(Before I get to the significance of this, one quick point: Gingrich says expressly, “I am a neoconservative.” I got a chuckle out of this, because it called to mind all the times we’ve been told that there’s no such thing as a neoconservative, that the term was originated by anti-Semites who use it to demonize Jews, but that there really is no such thing. And here’s a guy who actually admits he is one. So they aren’t just figments of our imaginations after all!)

At this point in his life, Gingrich’s influence is not great. What matters about the concessions he makes to the Washington Times is that he depicts himself as someone who sympathizes with Rand Paul, who is on the less interventionist side of the GOP. He condemns the establishment for responding with hysteria to noninterventionist arguments, and says the hysteria conceals the fact that the interventionists are out of arguments.

Is Gingrich an opportunist? We know the answer. But his remarks, and his eagerness to be perceived as a maverick who rethinks neoconservative interventionism, is an indication of the way the wind is blowing.

Reprinted from Tom Woods.com

The Free Staters, who are nonviolent, are lumped into the category of “domestic terrorism.”For not wanting anyone to use violence.

The relevant portion of the application reads:

The State of New Hampshire’s experience with terrorism slants primarily towards the domestic type. We are fortunate that our State has not been victimized from a mass casualty event from an international terrorism strike however on the domestic front, the threat is real and here. Groups such as the Sovereign Citizens, Free Staters and Occupy New Hampshire are active and present daily challenges. Outside of officially organized groups, several homegrown clusters that are anti-government and pose problems for law enforcement agencies.

It goes on to say that they need this vehicle in order to resist bombs, or radiological devices (it has a radiation detector). (Thanks to Louis.)

Reprinted from Tom Woods.com

Here’s a sample from the course, a lesson on the famous conflict between Pope Boniface VIII and Philip the Fair of France that would be a major turning point in the history of Church and state in Western civilization.

Reprinted from Tom Woods.com

Hey, reporter, look at me

I’m against slavery!

It took a lot of courage to oppose slavery in, say, 1855. It takes zero courage to oppose it today. This is one reason I am convinced that those who are most ostentatious in their aversion to slavery in 2013 are the least likely to have opposed it at the time. Their excessive eagerness to disassociate themselves from perceived “extremism” would not have served them well in the 1850s, when abolitionism, which had zero electoral success, was the most notorious extremism of the day.

Who in 2013 ever found himself dismissed from his post, or held up to scorn, for opposing slavery?

The most recent case is Jason Kuznicki, who unbosoms to the world his views on the War Between the States in a recent column. Among other things, Kuznicki writes: “Anyone who cares about human liberty — to whatever degree — ought to despise the Confederacy, ought to mock and desecrate its symbols….”

Here, it seems to me, Kuznicki falls into the trap most left-liberals and neoconservatives fall into: he conflates government and society. Here’s what I mean.

The grotesque atrocities carried out during the war against a defenseless civilian population are too well known to need repeating. And unless we are going to fall for the crazy collectivism of the Randians, who claim to be individualists while speaking of “terrorist countries,” there were indeed innocent people in the South. If we look the other way at the butcheries to which they were subjected, we are no better than Donald Rumsfeld and his fake concern for collateral damage in Iraq.

If a man gave his life defending his home against invaders, who should care about the intentions of his government — of all things? He protected his family, and there is, therefore, nothing wrong with his descendants honoring his memory. It would be strange if they didn’t.

Did the southern secession have something to do with slavery? Obviously. I see no reason not to take the secessionists at their word, and we are being dishonest if we do not acknowledge the references to slavery in the secession documents. But the war? The war was fought to prevent the secession, not to free the slaves. People who took up arms in the South did so because they were being invaded.

What exactly was a man supposed to do when Union armies went about setting fire to his town? “Mr. Union soldier sir, I realize that I fall under your righteous wrath because of the geographical region in which I happen to reside, and because the rulers who — through no influence of mine — have come to rule this place have been said to have disreputable goals. Please do kill me on the spot, and burn all the buildings, and leave the children to scavenge for food — even cats, dogs, and rats. I deserve this because of what my government has done.”

Leave aside all the insufferable 21st-century respectable libertarian speechifying. It is not libertarian to expect someone to have said something as preposterous as this. People fighting to repel invaders are not automatons of the regime under whose banner they fight. They have their own reasons for doing what they do — not seeing their families tortured or starved to death being one of them.

It is also interesting to consider, as Clyde Wilson observes, the southerners who returned to the South from the North and West, so that they might share the southern people’s fate during the war. Kentucky’s Simon B. Buckner gave up a fortune in Chicago real estate; George W. Rains of North Carolina left a prosperous iron foundry he had established in Newburgh, New York; Alexander C. Jones of Virginia resigned a judgeship in St. Paul, Minnesota, where he had lived twenty years; Joseph L. Brent of Louisiana gave up a lucrative law practice and leadership of the Democratic Party in Los Angeles. We are to believe that these people, and countless others besides, dropped everything and put their prosperous lives on indefinite hold in order to go fight for slavery? Who could be so blinded by prejudice as to persuade himself of such a ridiculous proposition?

Readers at Rachel Maddow’s level will take what I am saying as a defense of the Confederacy. I don’t defend any government, as anyone who glances at my work for five minutes can see, so it would be rather odd for the Confederacy to be the one government in human history for which I make an exception. My political philosophy is available for anyone to examine.

What I am saying is that life is nearly always more interesting than a Washington policy wonk thinks — and thank goodness for that! It is not right, and ludicrously at odds with the libertarian spirit, to conflate government with the individuals who must live under it.

Do I stand to gain anything by writing this? Unlike Kuznicki, I say things that go against the grain even though I know they will yield me nothing but grief. I hope this means I would have opposed injustice when it counted and when it might have done some good, and not just 150 years later, when I safely say what everyone thinks, to the applause of the world.

Reprinted with permission from TomWoods.com.

The other day, an aide to a prominent American politician was the subject of an attack in the major media. Why, this person has said some things that all right-thinking people oppose! When he was a radio host, he was provocative! We’ve never observed this phenomenon before! And he thinks there might be some kind of objection to the Lincoln regime! Why, he must support slavery!

(Cue my interview with a zombie.)

Now there are perfectly good reasons one might have to oppose the Lincoln regime. Lysander Spooner opposed it, and Spooner supported John Brown. (I suppose Spooner supported slavery?)

A few thoughts off the top of my head:

(1) Lincoln was a man of his time, which means he viewed large, centralized states as self-justifying goals. This was the age of centralization in Italy, Germany, and Japan, after all. Yes, large, centralized states can abolish slavery. They can also wage horrifying wars, carry out genocides, and erect massive police states. As many people were killed in World War I, the first great war of the world’s centralized states, as there had been slaves in the South.

(2) The precedents set by Lincoln during the war have been exploited ever since by left-liberals and neoconservatives, who are all too glad to respond, when you object to some enormity of the War on Terror, “Why, even Lincoln did these things!”

(3) In every other country in our hemisphere in which slavery was abolished in the nineteenth century it was done peacefully, without 1.5 million people dead, wounded, or missing.

(4) The Lincoln legacy involves glorifying wars of nationalism and demonizing efforts at secession, wherever they may be and whatever the circumstances. To this day, Americans are taught to sympathize with central governments trying to keep territories from breaking away, and to look with disgust at smaller units seeking self-government.

(5) Lincoln is the creator of the centralized, imperial regime under which we live today, which is the real reason left-liberals and their neoconservative cousins will brook no criticism of the sixteenth president.

Now I am about to quote one of those Wicked Southerners, which will of course make me suspect of longing for slavery, but Robert E. Lee told the great libertarian Lord Acton in 1866 that “the consolidation of the states into one vast republic, sure to be aggressive abroad and despotic at home, will be the certain precursor of that ruin which has overwhelmed all those that have preceded it.”

If you are wondering how we got to our present condition, ponder that statement. Then consider the possibility that the great fratricidal war of American history might in its ultimate significance have amounted to something other than the cartoonish struggle of saints and sinners we encounter in the New York Times, or from so-called libertarian institutes.

There is much, much more that can be said about all this, but I’ve now reached my destination: what I find so interesting is the reaction by what we might call “official libertarians,” or what Lew Rockwell calls “regime libertarians,” to the attacks on this person. Now this person has said nothing that Walter Williams, whom these very libertarians fawn over, hasn’t said at one time or another. This person is consistently antiwar, which is more than we can say for many of the people with whom official libertarians consort.

But with attacks like this flying around, official libertarians do not miss the opportunity to inform the world — a world awaiting their announcements with bated breath, of course — that they themselves hold all the approved opinions about events in American history. Moreover, the opinions they hold today, while different in many ways from those of the New York Times, are still within the range of allowable opinion. So please, please do not include me in your condemnations, oh Mr. Nice Media Person, sir.

Read the rest of the article

Listen to the podcast

ROCKWELL: At the recent Mises University, Tom Woods gave quite an extraordinary talk on the anti-Rothbard Cult within some parts of the Libertarian movement. This talk is so important, so compelling, so extraordinary, so fascinating, moving, thrilling – what else can I say about it? It’s an extraordinary talk, even for Tom Woods, who, of course, is one of the great speakers of our time. So I can’t recommend this talk to you enough. You’ll love it. You’ll find it fascinating. And it’s educational in the best sense.

Tom Woods, thanks for doing this.

WOODS: So this being the evening session and it’s optional, it means I can get away with saying things that I wouldn’t say during the formal sessions. Because, remember, after all, that Austrian economics is descriptive rather than prescriptive. It’s positive rather than normative. It’s describing social phenomena but it’s not saying, therefore, you ought to do X or Y. So it’s not really right to be giving lectures on – to talk entirely about Libertarianism because you could be – you know, as Walter Block points out repeatedly, you could be an Austrian economist and be a Totalitarian Socialist because you know that the free market yields social harmony, but you hate mankind –

(LAUGHTER)

– so you want to impose Socialism. That is possible. So I don’t want – for all you Totalitarian Socialists –

(LAUGHTER)

– who applied to the Mises University, I don’t want to offend you. But this being –

(LAUGHTER)

But this being the after-hours session, I can sort of get away with some of that.

