was described in Edward Bernay's books on Propaganda techniques, where Propagandists marshal out their schemes by taking advantage of the "authority figures" because they know that people are easily swayed by them.) who now regulate our money for their personal gain.

The same thing happens to our so-called "representatives". Unfortunately, most congressmen cannot explain the monetary legislations which they and their predecessors had passed. It is pity to see U.S congressmen and senators wallow in ignorance even when their job requires them to do otherwise. When a subject, like say money is brought forward for debate, what these men tend to do is take sides with one or two congressmen/senator who is considered an "authority" rather than seeking to find the research the topic personally. Usually, the congressman or his aide would smile and say, ' _Oh we don't understand anything about money. We follow Congressman Jones on that subject'_. This implies that such Congressman sees no wrong in being semi-educated regarding a subject for which he is appointed.

Then, we move on to Congressman Jones who also tells us, ' _Oh we follow Congressman Smith,_ ' and the same lines are repeated. Isn't it unfortunate that in a system as ours; no one bothers to know anything for himself, as all the conservatives in the House follow one conservative congressman, and all the "liberals" in the House follow one "liberal" congressman? These two congressmen would by influenced by their aides, who were monetary experts and genuinely understand the subject and support paper money; and this same thing applies to the Senate, which leaves us wondering why they won't acquire the required information on the said subject, yet aspire to office. Ignorance cannot be excused.

The consequence of this error is that most monetary legislations that pass the U.S. Congress are products of the minds of approximately four people. The commercial bankers, being aware of this, have moved to position sycophants in these sensitive positions. The rest is a default. This same default of responsibility occurs in the media and throughout our society.

In like manner, the banker, Paul Warburg of the Manhattan Bank, gives a chair of economics at Harvard University (The Paul Warburg Chair of Economics); and Harvard appoints a banker-economist (John Kenneth Galbraith) who defends the bankers' privilege to create money, discrediting the gold standard. Galbraith's theories later proved to be the economic equivalent of the Ptolemaic theory of astronomy. Unfortunately, people have failed to make their own judgments and subscribe to his submission. Other universities rush to copy Harvard and institute this "new" Keynesian theory of economics.

Newspaper reporters, on the subject of economics, continue the default. Of course, it is possible to set society on the road to plenty by printing paper money. Harvard University says so.' Thus, the average person would continue to be exploited by fraudulent "experts" because of his own ignorance on the subject of money. It would stare him in the face each time he reads his "news". This is how the power structure controls you.

But the ignorance as to the reason we left the gold standard birthed the creation of the central bank in the first place. However, when the Federal Reserve act was voted into law in December of 1913, its advocates denied that it was a central bank and they kept denying it until the 1960s. At that point, the issue was treated as though the bank had always existed.

Thus, the debate on whether or not a central bank should be created or not, had not been debated in 20th century America because the entire history of 19th century American opposition to the central bank has been erased from history books and from the public mind.

On August 15, 1971, there was a decision that the paper dollar and gold should be separated. This allowed the bankers to double the money supply over the decade; an act that caused the dollar to lose half its value. This also affected every person in the country, as a few people made fortunes while the majority recorded loss. It was an open admission that bankers controlled the Nixon Administration, and those prices would always shoot higher for the foreseeable future. However, the event was not given much consideration, and the headlines of August 16, 1971 treated the price and wage controls as though they would stop the inflation. This ' _gold embargo'_ , as it was called, directly led to:

  * The price and wage controls of 1971-72

  * The oil crisis of the '70s

  * The meat boycott and the shortages of 1973

  * The doubling of average prices in the '70s

At the moment, we experience gigantic budget deficits, soaring national debt, and a rise in the price of a new house above the level that an average American can afford. The same crisis almost destroyed the savings and loan industry in 1981-82 resulted in the decline in real wages for the average American which began in 1972. For example, in 1980, Congress expanded the bankers' privilege to create money from 6 times their cash to 8 times. This allowed an additional 25% increase in the money supply above and beyond the normal process of money creation via Federal Reserve notes. This bill of almost a hundred pages of complex banking legislation was delivered from the Government printing office on a Monday and had passed Congress by Thursday.

There was no way that any Congressman could have read the legislation before voting on it, and not more than a handful of legislators had the slightest idea of what they were doing, as the possibility of raising prices by 25% via legislation was completely ignored by the media.

The Times, known as a reputable magazine, is copied by other newspapers all over the country and as such, there is a deepening of the degree of media manipulation. America is always in trouble when the best newspaper in the country disseminates lies. Such imitation, shown by other newspapers, is a manifestation of the typical authoritarianism which is the source of the problem in the first place.

Authority really flows from the bottom- up, but politicians, university professors, and newspaper columnists will not tell you that and other really helpful news for you. What you need to do is drop your can of beer, switch off the TV set and begin to research the truth for yourself. At that point, you can be assured that you will get the full reward for your labor.

# HISTORY OF THE LEGAL TENDER: A STORY OF HOW CITIZENS' RIGHTS BECOME THEIR OBLIGATIONS.

In 1933, 'legal tender' in the US still referred to the people's right to take their worn gold coins, which was still within the established tolerance standards, and exchange them free of charge for new ones. The government was bound by law to cover the cost of wear and tear of the coin. But what first started out as the right of people, soon degenerated into coercion.

Today, the concept of legal tender has degenerated into coercion. The government orders its subjects to accept 'irredeemable promises' in payment for their goods and services; if people refuse to comply with the order, they put themselves at risk. However, the term 'legal tender' had not always meant coercion. Dubious employers were prevented from paying their employees underweight gold. This modality of the legal tender is an example of how the government has changed its meaning to introduce coercion where none had existed before, thus infringing on the people's rights and exploiting their wealth.

While paper currency depends on the strong arm of the government for its circulation, "full-bodied" gold coins needed no legal tender provision or other government interference to be circulated; there was simply no need for coercion. Everybody gladly accepted the gold coins in payment of wages or for the sale of goods, and the government facilitated trade through non-coercive measures.

Legal tender, therefore, referred to measures that eased the smooth circulation of the gold coin by tale rather than by weight. Circulation by tale simplified commerce enormously as coins were simply counted as opposed to weighing them. This was achieved by assigning the government to absorb the cost of wear-and-tear of the coin; just the same way it is committed to cover the cost of maintaining highways.

It therefore became necessary to introduce _tolerance standards_ , that is, a threshold of weight was established above which worn gold coins would still be received at face value at the mint for recoinage, while gold coins below the threshold were valued by weight and were received at their actual bullion value. Banks and traders followed suit in accepting worn coins within the tolerance standard at face value. They knew that the Mint and the Treasury would take these coins from them. Thus, the term _legal tender_ , in an earlier sense, simply meant that the government stood behind the value of the coin of the realm even if it was slightly worn.

Another legitimate use of the concept of legal tender was the regulation of the circulation of silver and other subsidiary coins under the gold standard. So, when this gold/silver bimetallic ratio varied, two problems could arise:

  * If the bimetallic ratio rose, there could be a reluctance to accept silver coinage in large quantities.

  * If the bimetallic ratio fell, silver coinage could disappear from circulation through wholesale melting or the exporting of coins.

In a bid to counter these problems, subsidiary silver coins were not made "full bodied" any more and this took care of melting and exporting. In a bid to ensure smooth circulation of subsidiary coins, the Treasury had to take them at face value, up to a certain limit per transaction regulated by legislation. Generally, these legal tender provisions worked as intended with domestic and international circulation of silver and gold coins growing with the growth of world trade.

# SERFS OF THE LEVIATHAN

With the legislation of the legal tender, many started to believe in the government's ability to create value out of nothing as it derived a higher value from a piece of metal of lower value. This made them interpret the legislation as an obligation imposed on the citizens, and not as an obligation imposed on the government in accordance with the original intention. With the misconception about the original intent of the legal tender legislation, came the Leviathan, which in turn disenfranchised the savers and laborers.

The rationale was that if legal tender legislation would make worn gold coins and cheap silver coins circulate at a face value higher than that of metallic content, then it can also make paper circulate at arbitrary values. However, many held reservations, arguing that making paper money legal tender could be a tool for subjugation of a hitherto free people and reducing them to the status of serfs in the service of the Leviathan, with no clue as to what is happening to them.

Nevertheless, an issue came up when all the bank notes in circulation were issued in large denominations and as such, only those knowledgeable about the market, the condition of the banks and the credit of the government could use it. The goldsmith did not issue bank notes of small denominations; if he had, his clients would have no use for it and would not take them. If the Great Fraud was to succeed therefore, it became necessary for the government to pull off a coup. Small bank notes had to be in circulation, and the laboring classes had to be cajoled into accepting them.

# SMALL BANK NOTES

" _Permit me to issue and control the money of a nation, and I care not who makes its laws."_

~Mayer Anselm Rothschild

One motivation behind the introduction of the small denominations was the granting of special privileges to the banks authorized to issue bank notes. Under normal circumstances, these special privileges should have never been granted as they were highly detrimental to public interest. The exclusive rights were given in exchange for monetizing government debt. In practical terms, this meant that the banks were permitted to have a fiduciary issue of bank notes against government paper alongside banknotes issued against gold and self-liquidating bills of exchange. The paper backing the fiduciary issue, included government bonds and notes that the Treasury was unable to sell to the general public, and this meant that the bonds and notes were automatically reissued upon expiry.

A reference point to better understand this issue is the establishment of the Bank of England. Earlier on, King Charles II had borrowed gold from the goldsmiths of London who held it on deposit from some 10,000 depositors. However, in 1672, the king refused to pay back and this made it difficult for the crown to borrow money thereafter. The goldsmiths presented their case against the king in 1691 and at the conclusion of the case, the Bank of England was born. William Paterson, a Scotsman, offered to pay 1 million pounds to the government in advance against its bonds but on the following terms:

  * The bonds were to pay interest at 6½ percent per annum.

  * There was management fee to be paid.

  * The government was to grant the bank monopoly to issue bank notes in the London area.

In 1694, the notes of the Bank of England had gained the legal tender status, and in the succeeding three centuries, the government did not retire the bond against which the original 1 million pound worth of bank notes were issued. It will probably be retired when the pound loses its remainder value.

In essence, because the bank was able to pass the burden on to the general public, it was able to bear the government's debt. Thus, the fiduciary currency served no present or future good as it was used to pass the burden on to the public while the banks kept profits in the form of interest payments by the government. However, this would not have been possible with the issuance of large bank notes. Holders of large notes would hang on to them for a short period of time, and then pass them on to others, or simply return them to the bank. Although bankers would say _"small is beautiful_ "; to the public, it is undoubtedly ugly.

# MESMERIZING THE LABORING CLASSES

I believe that banking institutions are more dangerous to our liberties than standing armies. Already, they have raised up a moneyed aristocracy that has set the Government at defiance. The issuing power should be taken from them and restored to the people to whom it properly belongs.

~ President Thomas Jefferson

Were it not for the tricks employed to mislead the people, the conspiracy between the government and the banks concerning this issue would have been transparent and easy to expose. The tricks were used to keep up the lie that there was a great demand for bank notes of small denomination. It has always been the government's responsibility to mint gold coins for circulation, but it wanted to provide a substitute. The idea was to sell, to the public, the notion that the fiduciary issue was necessary in order to meet the demand for small bank notes in case of a dearth of gold. It was basically the same lie that gold coins would be in short supply if they were dispersed in the hand of the saving and consuming public.

How could that be true when the producers of consumer goods did not require gold to finance their operations? What did they need it for when they could use real bills as a means of exchange? In practical terms, every urgent and legitimate business transaction in the service of the consumer gives a basis for drawing bills. Thus, the greater the urgency, the easier it is to discount commercial paper drawn against the movement of merchandise meant to satisfy consumer demand. Long-term business investments, on the other hand, rely on the public and the going rate on long-term funds should be paid. So, as long these guidelines are adhered to, there would be no dearth of gold coins.

Had there been demand for bank notes of small denomination, the goldsmiths would have put them into circulation. The issuance of bank notes of the small denomination was clearly a strategy to fool labor unions. Gold and silver coins were drained from the pockets of laborers and other people of small means. When wage earners lost their right to demand gold and silver in exchange for their services and instead got bank notes of small denomination, the stage was set for the Great Fraud.

In deference to Daniel Webster's argument, we will agree that "of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with small-denomination paper money." This is so because that which was used in exploiting the wage-earner of his fair wages was not only the bank note, but the bank notes of smaller denominations. The distinction is significant and the wage earner is supposed to be paid in gold or silver coin according to his Constitutional right.

Owning gold and silver coins made the wage earner the master of the marketplace, and his wishes were respected by all vendors and producers. However, because he was bereft of his gold and silver coins, he was reduced to the station of a serf. Important decisions such as; what to produce, when to produce, and how much, were now made without consulting him. He was left with distasteful merchandise and the lowest quality entertainment.

As stated above, many false conclusions were drawn under the pretext of the dearth of gold. But even if the claims were true, no one else is to blame for the dearth other than the government and the banks because a dearth of gold is always an indicator of one, or more, of the following:

  * The banks are pursuing unsound credit policies, such as constructing a debt-pyramid upon a slim or non-existent gold base.

  * They were conducting illicit interest policy in borrowing short to lend long.

  * The government is trying to monetize its debt by making the banks buy the bonds it could not sell to the public.

  * Public distrust in the banks and the government policy.

In his debate on the disparity between the rich and the poor in the society, William Jennings Bryan, a fiery orator, populist politician, and unsuccessful presidential candidate who was known to have argued at the National Democratic Convention in Chicago in 1896: "Thou shalt not press down upon the brow of labor, this crown of thorns. Thou shalt not crucify mankind upon this cross of gold." Bryan was of the opinion that gold was the enemy and silver the friend of the working people, while the gold standard was the rich man's strategy to exploit the labor. Sadly, in isolating the adversaries, he missed the real threat to the working class: paper.

Thou Shalt Not Crucify Mankind upon this Cross of Paper!

The Constitutional provision for a metallic monetary standard was not a rich man's scheme, but an invention of the Founding Fathers whose genuine concern for the welfare of the labor force was remarkable. Because of this, it came to be that the gold and silver coins were meant to protect the wage earners' interest (seeing that the rich man does not require them to protect himself). However, collective agreements and wage contracts are not worth much if the gold and silver coins in circulation do not give them substance. Now with the benefit of hindsight, we see the wisdom in the Founding Fathers' solution.

As with other things in life, prosperity will always be the strength of your worth, and so it happened that in 1971, the world got lost in a "sea of worthless paper." No one was there to remind people of the consequences of the proliferation of paper money, which had been boldly stated: "Thou shalt not crucify mankind upon this cross of paper money!"

Till today, the metallic monetary standard still stands, and not even the people running the monetary system of the country can alter that. But its managers would rather admit that theirs is an unconstitutional monetary regime, than propose the change of this provision of the Constitution. They are obviously hiding something!

Bearing in mind that the most important office of the government is the establishment of the justice system, it is therefore a responsibility of such a government to ensure that institutions and people keep to their promises. Thus, adherence to business contracts has traditionally been one of the major realms of government activity.

However, in defaulting on its obligation to the people, this body falls short of its duties and this means we reserve the right to remind the government of its duties; In doing so, we correct the error. With the abolition of the gold standard in 1933, the people suffered untold loss. Like a herd of unwilling cattle, the nation's savers and lenders were led to the slaughter. Tens of millions of people were cheated by a small handful with hardly a word of protest offered. Given their gullibility, it was easy for the bankers to round them up.

The Keynesian program, as described by some, was indeed the slow death of rentier, i.e. the person living off the interest. The devaluation of the dollar that started in 1971 was an unprecedented sour chapter in American history and as a result, the labor movement in the United States got weakened, and because labor leaders failed to stand up for the monetary provisions of the Constitution, unions started losing their license to serve as bargaining agents.

This was a betrayal not only of the Constitution, but also the traditions of the labor movement as laid down by the leadership of Ely Moore, the first union official ever to have been elected to the Congress in 1834. The scheme which turned the Constitutional monetary regime into a paper-mill and was geared to deprive wage-earners of their right to wages payable in silver and gold coins, had proven to be a success. Sadly, not even one labor leader stood up in protest or led a public debate to expose this fraud.

# TORMENTING WIDOWS AND ORPHANS

We will all agree that the government has defaulted in its solemn duty to protect the property rights of ordinary citizens. In forcing the issue and circulation of small bank notes, the right of the peoples was infringed upon and it diminished over time. Those personally affected by this are the wage-earners and other people of small means which includes the savers, and above all, the widows and orphans who are in dire need of protection.

While it is not expected for people to have a clear understanding of the risks involved in accepting bank notes, which are believed to be equivalent to the gold coin, they cannot possibly access the intricacies of monetary circulation. They cannot be expected to know about illicit interest arbitrage, balance sheets, matching maturities, borrowing short to lend long, or about a hundred technical tricks of the banking business which may have an adverse effect on their financial well-being in the absence of gold and silver coins in circulation.

In furtherance, the government's inability to protect the property rights of the economically weak and defenseless against fraudulent banking practices, which adulterated the gold standard and created monetary and economic havoc, is inexcusable. It would be a noble cause to protect the rights of widows, orphans, wage-earners, and others in need. It would also be great to grant them access to property rights as it would go a long way in alleviating their problems. With gold coins at their disposal, they become the sovereign savers and consumers, holding veto power over the distribution of loanable funds and the disposal of the social circulating capital, as well as other banking decisions.

However, the reverse is the case as this class no longer needs to be consulted, and worse still, their protection against plunder is gone. With the removal of the gold clauses from government bonds, they have become an easy target with this deliberate currency debasement and devaluations. Conclusively, in abandoning them to their fate, the government has reneged in its duty to the widows and orphans from their tormentors.

Sources of Government Conduct Regarding Money and Banking

In a recall of the havoc which these privileges have brought, one would want to question the legitimacy of the double standard of conduct - one for the privileged banks and another for everyone else.

There is no moral justification for the reasons why governments should exempt banks from the full weight of the provisions of contract law. There is also no valid reason for granting special privileges to banks and other financial institutions. Above all, there is no valid reason for granting privileges without imposing countervailing responsibilities. It is not difficult to unveil the motivations for government conduct regarding money and banking. Despite the fact that ours is a democratic country, unfortunately, it abuses power as any other government regime when it allies with a powerful minority against the interest of the vulnerable majority.

This matter is certainly not allowed to enter the domain of party politics. Only on few occasions had the governing party had to counter the opposition party over the issue of exploiting the ignorance of the powerless majority, especially on matters regarding money, credit, and banking. Truly, bank regulation, special privileges, and exemptions granted to banks serve to further mislead the already disenchanted public.

# FROM DOUBLE STANDARD TO DOUBLE DEALING

According to John Maynard Keynes, only one man in a million would understand the intricacies of connections involved in the subtlety of pauperization of people through the legalization of fraudulent bankruptcy, deliberate currency debasement, and in depriving people of small means of the protection of the gold coin. Indeed, the past three hundred years since the introduction of the central banking in England would attest to the veracity of this point of view. In fact, there is no length too long, or height too low which the governments would not go.

Such lengths involve taking the slippery road of subverting voluntary contracts, breaking solemn promises and defrauding their own citizens and creditors when it comes to augmentation of personal power. All these acts are carried out while also appearing to uphold their legitimacy and the high-mindedness of government action. The villain of the play is always portrayed as those outside the government, the speculators, the arbitrageurs, the hoarders of gold and silver, the traders in foreign exchange, managers of productive enterprise - they are the ones who display unpatriotic behavior and greed.

They are the ones who must be punished for their 'anti-social' behavior. In contrast, the party in power would never admit, and the party in opposition would never speak out that this witch-hunt is designed to find scapegoats and pull the wool over the eye of the public. Instead of seeing it in its real form which is self-serving, the public is deceived into believing the façade of this seeming benefactor.

The government's image as the benevolent protector and the source of countless public benefits was preserved intact and sometimes even enhanced while in practice, the government endorses double standards and later uses it as a basis for double dealings.

# SHORT HISTORY OF THE ABANDONMENT OF THE GOLD STANDARD

The degree to which you are willing to protect your wealth from the bankers is the degree to which you support the use of the gold coin. Although, it is not necessary to understand the economic, legal and moral reason behind this position, it is pertinent to understand it, because without it, you cannot discern what the legitimate cause is: the sound money people or the bankers. You have no protection against any future deception of the bankers. Without this knowledge, you are as confused as a blind man passing through a complicated and dangerous wilderness all by himself.

There is a right path; the only problem is that while a hundred people are giving you advice, ninety-nine of them are trying to cheat you. Unfortunately, you got yourself into this fix by believing what you read in the newspapers which are tailored to suit the congressman who is loyal to the authoritative banking committee aide who is also loyal to the authoritative professor who is taking money from the bankers who steal your wealth. The only way you can free yourself from this fix is by rejecting all authorities and doing your thinking for yourself.

But first, let us help you with a brief history of how America went off the gold standard. For obvious reasons, paper money was first outlawed when the Constitution was written, and this was accepted by both sides at the Constitutional Convention. The Convention refused to give the Congress any legal tender power; and should a state constitution give legal tender power to its state legislature, it was suppressed by Article I, Section 10. This was the norm until 1862, when Republicans issued legal tender paper money in the form of United States notes to finance the Civil War. And when the Supreme Court ruled out their action as unconstitutional (Hepburn V. Griswald, 1870), they packed the Court and ensured it was reversed in the end, and this came to be known as Legal Tender Cases, 1871.

But before it had been packed, the Court considered the question of gold payments in cases where there was an explicit gold clause in the contract. Regarding legal tender, Bronson V. Rodes (7 Wall 229) states: "Nor do we think it necessary now to examine the question whether the clause of the Currency acts, making the United States notes a legal tender, are warranted by the Constitution. But we will proceed to inquire whether, upon the assumption that those clauses are so warranted, and upon the further assumption that engagements to pay coined dollars may be regarded as ordinary contracts to pay money rather than as contracts to deliver certain weights of standard gold. It can be maintained that a contract to pay coined money may be satisfied by a tender of United States notes." Even in this case, the Court said, the debtor must pay in gold.

"If then, no express provision to the contrary be found in the Acts of Congress, it is a just if not, a necessary inference, from the fact that both descriptions of money were issued by the same government; that contracts to pay in either were equally sanctioned by law.... It is not easy to see how difficulties of this sort can be avoided, except by the admission that the tender must be according to the terms of the contract."

When the Supreme Court overturned the Hepburn decision in 1871, this ruling meant that people could still retain the gold standard if they specified as much by an explicit gold clause. So, lawyers advised their clients accordingly, and in the late 19th century, creditors insisted on gold clauses in all important contracts. This became standard in American business.

In 1933, when bankers got into power, they began to face a secondary problem: if paper money was substituted for gold, the people with gold clauses would still have to be paid in gold. And since this was a significant fraction of the country, the gold standard had to remain intact. They met this problem in a three-pronged attack, thus exposing the legal system's inability to uphold justice in the face of political pressure.

First of the three schemes was to declare the gold clause contract "against public policy," and as such, it became "legal" to break such contracts.

Secondly, it was illegal for individuals to own gold, except for industrial or coin collection purposes. While these modalities of power were unauthorized by the Constitution, the Supreme Court upheld them regardless.

The third was by far the most subtle measure, a device which goes straight to the heart of the concept of fiat money.

This brings to mind the story of King Canute, who had his courtiers set him on the beach just to teach them a lesson. When the tide washed about his feet, he ordered it to fall back, and when it did not obey, he turned towards his courtiers, reminding them that even a king's power was limited. But such a lesson was lost on the paper money advocates of the New Deal, who would rather have the people left in the dark; and so enacting laws that aided the masses was discountenanced. The coup de grace which they delivered to the gold standard had leanings to economic value, known as the established parity of all currency and coins. By this, the banker agents meant a paper dollar was equal in value to a gold dollar. According to economic science, this is false because that would imply a pound is equal in weight to a ton or a yard is equal in length to a meter. Economic value is determined by the people who value good and those values can only be determined by observation.

Hence, a law which equates the value of a gold dollar to a paper dollar is as unreliable as the belief that the earth is flat or that man did not evolve from a lower animal. Interestingly, in one case, Perry V. U.S. (294 U.S. 330), the Supreme Court did hold a gold clause contract as valid. This clause was on a government bond, and the government was not allowed to abrogate its own contracts. On winning the case, John Perry requests to get the equivalent of 54 ounces of gold (the original price of the bond). Since gold sells for over $31/oz. on the European markets, he demands $1690 in paper money as an equivalent value.

While the Supreme Court interjected: "determination of the value of the gold coin would necessarily have regard to its use as a legal tender and as a medium of exchange under a single monetary system with an established parity of all currency and coins." It based this on the Joint Resolution of June 5, 1933: Every obligation, heretofore or hereafter incurred, whether or not any such provision is contained therein or made with respect thereto, shall be discharged upon payment, dollar for dollar, in any coin or currency which at the time of payment is legal tender for public and private debts.

Since Perry's bond was for 1000 gold dollars, the Court held that he could be fairly compensated by 1000 paper dollars, not 1690 paper dollars as he demanded. As a remedy for breach, plaintiff can recover no more than the loss he has suffered and of which he may rightfully complain. He is not entitled to be enriched. This therefore nullified Perry's claim to $1690 in paper money, making his victory merely theoretical.

Today, if you present one of these gold clause bonds worth one year's salary at the time (as was done by the Gold Bondholders Protective Council some years ago), the U.S. legal system will pay you off with paper money the equivalent of about one month's salary. After all, you are not entitled to be enriched. Since the history of the fiat money doctrines accepted by the Court of the 1930s, this was by far the most dangerous. As at then, the New Deal was at the peak of its power. And this could be that the Court was afraid and chose the path of expediency over principle. When the Court did stand against F.D.R. and struck down his attempt to impose a fascist economic system on the country, he attacked it with his court packing scheme.

# THE WAR AGAINST CONSERVATISM

Granted, while the economics of the gold standard is playing in the background, the contention over the place of gold on the political spectrum gains its precedence. While members of the Gold Commission feigned interest in the discourse as to the relevance of the gold standard to the country, the real concern was whether or not the gold standard is an ultra-right wing proposal. It was this idea that buried the gold standard for the past generations and still countered its relevance at the hearings. As an example, the first battle in this war occurred when the Commission members were chosen. In a concession, hard money supporters had included three members of the Federal Reserve Board on the Commission.

But this would never have happened if they were not blinded by a conservative bias, disregarding the fact that the Federal Reserve was the invention of bankers who had taken us off the gold standard in 1933 in the first place. This was reminiscent of the error which destroyed the movement for the gold standard of the 1950s, under the Eisenhower Administration. A group called The Committee to Reestablish the Gold Standard had made considerable progress in gaining Congressional support. But by accepting the conservative fallacy, this group made the mistake of appealing to the bankers for support. This is exactly like putting a Dracula in charge of the blood bank. The funny thing was that most of the nation's small, country bankers were equally taken in by the Keynesian deception.

Thinking a gold standard was in the interests of the bankers, the majority of them supported it. However, the big New York bankers who had taken the country off the gold standard understood the strategy; although few in number, these people had more assets than all of the country bankers together. When J.P. Morgan stood against the gold standard, the majority in Congress which voted in its favor had disappeared. But at the September hearings, the anti-Keynesian forces were able to fight back. In refutation to some figures from Anna Schwartz, Congressman Ron Paul showed proof of the actual wages of the American worker. It demonstrated the sporadic depreciation of real wages during periods of paper money.

Thus, this argument evidenced the fact that a gold standard is in the interests of the working man. The chart had appeared in the summer issue of Hard Money News, which was thereupon provided to all the Commission members. Henry Reuss attempted to discredit the chart by attacking the magazine in which it had appeared, calling it "little bits of scurrility," and then trashed his copy. He must have thought that this would make people forget that the statistics on real wages came from one of the Government agencies set up to promote the bankers' ideology, the U.S. Bureau of Labor Statistics.

In the next meeting, the gold bugs scored yet another major point which would eventually clear up several centuries of monetary confusion. The original American gold dollar was a unit of weight, defined in law as (approximately) 1/20 of an ounce. However, the word "dollar," taken from the name of a Spanish coin, was not recognized as a weight by the general public. Making it possible for the average man to accept a piece of paper with "dollar" on it as a dollar, but no one would accept a piece of paper with "one-twentieth ounce of gold" written on it in the place of gold. People who understood the legality to it were outraged by F.D.R.'s actions. But true to type, the general public was taken in.

The American public had been defrauded by this singular act, but they had no idea. For this reason, no political force rose to strike down the New Deal monetary legislation. It is thus a major objective of the hard money forces to denominate our money in a unit of weight. This point was iterated by Congressman Paul in that meeting in his response to Anna Schwartz, he stated: "You should have a weight of gold; gold should be money; and if paper circulates, it should be a certificate which is a substitute for the gold, and there should be no definition of the price of gold".

While Murray Weidenbaum, one of the Administration representatives on the Commission interjected him, and the following ensued: Weidenbaum: "Mr. Chairman, can I ask a few questions for clarifications here? Congressman, assume we were on the gold standard right now and that the Treasury issued currency that, as fully as you specified by vote, for a given number of grains of gold, what denomination would the Treasury issue?"

Paul: "I'm not sure I understand the question. Please let me say my concept is that, if we have a hundred for every ounce of gold we will have a fixed number of circulating substitutes for money; they would be 100% redeemable."

Weidenbaum: "What denomination would appear on those issues of currency worth one ounce of gold?"

Paul: "Well, preferably, if you had one ounce of gold, you would have a piece of paper that would say 'redeemable in one ounce of gold'."

Weidenbaum: "But it wouldn't say 'one dollar, ten dollars, fifty dollars?'"

Paul: "Not in a true gold standard... In order to think of it as a pure gold standard, you should have constant gold and a piece of paper that says that, so if you put it to the Treasury or to your bank, you will have it redeemed in an ounce of gold."

Wallich: "Does this mean that prices then would be quoted in terms of multiples of a weight of gold, for instance, a car would cost 10 ounces of gold?"

Paul: "This would be the best way. Isn't this simple? Under a gold standard, you just go into the store and say, how much for that refrigerator? The clerk says, one-half ounce. You take a half-ounce of gold out of your pocket (or a paper certificate redeemable for such), give it to the clerk and walk out with your refrigerator. No problem. "

The anti-gold force would not take this lying down, so at the public hearings in November, they struck back. But as always, it was not a question of what good it served the public, but the fact that it was a conservative position. Three conservative witnesses had been bought over and emerged as enemies of gold. They were Alan Greenspan, Hans Sennholz, and Henry Holzer. Alan Greenspan illustrates paper money as returning to its conservative home.

In 1966, he had written: "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... This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights."

But in 1981 (fifteen years later), it was a different ball game. However, Greenspan held on to his convictions, which could not be allowed to affect the policy of the country. There was, "a seemingly impossible obstacle." Giving reasons for his position, he states:

"If you try convertibility [into gold] in my judgment without something relevant to those spreads between fiat instruments and gold based instruments converging to zero, you're going to run into a massive financial problem."Hans Sennholz was of the opinion that: "It is futile to discuss the return to a gold standard or the use of gold in our monetary system as long as the Federal Government suffers large budgetary deficits. The Government needs an elastic paper standard that can be stretched to finance... a total federal sector deficit of more than $150 billion a year."

Henry Holzer responds in support of Greenspan's, saying: "Indeed, should this commission recommend that a gold standard be instituted, and should Congress and the President take the unlikely follow-up step of introducing one, even then a gold standard resurrected under today's economic and monetary controls would not be worth the paper it was proclaimed on."

# WHY GREENSPAN OPPOSES THE GOLD STANDARD

The Federal Reserve had made Greenspan its Chairman, meaning his display of dishonesty was critical to the economy, especially as he had continued the policy of "confiscation of wealth," which he earlier condemned as evil in 1966. However, I would like us to examine his motives in more detail. In order to have a firm grasp of this, we will revisit the milieu in which he was raised; the period when the U.S. left the gold standard, that is. The year was 1933, the same year the Banking Bill - which took the country off the gold standard - was drawn up in five days of secret meetings under the direction of William Woodin and "scores of worried desperate bankers".

Woodin was F. D.R.'s designated Secretary of the Treasury and President of American Machine and Foundry; director of the Federal Reserve Bank of New York and member of the board of a half dozen large corporations. His bill was rammed through Congress in one day, with no hearings and only 40 minutes debate allowed in the House.

A few days earlier, a plan to abandon the gold standard had been presented to Woodin by Frank A. Vanderlip, a banker who had organized The Committee for the Nation, co-signed by J.H. Rand, Jr. (president of Remington Rand), Frederic H. Frazier (chairman of General Baking Co.), John Henry Hammond (chairman of Bangor & Aroostook Railroad), General R.R. Wood (president of Sears, Roebuck), Lessing J. Rosenwald (chairman of Sears, Roebuck), Vincent Bendix (president of Bendix Aviation), Samuel S. Fels (president of Fels & Co.), E.L. Norton (chairman of Freeport Texas), Philip K. Wrigley (president of William Wrigley, Jr. Co.), Howard E. Coffin (chairman of Southeastern Cotton), Gerard S. Nollen (president of Bankers Life Insurance), Farny R. Wurlitzer (vice president of Rudolph Wurlitzer Mfg.), William J. McAveeny (president of Hudson Motor Car, the predecessor of American Motors), Henry Pope, Sr. (president of Bear Brand Hosiery), John W. Kiser (president of Phenix Mfg.), and William A. Wirt (a banker). The day after Woodin's bill had passed, The New York Times reported:

"BANKERS HERE HAIL ROOSEVELT ACTION "Leading bankers in this city expressed admiration yesterday for the courage and leadership by President Roosevelt and the new administration, for Congress for the speed with which the emergency banking measures were adopted, and praised the tenor of the measures themselves."

James Perkins, chairman of the board of National City Bank; James G. Blame, president of Marine Midland, William S. Gray, Jr., president of Central Hanover Bank and Trust; J. Stewart Baker, chairman of the board of the Bank of Manhattan; Samuel H. Golding, chairman of Sterling National Bank and Trust; Elisha Walker, partner in Kuhn Loeb & Co.; and Percy H. Johnston, president of Chemical Bank & Trust were listed as supporters of the bill.

Two months later, a Wall Street speculator, Irving Fisher, wrote his wife concerning the abandonment of gold: "Now I am sure - so far as we ever can be sure of anything – that we are going to snap out of this depression fast... Even you haven't really known what I've been through this last month, between the mountain and the precipice. I felt that the only hope lay, not only for the country which is the important thing, but for our own little selves in Washington here; and the balance trembled back and forth. My next big job is to raise money for ourselves. Probably we'll have to go to Sister again, but I hope this can be avoided. I have defaulted payments the last few weeks, because I did not think it was fair to ask Sister for money when there was a real chance that I could never pay it back. "I mean that if F.D.R. had followed [Carter] Glass we would have been pretty much ruined. So would Allied Chemical, Sister, and the U.S. Gov't."

Fisher, whom Milton Friedman once called his intellectual mentor, was said to have made a million dollars speculating in stocks during the credit expansion of the 1920s, but on losing money in the early '30s, he began to lobby congressmen and New Dealers against the gold standard. This reality however was lost to the casual reader, who merely fixates on political slogans and headlines. As long as he believes popular opinion, he would always be far from the truth. For all they cared, the New Deal was relentlessly anti-banker. On March 9, the Times sells a captivating headline front page: "ALDRICH HITS AT PRIVATE BANKERS IN SWEEPING PLAN FOR REFORMS".

"A reform program, designed to purge the commercial banking business of all taint of speculative leadership and calculated to reduce the present overlords of the New York money market to a position of relative impotence, was proposed last night by Winthrop W. Aldrich, chairman of the governing board of the Chase National Bank, in connection with an announcement that the bank had decided to divorce its security affiliate, the Chase Securities Corporation.. In his statement, Mr. Aldrich, who is a representative of the John D. Rockefeller interests, largest stockholder of Chase, and who succeeded Albert H. Wiggin as executive head of the Chase organization last January, not only condemned the policies of his predecessor, but, in effect declared his opposition to some of Wall Street's most powerful figures and their particular interests. "In so doing, Mr. Aldrich did not spare his own bank, for the Chase National organization, as it is at present constituted, violates almost every one of the principles he advocated."

As mentioned earlier, the New Deal was able to wrestle power by simply deceiving the public. The key to the 1930s was the singular act of presenting the New Deal as anti-bank and liberal, hence its wide acceptance. However, the huge profits made by the bankers and large corporations were never disclosed. In reports on the campaign for the Democratic nomination in 1932, Anthony Sutton reveals that Roosevelt received 78% of his contributions from within a one mile radius of his former Wall Street office at 120 Broadway, New York, N.Y..

Alan Greenspan is Wall Street man; and true to type, he identifies with and defends the banker's interests. But he was too naive to understand the strategy of deception which they employed at that time. When he heard that it was mainly bankers who supported the gold standard, he simply supported it too; and was known as a conservative economist who opposed the New Deal.

However, when the gold standard was considered as the way forward, he was smart enough to recognize it as "a massive financial problem" which would invariably bankrupt his Wall Street friends. This was unavoidable because the bankers and their friends are making huge fortunes by exploiting the saver and the wage earner, so stopping this exploitation would then mean wiping many of them out. This would crash the Wall Street, and some of the biggest banks and the biggest debtor corporations would go under. So, instead of pursuing the reestablishment of justice, Greenspan sees it as "a seemingly impossible obstacle."