I want to really – in talking tonight, I want to inoculate you against kind of a cult that’s out there. There is a cult out there in the Libertarian world, and I call it the cult of anti-Rothbard. And you will encounter this – I’m not going to name names. I’m not going to name places or institutions because that’s not what I’m here for. I just want to talk about ideas and a great man.

But it’s a cult of anti-Rothbard. Because you will encounter people who will be delighted to tell you all about the times they met Milton Friedman. Oh, my goodness, I meet Milton Friedman; I served him dinner; I sat next to him; I paid his bill – whatever the story is.

(LAUGHTER)

They’re all thrilled to tell you their story about Milton Friedman. And you begin to realize that, with some people, there are only three Libertarians in the whole world. There was Hayek, sometimes.

(LAUGHTER)

Hayek is OK sometimes, but let’s never mention his actual economic contributions. So nothing from the ’30s, no pure theory of capital in the early 40s, none of that, none of the stuff he won the Nobel Prize for. We don’t want to talk about that. But we’ll talk about things about Hayek. Hayek, sometimes. But basically, it’s Milton Friedman and John Stossel, and that’s the Libertarian panel.

(LAUGHTER)

Now, that is not to take away from Milton Friedman or John Stossel. I mean, for example, it must have been very, very difficult for John Stossel, being with ABC, and trying to say anything remotely Libertarian year after year. So I do respect that contribution.

And likewise, we all know and, perfectly well, happier to concede that Milton Friedman was quite good on some things, and was a very good debater, and could present many of the ideas of a free society very, very effectively, and could win converts. Nobody takes any of that away from him.

But it’s very odd to me that you would have someone as accomplished as Murray Rothbard, who basically created the Libertarian movement as we know it, who was known as Mr. Libertarian, and there is absolute silence about him. It’s not that for every 100 times Milton Friedman is mentioned, Rothbard is mentioned only once. I started to say that to Lew once in an interview I did. I interviewed Lew on his own podcast once. And I stopped myself, and I said it’s not for every 100 mentions of Friedman, it’s one of Rothbard; it’s for every 100, it’s zero. It’s like what is happening here? Well, I can’t speculate as to what the motives are. I’ve got some thoughts. And maybe at the end I’ll share them with you, or especially if I have a few drinks tonight, I’ll definitely share them.

(LAUGHTER)

But let’s just think about the contributions of this guy. All right? And then you’ll see how creepy this cult is. I mean, the fact that this guy’s got all these contributions, and you still pretend he doesn’t exist, it’s starting to – it creeps me out. Man, Economy, and State – all right, so he writes Man, Economy, and State, this thing – all right, so it’s about, what, like 1,000 pages, even if you don’t include Power and Market. You should includePower and Market. Then, it’s on the order of 1,400 pages. You look at this thing closely and you can see that Rothbard was deeply steeped in the literature, the economic literature. He was reading the mainstream journals. He was interacting with them. And, in fact, it’s interesting to note – I think Joe points this out in his introduction – that, in fact, Rothbard very infrequently even uses the term “Austrian economics” in that book. And when he does use it, it’s in quotation marks. It’s so-called Austrian economics, because what he’s trying to teach is just economics. He is trying to engage the profession and steer it in a particular direction. So he knows. He’s not just some kid, you know, who studied under Mises and learned some funny one-liners or something. He absorbed what he learned from Mises. He built on what he learned from Mises. And he also knew what the profession was saying. And this particular book plays a central role in the history of the modern Austrian school. And it’s written in a beautiful, elegant style. It’s written with the tone of a scientist. It’s not written as a polemic. And it’s something that you – you feel a sense of accomplishment just reading it. Well, imagine what it was like writing it. We’ll, he wrote it – he started writing it in his late 20s, and then it came out when he was 36 years old. Now, I’m turning 40 next week, and that’s really depressing me very much.

(LAUGHTER)

So I insist this week, I want you to ask me repeatedly how old I am, so I can say “39″ the last few times.

(LAUGHTER)

But I remember when I turned 36, I thought to myself, well, guess no big treatise for me. My 36th year has come and gone and there was no – all right, so if he stopped there, we would say, well, that’s a pretty good job, right? Most people go through their lives not writing original pioneering economic treatises, right?

(LAUGHTER)

That’s good. But he also, in that same year, published The Panic of 1819, which is more of less his doctoral dissertation for Columbia University. The Panic of 1819, a case study, a real study of an episode in U.S. history. And this book, if you look at the major historical journals, the American Historical Review, all of these historical journals, they all praise this book unreservedly. This is the definitive work. And it gave me great pleasure years ago in grad school – I was reading a book on Jacksonian America, and in the bibliographical essay, it said, “For the Panic of 1819, see Murray Rothbard’s book, The Panic of 1819, which is likely to remain definitive.” And I thought, well, good. See, it goes to show, he – again, he interacted with the mainstream. He made real contributions that were appreciated and recognized.

But that was not always so. 1963 came America’s Great Depression. Now, that was the same year of the Friedman and Schwartz book, The Monetary History of the United States book. And that book got all the attention, but particularly the sections involving – the part involving the Great Depression got a lot of attention. Rothbard’s book did not get that much attention. Yet, today, it’s in a fifth edition. And the fifth edition has a forward by Paul Johnson, the British historian, sort of iconoclastic, sort of conservative British historian. And it was he who recognized the merits of this book when he wrote his – I think it’s a terrific book by Paul Johnson, Modern Times: The World from the Twenties to the Eighties. Now, I recommend, by the way, if you ever read that book, don’t get his later edition, The World from the Twenties to the Nineties. Just get the Modern Times, up through the ’80s. Because, in the ’90s, then he starts supporting the Iraq War. And, yes, it’s terrible. Neo-Con, terrible. But the rest of it is pretty good. And he recognized the importance of the Rothbard book.

Basically, Rothbard was saying that the Federal Reserve was to blame for the crash. And then, subsequent economic policy by the government is to blame for why the depression itself went on so long. And it does this – he’s performing two revisionist tasks in this book. The better-known one is that he’s showing that Herbert Hoover was not actually just sitting back doing nothing like some dufus and, while Depression is washing over the country, he’s just sitting there. If only that had been the case. To the contrary, he’s intervening in all different areas, as many of you know. That was an innovation, historically speaking. But secondly, to go back and trace out Federal Reserve policy in the 1920s and to identify inflation that was ongoing, this is also a contribution. Now, he wasn’t the first one. There’s a book from ’37 that does a little bit of analysis like this. Lionel Robbins had an Austrian view of the Great Depression in 1934, called The Great Depression, but that was more looking at Europe than the United States.

But still, to say that the Fed did it but not for the reasons that Friedman says the Fed did it – it’s not that the Fed didn’t just create enough money. In fact, that was not the explanation. That was the issue that the 1920s were fine and tranquil, but the problem was that once the downturn came the Fed didn’t do enough to increase the money supply when there was a collapse of the money supply by about one-third. Rothbard won’t have any of this. And he goes and counters all of this.

Well, this is very important. And why is this important? Well, for one thing, it’s important to tell the truth. But secondly, right now, today, with the Austrian School getting all of this attention, well, now, naturally, what are people going to ask? What are people going to ask after the Austrian school is now getting some attention because our people disproportionately predicted the crisis? People are going to ask, well, how did you know? And did you predict other things? Is this just some one-off fluke? Did you just happen to have a crystal ball or tea leaves or a deck of Tarot cards for this case, but you were clueless on the other ones? Because of the contributions like America’s Great Depression, The Panic of 1819, we can see that there are Austrian explanations to these earlier things. And this is driving the establishment crazy that now, suddenly, there’s an interest in the Rothbardian view, not only of current events but also the Great Depression.

I just made a video on my YouTube channel against David Frum. And those of you who are from Canada, you have a lot of explaining to do. All right?

(LAUGHTER)

Take this guy back with you on your way out.

But David Frum was so upset the other day. He said, I can’t believe how many conservatives now have moved from believing in Milton Friedman’s view of the Great Depression over to – he can’t bring himself to say Rothbard, so he said Mises’ view of the Great Depression. And this just appalls him. Now, for one thing, if only most conservatives in America even knew who, you know, who Milton Friedman was, much less Murray Rothbard.

(LAUGHTER)

I mean, I think we are giving these people a little bit more credit then they have shown they deserve, I mean, with their Operation Desert Storm hats and whatever else.

(LAUGHTER)

But secondly, of course, the key thing is not just that it annoys him but the fact that this is happening on a scale that it would come to the attention of a David Frum that there are young people, probably not in the conservative movement, naturally, but there are young people who are interested in these alternative explanations. Well, there wouldn’t have been one if there hadn’t have been a Rothbard. Rothbard did that. And at the time, he got – this was published to very little fanfare, and it never bothered him. Never bothered him. He had a much smaller audience than the merits of this man demanded, and he just carried on.

We have here a publication, a book called Economic Controversies, a collection of a lot of Rothbard’s scholarly articles. Well, that’s great. I mean, these are wonderful articles and they’re all great contributions, too. Then I love the book of essays,Egalitarianism as a Revolt Against Nature. In there, you’ll find two essays that are absolutely mind blowing in a book that’s mind blowing. But War, Peace, and the State is absolutely pioneering on Libertarian theory of foreign policy, number one. And then Roderick has built on that. And then, secondly, Anatomy of the State. You’ll never look at the world the same way again after you read those things. And these are just a couple of essays. Again, if somebody wrote just those essays – well, people have been spinning out thought based on that ever since he did those – that would be considered a contribution. He wrote a two-volume history of economic thought, so he knows pretty much what everybody who ever said anything about economics ever said. And he can evaluate it and critique it. I mean, you know, believe it or not, there are some people who would be impressed by that.

(LAUGHTER)

Now, this is a pretty smart guy. Maybe I should talk about him. Not if you belong to the cult of anti-Rothbard. You are not to mention this man. Not to mention him, Citizen! Look the other way!