As a true conservative, he would rather uphold the interests of his social class, than have it upturned. It is such people who say "free enterprise" when they mean "the interests of the large corporations" and support record issues of paper money while they associate themselves with gold. This deception had an enormous impact on the society.

What would an average American of the gold standard if on hearing several supposed gold advocates claiming the Government needs an elastic paper standard and that a gold standard enacted today would not be worth the paper it was proclaimed on? Your guess is as good as mine; that this gold standard couldn't be worth it if its own supporters can say such things about it.

In his younger days when he thought that the bankers supported gold, Greenspan had written: "gold and economic freedom are inseparable." That was when he partied with Happy Rockefeller, Willard Butcher and Henry Kissinger. This is how one gets to be the head of the Federal Reserve, as indeed the Federal Reserve has been associated with the Chase-Manhattan (formerly the Manhattan) Bank since its inception in 1914. In the three-year period from 1991-1993, Alan Greenspan and his compatriots on the Federal Open Market Committee took the actions which led to a 36% increase in the U.S. money supply, one of the biggest peacetime money increase in the nation's history. Economic freedom; Confiscation of wealth; Property rights; all these were mere words because all he cared about at that time was the bankers' interest.

The old Greenspan once stated: "The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise." This is true, otherwise the society could get rich by printing money. As commodity prices react to the printing of money, a giant cycle has been set into motion. Commodities did not go up when money was printed in the 1960s but made up for it by going up much faster than money in the 1970s. This caused the consumer price index to understate currency depreciation in the '60s and overstate it in the '70s.

Despite huge money printing in the 1980s, commodities went down, causing the consumer price index to understate. The law of supply and demand can never be subverted. During the 1980s, the conservatives resorted to not support the gold standard and so crossed over to paper money, calling it 'supply side economics'. As the term implies, supply side economics is simply the supply side of the Keynesian equation which advocates a budget deficit caused by a tax cut rather than a spending increase.

While it is better to have a tax cut than a spending increase, a deficit however it is arrived at, is terrible; and this is one of the problems of printing money. It works in such a way that it increases the money supply and lower interest rates below the free market rate. This distorts the economy. In taking wealth from the worker and the saver and giving it to the paper aristocracy, it misallocates resources.

Unknown to most conservatives today, Ronald Reagan was a New Dealer and on the ascent to power, he brought his New Deal economic principles with him. Erroneously referencing the economic "growth" of the '80s as a product of Reagan's tax cut, not knowing that the measure of growth (GDP) is affected; measuring activity instead of wealth; and thus, amounts to waste. They remained oblivious to the fact that real wages had begun to fall and how much an average American had to wait before he could afford an average car.

Between the 1930s to the 1970s, conservatives defended sound money by supporting a balanced budget, but with the passing of old conservatives, we are left with the new conservatives who now tell us, "Deficits don't matter." The conservatives had abandoned the balanced budget, but some still wanted it. In 1992, a third-party candidate arose in favor of the balanced budget which gathered 19% of the vote. This made politicians align themselves with the balanced budget, but not necessarily balancing it. This issue of constitutional amendment had generated much debate in certain quarters.

Balancing the budget requires political discipline because programs have to be cut, bureaucrats have to be fired, and those entitled have to be disentitled. So, how do you simply declare that the budget must be balanced? Balanced budget amendment simply puts off any action on the subject until the next decade and then declares "total outlays for any fiscal year shall not exceed total receipts for that fiscal year, unless."

In furtherance, you might want to ask, "What if outlays do exceed receipts?" As expected, the amendment is silent on that point. There is no penalty for congressional "big spenders." The problem with balancing of budget by constitutional amendment is that embezzlers can always find accountants who will define outlays and receipts in flexible ways. But the 1995 amendment did not come to terms with the issue because, once Congress disobeys it, there is no enforcement provision. It is a hollow log designed to ensure continued deficits for the next seven years. It is specially designed for politicians to trick the public into thinking that they are in support of a balanced budget while in reality the reverse is the case.

Interestingly, while America was on the gold standard, the budget was routinely balanced. This is because a government deficit would trigger a disruption in the credit markets and raise interest rates, such that financial people (today's paper aristocracy) would request that the budget be balanced. This would trigger political pressure to offset the spending demands, and Congress would braze up to make the necessary cuts. This was effective in 1933 and would work again.

As at the 1820s-30s, when the government ran a continual surplus, which ultimately paid off the national debt, there was no Federal tax, and the only Federal revenue was the tariff. Instead of eliminating the surplus by cutting the tariff, they merely gave gifts to the states and kept the tariff.

# HUMAN FREEDOM RESTS ON GOLD REDEEMABLE MONEY

The dyadic relationship between money and freedom is such that without a redeemable currency, an individual is not at liberty to sustain himself or move his property, except when he has the goodwill of a politician. Eventually, the paper money systems would collapse and result in economic chaos. The gold standard would restrict government spending and grant people more power over the public purse.

Gold is not necessary. I have no interest in gold. We'll build a solid state, without an ounce of gold behind it. Anyone who sells above the set prices, let him be marched off to a concentration camp. That's the bastion of money.

Adolf Hitler

In 1948 Howard Buffett (the father of Warren Buffett) then Congressman from Nebraska wrote:

"Is there a connection between Human Freedom and A Gold Redeemable Money? At first glance, it would seem that money belongs to the world of economics and human freedom to the political sphere. But when you recall that one of the first moves by Lenin, Mussolini, and Hitler was to outlaw individual ownership of gold, and you begin to sense that there may be some connection between money, redeemable in gold, and the rare prize known as human liberty.

Also, when you find that Lenin declared and demonstrated that a sure way to overturn the existing social order and bring about communism was by printing press paper money, then again you are impressed with the possibility of a relationship between a gold-backed money and human freedom.

In that case then, certainly you and I as Americans should know the connection. We must find it even if money is a difficult and tricky subject. I suppose that if most people were asked for their views on money, the almost universal answer would be that they didn't have enough of it. In a free country, the monetary unit rests upon a fixed foundation of gold or gold and silver independent of the ruling politicians. Our dollar was that kind of money before 1933. Under that system, paper currency is redeemable for a certain weight of gold, at the free option and choice of the holder of paper money.

# REDEMPTION RIGHT INSURES STABILITY

That redemption right gives money a large degree of stability. The owner of such gold redeemable currency has economic independence. He can move around either within or outside his country because his money holdings have accepted value anywhere.

For example, I hold here what is called a $20 gold piece. Before 1933, if you possessed paper money, you could exchange it at your option for a gold coin. This gold coin had a recognizable and definite value all over the world. It does so today. In most countries of the world, this gold piece, if you have enough of them, will give you much independence. But today, the ownership of such gold pieces as money in this country, Russia, and all other places is outlawed.

The subject of a Hitler or a Stalin is a serf by the mere fact that his money can be called in and depreciated at the whim of his rulers. That actually happened in Russia a few months ago, when the Russian people, holding cash, had to turn it in - 10 old rubles and receive back one new ruble.

I hold here a small packet of this second kind of money - printing press paper money -- technically known as fiat money because its value is arbitrarily fixed by the rulers or statute. The amount of this money in numerals is very large. This little packet amounts to CNC $680,000. It cost me $5 at regular exchange rates. I understand I got clipped on the deal. I could have gotten $2-1⁄2 million if I had purchased in the black market. But you can readily see that this Chinese money, which is a fine grade of paper money, gives the individual who owns it no independence because it has no redemptive value.

Under such conditions, the individual citizen is deprived of freedom of movement. He is prevented from laying away purchasing power for the future. He becomes dependent upon the goodwill of the politicians for his daily bread. Unless he lives on land that will sustain him, freedom for him does not exist.

You have heard a lot of oratory on inflation from politicians in both parties. Actually, that oratory and the inflation maneuvering around here are mostly sly efforts designed to lay the blame on the other party's doorstep. All our politicians regularly announce their intention to stop inflation. I believe I can show that until they move to restore your right to own gold, that talk is hogwash.

# PAPER SYSTEMS END IN COLLAPSE

But first, let me clear away a bit of underbrush. I will not take the time to review the history of paper money experiments. So far, as I can discover, paper money systems have always wound up with collapse and economic chaos. Here, somebody might like to interrupt and ask if we are not now on the gold standard. That is true internationally, but not domestically. Even though there is a lot of gold buried down at Fort Knox, that gold is not subject to demand by American citizens. It could all be shipped out of this country without the people having any chance to prevent it. That is not probable in the near future, for a small trickle of gold is still coming in. But it can happen in the future.

This gold is temporarily and theoretically, partial security for our paper currency. However, in reality, it is not. Also, currently, we are enjoying a large surplus in tax revenues, but this happy condition is only a phenomenon of postwar inflation and our global WPA. It cannot be relied upon as an accurate gauge of our financial condition. So, we should disregard the current flush treasury in considering this problem.

From 1930-1946, your government went into the red every year and the debt steadily mounted. Various plans have been proposed to reverse this spiral of debt. One is that a fixed amount of tax revenue each year would go for debt reduction. Another is that Congress be prohibited by statute from appropriating more than anticipated revenues in peacetime. Still, another is that 10% of the taxes be set aside each year for debt reduction. All of these proposals look good. However, they are unrealistic under our paper money system. They will not stand against postwar spending pressures. The accuracy of this conclusion has already been demonstrated.

# THE BUDGET AND PAPER MONEY

Under the streamlining Act passed by Congress in 1946, the Senate and the House were required to fix a maximum budget each year. In 1947, the Senate and the House could not reach an agreement on this maximum budget, so that the law was ignored. On March 4, this year, the House and Senate agreed on a budget of $37-1⁄2 billion. Appropriations already passed or on the docket will most certainly take expenditures past the $40 billion mark.

The statute providing for a maximum budget has fallen by the wayside even in the first two years it has been operating and in a period of prosperity. There is only one way that these spending pressures can be halted, and that is to restore the final decision on public spending to the producers of the nation. The producers of wealth -- taxpayers -- must regain their right to obtain gold in exchange for the fruits of their labor. This restoration would give the people the final say-so on governmental spending and would enable wealth producers to control the issuance of paper money and bonds.

I do not ask you to accept this contention outright. But if you look at the political facts of life, I think you will agree that this action is the only genuine cure. There is a parallel between business and politics which quickly illustrates the weakness in political control of money. Each of you is in business to make profits. If your firm does not make profits, it goes out of business. If I were to bring a product to you and say, this item is splendid for your customers, but you would have to sell it without profit, or even at a loss that would put you out of business. Well, I would get thrown out of your office, perhaps politely, but pretty quickly. Your business must have profits.

In politics, votes have a similar vital importance to an elected official. That situation is not ideal, but it exists, probably because generally no one gives up power willingly. Perhaps you are saying to yourself: "That's just what I have always thought. The politicians are thinking of votes when they ought to think about the future of the country. What we need is a Congress with some 'guts.' If we elected a Congress with intestinal fortitude, it would stop the spending all right!"

I went to Washington with exactly that hope and belief. However, I had to discard it as unrealistic. Why? Because an economy Congressman under our printing-press money system is in the position of a fireman running into a burning building with a hose that is not connected to the water plug. His courage may be commendable, but he is not hooked up right at the other end of the line. Same applies to a Congressman working for the economy.

There is no sustained hookup with the taxpayers to give him strength. When the people's right to restrain public spending by demanding gold coin was taken from them, the automatic flow of strength from the grass-roots to enforce economy in Washington was disconnected. I'll come back to this later.

In January, you heard the President's message to Congress, or at least you heard about it. It made Harry Hopkins, in memory, look like Old Scrooge himself. Truman's State of the Union message was "pie-in-the- sky" for everybody except business. These promises were to be expected under our paper currency system. Why? Because his continuance in office depends upon pleasing a majority of the pressure groups. Before you judge him too harshly for that performance, let us speculate on his thinking. Certainly, he can persuade himself that the Republicans would do the same thing if they were in power. Already he has characterized our talk of the economy as "just conversation."

To date, we have been proving him right. Neither the President nor the Republican Congress is under real compulsion to cut Federal spending. And so neither one does so, and the people are largely helpless. But it was not always this way. Before 1933, the people themselves had an effective way to demand economy. Before 1933, whenever the people became disturbed over Federal spending, they could go to the banks, redeem their paper currency in gold, and wait for common sense to return to Washington.

# RAIDS ON TREASURY

That happened on various occasions and conditions sometimes became strained, but nothing occurred like the ultimate consequences of paper money inflation. Today, Congress is constantly besieged by minority groups seeking benefits from the public treasury. Often, these groups control enough votes in many Congressional districts to change the outcome of elections. And so Congressmen find it difficult to persuade themselves not to give in to pressure groups. With no bad immediate consequence, it becomes expedient to accede to a spending demand. The Treasury is seemingly inexhaustible. Besides, the unorganized taxpayers back home may not notice this particular expenditure - and so it goes.

Let's take a quick look at just the payroll pressure elements. On June 30, 1932, there were 2,196,151 people receiving regular monthly checks from the Federal Treasury. On June 30, 1947, this number had risen to the fantastic total of 14,416,393 persons. This 14-1⁄2 million figure does not include about 2 million receiving either unemployment benefits of soil conservation checks. However, it includes about 2 million GI's getting schooling or on-the-job training.

Excluding them, the total is about 12-1⁄2 million or 500% more than in 1932. If each beneficiary accounted for four votes (and only half exhibited this payroll allegiance response), this group would account for 25 million votes, almost by itself enough votes to win any national election. Besides these direct payroll voters, there are a large number of State, county and local employees whose compensation in part comes from Federal subsidies and grants-in-aid. Then there are many other kinds of pressure groups. There are businesses that are being enriched by national defense spending and foreign handouts. These firms, because of the money they can spend on propaganda, may be the most dangerous of all.

If the Marshall Plan meant $100 million worth of profitable business for your firm, wouldn't you invest a few thousands or so to successfully propagandize for the Marshall Plan? And if you were a foreign government, getting billions, perhaps you could persuade your prospective suppliers here to lend a hand in putting that deal through Congress.

# TAXPAYER THE FORGOTTEN MAN

Far away from Congress is the real forgotten man, the taxpayer who foots the bill. He is in a different spot from the tax-eater or the business that makes millions from spending schemes. He cannot afford to spend his time trying to oppose Federal expenditures. He has to earn his own living and carry the burden of taxes as well. But for most beneficiaries, a Federal paycheck soon becomes vital in his life. He usually will spend his full energies if necessary to hang onto this income.

The taxpayer is completely outmatched in such an unequal contest. Always heretofore he possessed an equalizer. If government finances weren't run according to his idea of soundness, he had an individual right to protect himself by obtaining gold.

With a restoration of the gold standard, Congress would have to again resist handouts. That would work this way. If Congress seemed receptive to reckless spending schemes, depositors' demands over the country for gold would soon become serious. That alarm, in turn, would quickly be reflected in the halls of Congress.

The legislators would learn from the banks back home and from the Treasury officials that confidence in the Treasury was endangered. Congress would be forced to confront spending demands with firmness. The gold standard acted as a silent watchdog to prevent unlimited public spending.

I have only briefly outlined the inability of Congress to resist spending pressures during periods of prosperity. What Congress would do when a depression comes is a question I leave to your imagination. I have no time to portray the end of the road of all paper money experiments. It is worse than just the high prices that you have heard about. Monetary chaos was followed in Germany by Hitler, in Russia by all-out Bolshevism, and in other nations by more or less tyranny. It can take a nation to communism without external influences.

Suppose the frugal savings of the humble people of America continue to deteriorate in the next 10 years as they have in the past 10 years. Someday, the people will almost certainly flock to "a man on horseback" who says he will stop inflation by price-fixing, wage-fixing, and rationing. When a currency loses its exchange value, the processes of production and distribution are demoralized. For example, we still have rent-fixing, and rental housing remains a desperate situation.

For a long time, shrewd people have been quietly hoarding tangibles in one way or another. Eventually, this individual movement into tangibles will become a general stampede unless corrective action comes soon.

# IS TIME PROPITIOUS?

Most opponents of free coinage of gold admit that that restoration is essential, but claim the time is not propitious. Some argue that there would be a scramble for gold and our enormous gold reserves would soon be exhausted. Actually, this argument simply points up the case. If there is so little confidence in our currency that restoration of the gold coin would cause our gold stocks to disappear, then we must act promptly. The danger was recently highlighted by Mr. Allan Sproul, President of the Federal Reserve Bank of New York, who said:

" _Without our support (the Federal Reserve System), under present conditions, almost any sale of government bonds, undertaken for whatever purpose, laudable or otherwise, would be likely to find an almost bottomless market on the first day support was withdrawn."_

Our finances will never be brought into order until Congress is compelled to do so. Making our money redeemable in gold will create this compulsion.

The paper money disease has been a pleasant habit thus far and will not be dropped voluntarily any more than a dope user will without a struggle give up narcotics. But in each case, the end of the road is not a desirable prospect.

I can find no evidence to support a hope that our fiat paper money venture will fare better ultimately than such experiments in other lands. Because of our economic strength, the paper money disease here may take many years to run its course. But we can be approaching the critical stage. When that day arrives, our political rulers will probably find that foreign war and ruthless regimentation is the cunning alternative to domestic strife. That was the way out for the paper-money economy of Hitler and others.

In these remarks, I have only touched the high points of this problem. I hope that I have given you enough information to challenge you to make a serious study of it. I warn you that politicians of both parties will oppose the restoration of gold, although they may seemingly favor it. Also, those elements here and abroad who are getting rich from the continued American inflation will oppose a return to sound money. You must be prepared to meet their opposition intelligently and vigorously. They have had 15 years of unbroken victory.

However, unless you are willing to surrender your children and your country to galloping inflation, war and slavery, then this cause demands your support. For if human liberty is to survive in America, we must win the battle to restore honest money.

There is no more important challenge facing us than this issue -- the restoration of your freedom to secure gold in exchange for the fruits of your labors."

The most astounding thing is that not only subjects of Hitler or a Stalin are serfs of their government by the mere fact that their money can be called in and depreciated at the whim of their rulers. Those same definitions apply to every holder of every fiat currency in the world. Just recently in November of 2016, it actually happened in India where the Indian people holding cash, had to turn it in. That demonetization drive was not only immoral but it also amounted to a simple theft of people's property. It not only damaged the Indian economy and future investments, but was also an assault on the privacy of its people by creating even more state controls. India's government perpetrated not only an unbelievable act of theft that is not only damaging to its economy and threatening destitution to countless millions of its already poor citizens, but also breathtaking in its immorality.

As in the example above, what India's government has done is commit an enormous theft of its people's property without any of the common pretenses to the due process -- an appalling act for the country that calls itself a democracy. And not surprisingly, the government is downplaying the fact that this theft will provide them with the windfall of tens of billions of dollars.

The only thing that we can compare this demonetization in Indian's history was the forced-sterilization drive (this outburst of Nazi-like eugenics was established to deal with the country's 'overpopulation') undertaken by the then Indira Gandhi government during her Emergency regime of 1975-77.

By stealing property, further impoverishing the least fortunate among its population, and undermining social trust, thereby poisoning politics and hurting future investment, India has immorally and unnecessarily harmed its people while setting a dreadful example for the rest of the world. The most worrisome fact is that what was done by the Indian government was studied by every other government in the world to see if they should be next to repeat it.

# HOW AMERICANS FOUGHT THE BANKERS

Financial highlights of the beginning of 19th century

  * The establishment of the Bank of England in 1694.

  * The anti-usury law was repealed and retirement planning became as an institution in Britain and America.

  * The first publication of Adam Smith's "An Inquiry into the Nature and Causes of the Wealth of Nations" in 1776.

Major Highlights of the Adam Smith's Book

  * The economic system is automatic which functions best when given substantial freedom. This is what he describes as the "invisible hand." Thus, self-regulation enhances maximum efficiency. However, it is threatened by monopolies, tax preferences, lobbying groups, and other "privileges" extended to certain members of the economy at the expense of others.

  * Codifies the real bills doctrine

  * Excerpts of a speech given by one of the founding fathers, James Madison, in Congress on 2 February 1791, where he cited The Wealth of Nations in opposing a national bank: "The principal disadvantages consisted in, 1st. banishing the precious metals, by substituting another medium to perform their office: This effect was inevitable. It was admitted by the most enlightened patrons of banks, particularly by Smith on the Wealth of Nations"

  * From historic to modern times, no government ever paid up its debt. Even America, the most credit-worthy nation, is said to have a history of defaults on the disbursement of its debt. Starting from the Civil war, gold defaults of 1933 and 1971, defaults on Social Security obligations, etc.

  * Why gold is a force for peace, and paper money war – comparing two wars of 1812 and 1862 in relation to Legal Tender Act of 1862.

Gold as an instrument for peace

As mentioned earlier, although in the beginning of the 19th century, the United States was on a gold standard, individual banks could lend out more money (bank notes) than they had gold in their vaults. Provided everybody does not show up at the bank with their bank notes in exchange for gold, the banks remained in business. In a bid to leverage their assets, they simply made more money by lending out more bank notes and receiving interest on them. This is called fractional reserve banking and is still in practice today.

This practice also came in handy in financing the war of 1812, as the Washington D.C. banks and the Mid-Atlantic banks lent out money for the war. However, banks like The New England states were against the war and their banks managed their loan portfolios quite conservatively. Since they could be redeemed as money at any time, bank tickets began to circulate as money. So, by the time the Congress declared war on England in 1812, the public was not taxed. The idea was to finance the war with the bank tickets the government borrowed. In summary, the pro-war wanted a war, and "we didn't have to pay for it."

In a bid to lend money to the Government, the commercial bankers issued the above gold tickets in greater quantities than they had gold. But when the British sacked Washington in December 1814, the people hurried to the banks demanding to have their gold.

But the banks could not make good on their promises to pay because they did not have enough gold to go around; banker tickets had fallen to as low as 75¢ on the dollar. Financing the war meant the D.C. banks had to issue a lot of bank notes. This "money supply" in the Mid-Atlantic region began to increase while the money supply in the New England area wasn't. By implication, consumer prices in New England were steady while prices in the D.C. area began to rise. Seeing they could buy cheaper goods from New England, they started to import into the Washington area. Several times, D.C. bank notes were sent to the merchants in New England for payment and the notes were later deposited in New England banks. But on getting to New England banks, they were not accepted and requested for gold instead.

This meant the D.C. banks would have to ship more gold to New England to honor their bank notes because they did not have enough gold in their vaults. The more gold they released, the lesser the base they had in reserve to cater to other loans. This meant suspending gold payments to cover their notes and so they ended up defaulting on the value of the notes. This was not a good time as the bank notes lost their value and could not be exchanged for gold, so people had to sell them at a discount. This is what currency devaluation is all about. It devalues one currency against another currency because a similar situation has occurred. This is the likely outcome when a country issues too many bank notes or currency with nothing backing it.

Things didn't turn out as expected, so President Madison called a Cabinet meeting to deliberate on how to keep financing the war. Seeing the tickets would fall even further, the bankers thought it best not to create any more money. The next option would be to turn to tax and that would also mean an increase in the level of taxation which would not go down well with the people. Before the end of the year, Madison was forced to negotiate peace with the British, and peace was declared. This is what we mean by "gold is also a force for peace." Without finance, there can't be war, and to finance a war, you either tax the people or print the money. But printing more money has dire consequences under a gold standard and taxing people to fight a war is not reasonable, knowing you can incite an uprising. So, peace was a diplomatic solution; thus saving money and lives.

But in 1862, the U.S. government had found another way to finance the war.

The U.S. Congress passed the Legal Tender Act, authorizing the use of paper notes to pay the government's bills. This ended the long-standing policy of using only gold or silver in transactions, and it allowed the government to bear the cost of the Civil War, long after its gold and silver reserves were depleted. By making greenbacks "legal tender", which meant that creditors had to accept them at face value. Another legal tender act was passed in 1863. By the time the war ended, nearly a half-billion dollars in greenbacks had been issued. The war mortality rate was estimated to be about 2% of the population, which means that an estimated 620,000 men lost their lives.

Most of American history can only be understood in terms of the bankers' attempts to enrich themselves through paper money and the counter-efforts of a small element who understood money and fought against them on behalf of the people.

When America was a colony of England, it was naturally under the British economic system, including William Paterson's Bank of England. After independence, an attempt was made by Alexander Hamilton to reinstitute the same system with the Bank of the United States. Jefferson, who understood too well the dangers of central banking (and indeed all expansion of bank promises beyond their gold) fought him tooth and nail.

When Hamilton persuaded George Washington and the Congress to support the bank, Jefferson quit the Federalist Party, formed his own political organization and was elected President on a hard money platform. When the Bank's charter expired in 1811, James Madison, a Jefferson supporter, was President, and the inability of Congress to override his veto killed the bank. But knowing the connection between paper money and war, the bankers (particularly the wildcat bankers in Tennessee and Kentucky) agitated for U.S. entry into the Napoleonic Wars.

The idea that the U.S. went to war in 1812 to prevent the impressment of American seamen is false. It was the propaganda of the war party. The section of the country with the most seamen (New England) was against the war, and the most violent pro-war agitation came from landlocked states that had no seamen at all. Unfortunately, Madison fell for this ploy and let himself be drawn into the fever. By the time the war ended in 1816, the finances of the country were a mess, and Madison betrayed Jefferson's principles and acquiesced in a second central bank. Jefferson was very angry.

By this time, he was an old man in retirement at Monticello. A young politician, Martin Van Buren, went to visit him, and Jefferson poured out his heart about the evil path the country was taking. Van Buren was fired with enthusiasm for the people's cause. He recruited an old war hero, Andrew Jackson, and put together the first really modern political organization, the Democratic Party. The Democrats swept to victory in 1828 on Jackson's name, but the real battle came in 1832 because whoever was President in '36, when the Bank's charter expired, would have the power to veto its extension.

Unlike 20th century politicians, Jackson did not compromise his principles or betray his supporters. He declared that the people could have "a bank and no Jackson or no bank and Jackson." They chose the latter, and the second American central bank was destroyed. Then started the most amazing series of events. The small country, far from civilization, clinging to the edge of a giant continent, which America was in the early 19th century, began to grow. It vibrated with economic energy.

It performed miracles of economic expansion. It began to increase its wealth faster than any other country at any time in history. It defied all the rules laid down by the banker-economists. It welcomed millions of poverty-stricken immigrants. It broke through hostile deserts. It distributed its new wealth so that the poorest member of society lived in greater comfort than had a medieval king. If paper money really stimulates our economy, then what happened in America between 1836 and 1914 must have been a miracle to test our faith. It is strange to look back at that period of heroes and then contemplate the pygmies which most Americans have become today.

As noted, inspired by the great victory over the bankers, the Democratic Party adopted the periodic celebration of Jefferson-Jackson days, and modern Democrats, blindly following the behavior of those who have gone before, continue this tradition. While they celebrate the destruction of the second central bank, most of them do not know that they have helped to create a third central bank, the Federal Reserve System. And while they praised Jefferson by name, they are in fact the enemy against which he fought in his time. Were he alive today, he would denounce them as enemies of the people. Were Andrew Jackson alive, he would have them horsewhipped and ridden out of town on a rail.

# THE BATTLE BETWEEN YOU AND THE POWER STRUCTURE

Life in the early part of 21st century America is characterized by an intense struggle between the vast majority of the people and a small elite which I shall call the power structure. This elite does not produce wealth. It employs a combination of force and fraud to take the wealth which we produce. It differs from the common criminal not in the morality of its methods, but in the fact that its great power allows it to thus act without fear of the police.

In fact, it is more likely to employ the police on its side and make resistance to its acts of theft illegal. The established sources of information in our society practice a continual policy of distortion to defend this power structure and to convince the majority that its exploitation is legitimate (or necessary, or not occurring, or something different from what it seems). When distortion does not work, these respected institutions (e.g., Harvard University, The New York Times) slide easily into outright lies, so that the power structure can continue to live off the wealth which we produce.

Americans (and all other peoples) have always fought a battle with their power structure. Some Americans have won giving us our heritage of freedom, and some Americans have lost, compromising that heritage and weakening the status of their children. But in recent times that battle has intensified, and matters of life and death are decided, not in some Star Wars setting far, far away, but here and now with our lives in the balance.

On August 15, 1971, the power structure won a major victory over the people, a victory which threatens to abolish our freedom and sharply reduce our standard of living. On that date, a class of bankers acquired the unrestricted ability to create money - literally out of nothing. When this has happened in other countries at other times of history, the people of those countries suffered a generation of horror almost beyond belief. And in America since that day, we are now divided into two parts: those who are fighting for their freedom and those who are exploited. In medieval times, when the people of Europe were kept in serfdom by their power structure, some individuals refused to submit. They ran away from their masters and escaped to the towns where they became known as townspeople or bourgeoisie. Thus, the people of medieval Europe came to be divided into two classes - bourgeoisie and serf \- those who were free and those who were under the thumb of the power structure. Those same conditions are now in America today.

# LEGAL TENDER LEGISLATIONS OF 1909

The bank notes of both the Banque de France and the Reichsbank of Germany were made legal tender by law, first in France, and then a very short time later in Imperial Germany. The rest of the world followed suit.

Two governments with the greatest war-making power in the world introduced coercion, forcing their subjects to accept and use debt as money. In particular, the governments were forcing the military, as well as civil servants, to take paper promises as ultimate payment for services rendered.

A promise to pay which at the same time an ultimate payment, is not a promise. This was a reactionary step designed to facilitate the unlimited augmentation of monetary circulation regardless of the gold reserve. It allowed the financing of the coming war with government credits, much of it interest-free and with no maturity date. The burden was thrown on the shoulders of the people without their concurrence.

The first author to unmask the connection between the Legal Tender Laws of 1909 and the outbreak of the war five years later in 1914, was the German economist Heinrich Rittershausen (1898-1984).

Would the senseless killing and destruction of property have come to an early end in the absence of legal tender laws, just as soon as the belligerent governments had run out of gold to finance it? Most contemporary observers had predicted that it would have. There was no way to finance a conflict of this magnitude out of taxes. People did not understand that legal tender was an invisible form of tax to pay for the greatest war up to that point in history. They did not understand the power of credit that would enable governments to expend blood and treasure freely, without any restraint. People did not see the Moloch behind the façade of legal tender ― the god that was preparing to devour his own children.

# THE MOST SINISTER CONSEQUENCE OF THE LEGAL TENDER LAWS OF 1909

Before 1909, world trade had been financed through real bills drawn on London. A real bill was a short-term commercial paper payable in gold coin upon maturity. It represented self-liquidating credit to finance the emergence of new merchandise in the markets demanded most urgently by the consumers. As its issue was limited by the amount of new merchandise on its way to the market, it was non-inflationary. The credit was liquidated by the gold coin released by the ultimate consumer of the underlying merchandise. You can look at a real bill as credit in the process of presently "maturing into gold coins". As a medium of exchange, a real bill is "the next best thing" to the gold coin. It is virtually risk-free to hold as the underlying merchandise has a ready market waiting for its arrival.

Clearly, real bills are incompatible with legal tender laws. It makes no sense to suggest that you can make real bills "mature in legal tender bank notes". The fact is that the bank note is inferior to a real bill in almost every way. For one thing, real bills are an earning asset. This is due to the existence of discount applied to face value as the real bill is bought and sold before maturity. Real bills are most liquid; only the gold coin has greater liquidity. They are the best earning asset a commercial bank can have.

But what makes real bill paramount in the economy is the fact that in the aggregate, they constitute the wage fund of society. They alone make it possible to produce and distribute goods now that the consumer will only pay for later. Up to three months later, to be precise. However, in the meantime, workers employed in their production will have to be paid their due wages every week. Indeed, these workers must eat and satisfy other wants to be able to continue their production efforts. The payment of wages is definitely not financed through savings of the capitalists. It is financed through clearing, that is, through the spontaneous granting of temporary monetary privileges to real bills, thus enabling them to circulate before maturity.

An unintended consequence of the legal tender legislation was the destruction of this wage fund out of which workers could be paid before the goods were sold. Legal tender laws bore direct responsibility for the horrible unemployment later during the Great Depression. As long as the wage fund is intact, there can be no unemployment. Anyone who is anxious to earn wages can go into the production or distribution of some goods demanded by the consumers urgently and get compensation from the wage fund immediately, even before his product is sold. The destruction of the wage fund changed all that. Workers could no longer be compensated for their labor expended in the production of the merchandise unless it was ready for sale right away.

The destruction of the wage fund was not immediately obvious in 1909. Military training and production of war materials absorbed the available manpower. During the war, labor was in short supply because of the vast expansion of the production of munitions. Unemployment hit society only after the cessation of hostilities.

Had the victorious powers repealed legal tender laws after the war, thereby rehabilitating the market in real bills and replenishing the wage fund, the great Depression would have never occurred. But the victors were not interested in multilateral world trade. They wanted to punish the vanquished even more by making trade bilateral, to the exclusion of real bill circulation. In this way, they wanted to retain control of the trade of their former adversaries.

As a result, the wage fund was never resurrected and workers could not be paid. The result was the greatest unemployment ever in history. Governments were forced to assume responsibility for the unemployed through the dole system. This system, an affront to people eager to work for wages, is still with us.

The gold standard must be rehabilitated together with its clearing system, the bill market.

Freedom in the field of money will bring us peace and prosperity. Continuing coercion is the road to more wars and misery.

# THE ECONOMY OF THE 20TH CENTURY

Here are the major highlights:

  * The Federal Reserve Acts was signed into law on December 23, 1913, by President Woodrow Wilson.

  * Governments could now pay their bills in three ways: taxes, debt, and **inflation**. While the first two can't be hidden from the public, but the third one often goes unnoticed or unrecognized as it has being part of additional government-imposed tax.

Again, only a few are privy to the fact that inflation is a direct consequence of the government's monopoly over the money supply, thus allowing it to resort to inflation as a form of raising revenue. However, with the Federal Reserve, the US government was able to bring the purchasing power to half of its value in its first 6 years of existence and so what could be purchased for $1.00 in 1914 was purchased for $2.00 in 1920.

Legal tender laws adopted by governments prevented the public from accepting bad coins for their real value (which was less than their face value). A fall in market value would cut off a significant revenue source: the government's ability to issue bad coins at inflated values. The mere fact that force was used to subsidize an inferior coin diminished the holder's trust in the money and corrupted the informational value of the prices it provided. This is the likely consequence of a monetary system which is hinged on legal-tender laws, as always, the cost is borne by the money-using public.

  * US involvement in World War I American involvement is even more remarkable in light of the fact that Wilson's re-election had been widely interpreted as a vote for peace. In January of 1916, Wilson stated, "So far as I can remember, this is a government of the people, and the people are not going to choose war."

The irony of the American "democracy" was unveiled immediately after that when Wilson turned around and asked Congress to declare war in order to make _"the world safe for democracy_." In order to make the American public believe him, he created the new government agency "Committee on Public Information" (CPI). It was charged with promoting the war domestically and advertised American war aims abroad. It sold an American public the idea of "bringing democracy to all of Europe", and did such a good job that even to this day, Americans are willingly fighting and dying for "democracy" all over the world.

# THE GREAT DEPRESSION: ITS CAUSES AND SOLUTIONS

The Great Depression is said marks a time in American history when the country recorded the highest poverty rate. It is also said to have occurred in the early 1930s. However, based on "Economic Statistics of the United States, Colonial Times to 1970" we will see that things were not exactly as they were claimed. It was about this time that Americans shifted from margarine to butter. They also increased their per capita meat consumption (from 129 lb to 144 lb.) and they gave more to charity. In furtherance, real wages and the savings of the average American increased in value (buying power) by 30%. This does not sound like a depression to me.

At this juncture, let us examine the increase in buying power of the average American's savings in the early 1930s. Saving had been a culture among average Americans since the 1780s when interest was legalized by Noah Webster. In the 19th century, we had an average interest rate of 5% which made the average person's savings multiply by 4.25 times over the course of his working lifetime. At this time in history, the country was on the gold standard, and as such, prices were stable unlike they are today.

The average annual wage in the manufacturing company in 1933 was $1,086. This may sound to you like meager earning, but a new car at that time could be purchased for $400; a two-bedroom apartment in San Francisco could be rented for $25 per month and a gallon of gas cost a dime. Surprisingly, a similar depression had occurred earlier in 1873-79 when prominent businessmen like Jay Cooke went bankrupt. This invariably resulted in high unemployment and prices declines. But the public was OK. The party in power (the Republicans) did not have to be kicked out of office in the 1876 election.

The effect of the depression was simply absorbed by the free economy. America went on to being the greatest economy in the world for the last third of the 19th century. This attracted a huge influx of immigrants flooding into America because its streets were believed to be paved with gold. This recourse is called 'credit contraction'; what we mean by, "neither a borrower nor a lender". The credit contraction system favors many people while it does not favor others. However, there is no clear-cut benefit or loss for the country as a whole.