(COMMERCIAL BREAK)

WOODS: Then, as a spare-time project, he writes a four-volume history of Colonial America, called Conceived in Liberty. Now, the institute has now put that out as a single volume, which I think they did partly because they have a good sense of humor. Because if you look at the size of this thing – (laughing) – it’s like they’re looking to set the world record or something. You won’t believe the size of this book. But if you look at how conversant he is with the secondary literature of Colonial America, it’s unbelievable. The guy’s an economist who has so mastered the Austrian school that by the time he was 36, he wrote a pioneering treatise 1,000 pages long, but he also knows so much about Colonial America, and then foreign new liberties, like The Libertarian Manifesto, from the early 1970s. And here at the Mises Institute, you can actually listen to that for free on audio book, if you look at the Mises media section. The Ethics of Liberty, a work of philosophy, extending the Lockean self-ownership principle and spinning out what its implications are. And then we have smaller works like – I like this one called Wall Street, Banks, and American Foreign Policy. This is a thing that he wrote for an investment newsletter, like a 20,000-word essay for an investment newsletter. Maybe it had 200 subscribers. And it was never seen again until somebody found it in the archives and it was published. I mean, this gem would have just been lost forever. I mean, who knows how many things like this he wrote that we don’t even know about. So he wrote zillions of articles on top of it. He wrote a book on education, the history of education; The Mystery of Banking, on how banking works. Of course, you guys have read What Has Government Done to Our Money?, which is a great classic. He wrote chapters in books. He edited The Libertarian Review. He edited Left and Right. He founded and edited The Journal of Libertarian Studies. He founded and edited The Review of Austrian Economics. He was also a movie reviewer; wrote a zillion movie reviews. He kept up correspondence with a whole bunch of people. We’ve got the archives to prove it.

Now, if you heard about a guy like this, pioneering in so many areas and extending Libertarian insights into so many areas, would your first instinct be, “I better not ever mention this man”? Like, there’s something deranged about this, right? I mean, like there’s something not right in the head. If you were to say, now this guy, nah. Nah. Nah.

(LAUGHTER)

I just want to talk about – I don’t want to mention names – but lesser figures, we’ll say.

Now, I think back to my own experiences with the guy, which were very limited. I only met him about four or five times, but memorable, obviously, you meet somebody like this. And by the way, I should point out, obviously, I’m not saying that anybody in this world is infallible or that you have to kneel down before his image and kiss it or pray to him or any of this. This is a ridiculous caricature. No one has ever said this. But the same thing with Mises or any other great man, you should admire a great man, right? It doesn’t mean every single word you have to agree with. But you should admire a great man. It’s just simple.

But I remember I got to meet him at the Mises University program in 1993 and in 1994. And he came out – Mises U., 1993 – he gave the opening-night lecture. He gave the lecture that Bob Higgs gave the other night. And he was talking about a whole bunch of things. He started off talking about the Panic of 1819. Now, I didn’t know he had written a book on this. So he started off by saying, “I’m the world’s foremost expert on the Panic of 1819.” And I thought, my gosh. Boy, this guy’s got a big head.

(LAUGHTER)

Then he said, “Because I’m the only one who’s ever written a book on it.” And he laughs, cackles.

(LAUGHTER)

And goes on. And then the next time – and then I met him at a conference later that year. So Mises U., 1994, I’m standing there talking to some students and Rothbard walks in and he waves and says, “Hi, Tom.” And I just – yes, that was Murray Rothbard waving to me.

(LAUGHTER)

Hey. How are you doing?

(LAUGHTER)

At that event, actually, at one point, we were having a conversation, and I said, “Now, Professor Rothbard, I’ve always wanted to ask you” – and he said, “Oh, call me Murray.” You know, I just don’t think I can. I mean, thanks –

(LAUGHTER)

– I appreciate that but I just – that’s just not going to happen.

But I remember, Lew called me, Lew Rockwell – or he e-mailed me in December, 1994, and said – because Murray maintained two residences. He was out in – I can call him Murray now that he’s gone because I don’t feel so intimidated anymore. But out in Las Vegas, he had a place, and then, in New York, he kept his apartment. So he was going to be in New York over the holidays. And Lew said, “Murray, would like to get together with you. Here’s his number. Give him a call.” And it was kind of like how you feel like the first time – I’m sure I’m the only guy who has ever done this – but the first time you call up a girl on a date, like, you write out the thing that you’re going to say or whatever.

(LAUGHTER)

Because, like, what if I draw a blank? This would be a disaster.

(LAUGHTER)

So I did that. But, of course, with Rothbard – of course, he would fill in all the blanks, right? Ah, da, da, da, da. I’m very glad to talk to you. But, of course, that was not to be. You know, I did talk to him on the phone but then he passed away in January in ’95.

Now, I think back though about things that he sort of taught me. And it’s not just the stuff that I could learn reading the books. It’s also about how to live as a human being and how to be a scholar. And one of the things that everybody concedes about him – even the people who can’t bring themselves to mention his name – if they did mention his name, they would never claim that he was arrogant. No one ever said that – they would say other things about him. They’d never say he was arrogant because everybody would know that’s a lie. I mean, Rothbard was so interested. He was convinced that the world was just such a fascinating place. There were things to be learned everywhere. And people’s brains were full of nuggets that maybe he could extract somehow. He could learn from everybody. And so you would be some dumb student – well, present company excepted, you understand?

(LAUGHTER)

But, you know, you’d just be some kid, right, and he would listen to you respectfully. You know, none of this air of, you know, “I’m Murray Rothbard. How dare you – you’re not even worthy to walk on my ground or ” – none of this stuff. And then he would encourage people. If he saw any glimmer of interest in anything, he would encourage it. He would build people up. I mean, Walter carries on that tradition today with his students. If he sees any inkling of literacy at all among people –

(LAUGHTER)

– he says, you know, man, you’ve got – you might be the next Mises.

(LAUGHTER)

Well, he doesn’t quite –

(LAUGHTER)

He doesn’t quite do that. But the point is he encourages. And that was how Rothbard was.

I remember particularly, so there I am, 1994, it’s an event that the Mises Institute is putting on, commemorating the 100th anniversary of the birth of Henry Hazlitt, and they had an event in New York City. Now, I was living in New York City at that time for grad school, so I went. It was incredible. I just get on the subway and I go to a Mises event. Unbelievable. And I sit down, and then later in the program, who walks in but Rothbard, and he sits right next to me. So I thought, geez, this is just keeps getting better and better all the time. So then he’s sitting there listening. And he’ll make little side comments during people’s talks – ah, da, da, da, da – which is sort of like what David Gordon does today.

(LAUGHTER)

Except you could repeat to your mother the things that Rothbard said.

(LAUGHTER)

But I specifically recall, I mean, just how – what a genuine, regular guy he was. Like, here’s a guy who had written – done theoretical work on the subject of punishment and proportionality. If you commit a crime, what is the appropriate punishment for that crime? It’s super, super sophisticated stuff. And then there he is at this Hazlitt event, and he – this was right around the time that Jeffrey Dahmer was in the news. You know, Jeffrey Dahmer was the – you guys are too young to know this, maybe. But he was a serial killer who ate his victims. Like, there would be body parts in the refrigerator. It was horrible. And he was killed in prison. The other prisoner just said, look, you know, we’re pretty rotten, but that –

(LAUGHTER)

– you just can’t do that. And so Rothbard leaned over to me at one point and said, “Oh, by the way, did you hear about Jeffrey Dahmer? They got him.”

(LAUGHTER)

Come on. It’s a regular guy. He’s a regular guy.

But another aspect of this lack of arrogance is that he – I heard this rumor about him that he would correspond with you, even if you were just some schmo. You wrote him a letter, he would write back to you. Where he found the time, I don’t know. But he would write back to you, even if you’re some schmo. And I thought to myself, I’m going to test out this theory. I’m some schmo.

(LAUGHTER)

Let’s see if he writes to me. So I wrote. Actually, I wrote to him because I had read somewhere about this pamphlet by Robert LeFevre about the transformation of the American Right and the evolution of U.S. foreign policy during the Cold War, and I thought, this would be great. I would love to get this but where in the world would I find a pamphlet from, like, 1964? So I wrote to Rothbard. All right, let’s see if this guy is going to write back. Not only did he write back to me, but he sent me two copies of the pamphlet.

(LAUGHTER)

And so, in our anthology I did with a friend of mine on the left, which you can find in the book store here, We Who Dared to Say No to War, we reproduced this pamphlet. So it now sees the light of day. Now, it will be immortal. And it’s great. It’s because Rothbard wrote back to me. And I probably wouldn’t have written back to him if he had been – if it had been reversed. I’m too busy. How could I do it? And yet, he did a simple little thing. He was not discouraged, as I said, by the size of his audience. Now, he should have had a gigantic audience. I mean, this is – again, a guy with one-tenth of these accomplishments could retire with pride. And yet, this was before the Internet and this was an age of even more statist outlook than we have now, because at least now we have more people who have come out. More of the remnant is visible because of Ron Paul. And yet, this didn’t bother him. It didn’t occur to him, well, if I keep writing these books, maybe not that many people would read them. He couldn’t have known that there would be a day like today when – I don’t know – a gazillion people can read his stuff for free all over the world any time of the day or night. And they want to, because they realize, whoa, this guy, who has been kept from me – no wonder he’s been kept from me. Like, there seems to be some rule in the world that the most awesome things are always smashed and criticized by the bad guys. Well, this guy is like the awesomest of the awesome. And now there’s this – if there was an attempt to try to remove him, to erase him from history hoping that the young people wouldn’t discover him, it has failed abysmally. Everybody wants to be a Rothbardian. I mean, what is the coolest Libertarian shirt there is? It’s the “Enemy of the State” shirt, which, by the way, the institute has now made in a different kind of style so you don’t have that sort of plastic white Rothbard head on a black shirt on a summer day, so it’s little easier to wear. So buy a second copy of that shirt.

(LAUGHTER)

Get a second one.

So that’s one thing that I liked. He also felt that he could – when I say that he could learn from everyone, I don’t just mean that he thought everybody had some nugget of knowledge, because probably that’s not really true. But what I also mean is –

(LAUGHTER)

– even if somebody might have disagreed with him on something important, well, that doesn’t mean – well, this guy disagreed with me on something important, so he’s probably a horrible person who should never be listened to or talked to. And yet, there are people in the Libertarian movement today who will treat you like this. They think you’re wrong on two or three things, you are like an un-person. That was not Rothbard’s view at all. There’s just too much for me to learn. So he was perfectly willing to learn from people on the left. So what? So what? You know, people have insights. And these insights are not evenly distributed. And I’ve got to find them. And find them, he did.

But I think the thing that you learn the most from the cult of anti-Rothbard, though, is that you will have enemies. If you take any position whatsoever in public life, it is absolutely unavoidable that you will have enemies. Now, I thought that I would be exempt from this. When I wrote –

(LAUGHTER)

I know. It sounds stupid and naïve. But I thought, when I wrote The Politically Incorrect Guide to American History, I – honest to goodness, this is the absolute truth – I thought to myself, well, people might not agree with me, but as long as I put forth my views sincerely and as persuasively as I can, then they at least have to respect me.

(LAUGHTER)

So, in case you were thinking that, that’s not going to happen. But particularly, think of it this way. If Rothbard had enemies among Libertarians, what hope is there for the rest of us? You just have to accept it. You have to just – (laughing) – live with it and move on. And don’t dwell on it. Don’t spend your life bitter, dwelling on every angry blog comment or – I mean, just don’t do it. Rothbard wouldn’t have done that. He spent his life in laughter; laughter, cackling laughter. That’s what you should do. And I say this as somebody who – initially, when I started getting attacked. I go, oh, my gosh, I’ve got all this damage control to do. You know what? I sleep so wonderfully and soundly at night, not caring anymore.

(LAUGHTER)

So ultimately, then, what I am recommending is to resist the cult. Now, as I say, you’re going to encounter this everywhere. Not everywhere. But in big, influential places, no mention of this man. I don’t care that you disagreed with some strategic decision he made 20 years ago or 30 ago, I don’t care. How unbelievably, disgustingly petty would you have to be to say, well, gee, I don’t know, he shouldn’t have allied with that small group of seven leftists because he was desperate and there was no Libertarian presence anywhere in the world so, therefore, today, I should never talk – you know, a guy who writes – what? I don’t know – 20 million words? You’re going to put all that aside? I don’t believe that’s the real reason. They’ll come up with all these phony-boloney reasons. I am convinced the real reason, at least a good 80% of it, is just sheer envy. And you may be skeptical of this explanation. And I would have been 10 or 15 years ago, too. I would have been skeptical. But as I’ve grown older, and as I’ve observed people, I see that envy plays a much bigger role in the world than I ever dreamed. And there are a lot of people in the Libertarian world who have not been as successful as Murray Rothbard. Like everybody, for example.

(LAUGHTER)

But some of us are at peace with that. Some of us say, he’s a great man, I’m not a great man, but I’m at peace with that; I’m doing what I can with the talents that I’ve been given. And that’s all you can ask of yourself.

But there are some people who feel like they can build themselves up only by tearing other people down, and in this case, erasing them from existence. Well, I would say to you, don’t let them get away with this. In fact, to the contrary, there is now a positive – we are positively compelled to mention, to break through this black out and give this man his due, not simply because one man deserves it as a matter of justice, but because the cause of freedom will be all the more readily pursued if the ideas of Rothbard are shining through. Join me against the cult, everybody.

Thank you very much.

(APPLAUSE)

ROCKWELL: Thanks so much to our sponsor, who brought you this episode of the Lew Rockwell Show.

(COMMERCIAL BREAK)

ROCKWELL: Well, thanks so much for listening to the Lew Rockwell Show today. Take a look at all the podcasts. There have been hundreds of them. There’s a link on the upper right-hand corner of the LRC front page. Thank you.

Podcast date, July 31, 2012

The Best of Thomas Woods

Last week, Michael Lind posed what he thought was a devastating question for libertarians: if your system is so good, why aren’t there any libertarian countries?

This was more a funny question than a difficult one, since while Lind really seems to have thought he’d gotten us good, the question is one libertarians themselves address constantly. By rephrasing his question, I teased out the answer:

(1) “If your approach is so great, why doesn’t local law enforcement want to give up the money, supplies, and authority that come from the drug war?”

(2) “If your approach is so great, why don’t big financial firms prefer to stand or fall on their merits, and prefer bailouts instead?”

(3) “If your approach is so great, why do people prefer to earn a living by means of special privilege instead of by honest production?”

(4) “If your approach is so great, why does the military-industrial complex prefer its revolving-door arrangement and its present strategy of fleecing the taxpayers via its dual strategy of front-loading and political engineering?”

(5) “If your approach is so great, why do businessmen often prefer subsidies and special privileges?”

(6) “If your approach is so great, why do some people prefer to achieve their ends through war instead?”

(7) “If your approach is so great, why does the political class prefer to live off the labor of others, and exercise vast power over everyone else?”

(8) “Special interests win special benefits for themselves because those benefits are concentrated and significant. The costs, dispersed among the general public, are so insignificant to any particular person, that the general public has no vested interest in organizing against it. An extra 25 cents per gallon of orange juice is hardly worth devoting one’s life to opposing, but an extra $100 million per year in profits for the companies involved sure is worth the time to lobby for.

“If your approach is so great, why does this happen?”

(9) “If your approach is so great, why don’t people want to try it out, after having been propagandized against it nonstop for 17 years?” (K-12, then four years of college.)

Now we have E.J. Dionne, who’s come along to remind everyone why we need our overlords. He thinks Lind’s question is a super one, too. I will have plenty to say if I confine myself to this one Dionne paragraph:

We had something close to a small-government libertarian utopia in the late 19th century, and we decided it didn’t work. We realized that many would never be able to save enough for retirement and, later, that most of them would be unable to afford health insurance in old age. Smaller government meant that too many people were poor and that monopolies were formed too easily. And when the Depression engulfed us, government was helpless, largely handcuffed by this antigovernment ideology until Franklin Roosevelt came along.

Every aspect of this statement is false.

In the nineteenth century there was no such thing as “retirement,” so no one would have said, “Under this system, people won’t be able to save enough for retirement!” Only continued capital accumulation, which occurs when businesses may reinvest their profits in the purchase of capital goods without being expropriated by government, made it possible for the economy to become physically productive enough for something like “retirement” even to become conceivable. Even when Social Security was established, the retirement age was higher than the average life expectancy, meaning most people would be dead before they could get any of their money back.

As for health insurance in old age, this too is belied by the facts. “Most of the government’s medical payments on behalf of the poor compensated doctors and hospitals for services once rendered free of charge or at reduced prices,” writes historian Allen Matusow. “Medicare-Medicaid, then, primarily transferred income from middle-class taxpayers to middle-class health-care professionals.”

And what made health care so costly in the first place? Not the “free market,” which Dionne himself would admit hasn’t been anywhere near health care in anyone’s lifetime. Vijay Boyapati provides a big chunk of the answer.

Dionne then says, “Smaller government meant too many people were poor.” This is flat-out idiocy. The greatest gains against poverty in the United States occurred when government was least involved. In 1900, the poverty rate by today’s standards was 95 percent. By the time the federal government got involved in poverty relief in a non-trivial way, in the late 1960s, that figure had already plummeted to between 12 and 14 percent, where it has remained to this day. There’s a good discussion of all this inBack on the Road to Serfdom, a collection of essays I edited for the Intercollegiate Studies Institute.

Since government got involved, the poverty rate has stagnated. Trillions of dollars have been spent, yet the figures won’t budge.

So the truth is exactly the opposite of what Dionne claims. Government has done a rotten job of alleviating poverty. The natural operation of the market is what has come as close as any institution can to conquering it.

Read the rest of the article

The Best of Thomas Woods

For some reason, the finger-waggers at Salon think they’ve got us stumped with this one: “If your approach is so great, why hasn’t any country in the world ever tried it?”

So this is the unanswerable question? What’s supposed to be so hard about it? Ninety percent of what libertarians write about answers it at least implicitly.

Let’s reword the question slightly, in order to draw out the answer. You’ll note that when stated correctly, the question contains an implicit non sequitur.

(1) “If your approach is so great, why doesn’t local law enforcement want to give up the money, supplies, and authority that come from the drug war?”

(2) “If your approach is so great, why don’t big financial firms prefer to stand or fall on their merits, and prefer bailouts instead?”

(3) “If your approach is so great, why do people prefer to earn a living by means of special privilege instead of by honest production?”

(4) “If your approach is so great, why does the military-industrial complex prefer its revolving-door arrangement and its present strategy of fleecing the taxpayers via its dual strategy of front-loading and political engineering?”

(5) “If your approach is so great, why do businessmen often prefer subsidies and special privileges?”

Read the rest of the article

June 5, 2013

The Best of Thomas Woods

I keep getting emails from something called the Institute for Communitarian Policy Studies. They are written by Amitai Etzioni. Communitarianism is supposed to represent a radical break from the current political spectrum.

Sure.

Here are a few communitarian precepts, as I understand them:

(1) Rights do not exist in the absence of government. Therefore, when government expropriates you and transfers your property to someone else, you have no grounds for complaint. Had there been no government, you would have no rights at all. Be happy with what you are permitted to keep.

(2) In many areas of life, public-private partnerships are desirable.

(3) Communitarians believe in “community,” but by this they do not mean your town, your local civic group, or any of the local, flesh-and-blood institutions people associate with community. At least as articulated by Etzioni, the only “community” to which communitarianism makes reference in practice is the nonexistent “national community,” a soulless abstraction. In the name of this “community,” we ought to treat individuals’ property as if it is entirely at the disposal of the political class, so that we may promote the “common good.”

What brave pioneers these communitarians are! Take a moment to catch your breath, now that you’ve seen just how radical a departure this all is from conventional thought.