These two periods, that is the 1870s and the Civil War, are distinct, and not surprisingly, one is the direct consequence of the other. By this, we mean what caused the money/credit contraction of the 1870s was the money/credit expansion of the Civil War. During the Civil War, prices rose rapidly but fell during the 1870s. During the Civil War, stocks went up but dropped during the 1870s. During the Civil War, both real wages and unemployment fell, but increased during the 1870s. But the world was yet to see its worst, and shortly after these events, another war (World War I) was fought, and in a way, we can say the Civil War scenario was only repeating itself. During this war, prices rose and both real wages and unemployment dropped.

It is worthy to note how unemployment is intimately felt in the economy. It is obvious that unemployment goes down when real wages go down. It is easy to feign sympathy for the working man when there is a decline in unemployment, but in reality, it is the same people that lower his wages. Considering the credit expansion of the Civil War or World War I which favors the unsympathetic characters of our society (the banks and Wall Street) as it allows the replacement of this complex (and correct) analysis with the oversimplified statistic of unemployment. In summary, this is used to deceive the public, as it passes off enemies of the working class as his friend.

Quoting Historical Statistics of the United States, Colonial Times to 1970, Series D, 740 above, we learned that the average annual earnings in manufacturing in 1933 were $1086. Given the fact that dollar was approximately 1/20 ounce of gold, so according to this rating (as defined by the Gold Standard Act of 1900), $1086 equals 54 ounces of gold which means workers earned more during the Depression than they do today. Truly, the average worker earned more during The Depression age than his modern counterpart does today.

In early 1933, the average American worker earned 54 ounces of gold annually. So, if he saved 15% of this, he would be saving a little over 8 ounces of gold annually. Assuming he saved for 25 years, that is half of an average working lifetime, he would have accumulated 200 oz. of gold which would have doubled due to accumulated interest at 5% over 25 years. Thus, the average American working man was worth 400 ounces of gold in 1933.

Additionally, due to the appreciation of the currency by 30% from 1930-33, his savings would have increased in value. Meaning he would have received an additional 120 ounces of gold, almost 2½ years income over these 3 years without having to work for it. Interestingly, he is only being paid what was stolen from him during World War I when prices were doubled and given to the paper aristocracy by the Democrats. Although they denied it, the Democrats were the party of the banks and Wall Street, and so it was easy to manipulate events in the latter's favor.

Much to the relief of the public, by 1933, prices in the U.S. had returned to their 1914 level. By the way, this corresponded also with the price level in 1793 as stipulated in the Wholesale Price Index which translates to 140 years of price stability. Much to the consternation of the Wall Street men as stocks lost 90% of their value from 1929 to 1932, but it served the ultimate good of the American working class.

You will recall that the first act of the Marxists, who were surreptitiously infiltrated into key positions in our government in 1933, was to depreciate the dollar and deny to the American people the right of redemption because these conspirators had learned from Karl Marx that the surest way to overturn the social order was to debauch the currency. To accomplish this, they installed the Laski – Keynes – Marxist monetary system of a so-called "managed currency." The communist agenda had become popular in 1932 and as expected, the media began to disseminate to the American public.

However, the media could not be trusted as it represented the interests of the paper aristocracy and then portrayed themselves as supporters of the working class. Till this date, only a few are privy to the fact that Franklin D. Roosevelt was indeed a Wall Streeter who ran a vulture fund in the 1920s. A vulture fund is a mutual fund which takes advantage of dying companies and gobbles them up. Was he really a traitor to his class? If he was not a Wall Street man, can you explain to me why then did Franklin D. Roosevelt receive 78% of his contributions from within a one-mile radius of his former Wall Street office at 120 Broadway (a few blocks from Wall Street), New York, N.Y.? If you are still not yet convinced, then have you ever paused to ask who wrote his "leftist" legislations for him? Does the name William Woodin sound familiar? That was the man who wrote the Banking Act of 1933, that's right, the same which took the United States off the gold standard. Woodin was Roosevelt's Secretary of the Treasury who on March 4, 1933, was put in charge of writing emergency banking legislation.

Robert Goldston writes:

" _Under the tireless supervision of Secretary Woodin, a strange combination of individuals worked around the clock at the Treasury. They included Hoover's former Secretary of the Treasury, Ogden Milles, and his staff; New Dealers such as Raymond Moley (now an Assistant Secretary of State); economists from universities, and scores of worried desperate bankers"._

The Great Depression, p. 112

This dubious bill was passed by the House in barely forty minutes of debate in the most unusual manner as no copies were made available for the members to read and no committee hearings. Thankfully, the Senate had copies of the bill and objections were raised by "certain Progressives who found the bill too conservative." But, Goldston admits, "It was a bill which met with the approval of bankers and even of the most conservative members of Hoover's old administration."

In addition to setting up our present paper money system, the Banking Act of 1933 wiped out a substantial number of smaller banks, and by implication, reduced the competition for the big bankers whom Woodin favored. Interestingly, the abandonment of the gold standard was said to be a leftist measure, detrimental to the bankers, the conservatives, and the big businesses, but beneficial to the poor.

As seen in the preceding chapters, this was only another scheme to impoverish the people. As stipulated in the bill, the Federal Reserve began to issue "lawful money," stimulating "the economy" (the banks and the big corporations), bullying the stock market and depreciating the currency. Unfortunately, this has been the trend since the last eighty-four years. Stories of bread lines and soup kitchens became some of the sensational aspects of the propaganda of the day.

We live in a world of lies and this is more so in recent times, but what makes these lies more viral is the media involvement in the dissemination process. Take, for instance, the cry for vaccination in all corners of the world. And because the government is required to finance such vaccine companies, we cannot expect to hear the actual truth. In 2009, it was predicted that the swine flu would breakout in 2010. However, it was later found that the "pandemic" (as it was called) was a lie.

Not only did the pandemic fail to happen, flu deaths for 2010 are running one-third normal, which gave no cause for alarm. But instead of investigating the waste of money, we are simply fed more lies to cover up the last. Unfortunately, the vaccine itself was poisonous, containing mercury and aluminum which is more likely to kill people than save them. I needed to draw your attention to this to illustrate just how naïve and vulnerable the average man is. This is the society that was handed down to us, but only a minority can get out of this vicious circle.

# THE FORGOTTEN DEPRESSION OF 1920

As the adage goes, "Those who do not understand history are bound to repeat it." But how do you learn from history when it is told from the point of view of perverse politicians? Instead of serving as a source of wisdom and insight, political regimes have always employed history as an ideological weapon, to be manipulated for their basest agenda. The Great Depression of the 1930s was said to be the result of capitalism run amok, from which the timely interventions of progressive politicians delivered us and restored prosperity.

While many insist that the New Deal programs alone did not succeed in lifting the country out of depression, others suggest that the massive government spending during World War II did. In an attempt to enshrine this version of history, the depression of 1920–1921 is hardly ever mentioned in public. It is no wonder that historical experience stops the enthusiasm of those who promise us political solutions to the real imbalances at the heart of economic busts.

The conventional wisdom tells us that without some government countercyclical policy, either fiscal or monetary (maybe both), we cannot expect quick economic recovery — at least, not without an unbearably long delay. Yet, the very opposite of those policies were followed by the Warren Harding administration during the depression of 1920–1921, and in fact, they had a fast-coming recovery.

In the year 1920, the economy was in a dire situation as unemployment had shot up from 4 percent to almost 12 percent, and GNP declined 17 percent. At this point, Herbert Hoover encouraged President Harding to consider an array of interventions to help salvage the economy; but his advice was ignored. Instead of "fiscal stimulus," Harding cut the government's budget nearly in half between 1920 and 1922. Tax rates were slashed for all income groups; the national debt was reduced by one-third and the remainder of Harding's approach was equally laissez-faire. Ironically, the Federal Reserve's activity was hardly noticeable.

An economic historian puts it rather succinctly, "Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction." By the late summer of 1921, the economy started responding and the following year, unemployment was back down to 6.7 percent and only 2.4 percent in 1923.

As a contrasting example, the Japanese government responded to this differently, and in 1920, introduced the fundamentals of a planned economy, with the aim of keeping prices artificially high. The economist, Benjamin Anderson, observed that through the collaborative effort of the great banks, the concentrated industries and the government, the freedom of the markets was destroyed. They stopped the decline in commodity prices, and held the Japanese price level high above the receding world level for seven years. This proved to be a bad policy as Japan suffered chronic industrial stagnation and in 1927, she had a banking crisis of such magnitude that forced many great branch bank systems and industries to fold up. In a bid to avert losses on the inventory of one year's production, Japan ended up losing seven years.

But as explained earlier, The United States simply allowed its economy to readjust and as Anderson observes, between 1920 and 1921, the country counted its losses, readjusted its financial structure and merely endured the depression, and in August 1921 the economy started up again. In August 1921, the rally in business production and employment was simply based on a drastic cleaning up of credit weakness; a drastic reduction in the costs of production, and on the free play of private enterprise. This governmental policy was not designed to make business good. Instead of running unbalanced budgets and priming the pump through increased expenditures as Keynesian economists advised, the federal government merely kept taxation and spending low and reduced the public debt. Those were Warren Harding's economic strategy for which he was ridiculed.

In his 1920 speech accepting the Republican presidential nomination, Harding had declared his intentions: "We will attempt intelligent and courageous deflation and strike at government borrowing which enlarges the evil, and we will attack high cost of government with every energy and facility which attend Republican capacity. We promise that relief which will attend the halting of waste and extravagance, and the renewal of the practice of public economy, not alone because it will relieve tax burdens, but because it will be an example to stimulate thrift and economy in private life.

Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn't been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations."

From all indications, Harding's message to a political convention is the exact opposite of what the alleged experts impose on us today. What with inflation, increased government spending, and assaults on private savings combined with calls for consumer profligacy. This is our idea of "recovery" in the 21st century. Unfortunately, many modern economists who have studied the depression of 1920–1921 have not been able to explain how the recovery could have been so fast. Although the federal government and the Federal Reserve refused to employ any of the macroeconomic tools - public works spending, government deficits, and inflationary monetary policy which we would have otherwise recommended as the solution to economic slowdowns. The Keynesian economist, Robert A. Gordon, admitted that "Government policy to moderate the depression and speed recovery was minimal.

The Federal Reserve authorities were largely passive... Despite the absence of a stimulative government policy, however, recovery was not long delayed." Another economic historian, Briskly, admitted that, "The economy rebounded quickly from the 1920–1921 depression and entered a period of quite vigorous growth" but chose not to comment further on this development. Kenneth Weiher also remarks that the year in question was "long before the concept of countercyclical policy was accepted or even understood." They may not have "understood" countercyclical policy, but recovery came anyway and quickly.

Two historians of the Harding administration insist that the economy was stabilized due to government confiscation of much of the income of the wealthiest Americans. The tax cuts, emphasis on repayment of the national debt and reduced federal expenditures had favored the rich. Many economists insist that the unequal distribution of wealth during the 1920s invariably resulted in the Great Depression of 1929. By 1929, five percent of the population owned more than 33 percent of the nation's wealth. But because this group failed to use its wealth responsibly. They triggered an unhealthy speculation on the stock market as well as uneven economic growth.

But this theory cannot be accurate because that would leave the world in a constant state of depression. Studies show that there was nothing unusual about the distribution of wealth in the 1920s, as greater discrepancies have existed across time and space without any resulting disruption.

Ironically, the Great Depression occurred in the midst of a dramatic upward trend in the share of national income devoted to wages and salaries in the United States; a downward trend in the share going to interest, dividends, and entrepreneurial income. Thankfully, we do not require any rigorous expropriation of any American in order to achieve prosperity.

However, it is not enough, to demonstrate that prosperity succeeded the absence of fiscal or monetary stimulus. We must understand why this outcome is to be expected. Otherwise put, we must understand why the restoration of prosperity without the remedies which was imposed on us recently is no mere coincidence.

# THE CENTRAL BANK POLICY VERSUS REALITY

Before we proceed, we must first understand why the market economy is plagued by the boom – bust cycle. In his book _The Great Depression_ (1934), the British economist, Lionel Robbins, queried why we have "cluster of error" among entrepreneurs. It is a statement of fact that the market eliminates the least competent entrepreneurs via the profit-and-loss system, but why would such categories be deemed "more skilled" and rewarded with profits and control, and additional resources fall into grave errors, and all in the same direction? What could possibly account for this situation? Could this phenomenon be a product of an internal or external factor of the market economy?

Ludwig von Mises and F.A. Hayek (Nobel Laureate, 1974) identify artificial credit expansion by the government-established central bank as the non-market culprit. And at such instances when the central bank expands the money supply, by buying government securities, it creates the money to do so out of nothing. This money either goes directly to commercial banks or if the securities were purchased from an investment bank, then it goes straight into the commercial banks once the investment banks deposit the Fed's checks.

In furtherance, just as an increase in supply drops the price of any goods, the influx of new money lowers interest rates, since the banks have experienced an increase in loanable funds. The lower interest rates stimulate investment in long-term projects, which are more sensitive to interest-rate than shorter-term ones. But a monthly interest paid on a thirty-year mortgage with the interest paid on a two-year mortgage in comparison would yield little interest rates which would have a substantial impact on the former but a negligible impact on the latter. While additional investment in research and development (R&D), which usually requires many years to yield, will suddenly seem profitable, whereas it would not have been profitable without the lower financing costs which the lower interest rates effect. R&D can be said to belong to a "higher-order" stage of production than a retail establishment selling hats, for example. Since the hats are readily available to consumers and the commercial results of R&D will not be available for a relatively long time. It is safe to say that the closer a stage of production is to the consumer, the lower a stage we call occupying.

The free market is designed in such a way that interest rates coordinate production and that production structure conforms to consumer preferences, and in the event of higher demand for a given commodity, the lower-order stages of production expands. However, if they are willing to postpone consumption at the moment, the interest rates encourage entrepreneurs to use this opportunity to channel factors of production to projects which do not satisfy the consumer's immediate wants. Thus, on execution, they yield a greater supply of consumer goods in the future.

# GOVERNMENT CANNOT BE RUN LIKE A BUSINESS

With respect to our example, it is clear that if the lower interest rates was initiated by the public's voluntary saving and not central-bank intervention, the relative decrease in consumption spending would have released resources for use in the higher-order stages of production. In other words, if there is decline in demand for consumer goods, it simply means people are simply saving more and spending less than they used to. By implication, consumer goods industries are affected in a way that they undergo a relative contraction.

Factors of production that these industries once used are now released for use in more remote stages of the structure of production. In a situation whereby the market's freely established structure of interest rates is interfered with, this coordinating function is disrupted. A commodity is likely to attract more investment when it is in high demand. And so, once the time structure of production is distorted, it can no longer correspond to the time pattern of consumer demand. Hence, consumers are demanding goods in the present while investment in future production is being disproportionately undertaken.

Thus, in a situation whereby central bank policy (instead of a healthy saving culture) initiates lower interest rates, there will be no letup in consumer demand when in fact the lower rates is likely to spend more than before. In this case, resources have not been released for use in the higher-order stages. And so, the economy contends over resources between the higher and lower-order stages of production. With the scarce supply of resources therefore, the resulting rise in costs threatens the profitability of the higher-order projects. However, the central bank can expand credit further in such a way that it favors the higher-order stages, but it merely postpones the inevitable.

We say the central bank is at war against reality if the public's saving culture and consumption goes against the diversion of resources to the higher-order stages, and in fact, pulls those resources back to those firms dealing directly in finished consumer goods. So, in order to validate all the higher-order expansion, it will have to decide whether it is prepared to expand credit at a galloping rate and risk destroying the currency altogether, or simply allow the economy adjust itself to real conditions.

Contrary to popular opinion, deficiency of consumption spending is not the problem, the reverse is the case. Indeed, the trouble comes from too much consumption spending, and as such, insufficient resources are channeled to other kinds of spending like the expansion of higher-order stages of production which inhibits completion because the necessary resources are diverted by the relatively stronger demand for consumer goods. Stimulating consumption spending would only worsen the situation as it intensifies the strain on the weak profitability of investment in higher-order stages. Mises likens an economy under the influence of artificial credit expansion to a master builder who lacks the required resources to build a house for which he is commissioned.

It is also worthy to note that the stimulating factor of the business cycle is not inherent in the free market. Rather, it is external interference into the market that results in the cycle of unsustainable boom and inevitable bust. As business-cycle theorist, Roger Garrison puts it thus, "Savings gets us genuine growth; credit expansion gets us boom and bust." This phenomenon has preceded all of the major booms and busts in American history, including the 2007 bust and the contraction in 1920–1921.

The years preceding 1920 were characterized by a massive increase in the supply of money via the banking system, with reserve requirements having been halved by the Federal Reserve Act of 1913 and then with considerable credit expansion by the banks themselves.

Between January 1914 and January 1920, total bank deposits had doubled; and this artificial credit creation set the boom–bust cycle in motion. The Fed still maintained its discount rate (the rate at which it lends directly to banks) low throughout the First World War (1914–1918) and shortly afterwards until the Fed began to tighten its rein in late 1919. Economist and author of The American Economy in the Twentieth Century, Gene Smiley, iterates that "The most common view is that the Fed's monetary policy was the main determinant of the end of the expansion and inflation and the beginning of the subsequent contraction and severe deflation."

As soon as credit began to tighten, market actors began to realize that the structure of production had to be rearranged and that lines of production dependent on easy credit had been erroneously initiated and must be liquidated. This puts us in a position to evaluate such perennially fashionable proposals as "fiscal stimulus" and others. With an artificial boom, the economy becomes imbalanced as too many resources have been employed in higher order stages of production and too few in lower-order stages.

However, these imbalances must be corrected by entrepreneurs who in turn redistribute resources according to how and where they are needed. The absolute freedom of prices and wages to fluctuate is critical to the accomplishment of this task, since wages and prices are also essential components of entrepreneurial appraisal. In the post boom economy, fiscal stimulus remains irrelevant because the government's singular act of financing arbitrarily chosen projects cannot rectify the imbalances that led to the crisis in the first place.

The issue is not the act of "spending" on these projects, but the mismatch between the kind of production the capital structure undertakes and the pattern of consumer demand which cannot sustain the structure of production. It is not unfair to refer to the recipients of fiscal stimulus as arbitrary projects. Since government lacks a profit-and-loss mechanism and can acquire additional resources through outright expropriation of the public, it has no way of knowing whether it is actually satisfying consumer demand or whether its use of resources is out rightly wasteful. Thus, popular rhetoric notwithstanding, government cannot be run like a business.

Be that as it may, monetary stimulus is no better because it merely intensifies the problem as entrepreneurs are motivated to continue along their unsustainable production trajectories. And drawing on Mises' analogy, artificial credit expansion merely suspends reality; compounds the problem as the master builder lacks the resources for the construction in view. The sooner he realizes what needs to be done, the better for him.