Although Etzioni flatters himself as being beyond the left-right spectrum, he is not quite correct: he is exactly in the middle. He is a “vital center” liberal of the Truman/Schlesinger variety. That means he is wrong on everything, both domestic and foreign.

Thus his most recent piece is on why impeachment of the president should be more difficult. More difficult! We’ve had a grand total of two impeachments in over 220 years, and this is just too darn many!

Read the rest of the article

The Best of Thomas Woods

DIGG THIS

So much to read and learn, and so little time. Thanks in no small measure to the energy that Ron Paul’s candidacy unleashed, more people than ever are eager to cut through the propaganda and uncover the truth. But where to start? And how can you get the most out of the time you have to devote to reading and study?

I put together the resources that follow as my way of answering these questions. I’ve included books (many in free online versions) and articles, as well as audio and video files that are also free. For the current crisis, see especially The Bailout Reader. Take a look also at the reading list Dr. Paul includes in his book The Revolution: A Manifesto. Many of these titles also appear in the categories below: economics, sound money, foreign policy, the Constitution, and civil liberties.

Can we read our way to freedom? No, but we cannot be effective activists in the Ron Paul tradition unless we know some economics and history, and the various depredations, foreign and domestic, of the regime.

Economics

These three books, all relatively short and available online or for purchase, are an excellent starting point for an education in sound economics.

Economics in One Lesson by Henry Hazlitt; online here Essentials of Economics by Faustino Ballv; online here (.pdf) An Introduction to Austrian Economics by Thomas C. Taylor; online here and here (.pdf)

A useful companion
to Hazlitt’s Economics in One Lesson is this
series of videos, recorded in July—August 2008, in which various
professors comment on each of the book’s chapters — explaining the
argument, elaborating on it, and applying it to present conditions.

Video 1: The Lesson
Video 2: The Broken Window
Video 3: Public Works Mean Taxes
Video 4: Credit Diverts Production
Video 5: The Curse of Machinery
Video 6: Disbanding Troops and Bureaucrats
Video 7: Who’s Protected by Tariffs?
Video 8: “Parity” Prices
Video 9: How the Price System Works
Video 10: Minimum Wage Laws
Video 11: The Function of Profits
Video 12: The Assault on Saving

Additional Introductory Reading in Economics

The Revolution: A Manifesto by Ron Paul, ch. 4; the audiobook is here

The Concise Guide to Economics by Jim Cox

Making Economic Sense by Murray N. Rothbard

Pillars of Prosperity: Free Markets, Honest Money, Private Property by Ron Paul

Economic Policy: Thoughts for Today and Tomorrow by Ludwig von Mises

Free Market Economics: A Reader by Bettina Bien Greaves

The Politically Incorrect Guide to Capitalism by Robert P. Murphy

Free Market Economics: A Syllabus by Bettina Bien Greaves

The Church and the Market: A Catholic Defense of the Free Economy by Thomas E. Woods, Jr.

Whatever Happened to Penny Candy? by Richard J. Maybury (a great introduction to economics for homeschoolers; study guide included)

Introduction to Austrian Economic Analysis: A Ten-Lecture Course

This course with Professor Joseph Salerno of Pace University, courtesy of the Ludwig von Mises Institute, is available in both video and mp3 audio at the link above. (Suggested readings to accompany the lectures are listed here.) To learn more about the Austrian School of economics, read this essay and this essay.

Advanced Texts in Austrian Economics

Man, Economy, and State: A Treatise on Economic Principles by Murray N. Rothbard The Scholars’ Edition of this book, which we link to, also contains the book Power and Market, which had originally been intended as the concluding section of Man, Economy, and State but was released in 1970 as a separate book. The entire text is also available online here. A study guide is available for purchase and online here (.pdf).

Human Action: A Treatise on Economics by Ludwig von Mises
This entire book is available online here. A study guide to this book is still being compiled; the chapters that have been finished so far are available online here.

Money, Banking, and Economic Cycles by Jess Huerta de Soto
A sweeping and historic contribution to the literature of the Austrian School, showing how monetary freedom avoids the disadvantages of fiat money, including inflation, business cycles, and financial bubbles.

Foreign Aid and Development Economics

Equality, the Third World, and Economic Delusion by Peter Bauer

From Subsistence to Exchange and Other Essays by Peter Bauer

“The Marshall Plan: Myths and Realities” (.pdf) by Tyler Cowen

The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics by William Easterly

“The History of Foreign Aid Programs” (mp3) by Thomas E. Woods, Jr.

Miscellaneous
Readings in Economics

“Politically Contrived Gasoline Shortage” (.pdf) by Craig S. Marxsen

“The Anatomy of Social Security and Medicare” (.pdf) by Edgar K. Browning

Losing Ground: American Social Policy, 1950—1980 by Charles Murray

The Conquest of Poverty by Henry Hazlitt

The Economics and Ethics of Private Property (advanced) by Hans-Hermann Hoppe

Sound Money

An Overview

The Revolution: A Manifesto by Ron Paul, ch. 6 (audiobook)

Gold, Peace, and Prosperity by Ron Paul; also available in mp3 audio

“Money, Banking, and the Federal Reserve” (documentary, via Google Video)

What Has Government Done to Our Money? by Murray N. Rothbard

The Case for a 100 Percent Gold Dollar by Murray N. Rothbard; a new edition of What Has Government Done to Our Money containing this work can be purchased here. (The two are also available on mp3 audio here.)
The Case for Gold by Ron Paul and Lewis Lehrman

The Gold Standard: Perspectives in the Austrian School, ed. Llewellyn H. Rockwell, Jr. (online in .pdf here)

A History of Money and Banking in the United States from the Colonial Period to World War II by Murray N. Rothbard; online here (.pdf)

The Creature from Jekyll Island: A Second Look at the Federal Reserve by G. Edward Griffin

“The Myth of the ‘Independent’ Fed” by Thomas J. DiLorenzo

“Did Greenspan Deserve Support for Another Term?” (.pdf) by Joseph T. Salerno (mp3 audio)

“The Path to Sound Money” (mp3 audio) by George Reisman

“The Economics of Inflation” (mp3 audio) by George Reisman

The Case Against the Fed by Murray N. Rothbard (online here; free audiobook here)

The Business Cycle

What makes the economy experience periodic booms and busts? Contrary to what Karl Marx claimed, these are not an inevitable feature of a market economy. Economist F.A. Hayek won the Nobel Prize in economics for showing how central banking (the Federal Reserve System in the American case) and its manipulation of the interest rate initiates unsustainable booms that lead inevitably to a bust. This is known as the Austrian theory of the business (or trade) cycle, and it’s the subject of this section.

The Austrian Theory of the Trade Cycle and Other Essays (online here; free audiobook here). The ideal place to start on this subject. This short book consists of short essays on Austrian business cycle theory. No prior knowledge is necessary.

“Business Cycle Primer” by Llewellyn H. Rockwell, Jr.

“Sound Money and the Business Cycle” by John P. Cochran

“Who Predicted the Bubble? Who Predicted the Crash?” (.pdf) by Mark Thornton

“Mises vs. Fisher on Money, Method, and Prediction: The Case of the Great Depression” (.pdf) by Mark Thornton

“Predicting Booms and Busts” (mp3 audio) by Mark Thornton

Banking and the Business Cycle (mp3 audio) by Joseph T. Salerno

America’s Great Depression, 5th ed. (online in here, and in .pdf here) by Murray N. Rothbard

What About Deflation?

Because the possibility of “deflation” is so often raised as an objection to a commodity standard, we include a separate section of articles and lectures refuting this specific claim. Much of the material in this section is for the advanced student.

Articles:

“Deflation and Depression: Where’s the Link?” by Joseph T. Salerno

“Apoplithorismosphobia” (.pdf) by Mark Thornton. (Thornton coined the term to refer to the fear of deflation.) Thornton speaks on this topic in this mp3 file.

“An Austrian Taxonomy of Deflation — With Applications to the U.S.” (.pdf) by Joseph T. Salerno

“Deflation and Japan Revisited” (.pdf) by Richard C.B. Johnsson

Audio (in mp3 audio):

“On Deflation” by Joseph T. Salerno

“The Economics of Deflation” by Jörg Guido Hülsmann

“Deflation and Liberty” by Jörg Guido Hülsmann

“The Gold Standard in Theory and in Myth” by Joseph T. Salerno

Monograph:

Deflation and Liberty (.pdf), by Jörg Guido Hülsmann; this essay, available for purchase, is a lengthier version of the lecture of the same name linked above.

Foreign Policy

An Overview

Core:

The Revolution: A Manifesto by Ron Paul, ch. 2 (audiobook)

A Foreign Policy of Freedom: ‘Peace, Commerce, and Honest Friendship’ by Ron Paul

Blowback: The Costs and Consequences of American Empire by Chalmers Johnson

Imperial Hubris: Why the West Is Losing the War on Terror by Michael Scheuer

The New American Militarism: How Americans Are Seduced by War by Andrew J. Bacevich

The Old Right and War:

Ain’t My America: The Long, Noble History of Antiwar Conservatism and Middle American Anti-Imperialism by Bill Kauffman

Reclaiming the American Right: The Lost Legacy of the Conservative Movement by Justin Raimondo

The Betrayal of the American Right by Murray N. Rothbard; online here

Prophets on the Right: Profiles of Conservative Critics of American Globalism by Ronald Radosh

Other Important Books:

Nemesis: The Last Days of the American Republic by Chalmers Johnson

Overthrow: America’s Century of Regime Change from Hawaii to Iraq by Stephen Kinzer

The Sorrows of Empire: Militarism, Secrecy, and the End of the Republic by Chalmers Johnson

Dying to Win: The Strategic Logic of Suicide Terrorism by Robert A. Pape

American Empire: The Realities and Consequences of U.S. Diplomacy by Andrew J. Bacevich

The Limits of Power: The End of American Exceptionalism by Andrew J. Bacevich

War Is a Racket by Maj. Gen. Smedley D. Butler; online here

The War for Righteousness: Progressive Christianity, the Great War and the Rise of the Messianic Nation by Richard Gamble

The Costs of War: America’s Pyrrhic Victories, ed. John V. Denson

We Who Dared to Say No to War: American Antiwar Writing From 1812 to Now by Murray Polner and Thomas E. Woods, Jr.

Wall Street, Banks, and American Foreign Policy by Murray N. Rothbard; online here

Articles:

“Our Own Strength Against Us: The War on Terror as a Self-Inflicted Disaster” (.pdf) by Ian S. Lustick

“What Do the Terrorists Want?” (.pdf) by James L. Payne

Audio:

Scott Horton’s Antiwar Radio has featured some of the most important intellectuals, journalists, and political figures of our day, and its archive is a treasure trove of knowledge. Scott suggests the following as some of his best and most informative interviews. Access his full archive, subscribe to his podcast, and listen live from 12:00pm—2:00pm Eastern.

Michael Scheuer, 22-year CIA veteran, former head of the agency’s Osama bin Laden unit, and author of Imperial Hubris: Why the West Is Losing the War on Terror

Robert Pape, author, Dying to Win: The Strategic Logic of Suicide Terrorism

Chalmers Johnson, author and professor emeritus of the University of California, San Diego

Philip Giraldi, former CIA officer and columnist, The American Conservative

Ron Paul on Terrorism and more

Patrick Cockburn, Middle East correspondent for the Independent

John Cusack, actor, on his film War, Inc.

Jim Powell, author, Wilson’s War

Ron Paul on Iraq and Afghanistan

Chris Hedges, author, War Is a Force that Gives Us Meaning

Carah Ong, Iran Policy Analyst, Center for Arms Control and Non-Proliferation

Scott Ritter, former UN weapons inspector

Larry Velvel, dean, Massachusetts School of Law

Gareth Porter, reporter, IPS News

The Economics of Foreign Policy

Articles:

“The Trillion-Dollar Defense Budget Is Already Here” by Robert Higgs

“The Neglected Costs of the Warfare State” (.pdf) by Thomas E. Woods, Jr.

“Military Spending / Gross Domestic Product = Nonsense for Budget Policymaking” (.pdf) by Robert Higgs

“Military-Economic Fascism: How Business Corrupts Government, and Vice Versa” by Robert Higgs

“Do We Need to go to War for Oil?” (.pdf) by David R. Henderson

Audio and Video:

“The Myth of War Prosperity” by Robert Higgs

“Taxation, Inflation, and War” by Joseph T. Salerno (video here)

“War and Inflation: The Monetary Process and Implications” by Joseph T. Salerno

“War and the Money Machine” by Joseph T. Salerno

Books:

Depression, War, and Cold War by Robert Higgs

Pentagon Capitalism by Seymour Melman

The Constitution

Documents

The Declaration of Independence

The Articles of Confederation

The U.S. Constitution

The Federalist Papers and the Anti-Federalist Papers

Friends of the Constitution: Writings of the “Other” Federalists, 1787—1788, eds. Colleen A. Sheehan and Gary L. McDowell

The Documentary History of the Ratification of the Constitution (volumes VIII—X, on Virginia, are especially interesting)

Basic Reading

The Revolution: A Manifesto by Ron Paul, ch. 3 (audiobook)

Federalism: The Founders’ Design by Raoul Berger

The Politically Incorrect Guide to the Constitution by Kevin R.C. Gutzman

Who Killed the Constitution? The Fate of American Liberty from World War I to George W. Bush by Thomas E. Woods, Jr. and Kevin R.C. Gutzman

The Constitutional Thought of Thomas Jefferson by David N. Mayer

No Treason by Lysander Spooner

Hamilton’s Curse: How Jefferson’s Archenemy Betrayed the American Revolution — And What It Means for America Today by Thomas J. DiLorenzo

33 Questions About American History You’re Not Supposed to Ask by Thomas E. Woods, Jr.

“The Constitution: Four Disputed Clauses” (mp3 audio) by Thomas E. Woods, Jr. (the Woods audio archive contains several dozen lectures, some of which involve the Constitution)

Advanced Reading

New Views of the Constitution of the United States (1823) by John Taylor (probably the best Jeffersonian overview of the Constitution; available in html and at Google Books)

A Brief Enquiry into the True Nature and Character of Our Federal Government (1840) by Abel Upshur. A brilliant and unjustly neglected short book on the nature of the Union created by the Constitution. Available online and as Classic Reprint No. 120 from Vance Publications. Read the foreword.

Government by Judiciary: The Transformation of the Fourteenth Amendment by Raoul Berger

“The Original Meaning of the Commerce Clause” by Randy Barnett

Virginia’s American Revolution: From Dominion to Republic, 1776—1840 by Kevin R.C. Gutzman

“Madison and the Compound Republic” by Kevin Gutzman (later published as “‘Oh, What a Tangled Web We Weave…’: James Madison and the Compound Republic,” Continuity 22 [Spring 1998]: 19—29)

Civil Liberties An Overview

The Revolution: A Manifesto by Ron Paul, ch. 5 (audiobook)

Freedom Under Siege by Ron Paul

How Would a Patriot Act? by Glenn Greenwald

Perilous Times: Free Speech in Wartime from the Sedition Act of 1798 to the War on Terror by Geoffrey R. Stone

“The Bill of Rights: Searches and Seizures” by Jacob Hornberger

“The Bill of Rights: Due Process of Law” by Jacob Hornberger

“The Enemy Combatant Attack on Freedom, Part 1″ by Jacob Hornberger

“The Enemy Combatant Attack on Freedom, Part 2″ by Jacob Hornberger

“Tyranny and the Military Commissions Act” by Jacob Hornberger

“Bush’s Wiretap Crimes and the FISA Farce” by James Bovard

“The Bush Torture Memos” by James Bovard

“Overkill: The Rise of Paramilitary Police Raids in America” (.pdf) by Radley Balko

Second Amendment Resource Library

The War on Drugs

Drug Crazy: How We Got Into this Mess and How We Can Get Out by Mike Gray

Bad Trip: How the War on Drugs Is Destroying America by Joel Miller

Why Our Drug Laws Have Failed by Judge James Gray

Smoke and Mirrors: The War on Drugs and the Politics of Failure by Dan Baum

Marijuana Myths Marijuana Facts: A Review of the Scientific Evidence by Lynn Etta Zimmer and John P. Morgan

Marijuana as Medicine? by Alison Mack and Janet Elizabeth Joy

Bad Neighbor Policy: Washington’s Futile War on Drugs in Latin America by Ted Galen Carpenter

“How the U.S. Government Created the u2018Drug Problem’ in the U.S.A.” by Michael E. Kreca

“How the Drug War in Afghanistan Undermines America’s War on Terror” (.pdf) by Ted Galen Carpenter

What the Drug War Did to Tulia, Texas (see also this audio resource)

Bibliography of articles on drug policy and the drug war

This is adapted from Ron Paul’s Campaign for Liberty. Special thanks to Anthony Gregory for his assistance with resources on the drug war.

Thomas E. Woods, Jr. [view his website; send him mail] is senior fellow in American history at the Ludwig von Mises Institute. He is co-editor (with Murray Polner) of We Who Dared to Say No to War: American Antiwar Writing from 1812 to Now and co-author, most recently, of Who Killed the Constitution? The Fate of American Liberty from World War I to George W. Bush. His other books include Sacred Then and Sacred Now: The Return of the Old Latin Mass, 33 Questions About American History You’re Not Supposed to Ask. How the Catholic Church Built Western Civilization (get a free chapter here), The Church and the Market: A Catholic Defense of the Free Economy (first-place winner in the 2006 Templeton Enterprise Awards), and the New York Times bestseller The Politically Incorrect Guide to American History. His latest book is Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse.

Thomas Woods Archives

The end-the-Fed movement is the natural outgrowth of free-market economics. The Federal Reserve is a government-created institution with government-granted monopoly privileges. Its interventions into the economy give rise to the boom-bust cycle, etc. If you’re a reader of this site, chances are you know the arguments already. (If you’d like one, here’s a really brief primer I prepared as my opening statement in a debate on the Fed.)

The correct argument against the Fed is not that we need the federal government to create our money more directly rather than delegating the task to the Fed, but that is the Greenbacker objection to the Fed. No free-market person thinks this way. No one who takes liberty seriously thinks this way. This naivete on the part of the Greenbackers is especially hard to believe since so many of them are 9/11 Truthers. That means their position is this: we believe the U.S. government conspired to kill thousands of its own citizens in the interest of furthering its imperial ambitions, but we think they are the best people to trust with the creation of money.

Not all Greenbackers are Truthers, to be sure, but the position is terminally naive all the same.

The purely free-market position is the complete separation of government and money. The Fed’s problem is not that it isn’t creating enough money, as the Greenbackers would have it. The Fed’s problem is that a government-privileged monopoly is creating any money at all.

How would the complete separation of government and money work? This overview by Prof. Jeffrey Herbener explains it.

I addressed a few of the main Greenbacker claims in Why the Greenbackers Are Wrong.

The reason I bring up the subject this morning is this. Someone posted on one of my Facebook pages a link to an anti-Woods article by a Greenbacker. When I went to look into who this person was, I found that his Facebook profile was mostly a list of quotations about money. Most of them are crankish statements by non-economists, but there are some by American statesmen. As usual, these quotations are fakes.

I have never seen any intellectual movement that is so sloppy about quotations. No effort is made to track down these quotations to primary sources. The movement has no scholarly standards. Even the documentaries that supposedly represent the movement’s best work are strewn with fake quotations.

Here’s the first fake I noticed in his profile:

The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity. — Abraham Lincoln

What is the source of this suspiciously modern-sounding quotation? Apart from other Greenbacker websites, I mean. What is the primary source? Can you find it?

Of course you can’t. It doesn’t exist. It is a statement by Gerald Grattan McGeer, a writer you’ve never heard of, in 1935.

Now look at how many Greenbackers have cited this fake quotation.