The best approach would be to go contrary to these Keynesian strategies which would require cutting the government budget and releasing resources that private actors can use to realign the capital structure. The money supply should not be increased; resources should be redistributed to parties better equipped to provide for consumer demands in light of entrepreneurs' new understanding of real conditions. Circumstances arising from misallocation of resources and favoritism can be averted if those resources would be put to good use. This approach of government austerity is what Harding advocated for in his 1921 inaugural address:

"We must face the grim necessity, with full knowledge that the task is to be solved, and we must proceed with a full realization that no statute enacted by man can repeal the inexorable laws of nature. Our most dangerous tendency is to expect too much of government, and at the same time, do for it too little. We contemplate the immediate task of putting our public household in order. We need a rigid and yet sane economy, combined with fiscal justice, and it must be attended by individual prudence and thrift, which are so essential to this trying hour and reassuring for the future.

The economic mechanism is intricate and its parts interdependent, and has suffered the shocks and jars incident to abnormal demands, credit inflations, and price upheavals. The normal balances have been impaired, the channels of distribution have been clogged, and the relations of labor and management have been strained. We must seek the readjustment with care and courage.... All the penalties will not be light, nor evenly distributed. There is no way of making them so. There is no instant step from disorder to order. We must face a condition of grim reality, charge off our losses and start afresh. It is the oldest lesson of civilization. I would like government to do all it can to mitigate; then, in understanding, in mutuality of interest, in concern for the common good, our tasks will be solved.

No altered system will work a miracle. Any wild experiment will only add to the confusion. Our best assurance lies in efficient administration of our proven system. We must proceed with a full realization that no statute enacted by man can repeal the inexorable laws of nature."

– _Warren G. Harding_

It is rare to see an American President in the 20th century who not only has such an insightful view and understands what was happening to the economy, but also that interventionist policies are not only a mere waste of time and effort, but would actually be counterproductive and only delay the recovery. However, Harding demonstrated that. Warren Harding eventually got to pay the price for choosing to be different years later. Even though at the time of his death, he was one of the most popular presidents, he later was made the subject of ceaseless ridicule at the hands of historians, to the point that anyone speaking a word in his favor would be dismissed out of hand. That, by the way, speaks by itself about current historians' abilities to pass judgment about anything.

The economic depression of 1920 proved two things:

  * The genuine free-market economy needs to be left alone, any monetary stimulus would be of no help to economic expansion

  * Any effort by the government to intervene during the recession will not only be of no help, but will actually be a hindrance to the economic recovery. The economic recovery during the depression of 1920-1921 happened so fast, not in spite of the absence of fiscal and monetary stimulus. It actually happened so fast because those things were avoided. As a side note, the reason the great depression of 1930th was so prolonged was because of so much government intervention.

# MARKETS TODAY: ARE YOU AN INVESTOR OR A SPECULATOR?

No matter how we look at it, the truth is that you and everyone else in the market today is a mere speculator and not an investor. While an investor understands how money works and is trying to put his money to work, the speculator is only interested in making profits by buying low and selling high. Between 1885 and 1933, when the U.S economy was operating on the gold standards, people were able to invest their gold into stocks for an average yield of 8%. While conservative investors would receive 5% by investing their savings into a savings account.

Very few people tried to play the stock market because it didn't go up over the long haul. You see, from 1885 to 1896, there was no Dow Jones Industrials yet, but Charles Dow kept some railroad indexes starting from 1885, and these railroad indexes show a flat trend for the eleven-year period. In 1896, when the Dow Jones Industrials first appeared, it was at 40.

Moving forward, the Dow Jones Industrials had its ups and downs, but were back to 40 in 1932. That is, for 47 years, stocks in America were flat. So, the average person did not buy stocks to make a profit. He did not speculate. He invested. He either bought stocks for the earnings (8%), or he put his money in the bank (5%) or purchased corporate bonds.

But Americans today do not invest for the simple reason that real interest rates have been zero since 1933. The Fed has been creating money for the past 100 years and using that money to keep interest rates below their free market level. The average interest rate over this period minus the rate at which prices have been rising is zero. The result is that savings have dropped almost to zero. Nowadays, people try to accumulate money for their retirement by speculating in the stock market or real estate.

They will succeed in accumulating money, but what they do not understand is that our money is continually losing value. So, although they have more money at the end of the day, they have fewer goods (or worse quality goods) to buy. Unlike the free American of the late 19th and early 20th centuries, they cannot save and receive (real) interest. They can only try to make their retirement by speculating, and speculation is a zero-sum game.

# DEMAND OR SUPPLY?

According to Keynesian principle, what makes an economy go up is demand and not supply. It's a perfect example of our human flaw. Take a false abstraction; logically deduce any conclusion you want from it; and people will believe it, no matter how absurd it is. Ironically, people want to believe lies no matter how ridiculous they are.

While an entrepreneur would be pleased if his product was in high demand, but he can only satisfy that demand by shifting supply from some other business to his. This actually means that there is less left for the competing businesses. Take for instance a businessman who runs a hotel. To expand his business, he will have to increase his supply of resources – more staff, bigger building etc. For his customers to increase their demand for his service, they will have to sacrifice their other needs and wants. The more his service is in high demand, the more it affects other businesses, which can even result in shift from other luxury items, and ski trips, summer beach houses and trips to Europe.

In general, the limiting factor in the economy is how much wealth is produced and not how much is demanded. Imagine how disturbing it is to have a baby howling for food and attention but his needs are not attended to; and how much more disheartening it is to have a village of babies with no parents. A Keynesian analyst would come and say these babies are very rich because they have so much demand. But that would never ease the howling. We have the same situation of a lot of demand and little supply in Afghanistan, North Korea, Albania and Cuba. To Keynesian economist because of all of that demand, those economies look rich but would use the word that Mankind had used since time immemorial - the word is poor. And so in a bid to rectify this error, the Keynesians would erroneously suggest the printing of more money. But the question we need to answer is "How does a country gets richer by printing more money?"

This is akin to what happened in Zimbabwe when prices rose by a factor of 853 followed by 21 zeros from 2007-2008, resulting in the doubling of prices every day. In the last 10 years, average life expectancy had dropped from 60 years to 44 years. Ironically, David Leonhardt would call this 'economic stimulus' (another way of calling them rich). Never in history has an "economic stimulus" (meaning large issues of money) made a country wealthy. Let us bring to mind a similar situation in America from 1866-1896 when prices declined by over 2/3, that is an item of $3.00 went down to $1.00, CPI. This period recorded great inventions like the telephone, the radio, the automobile, and most importantly, real wages increased by 90% (PPI).

Goods were sold at a cheaper rate; immigrants came into the country to seek higher wages and America became famous. In no time, America surpassed Britain and became the top economy in the world. About this time also, the South had caught up with the North economically but apart from the Civil War that broke out, America was the place to be. The American economy was said to have experienced a series of depression between 1866 and 1896. While this period experienced several money and credit contractions, a money/credit contraction is not a depression. Wealth was transferred from the rich to the poor and the overwhelming majority of the people benefited immensely.

So, the depressions of this period was only experienced by the rich, and while the media posed to be in support of the poor, they were in fact in support of the rich, and so reported them as depressions for the whole society.

It is incumbent on the individual to learn the truth for himself because our leadership has failed us as individuals and a nation. Why would they twist data and falsify history? However, answers abound everywhere if only you inquire. An illustration is the per capita butter consumption for the U.S. is found in Historical Statistics of the United States, Colonial Times to 1970, showing how butter consumption per person rose from about 13 lbs to 16 lbs between 1873 and 79. In the contraction of 1896, butter consumption per person got up to 22 lbs, the highest in American history.

During the supposed Great Depression, butter consumption increased, and margarine consumption decreased, meat consumption rose from 129 lbs per person in 1930 to 144 lbs. per person in 1934. Before then, it was luxury for an average American to eat meat, and so the Republicans bragged in 1928 that they had put "a chicken in every pot," and also, people gave more than ever to charity. This does not sound like a depression to me. But true to hype, the media recorded high suicide rate as rich people were said to jump out of windows after the stock market crash of 1929. This is just one of the media's fabrication and disguised bias for the rich.

On researching suicides, immediately after the crash in New York State and in the nation, you would not discover anything unusual; all those quasi-socialists who claim "I am for the poor" are thinking "If I can kiss the rear of the rich, they will throw some money my way." At this point, you are probably wondering what to make of the unemployment of the 1930s. While unemployment was real, it was hardly a question of economic hardship.

As prices declined, wages also fell but not as fast. The real buying power of the average man's wage rose, and he could afford to buy more goods. Since unemployment was recorded at 25%, then 75% of the nation remained employed and got those high real wages. But even the unemployed minority was not doing badly either. An average American was able to save for retirement, and he could save 15% of 40 oz. of gold he earned per year; that is 6 oz. of gold for a working lifetime of 49 years making a total savings of 294 oz. of gold. Since the average interest rate was 5%, his 5% savings would be multiplied by 4.25 over a 49 year working lifetime, such that his retirement stake of 1249 oz. of gold could afford him a comfortable retirement at any age.

The fall in prices doubled the value of the savings of the average American from 312.5 oz. of gold to 625 oz; and so even the minority of Americans who lost their jobs made close to 8 years wages within 3 years, and as such had a more valuable retirement account.

Certainly, this wealth that the average man enjoyed in the early 1930s must have come from somewhere, "but where" you might wonder. The answer is simple. As explained earlier, the paper aristocracy got richer at the expense of the average person. So, wealth simply flowed back from the paper aristocracy to the average American as the decline in the stock market from 380 to 40 indicates. In reality, the Republicans at that time were the party of the working man, and the Democrats were the party of big business and Wall Street.

When the Federal Reserve was given the power to counterfeit money in 1933, they simply exploited the working class and the savers again and then diverted the wealth back to the paper aristocracy. This is what they termed "getting us out of the Depression." This recurred in 1982 and has been going on ever since; and as always, the public are shielded from the truth.

Conversely, what fraudulent economists called "economic boom" in the early 1940s was in fact the reverse as 10 million men were pulled out of the labor force and could not produce wealth. No one could afford a new house or car; food items were rationed and gasoline was limited to 3 gallons per person. The early 1940s were in fact a depression but these economists would not admit it.

# THE REAL CAUSE OF UNEMPLOYMENT

I have been a student of money and credit for many years now. The summary of my results could be as follows: Most, if not all, the greatest events in the human history from the invention of money itself, have a causal explanation. If we were to penetrate deep enough historically, we would find one link to all the causes in the use and abuse of money and credit.

I would like to illustrate this with the following example:

This decision was never being made public. But there is no doubt that in 1920 everybody, even Keynes himself, admitted about advisability for a speedy return to the gold standard. Had there been no decision to block it, bill trading would have started by itself.

In practical terms, this decision was meant to initiate a "barter system," that is block multilateral world trade by brute force. It was meant to be replaced by bilateral trade or, to call it as it is, basically by a barter system. Why did the victorious Entente powers make such a move that was going to injure their own producers and consumers, and obstruct reconstruction effort? They did it because they wanted to inflict additional penalties on Germany over and above the requirements of the Versailles peace treaty. They wanted to preserve the wartime blockade under another name. They wished to monitor and control the move of goods in and out of Germany. The only way to do this, during the peace, was to replace multilateral with bilateral trade; It also meant to block the financing of world trade with short-term commercial bills, also known as "real bills". In other words, the Entente powers phased out self-liquidating credit and replaced it with artificial bank credit, the creation of which they could control through their central banks.

World trade prior to 1914 was multilateral. It means that imports were paid for by issuing, endorsing, and accepting bills of exchange payable in gold at maturity no more than 91 days after shipping the underlying merchandise. With three good signatures: that of the exporter, that of the importer, and that of a recognized acceptor, the bill of exchange went through a most remarkable metamorphosis. It became money. Ephemeral, to be sure, but money nevertheless. The exporter could use it to pay for his imports by passing it on, after endorsing it, to the exporter in a third country. This exporter could likewise use it to pay for his own imports, and so on and so forth. Only in the light of this fact, can one explain the unprecedented expansion of world trade during the 100-year period between 1815, marking the end of the Napoleonic War and 1914, marking the outbreak of World War I.

Such a record level of world trade would not have been possible without the clearinghouse for the gold standard, the bill market. Geographically, this clearinghouse was located in the City of London. It was the great London trading houses and banks on which bills of exchange, covering merchandise shipped from country A to country B, were drawn. It was the great acceptance houses in London that accepted them. Once so endorsed and accepted, these bills started to circulate on their own wings and under their own power, as only monetary gold could circulate: without friction.

It was this great clearinghouse of the gold standard in London that was blocked, nay, sabotaged, by the decision of the Entente powers at Versailles in their vindictive moment of victory. They never examined the broader economic implications of their move, beyond the obvious effect of putting the foreign trade of Germany on a leash. They utterly failed to see the wider consequences of their folly.

To show just how short-sighted the decision to block the circulation of real bills was, consider the argument of the German economist Heinrich Rittershausen (1898-1984) that he presented in his monograph entitled _Unemployment and Capital Formation_ , published in 1930, but obviously written before the Great Depression has become a reality. Rittershausen predicted that, "Hard on the heels of the collapse of the gold standard, a horrendous wave of worldwide unemployment would prostrate the world economy."

Under multilateral world trade financed by real bills, there was something for the lack of the better term "the Wage Fund" - out of which the wages of laborers producing merchandise demanded most urgently by consumers could be paid. Please remember that these goods during their production period of up to 91 days could not be sold to the ultimate consumer. He was the only one to pay for his purchase by handing over the gold coin.

Neither the producers of semi-finished goods that go into the merchandise, nor the wholesale and retail merchants would ever pay gold: they would issue or endorse bills. It could take 91 days (or 13 weeks, or 3 months, or a quarter) before the real bill matured into the gold coin with which wages could be paid. But laborers have to be fed, clad, shod, and sheltered in the meantime. They cannot wait for 3 months till the merchandise will have been sold to the ultimate gold-paying consumer. Wages have to be paid weekly, not quarterly. Thus, then, the Wage Fund is absolutely necessary for the maintenance of world trade and full employment on a scale it has reached prior to 1913.

Such a Wage Fund could only exist by virtue of the bill market. So much of the 'float' of real bills in the world was earmarked for paying wages; the remainder was earmarked to pay for supplies. The system worked extremely well: 'structural' unemployment was unheard of before World War I.

This Wage Fund was unwittingly destroyed by the victorious Entente powers at the moment they decided to block the financing of world trade through real bills circulation as it existed before 1914. The result was that world trade never really recovered. In fact, it took the better part of the twentieth century for the volume of world trade to reach its 1913 peak level again. In the meantime, it was touch-and-go. Bilateral trade, barter, or direct payment of gold and gold exchange replaced self-liquidating credit, as the credit represented by real bills was called. The destruction of the Wage Fund was not immediately noticed.

The great inflation due to World War I, imparted sufficient stimulus for a full decade to cover up the complete absence of a reliable fund out of which wages could be paid. In due course however, the surplus money was siphoned off by an extraordinary explosion of speculative activity in financial bills, real estate, and in the shares of joint-stock companies. Real bills were conspicuous only by their absence.

When money became scarce after the bubbles burst one after another: the bubble in US Treasury bonds in 1920, the Florida real estate bubble in 1925, and the stock market bubble in 1929, the absence of the Wage Fund, destroyed a decade earlier, immediately became obvious. There was no money to pay the wage earner. Workers were laid off. They had to be put on the dole. An unprecedented wave of unemployment, like a tsunami, engulfed the world.

Dictatorships could escape the curse of unemployment by destroying civil liberties: Lenin's under the banner of international socialism, Hitler's under the banner of national socialism. The only economist in the world who saw what was coming was Rittershausen. But he was treated by the international community of economists with the same contempt as the German delegation was at the Versailles peace conference.

A new economic gospel was promulgated by the prophet John Maynard Keynes who made a complete volte-face. He was the most vocal opponent of Britain's return to the gold standard in 1925. Not because he realized that Britain's 'newly-born-again' gold standard was not viable as it grievously lacked a vital part: the clearinghouse. Keynes opposed the gold standard on doctrinaire grounds. According to him, the gold standard was obsolete, contractionist, and an obstruction to progress. The new dispensation called for flexible foreign exchange rates that could be easily manipulated in the service of a hidden political agenda. Keynes was the enfant terrible of economic science. He was a perfect antithesis of Rittershausen. He was a master of demagoguery. He made economics stand on its head. For thousands of years, the problem of economics was the scarcity of savings as well as over-consumption, especially during princely wars. Keynes invented over-saving and its twin brother, "under-consumption". These notions are as obnoxious as they are preposterous. Yet, the world desperate for getting out of the depression, bought them. This was just what Keynes has been waiting for. He was hell bent on manipulating the whole world through clever verbiage, but which utterly lacked any substance.

Rittershausen, on the other hand, had no ulterior motivation. He just wanted to find the truth. And, indeed, he found it by pointing to the destruction of the wage fund in the wake of blocking the circulation of real bills. It is a great tragedy that Rittershausen was born in Germany rather than Britain, and Keynes was born in Britain rather than Germany. If it had been the other way around, then Keynes would have been totally ignored, as was his desert, and Rittershausen would have been elevated to international fame, as was his. He would have been made the object of world-acclamation and admiration.

The last remnants of the gold standard were abolished in 1971 when the Republican president Richard Nixon defaulted on the international gold obligations of the US — almost 40 years after the Democratic president Franklin D. Roosevelt defaulted on its domestic gold obligations. It triggered the fast-breeder of money, originally envisaged by Keynes, later dressed up academically and made palatable politically by Milton Friedman. At first, the going was great under the catch-word: "you have never had it so good". But then, just as during the "roaring 20's", speculators grabbed the money spun out by the fast breeders and ran with it. Once again, bubbles were blown and started bursting one after another.

The obvious way out of this corner is the resuscitation of the Wage Fund through allowing the spontaneous circulation of real bills that were last used in 1914. Lest anyone suggest that this feat could be accomplished under the regime of irredeemable currency, beware: real bills can only work if they mature into gold. It is unthinkable that they could mature into irredeemable paper currency. A real bill is an IOU promising to pay gold, and it offers a return to boot. An irredeemable banknote is an "IOU nothing" and it offers nothing - an inferior instrument at best, a fraud at worst.

A real bill, to be meaningful, must mature into a superior financial instrument, otherwise it refuses to circulate. Therefore, the rehabilitation of real bills assumes the simultaneous rehabilitation of the gold standard. The two go together like hand and glove. The way to return to the gold standard is for the US government to open the US Mint to gold — as ordained by the American Constitution that has been violated by power-hungry presidents such F. D. Roosevelt and his successors, every one of whom swore to uphold it, only to turn around and trample on it. It would be an extraordinary act of statesmanship if a new president reinstated the monetary provisions of the American Constitution.