Read the rest of the article

Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods's Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul's foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

The Best of Thomas Woods

One of Ron Paul’s great accomplishments is that the Federal Reserve faces more opposition today than ever before. Readers of this site will be familiar with the arguments: the Fed enjoys special government privileges; its interference with market interest rates gives rise to the boom-bust business cycle; it has undermined the value of the dollar; it creates moral hazard, since market participants know the money producer can bail them out; and it is unnecessary and at odds with a free market economy.

Unfortunately, not all Fed critics, even among Ron Paul supporters, approach the problem in this way. A subset of the end-the-Fed crowd opposes the Fed for peripheral or entirely wrongheaded reasons. For this group, the Fed is not inflating enough. (I have been told by one critic that our problem cannot be that too much money is being created, since he doesn’t know anyone who has too many Federal Reserve Notes.) Their other main complaints are (1) that the Fed is “privately owned” (the Fed’s problem evidently being that it isn’t socialistic enough), (2) that fiat money is just fine as long as it is issued by the people’s trusty representatives instead of by the Fed, and (3) that under the present system we are burdened with what they call “debt-based money”; their key monetary reform, in turn, involves moving to “debt-free money.” These critics have been called Greenbackers, a reference to fiat money used during the Civil War. (A fourth claim is that the Austrian School of economics, which Ron Paul promotes, is composed of shills for the banking system and the status quo; I have exploded this claim already – here,here, and here.)

With so much to cover I don’t intend to get into (1) right now, but it should suffice to note that being created by an act of Congress, having your board’s personnel appointed by the U.S. president, and enjoying government-granted monopoly privileges without which you would be of no significance, are not the typical features of a “private” institution. I’ll address (2) and (3) throughout what follows.

The point of this discussion is to refute the principal falsehoods that circulate among Greenbackers: (a) that a gold standard (either 100-percent reserve or fractional reserve) or the Federal Reserve’s fiat money system yields an outcome in which outstanding loans cannot all be paid because there is “not enough money” to pay both the principal and the interest; (b) that if the banks are allowed to issue loans at interest they will eventually wind up with all the money; and that the only alternative is “debt-free” fiat paper money issued by government.

My answers will be as follows: (1) the claim that there is “not enough money” to pay both principal and interest is false, regardless of which of these monetary systems we are considering; and (2) even if “debt-free” money were the solution, the best producer of such money is the free market, not Nancy Pelosi or John McCain.

To understand what the Greenbackers have in mind with their proposed “debt-free money,” and what they mean by the phrase “money as debt” they use so often, let’s look at the money creation process in the kind of fractional-reserve fiat money system we have. Suppose the Fed engages in one of its “open-market operations” and purchases government securities from one of its primary dealers. The Fed pays for this purchase by writing a check on itself, out of thin air, and handing it to the primary dealer. That primary dealer, in turn, deposits the check into its bank account – at Bank A, let us say.

Bank A doesn’t just sit on this money. The current system practically compels it to use that money as the basis for credit expansion. So if $10,000 was deposited in the bank, some $9,000 or so will be lent out – to Borrower C. So Borrower C now has $9,000 in purchasing power conjured out of thin air, while Person B can still write checks on his $10,000.

This is why the Greenbackers speak of “money as debt.” The $9,000 that Bank A created in our example entered the economy in the form of a loan to Person B. In our system the banks are not allowed to print cash, but they can do what from their point of view is the next best thing: create checking deposits out of thin air. Banks issue loans out of thin air by opening up a checking account for the customer, whose balance is created out of nothing, in the amount of the loan.

The Greenbacker complaint is this: when the fractional-reserve bank creates that $9,000 loan at (for example) 10 percent interest, it expects $900 in interest payments at the end of the loan period. But if the bank created only the $9,000 for the loan itself and not the $900 that will eventually be owed in interest, where is that extra $900 supposed to come from?

At first this may seem like no problem. The borrower just needs to come up with an extra $900 by working more or consuming less. But this is no answer at all, according to the Greenbacker. Since all money enters the system in the form of loans to someone – recall how our fractional-reserve bank increased the money supply, by making a loan out of thin air – this solution merely postpones the problem. The whole system consists of loans for which only the principal was created. And since the banks create only the principal amounts of these loans and not the extra money needed to pay the interest, there just isn’t enough money for everyone to pay off their debts all at once.

And so the problem with the current system, according to them, is that our money is “debt based,” entering the economy as a debt owed to a bank. They prefer a system in which money is created “debt free” – i.e., printed by the government and spent directly into the economy, rather than lent into existence via loans by the banks.

In the comments section at my blog I have been told by a critic that even under a 100-percent gold standard, with no fractional-reserve banking, the charging of interest still involves asking borrowers to do what is literally impossible for them all to do at once, or at the very least will invariably lead to a situation in which the banks wind up with all the money.

All these claims are categorically false.

It is not true that “there is not enough money to pay the interest” under a gold standard or a purely free-market money, and it is not even true under the kind of fractional-reserve fiat paper system we have now. It certainly isn’t true that “the banks will wind up with all the money.” There are plenty of reasons to condemn the present banking system, but this isn’t one of them. The Greenbackers are focused on an irrelevancy, rather like criticizing Barack Obama for his taste in men’s suits.

I want to respond to this claim under both scenarios: (1) a 100-percent gold standard with no fractional reserves; and (2) our present fractional-reserve, fiat-money system.

In order to do so, let’s recall what money is and where it comes from.

Money emerges from the primitive system of barter, in which people exchange goods directly for one another: cheese for paper, shoes for apples. This is an obviously clumsy system, because (among a great many other reasons I trust readers can conjure for themselves) paper suppliers are not necessarily in the market for cheese, and vice versa.

A money economy, on the other hand, is one in which goods are exchanged indirectly for each other: instead of having to be a hat-wanting basketball owner in the possibly vain search for a basketball-wanting hat owner, the basketball owner instead exchanges his basketball for whatever is functioning as money – gold and silver, for example – and then exchanges the money for the hat he wants.

People dissatisfied with the awkward and ineffective system of barter perceive that if they can acquire a more widely desired and more marketable good than the one they currently possess, they are more likely to find someone willing to exchange with them. That more marketable good will tend to have certain characteristics: durability, divisibility, and relatively high value per unit weight. And the more that good begins to be used as a common medium of exchange, the more people who have no particular desire for it in and of itself will be eager to acquire it anyway, because they know other people will accept it in exchange for goods. In that way, gold and silver (or whatever the money happens to be) evolve into full-fledged media of exchange, and eventually into money (which is defined as the most widely accepted medium of exchange).

Money, therefore, emerges spontaneously as a useful commodity on the market. The fact that people desire it for the services it directly provides contributes to its marketability, which leads people to use it in exchange, which in turn makes it still more marketable, because now it can be used both for direct use as well as indirectly as a medium of exchange.

Note that there is nothing in this process that requires government, its police, or any form of monopoly privilege. The Greenbackers’ preferred system, in which money is created by a monopoly government, is completely foreign and extraneous to the natural evolution of money as we have here described it.

And make no mistake: money has to emerge the way we have described it. It cannot emerge for the first time as government-issued fiat paper. Whenever we think we’ve encountered an example in history of a pure fiat money being imposed by the state, a closer look always turns up some connection between that money and a pre-existing money, which is either itself a commodity or in turn traceable to one.

For one thing, pieces of paper with politicians’ faces on them are not saleable goods. They have no use value, and therefore could not have emerged from barter as the most marketable goods in society.

Second, even if government did try to impose a paper money issued from nothing on the people, it could not be used as a medium of exchange or a tool of economic calculation because no one could know what it was worth. Are three Toms worth one apple or seven fur coats? How could anyone know?

On the other hand, the money chosen by the market can be used as a medium of exchange and a tool of economic calculation. During the process in which it went from being just another commodity into being the money commodity, it was being offered in barter exchange for all or most other goods. As a result, an array of barter prices in terms of that good came into existence. (For simplicity’s sake, in this essay we’ll imagine gold as the commodity that the market chooses as money.) People can recall the gold-price of clocks, the gold-price of butter, etc., from the period of barter. The money commodity isn’t some arbitrary object to which government coerces the public into assigning value. Ordering people to believe that worthless pieces of paper are valuable is a difficult enough job, but then expecting them to use this mysterious, previously unknown item to facilitate exchanges without any pre-existing prices as a basis for economic calculation is absurd.

Of course, fiat moneys exist all over the world today, so it seems at first glance as if what I have just argued must be false. Evidently governments have been able to introduce paper money out of nothing.

This is where Murray Rothbard’s work comes in especially handy. In his classic little book What Has Government Done to Our Money? he builds upon the analysis of Ludwig von Mises and concisely describes the steps by which a commodity chosen by the people through their voluntary market exchanges is transformed into an altogether different monetary system, based on fiat paper.

The steps are roughly as follows. First, society adopts a commodity money, as described above. (As I noted above, for ease of exposition we’ll choose gold, but it could be whatever commodity the market selects.) Government then monopolizes the production and certification of the gold. Paper notes issued by banks or by governments that can be redeemed in a given weight of gold begin to circulate as a convenient substitute for carrying gold coins. These money certificates are given different names in different countries: dollars, pounds, francs, marks, etc. These national names condition the public to think of the dollar (or the pound or whatever) rather than the gold itself as the money. Thus it is less disorienting when the final step is taken and the government confiscates the gold to which the paper certificates entitle their holders, leaving the people with an unbacked paper money.

This is how unbacked paper money comes into existence. It begins as a convertible substitute for a commodity like gold, and then the government takes the gold away. It continues to circulate even without the gold backing because people can recall the exchange ratios that existed between the paper money and other goods in the past, so the paper money is not being imposed on them out of nowhere.

Free-market money, therefore, is commodity money. And commodity money is not “debt-based” money. When a gold miner produces gold and takes that gold to the mint to be transformed into coins, he simply spends the money into the economy. So free-market money does not enter the economy as a loan. It is an example of the “debt-free money” the Greenbackers are supposed to favor. I strongly suspect that many of them have never thought the problem through to quite this extent. If what they favor is “debt-free money,” why do they automatically assume it must be produced by the state? For consistency’s sake, they should support all forms of debt-free money, including money that takes the form of a good voluntarily produced on the market and without any form of monopoly privilege.