# JOB CREATIONS

Now, as in the 1930s, we can see the following headlines "President Obama has announced a series of programs to create jobs" and you start to wonder. When you go back in history and read "The Federalist Papers", you can see that the Americans of the 1780s were so smart. And here the Americans of the 21st century are so stupid. What happened?

First, we do not want to improve the economy to create jobs for people. We want to have jobs so that we can create wealth (improve the economy) and thus be better off. A job is a MEANS. It is the wealth which you create on the job which is the END. Politicians who engage in job creation do not understand this simple truth. For example, when FDR created jobs for people doing simple tasks which nobody in our society really wanted to be done, he created the outer form of jobs. These looked like jobs. The worker had an employer. He received a paycheck, but the wealth represented by the paycheck was stolen from the remainder of the people by the government, and the "work" performed consisted of things that nobody really wanted to be done. It was a combination of stealing and wasting time. If the government had just stolen the money and given it out, then it would have had the virtue of greater efficiency.

Second, since everyone today seems to be living back in the 1930s, let us study this period and see what actually happened because most of what I hear concerning the thirties consists of a huge concoction of lies, and the closer we look at this period, the less credible it appears.

During WWI, the Democrats doubled the money supply of the country, and between 1914 and 1919, the price level doubled. Keep in mind that from 1793 to 1913, a period of 120 years, prices had remained stable in this country, except for the civil war era when government engaged in money printing business. So, if prices went up for a few years, then they would go down for a few years. The Wholesale Price Index for 1913 was the same as it had been in 1793.

Since prices were stable over long periods, people fell into the habit of saving. They received 5% interest from the local savings bank. Over a 49-year working lifetime, money saved and invested at 5% will multiply by a factor of 4.25. If one received an annual wage of 30 ounces of gold ($30,000 in modern money) and saved 15% of it ($4500), by age 65 one had saved $220,500. But by investing at the local savings bank at 5%, this amount had grown to $937,125 (937 ounces of gold). The first number was not enough on which to retire; the second number was ample.

Now let us go a bit more deeply into unemployment. It had been known for a long time in economics that when prices changed, wages are much slower to adjust. If prices decline, then wages will also decline but much more slowly. The real buying power of the average worker's wage will rise. John Maynard Keynes was aware of this paradox and said: "When money wages are falling, real wages are rising." [John Maynard Keynes, General Theory of Employment, Interest, and Money, (London, 1936), p. 10.

As prices fell from 1929-32, nominal wages did not fall as rapidly, and real wages rose. Businesses could not pay these higher wages and had to lay workers off. Workers refused to take reasonable pay cuts to bring their wages in line with their earnings power. Even though they could get by on much less in '32, their pride was injured by a wage they felt to be beneath their dignity. (One clever employer got around this by offering workers $50/week, but to get the job, they had to agree to kick back $10 to the boss. Their real pay, of course, was $40/week [$680/week in today's dollars]. But they could go around saying, "I'm a 50 dollar a week man.") So, the main reason that so many people were unemployed during the 1930s was that they refused jobs they thought were beneath them.

In effect, the change in the value of the money tricked them into turning down jobs they should have taken. Meanwhile, the vast majority of the people, who remained employed, were having a ball. Per capita consumption of meat rose sharply. People were able to switch from margarine to butter. Charitable giving rose to the highest levels on record. As the singer, Eddie Cantor put it, "Tomatoes are cheaper; potatoes are cheaper; now's the time to fall in love."

The reason that the average person was better off during the early 1930s was that the wealth which had been funneled to Wall Street and the bankers during WWI and again from 1922-28 was now flowing to the common people. The rich, of course, could not raise any sympathy for themselves, and so they decided to play up the plight of the unemployed (whose short-term interest coincided with theirs).

Now, let us step back and look at unemployment from a long-range perspective. There are many "economists" today, arguing from the perspective of the 1930s, who say that unemployment is inherent in a free economy and that the 1930s provide an example of this. But in fact, these people are not economists. They are paid agents of the bankers and Wall Street. They are a collection of crackpots and illustrate the kind of obstacle you will come up against in this modern age.

There was no word for unemployment in America until the 1870s. That is because there was no unemployment. Let us practice an unusual technique in the field of modern economics. Let us look at the facts.

You know that there was no unemployment among the Pilgrims after they landed in 1620. But do you know why? Well for the first 2½ years, they lived under communism, and everybody had to work on the collective farm.

But in March 1620, they abolished communism and set up a system of private property. Each family farmed its own land and kept the product which it had raised. This second type of economy is called the "self-sufficient farm", and it was later practiced by the settlers of the west. In a self-sufficient economy, each person works on his own land and produces the wealth which he consumes. There can be no unemployment for the simple reason that there is no employment (i.e., no employer hires anyone for a job).

Later, a third type of economy arose. Certain people specialized in common tasks. One man was a good shoemaker. Another could raise a lot of potatoes. Yet another made beautiful clothes, etc. These specialists set up small businesses. They brought the advantages of specialization and division of labor to the community.

As many of these small businesses grew large, their owners took in new people, trained them in his method and paid them money to produce more product than he could alone. These were the first employees. However, at this point, the employer-employee relationship was minor and did not play an important role in the economy.

A small businessman might have 5-10 employees and many had no employees at all. It was the beginning of the factory system which led to large scale employment. Factories would employ hundreds of people, and factory towns sprung up mostly filled with the employees of a given factory. What happened next is very important.

Where did these employees come from? Since the first factory in America was in 1793 (Pawtucket, R.I.), where had the employees been prior to 1793 and what had they spent their time doing? The answer is, they had been farmers, mostly on self-sufficient farms. The wages they were offered in the factories were so high that these farmers quickly gave up tilling the soil and flocked to the cities. (I know that you have been told the opposite, but then most of your education has been a lie.

Why would people give up the way of life they knew, their friends and their surroundings to be exploited for inferior wages? And why would people keep coming, by the millions, many from foreign countries, for centuries? Indeed, they are still coming today).

So, we are confronted with the fact that from 1793 to at least the 1870s, the burgeoning American free market created jobs by the millions. Each decade created enough jobs for all the people of the previous decade and then added a lot more. And during all this time, there was negligible unemployment.

From 1873-1879, there was a phenomenon very similar to the "depression" of the 1930s. Lincoln had printed money to finance the Civil War. (The American people refused to vote the taxes for it). After the war, the country (wisely) returned to the gold standard, and this required a reduction in the money supply. What happened was similar to the case after WWI. Prices fell. Nominal wages also fell, but not as rapidly as prices. Thus, real wages were left too high, and this caused unemployment. This was the period when the word first came into the English language.

The "depression" of the 1870s was no big thing. The party in power was reelected in 1876. Nobody thought that the government had any role to play in the economy. The free market cured the unemployment, and America continued on being the richest, fastest growing nation in the world. In the process, it created so many jobs that people flocked here from all over the world. Unemployment in 1906 was 0.8% (according to Historical Statistics of the United States, Colonial Times to 1954, U.S. Department of Commerce).

Looking back on the whole period 1793 to the present, we can see that virtually all of the farmers came off the farms to get jobs. That is, the free market economy's desire for workers was so great that it drew in pretty much everyone in the country. And then, as we know, it drew in many other people from all around the world.

Then where did the unemployment come from, the unemployment that appeared starting in the 1870s? The answer is in a single word: government. Government caused all the unemployment which has existed in the past and which exists today.And then statist hacks blamed it on freedom.

We have seen that wages tend to lag a decline in prices. Nominal wages follow prices down, but they do so reluctantly and slowly. The buying power of the wages goes up. Employers cannot pay the exceptionally high wages, and the result is unemployment. The clear solution here is price stability. If prices are kept stable, then there will be no unemployment.

Who destabilizes prices? We have discussed two cases, the Civil War and WWI. In both cases, prices doubled during the war and then came back down later. The period when prices declined was a period of high unemployment. Actually, the period when prices rose was a period of low wages. The working man was cheated in two ways.

Once the Democrats found that faking sympathy for the unemployed worked at the ballot box, they started to deliberately create unemployment (in order to win votes as the party which can best reduce unemployment). They empowered union workers to go out and beat up non-union workers to keep them from taking jobs. They passed laws forbidding workers from taking certain jobs which they wanted to take. It is no accident that Utah and New Hampshire, two true-blue Republican states, are always among the lowest unemployment rates while Rhode Island and Arkansas, two true-blue Democratic states, are always among the highest. The current unemployment results from mal-employment. When credit is easy, certain sectors of the economy become very profitable and hire workers to expand.

Two examples of this are construction and the financial area. Both are enriched by a central bank policy of easy credit. But when the easy credit has to stop (because it has caused prices to get too high), then these favored sectors cut back and lay off workers. From 1950 to today, housing stats have fluctuated (roughly) between 1 million per year and 2 million per year. If the country were on a gold standard and there were no central bank, then housing would be a stable industry building 1½ million houses per year. The stock market would be a stable industry servicing the capital requirements of the country. There would be far less mal-employment and far less unemployment.

I want to use the idea of unemployment to explain many of the hopelessly confused ideas of modern economics.

We stand in the beginning of a new century, and it is my hope that the ideas of the 21st will not repeat the terrible tragedies of the 20th. The men of the 18th century (Adam Smith, Jeremy Bentham, Noah Webster) solved the problem of economics with the result that the 19th and early 20th centuries were periods of unimagined success and achievement. Never had mankind reached such heights. But the same period which saw these great achievements in the practical realm, witnessed a disaster in the intellectual realm. Crackpots and frauds dominated the field of economics from the 1920s to the present day, and unemployment was their most widely discussed concept.

How had the people of the early and mid-19th century solved this problem which we today cannot solve?

Adam Smith, the founder of the subject, was very knowledgeable about facts. All other sciences make an emphatic point of researching the facts and testing their theories against the facts.

# WHY SHOULD THERE BE ANY UNEMPLOYMENT?

An unemployed good is one which is not used. Go to your local market. You see thousands of goods for sale. And yet the amazing thing is that virtually all of them are used. At the end of the day, week or month, the merchant has very few unemployed goods that he has to throw away. All of the shoppers take their purchases home, and very little remains unemployed. The reason for this is simple: To leave a good unemployed is a waste, and whoever wastes an economic good loses the wealth which it represents. What we observe is that the very last ounce of rationality of which the human species is capable is exerted to minimize this waste. Hence, the unemployment is very small. Why should things be different when we are talking about the unemployment of human labor?

Probably the most important cause of unemployment is the overvaluation of human labor. We have seen that the word came into use in the U.S. in the 1870s. What was going on in the U.S. economy at that time? When the Civil War started in 1861, the Union issued paper money (called greenbacks) to pay for troops and war supplies.

From 1861 to 1865, the U.S. price level doubled. In 1866, there was a feeling that too much money had been issued, and a part of it was withdrawn. Prices fell, and many of the war profiteers suffered losses. (This was called – from the point of view of the war profiteers – the First Post War Depression.)

In the early 1870s, an intense political battle was fought over the issue of whether the country should return to hard money. President Grant vetoed a bill to post the resumption of hard money, and the 1874 elections showed that hard money sentiment was dominant in the country. In early 1875, Congress voted resumption of hard money, effective 1879.

Furthermore, silver was demonetized so that the new American hard money system was based on gold alone. The result of these two steps (the elimination of the greenbacks and the further elimination of silver money) caused a long, severe contraction of the money supply. Prices declined in the U.S. for 30 years, and an average $1.00 item in 1866 was down to 30¢ by 1896.

I might add parenthetically that this was a period of repeated and severe "depressions." At the same time, it was the greatest period of economic growth in the history of any country in the world. The period began with the Pony Express. It ended with the telegraph, the telephone, motion pictures and the automobile. This was the period when Wall Street came into its own as a force in American life. The electric light and a host of other electronic inventions improved the quality of the life of the average American. The airplane, radio and ultimately television were just around the corner. If you meet a person who claims to be an economist, then please ask him for me, "If there were so many depressions in this period, then how come it saw the greatest economic growth ever?"

But to go back to our study of unemployment, one of the things that happen in a period of falling prices is that wages do not fall as rapidly as prices. Workers are misled by their nominal wage when they should be looking at their real wage. For example, if both prices and wages are 100 and if prices fall to 90, then wages are likely to fall to something like 93. The working man can buy more with his $93 than he used to buy with his $100, but this fact does not sink in with most working men. They think that their wages are lower because they use the simple minded thinking that $93 is less than $100. But in fact, they can buy more goods with the $93 than they used to buy with the $100.

The employers are more rational than their employees. They know that they are paying wages which are too high, and they cannot afford it. Since their workers are being stubborn and will not work for 90, they are compelled to let some of the workers go. Hence, there is unemployment. This is the most important cause of unemployment. Government reduces the money supply. Prices go down. Wages also go down but not as much. So, real wages (computed in terms of what the worker's salary will buy) can buy more goods. Wages are too high, and employers lay some of their workers off.

Here is our first lesson about unemployment. Unemployment is caused by the fact that real wages rise above their fair market value, and employers cannot pay the high wage. This rise in real wages is caused by the fact that government shrinks the money supply. This causes a fall in prices. But worker irrationality stubbornly resists a corresponding fall in nominal wages.

What happened in the 1870s (and subsequent "depressions") was that the workers finally realized that their wage demands were too high. They lowered their demands (grudgingly), and the high unemployment disappeared. What caused the "depression" of the 1930s was that the U.S. money supply fell by about 30% from 1930-1932.

There was a corresponding 30% fall in prices. With wages too high, the nation's employers laid workers off. However, in the 1930s, the government went berserk intervening in the economy. One of the first New Deal programs was to plow under crops and kill pigs. If the nation had been in a depression, then how would it have helped to destroy food? (Ask Obama, his solution to the current economy is to destroy cars.) They then indulged in all sorts of labor irrationality (such as giving one class of workers the legal right to get higher wages by beating up other workers, thus forcing these workers into unemployment).

Thus, the unemployment of the 1930s was not really reduced until the rise in prices of the 1940s led to a drop in real wages. This eliminated the overvaluation of wages and permanently solved the unemployment problem of that era. Of course, today (meaning the period from 1940 to the present) we have the opposite problem. Instead of destroying money, the government continually creates money. In this case, the opposite occurs.

Wages (nominal) do not rise as fast as prices, and real wages declined. (Real wages in the U.S. peaked in 1972 and have been declining ever since. We are the first generation of Americans to be poorer than our fathers. Thank you, Richard Nixon.) This labor problem was understood by the LocoFocos of the 1830s. (A loco foco was a friction match, a new invention of the time. when Tammany Hall tried to take over a meeting dominated by this new group by dousing the lights, they whipped out their locofocos, lit lanterns and carried on as before. It was a way of saying that they were friendly to new technology and knew how to put it to practical use. From that day, they called themselves the LocoFocos. They were the first practical political group to organize around the idea that the bankers should not have a right to create money.

The LocoFocos summed up the above problem as follows: "When the currency expands, the loaf contracts. When the currency contracts, the loaf disappears."

In short, if the government increases the currency, the worker's loaf of bread contracts (which happened through most of the latter 20th century). And if the government decreases the currency, then real wages rise. This makes employers unable to pay some of their workers, and for these workers, the loaf of bread disappears. If we want a society where virtually everyone who is employed is making a fair wage (for the value they create), then the government should simply keep the (per capita) money supply stable. This is what was accomplished by the American gold standard (with minor exceptions when the money supply was disturbed as above).

Unemployment became an important political issue when the U.S. went off the gold standard. The paper aristocracy wanted to depreciate the currency, resulting in the first LocoFoco principle (a decline in real wages). They, of course, did not want to admit that they were anti-labor because that would have cost them the votes of the working class. They falsely argued that they were pro-labor because they were against unemployment. Once this was put over, they began to deliberately create unemployment so that they could lower it by further depreciating the currency. Getting union workers to beat up other workers and deny them jobs was one of their tactics. Another was the tactic of enacting forbidden-to-work laws (fraudulently labeled "minimum wage laws") in which workers with low labor value were forbidden from making employment contracts.

Later, they actually paid people to remain unemployed. and imposed special punishments on employers (such as health insurance for older workers). In the U.S., during the late 19th century, workers averaged a 60% increase in real wages per 30 year period. The country became a massive job-creating machine. Historical Statistics of the United States, Colonial Times to 1954 reports unemployment for 1906 as 0.8% and for 1907 as 1.8% America at this time was a giant job-creating machine, and millions of immigrants from diverse parts of the world were drawn here to get those jobs.

Since 1972, the first part of the LocoFoco warning has been particularly true. The currency has expanded, and the loaf has contracted. Real wages have fallen for the first time in U.S. history, and the average working man is getting poorer.

The above illustrates a few of the lies upon which our society today is based. The Democratic Party in the U.S. (and left-wing parties around the world) won the votes of the working man by reducing his wages and threatening him with unemployment. Almost everything you have been taught is a lie.

# PROPAGANDA: RETIREMENT AND SOCIAL SECURITY

As was remembered by the great economist of the 20th century, Milton Friedman: "It was sold by the best propaganda agencies of Madison Avenue but they had difficulty to explain why the people needed it. Since the early 19th century, people were saving for their own retirement benefit and it worked so well that people didn't understand why they needed a benefit with worse returns than they already had."

Let me show you what people had at that time.

You want to retire, correct? Well, first you need to understand some realities.

What is retirement? Retirement is a period near the end of one's life when one stops working and lives off of the income generated from one's productive years.

The only honest dollar is a dollar of stable, debt-paying, purchasing power. The only honest dollar is a dollar which repays the creditor the value he lent and no more, and require, the debtor to pay the value borrowed and no more.

\- Senator Robert L. Owens,(Okla.) 1913

Retirement began as an institution in Britain and America near the beginning of the 19th century, and it was due to a political reform which was carried out by Noah Webster (in America) and Jeremy Bentham (in Britain) in the 1780s. Webster and Bentham succeeded in repealing the anti-usury laws, which had prohibited lending at interest. Since very little lending was going to go on if the lender did not receive his interest, this worked out to a pretty effective ban on lending (except for the king, who usually made himself exempt from the anti-usury laws).

Once people could legally receive interest, they began to save. Banks would collect the savings and lend them to businessmen who, in turn, would build factories and equip them with the latest machinery.

This machinery was fantastic. A machine would be invented which could enable one worker to do the work of 10. Then another machine would come along 5 times as good as the first. There was a tremendous outpouring of wealth. The wages of workers went up. The prices to consumers went down. Profits went up. And there was sufficient wealth left over so that the bank could pay the saver interest, which for most of the 19th and into the early 20th century, was about 5%. (The American South, by the way, lagged behind in repealing their anti-usury laws, and this is the main reason they were so much poorer than the North at the time of the Civil War.)

Now what happens if you can get 5% interest on your savings? Let's take the average working man, who today makes $30,000 per year. If he saves 15% of that, this amounts to $4500 per year. Suppose he receives 5% and does this for his 49 year working lifetime (and to make the problem simpler we will assume that he keeps making the same wage).

This is a problem in compound interest. You did this in 8th grade math class. You receive 5% interest on $100 for 1 year, and at the end of the year you have $105. But then you receive 5% interest for a second year, and you don't wind up with $110. No, in the second year you are getting 5% interest on $105 = $5.25. So you wind up with $110.25. It only seems like a little thing.

But your next year's interest is $5.51¼, and it keeps going up – at a faster and faster rate. Keep saving for long enough and it is like the story of the grain of rice given to the inventor of chess by the King of Persia. He asked for 1 grain of rice for the first square, 2 for the 2nd, 4 for the 3rd, etc. The King quickly granted his request, thinking that it was a small thing. But by the time he got to the middle of the chessboard, he realized that there was not enough rice in his whole kingdom.

That is the way compound interest mounts up. The people who worked with interest and savings in the 19th century were so impressed with this that they called it "the miracle of compound interest." If you save 15% of a $30,000 annual salary every year of your (49 year) working lifetime, then you do not come out with 0.15 x $30,000 x 49 (equal to $4500 x 49, which equals $220,500). No, the effect of compound interest at 5% working over 49 years is to multiply the whole amount by 4.25. And you come out with $220,500 x 4.25 = $937,125.

Now what would you rather do? Retire on $220,500, or retire on $937,125? Let us see if we can work that out? Case I: If you retire and put your money in a savings bank, again at 5% interest, you receive an annual income in retirement of .0.05 x $220,500 = $11,025. Case II: If you retire and put your money in a savings bank, at 5% interest, you receive an annual income in retirement of 0.05 x $937,125 = $46,856. That is, if you are allowed to receive interest at 5%, then you can retire on an income 50% higher than you made when you were working.

See, people then lived under the mostly stable pricing AND real 5% interest income, therefore, they were able to retire even with a higher income than they had while they were working, and they couldn't understand why the government wanted for them to pay into some fund that would actually pay them less than they could get on their own.

The real reason they were not told why they needed it was because from now on ALL the REAL interest that people used to receive will now be transferred to the bankers and Wall street. People will still see the interest been paid to them but unlike in the old days when they received the REAL increase in purchasing power (real interest) from now on their interest will only be equal to depreciation of the currency.

In the old days, if you had $100, in a year you would have $105 and the corresponding purchasing power of $105. But now, you would as an example start from the same $100. In a year, you may have nominally have $105, but that $105 now would be able to purchase for you as much goods as you needed $100 a year ago. Your interest through inflation (as an invisible tax) was invisibly transferred to bankers and other Wall street insiders.

Basically, we went back to pre-19th century society when usury law was in effect. People can't earn interest on their savings. Wall street bankers understood that without people's ability to invest savings for retirement, they will have a revolution on their hand. They invented this pyramid scheme where instead of productively investing young workers' savings, they would support older workers. Therefore, older workers could save some money for retirement but receive their interest portion from social security which is a simple redistribution of wealth in a simple pyramid fashion.

If you compute the rate of interest on safe instruments (such as T-bills) since 1933 up to 2008 and compute the rate at which prices have been rising over that period, THEY COME OUT ALMOST EXACTLY THE SAME. In reality, you received no interest.

Are you ready for the sad ending? IF THERE IS NO INTEREST, THERE IS NO RETIREMENT. Ask Noah Webster. It looks as though your quest for retirement is doomed. A person who is retired is consuming wealth, but he is not producing wealth. If large numbers of people try to do this, then where will the wealth come from?

The modern answer to this is that the wealth is taken from the younger workers. The young support the old. Isn't that something? In the 19th century, the old did not take from the young for their retirement. Exactly the opposite. The old provided savings, which created machines which vastly increased the productivity of the younger worker. The older, retired person made possible a rise in the younger worker's salary. It was a wonderful system because nobody took from anybody else. More wealth was created, and everybody benefited.

But that system has died. It died in 1933. An attempt was made to revive it in 1944-71, but Richard Nixon killed it for good on Aug. 15, 1971. Whose fault was it? Everybody who voted for the Demopublican Party. With a few exceptions, almost every President over the past 100 years has printed money and spit on the gold standard.

For example, an average salary of 1910 was about $600 (30oz of gold). That worker would invest about 15% of his income into his own retirement fund (bank account, stock market or bills of exchange), on average, he would earn an income of 5% per year.

Therefore, each and every year for 49 years (from 16 to 65 years) a typical person would add $90 to his retirement fund. In the end, he would have $19,734 which would give him a retirement income of $986 per year (which was more than his previous salary of $600 per year))).

Yes, some people could have started later in life say at 20 and then finish at 60 but even at this (instead of typical 49 years of working life let's cut it down to 40), you would still be able to get a study income of $602 which was an equivalent of the salary of your working years and not only that you would still have your $12,049 in your retirement fund forever.

Notice that this system of retirement does not depend on the young supporting the old. Once the 65-year old has accumulated his capital, he can live off of the interest for the remainder of his life, even if the human lifespan is extended to 200.

Now it may be asked from where comes the wealth that the retired person consumes? After all, a person who is retired consumes wealth, but he does not produce it. He lives in a house or apartment. He drives a car. He wears clothes and eats food. And he indulges in some of the amenities.

How can a large class of people consume all of this wealth without putting a terrible burden on society?

The answer is that, under Noah Webster's system (during his trip through the 13 newly independent states he was able to persuade state legislators and other influential people to abolish what was then called usury and is today called interest), the businessman whose corporate bonds paid the saver his interest, would use the borrowed money to build/buy machines. These new machines increased the amount of wealth a worker could produce in a given day. With the workers creating more wealth, there was more wealth in the world. It was this extra wealth which produced the goods consumed by the retirement community. No young person had to support any retired people. The retired supported themselves by the interest on their own capital. The system worked brilliantly for well over a century.

Then along came Federal Reserve and thanks to them, already by 1919 we had prices doubled that of the 1914 and 117,465 military personnel died and another 204,002 were wounded in the actions of World War 1.

But they did not only do that, they also abolished the interest. You know that, at present, short-term interest rates in the United States are virtually zero. However, you have probably not been aware that they have been zero for the past 84 years. This is because what is important is the real rate of interest. This is the rate of interest minus the rate at which the currency depreciates. THIS REAL RATE OF INTEREST HAS AVERAGED ZERO FOR THE PAST 84 YEARS.

That is, Keynes (via F.D.R. and Nixon) set up a system of depreciating the currency, and the rate at which the currency has depreciated has almost exactly kept up with the nominal rate of interest. That is, if your savings in the bank were $100,000 and you were receiving 6% interest, you would get $6,000 per year. However, if average prices were rising by 6% per year, then the buying power of your bank account would decline by $6,000 each year. In real terms, you would be receiving zero interest.

But if the real interest rate is back to zero, then we are in the age prior to Noah Webster and in this case, it is firstly impossible to retire because our capital is not increasing via compound interest. And it is secondly impossible to retire because our capital cannot earn interest.

Why not use some substitutes for the savings accounts like stocks or real estate?

Stocks - in the old days stocks were more or less stable. DJI was about 40 all the time. They paid about 8% per year in yield. Plus, even if your stocks do rise to compensate for inflation, you would be taxed for receiving that compensation). Therefore, you not only need to choose a stock that would safely grow and compensate you for the loss of $ purchasing power but also for the taxes charged to you for receiving that compensation.

Real estate – again taxes for inflation appreciation, repairs, and general overvaluation of the real estate because of gov. subsidies for mortgages etc.

OK, so if all that wealth is no longer transferred to savers, where does it ends up?

To the beneficiaries of the Federal Reserve system - Banks and large multinationals they are the beneficiaries of this system of stealing money from savers/retirement funds.

_Was it the reason to establish social security because people otherwise could no longer retire? Officially, it was done for the good of the people._ However, _as the story was told by Milton Friedman, the best advertising agencies of that time could not explain to the population why it was better to pay more money and receive_ less _benefits. To be honest, like the population of that time, we still can't understand why it's better to pay more when you receive less._

_But unofficially, yes, that was their main goal, because from then on people would no longer be able to save for their own retirement. So, the bankers invented this simple pyramid scam where lots of young people would pay for the_ retirement _of the old people. Therefore, people do not have any need for investments or savings and most of the economic growth could safely be stolen by the bankers and multinational corporations!_

But there is a way. There is no way for the vast majority to retire. But there is a way for a few good men to defeat the system made up by Keynes. You know that many people are trying to make a speculative gain in the stock market and in this way, make up for the money stolen from them by Keynes.

Under the Noah Webster system, machines increased productivity, and there was more wealth in the world. But that was the old system. Under the new system, the government prints money and eases credit. This makes the stock market go up, but it does not create more wealth in the world. So, retirement becomes impossible – for the vast majority.

The reserve-currency curse or why the current US dollar status is the reason for the transfer of American jobs to other countries, and why the real purchasing power of an American worker went up from 1792 to 1971 (each subsequent generation had a higher income than previous one) and from then on (from 1971 to the present day) it has been going down (purchasing power).

Fiat dollars are the single reason for the transfer of American jobs to other countries. Under the gold standard, it would have been impossible. That's because under the gold standard, lasting trade deficits are impossible to maintain.

The current fiat money system in the United States allows the Fed to finance large trade deficits by printing money, allowing Americans to purchase imported goods "without really paying" for them. Since abandoning the gold standard in 1971, the United States has had the highest trade deficits the world has ever seen – reaching a high of $761 billion in 2006. Since 1971, foreign nations have taken the fiat dollars received in payment for exports, and used them to invest in United States debt (Treasury Bonds). In this way, foreign creditors have financed the US national debt.

From 15 August 1971, when President Nixon announced to the world that the United States was closing the gold window, the following happened:

-US started to run trade deficits and millions of US jobs started to be displaced to other countries

\- Real wages (purchasing power) went down.

Under a gold standard, the United States had stronger economic growth over its history. Over the 179 years, that the United States was on some form of a gold standard (1792-1971), the economy grew an average of 3.9% each year.

Since 1971, under a fiat money standard not backed by gold in any way, economic growth has averaged 2.8% per year. This lower growth rate translates into an economy that is about $8 trillion dollars smaller than it would have been had the gold standard not been abandoned in 1971.

Under the gold standard, income levels in the United States were rising much faster and unemployment levels were lower. In the decades prior to the United States abandoning the gold standard (1950-1968), the real median income for males rose 2.7% per year. Since leaving the gold standard in 1971, the average median income has only increased 0.2% per year.

If the gold standard had not been abandoned in 1971, and income levels had continued to grow at the prior rates, the average median family income today would be about 50% higher. In addition, unemployment levels were lower in the decades leading up to the United States abandoning the gold standard. Between 1944 and 1971, while on a partial gold standard, unemployment averaged 5%. From 1971 to present, unemployment levels have averaged 6% under the fiat money standard.

# SOME ADDITIONAL FACTS ABOUT GOLD STANDARD

Do you like war? If you wish to decrease the likelihood, duration, and size of wars, you must have a gold standard. That is because wars cost money (do you remember the example above about the war of 1812 and 1862? Do you remember what was needed for France and Germany to start World War 1?) Since the only sources of revenues with gold as money are taxes - which people tend to resist - or borrowing - which drives up interest rates - there tend to be fewer and smaller wars. For example, if there was no Federal Reserve that was effectively buying up liberty bonds and financing European war, then the World War I would have ended in a year or so (by 1915) simply for the lack of money.

It is also less likely that the U.S. would have fought in Vietnam if President Johnson had to finance the war with taxes. According to US Representative Ron Paul (R-TX), "Fiat money enables the government to maintain an easy war policy... To be truly opposed to preemptive and unnecessary wars, one must advocate sound money to prevent the promoters of war from financing their imperialism."

The government's ability to limitlessly print fiat paper money allows it to fund a massive global defense establishment, including 662 military bases in 38 countries and costly foreign military interventions. The United States spent $711 billion on defense in 2011, more than the other top 13 countries combined. This level of spending would not be possible if the United States returned to a full gold standard. After all, as Milton Friedman said, "Inflation is taxation without legislation".

Gold standard as money is generally associated with a freer more democratic society. That is because the government needs money to pay for its programs. Gold is impossible to create out of nothing. It must be taxed from citizens. If they have the (theoretical) ability to resist high taxation and withhold their money from the government, then politicians cannot act unilaterally. Fiat money is generally associated with a more statist society.

If politicians don't have to consult citizens or tax them directly to fund government programs, such as wars, then politicians can, and do implement whatever programs they wish. Thus, fiat money is a necessary ingredient for tyranny. Programs can be funded with money created by the banking system. In effect, politicians and banks embezzle the purchasing power of savings.

Gold as money tends to facilitate lower tax rates and less taxation since citizens see how much is being extracted from them. As fiat money is created out of nothing, there tends to be inflation and ordinary working people are pushed into higher tax brackets. People pay a larger percentage of their income to taxes.

With gold as money, real wages tend to increase, as does the standard of living. With fiat money, real wages tend either to stagnate or decrease, as does the standard of living.

Gold as money facilitates real growth by investing savings, thereby causing increases in physical and intellectual capital. Fiat money results in nominal growth and less real growth. Eventually, real growth and real earnings decrease. Capital is destroyed and there tends to be less replenishment of physical and intellectual capital.

As productivity increases, prices tend to decrease, thereby resulting in more goods for more people at lower prices. This is what an increasing standard of living means. Prices tend to increase, or at best, remain stable. In all cases, inflation eventually results because the financial sector overreaches and because politicians inevitably become avaricious for additional funds. Commodity money is very savable because it doesn't obsolesce or deteriorate and is difficult to counterfeit. Purchasing power is not diminished.

Fiat money is less savable and can discourage long-term savings altogether since its future value is always in doubt. Why save a depreciating asset?

Because with commodity money, prices tend to decrease, it becomes harder to service and pay down debt, and debt is discouraged. Because debt gets serviced and repaid with cheaper money, increases in debt are encouraged. This also works to decrease the purchasing power of savings and future payments, the majority of which constitute pension funds.

Without fractional reserve lending (leverage), a.k.a. the creation of "bank money" by banks, economic activity expands without busts. With increasing amounts of fractional reserve lending, there are periodic booms and busts. A bust results when marginal credit that cannot be serviced is liquidated. Fiat money tends to create huge bubbles, which when they collapse––and they always collapse - lead to extended depressions and severe hardship, especially for ordinary working people and seniors.

Social mobility: the ability to improve one's lot in society, is much higher under the gold standard. But it is very hard under the fiat system because improving one's lot requires the accumulation of wealth, and because it is not economic to save fiat currency, the poor tend to stay poor.

Social engineering (the redistribution of wealth) is hard to do under the gold standard because it must be done with taxation and people tend to oppose higher taxes. They take a greater interest in where money is spent when it is their own. Under fiat system, it is easier to do by creating money out of nothing and "spending" it, lending it, or guaranteeing loans (where it is known in advance that such guarantees can be met by creating additional money). Contrary to popular opinion, most of the wealth redistribution is from the poor to the rich.

Who gets the wealth of society? The people who earn it: workers, entrepreneurs, and the producers of goods and services sold in the market in voluntary transactions. An inordinate amount of wealth is transferred from those who produce it to banks and financial intermediaries. Large credit-worthy borrowers benefit. Also, politicians tend to profit along with people who are direct beneficiaries of government largesse.

A gold standard puts limits on government power by restricting its ability to print money at will. With a fiat currency, the government can essentially manufacture money virtually out of thin air. Since leaving the gold standard in 1971, US currency in circulation (M1) increased from $48.6 billion to over $1 trillion dollars in 2012.

Between 1971 and 2003, the entire supply of money (M3) in the United States has increased by 1,100%. Under a gold standard, new money could only be printed if a corresponding amount of gold were available to back the currency. This restriction is an existential check on government power.

According to Supreme Court Justice Stephen Field (1863-1897),"Arguments in favor of the constitutionality of legal tender paper currency tend directly to break down the barriers which separate a government of limited powers from a government resting in the unrestrained will of Congress. Those limitations must be preserved, or our government will inevitably drift from the system established by our Fathers into a vast, centralized, and consolidated government."

Our current fiat monetary system is inherently un-democratic. Our current fiat monetary system empowers an unelected central banking committee (the Federal Reserve) to determine whether the supply of money grows or is reduced rather than allowing market forces to determine the supply of money as they would under a gold standard. Fiat dollars allow the government to spend money without raising taxes, which shields them from democratic accountability. Instead, they impose the hidden tax of inflation.

Returning to a gold standard would lower inflation rates and slow the rise in consumer prices. Historically, the United States has had lower levels of inflation when on a gold standard. From 1880-1913, under a gold standard, average inflation was 1.6% per year. In 1971, when Nixon took the United States off the gold standard, inflation was at 3.3%. By 1979, it had risen to 13.3%. In a study of 15 countries covering the years 1820-1994, Federal Reserve economists found the average annual inflation rate under a gold standard was 1.75%, versus 9.17% when not on a gold standard.

From 1971 to 2003, the dollar lost nearly 80% of its purchasing power due to inflation. Between 1971 and 1980, the inflation rate rose from 4.4% to 13.5%. By 2011, the dollar's purchasing power had been reduced to the point that it has the same purchasing power as 19 cents did in 1971.

A gold standard would restrict the ability of the federal government to increase the national debt. Under the fiat money system used by the United States, the government can raise money by issuing treasury bonds – which the Federal Reserve can purchase with newly printed money. These bonds count toward the national debt. Between 1971 and 2003, the national debt went from $406 billion to $6.8 trillion - an increase of 1,600%. This increase in debt corresponded with a 1,100% increase in the money supply (M3) between 1971 ($776 billion) and 2003 ($8.9 trillion). As of Dec. 26, 2012 the national debt stood at $16.3 trillion. As a percentage of the GDP (gross domestic product), the national debt has more than doubled since leaving the gold standard in 1971 - going from slightly under 30% to 67.7% in 2011.

A gold standard would reduce the risk of economic crises and recessions such as the housing bubble and financial crisis of 2008-2009. The ability of the Federal Reserve to print fiat money and maintain easy credit by keeping interest rates too low from 2001 to 2006 was a significant cause of the real estate bubble which led to the Great Recession. The response to the recession has been more of what caused it in the first place – printing money.

Over $2 trillion in bailouts for failed financial institutions was paid for with Federal Reserve money, setting the stage for another possible bubble and collapse. The Fed's history of providing economic stability with fiat money has not been a good one. Since the United States abandoned the gold standard, there have been 12 financial crises, including the financial crisis of 2008-2009.

Whoever controls the volume of money in any country is the absolute master of all industry and commerce.

President James A. Garfield