The free-market’s form of “debt-free money” also doesn’t require a government monopoly, or rely on the preposterously naive hope that the government production of “interest-free money” will be carried out without corruption or in a non-arbitrary way. (Any “monetary policy” that interferes with or second-guesses the stock of money that the voluntary array of exchanges known as the free market would produce is arbitrary.)

But now what of the Greenbacker claim that interest payments, of their very nature, cannot be paid by all members of society simultaneously?

This is clearly not true of a society in which money production is left to the market. The Greenbacker complaint about interest payments in a fractional-reserve system is that the banks create a loan’s principal out of thin air, and that because they don’t also create the amount of money necessary to pay the interest charges as well, the collective sum of loan payments (principal and interest) cannot be made. Some people, the Greenbackers concede, can pay back their loans with interest, but not everyone.

But this is not what happens in the situation we have been describing, in which the money is chosen spontaneously and voluntarily by the individuals in society, and in which government plays no role. Money in this truly laissez-faire system is spent into the economy once it is produced, not lent into existence out of thin air, so there is no problem of “debt-based money” yielding a situation in which “there is not enough money to pay the interest.” There is no “debt” created at any point in the process of money production on the free market in the first place. The free market gives us “debt-free money,” but the Greenbackers do not want it.

Suppose I, a banker, lend you ten ounces of gold, at 10 percent interest. Next year you will owe me 11 ounces: ten ounces for the principal, and one ounce for the interest. Where do you earn the money to pay me the interest? Either by abstaining from consumption to that extent and saving up the money, or by earning it through providing goods or services to others. In other words, you earn the money to pay the interest the same way you earn the money to pay for anything else.

(Even under the classical gold standard, in which gold backed only some of the paper money in circulation, there is still a portion of the money supply – namely, the money substitutes that have gold backing – that were not lent into existence, and which can therefore serve as the source of interest payments.)

Although the “there isn’t enough money to pay the interest” argument fails, I want to take up a related warning about sound money – a warning I noted at the beginning of this essay – that I read in the comments section of my blog: moneylending at interest by the banks will yield a long-run outcome in which the bankers have all the money.

The argument runs like this: if banks can lend 1,000 ounces of gold today and earn 100 ounces in interest (assuming a 10 percent rate of interest) at the end of the loan period, then in the next period they’ll have a new total of 1,100 ounces to lend out, and in turn they can earn 110 in interest on that. Then they’ll have a total of 1,210 ounces, and when they lend that out they’ll earn 121 ounces in interest. In the next period they’ll have 1,331 (which is 1,210 plus the 121 they earned in interest in the previous period) ounces, etc. Eventually, they’ll have everything.

This is completely wrong, although even if it were right, presumably even bankers need to buy things at one point or another, so the money would be recirculated into the economy in any case. The money commodity itself rarely yields people so much utility that they will hold it at the expense of food, water, clothing, shelter, entertainment, etc. And when it is recirculated, the same money can be used to make interest payments on multiple loans.

The more important reason that red flags should be going up here is that this warning would apply to any business, not just banking. For example, if Apple sells us great electronic equipment, it earns profits. Those profits allow it to invest in more efficient production processes, which means Apple will be able to produce even more and better computers and other devices next year. If we buy those, Apple will have still more profits, which means they’ll be able to produce still more and better products the year after that, and before you know it, Apple will have all our money.

So what’s left out of these scenarios? Demand. Consumers do not have an infinite demand for electronic products. If Apple keeps producing more iPods, it will have to sell them at lower and lower prices in order to induce us to buy them. This is economics 101 – the law of demand, derived in turn from the law of marginal utility. The more electronics I buy, the less utility I derive from additional units of such goods (and thus the less eager I am to purchase more). Meanwhile, as my remaining cash balance is depleted by these purchases, the marginal utility of my remaining money increases (and thus the more eager I am to hold on to that money rather than exchange it for still more consumer electronics).

The same goes for consumer (and producer) loans. The Greenbacker objection assumes that demand for loans is infinite. Like zombies, we’ll continue to demand loans no matter what the interest rate, and banks will always be able to find more people willing to take on more credit. But as we saw above, in order to induce us to absorb a greater supply of Apple electronics, and/or to induce additional buyers to enter the market, the prices of those goods had to fall.

This principle holds true for credit as well. To induce us to accept an increasing supply of credit, the banks will have no choice, given the law of demand, but to lower the rate of interest. Two consequences follow. As they earn less in interest, they will be less able to afford to pay their customers competitive interest rates on savings accounts and on financial products like CDs. And as those customers turn away from the banking system in search of higher yields outside banking, the banks will have less to lend. These twin pressures place an upper limit on the amount of credit the banks can extend.

So you can breathe easy. The banks won’t wind up with all the money after all.

On the free market, the production of money would occur in the same way that the production of any other good takes place, with no money producer being granted any monopoly privilege. The average person doubtless has a difficult time imagining how money could exist without a monopoly producer. Wouldn’t everyone want to go into the money-production business? After all, you get to create money. Why, I’ll just create my own money and spend it! Isn’t that naturally more lucrative than producing other goods?

First of all, no one can expect to print pieces of paper with his face on them and spend them into circulation. Nobody would accept them, needless to say, and as we have seen, it is impossible for money to be introduced ex nihilo in this way. The only kind of money that can emerge on the free market is one that, at least at one time, had been considered a useful commodity. Paper money can come into existence on the free market and without coercion if it serves as a redemption claim for the commodity money, but irredeemable paper money cannot originate without government threats or violence.

Again, as we saw previously, the pattern is this: a commodity is freely chosen by market participants to serve as money, for convenience paper receipts fully convertible into that money begin to circulate as money substitutes, and finally the government removes the commodity backing from the paper and only the paper circulates. That is in fact what happened in the United States in 1933.

So your friend Joe shouldn’t expect in a free market to be able to print up some paper notes with his face on them and be able to exchange them for goods and services. In addition to the logical problems with this that we examined before, he’d also look crazy for even trying such a thing.

Also, as with every other industry, profit regulates production. The production of money, like the production of all other goods, settles on a normal rate of return, and is not uniquely poised to shower participants in that industry with premium profits. As more firms enter the industry, the rising demand for the factors of production necessary to produce the money puts upward pressure on the prices of those factors. Meanwhile, the increase in money production itself puts downward pressure on the purchasing power of the money produced.

In other words, these twin pressures of (1) the increasing costliness of money production and (2) the decreasing value of the money thus produced (since the more money that exists, ceteris paribus, the lower its purchasing power) serve to regulate money production in the same way they regulate the production of all other goods in the economy.

Once the gold is mined, it needs to be converted into coins for general use, and subsequently stamped with some form of reliable certification indicating the weight and fineness of those coins. Private firms perform such certification for a wide variety of goods on the free market. This service is provided for newly coined money by mints.

Banking services would exist on the free market to the extent that people valued financial intermediation, as well as the various services, such as check-writing and the safekeeping of money, that banks provided.*

The intermediation of credit consists of borrowing money from savers, pooling those funds, and using those pooled funds to extend loans to borrowers. Banks earn the interest-rate differential that exists between the rates they charge to borrowers and the rates they pay to savers. The pooling of savings and the identification of projects to which those funds can temporarily be directed is an important service in a market economy.

And as with the production of all other goods and services on the market, credit intermediation is regulated by profit. It cannot be multiplied indefinitely, as a great many Greenbacker commentators appear to believe. In the same way that high profits in any industry attract newcomers to that industry and thereby dissipate those profits, a high interest-rate differential between borrowers and savers will attract more people into credit-intermediation services. These entrants will need to pay higher interest rates to savers in order to acquire additional funds to intermediate to borrowers. Conversely, in order to attract additional borrowers they will need to lower the interest rates charged to those borrowers. These twin pressures – higher rates paid to savers, and lower rates earned from borrowers – dissipate bank profits and place an upper bound on credit intermediation activities. So again, the banks face a natural limit to their activities, and cannot earn all our money.

So far, we have considered the case of a gold standard or a pure free market in money. But under a non-market system of fiat-money and fractional-reserve banks the Greenbackers’ concerns are still misplaced. There are plenty of reasons to criticize fiat money and fractional-reserve banking, but since the case against them is undercut by false arguments, I want to take apart this particular false argument.

We know from our earlier analysis that money has to emerge on the market as a useful commodity, and that the state theory of money, whereby money has value only when and because the state declares it to have value, is untenable.

When Franklin Roosevelt confiscated Americans’ gold in 1933 and gave them paper money in exchange, this money did not enter the system “as debt.” It was a simple act of conversion of specie into paper. (Thanks to J.P. Koning for tracking down that link.) This is how all hard-money systems become fiat ones: the precious metal that backs the currency is taken away, and the people are left only with paper given to them in exchange for their metal. And since that portion of the money stock that consists of the redemption of the people’s specie into paper is not debt-based – the government is giving them the money, not lending it – it becomes a permanent portion of the overall money stock from which interest payments can be drawn. There is, therefore, always a portion of the money stock that is unconnected to any debt, so there is no built-in process even in a fractional-reserve fiat paper system by which debts must be collectively unpayable.

Under the gold standard as it existed in the United States, the banks issued both kinds of money substitutes in the Misesian typology: money certificates (paper that serves as a receipt for gold on deposit) and fiduciary media (paper that, while physically indistinguishable from money certificates, does not correspond to any gold on deposit; this is what the banks create when they want to increase the money supply beyond just the stock of gold). Only the fiduciary media would qualify as being “debt-based money,” because only the fiduciary media enters the system as new loans. The money substitutes that correspond to gold in the banks’ reserves are not debt-based. They do not enter the economy in the form of a loan. They enter the economy as receipts for gold on deposit with the banks. This portion of the money stock, too, becomes a permanent fund, even after the transition to a fiat money system, from which interest payments can be drawn.

Remember, once again, that when people pay banks interest on their loans, these interest payments themselves will in large measure be spent into the economy by employees of the bank. The same unit of money can thus be used to pay principal or interest on multiple loans as it circulates again and again. There is no reason that bankers or anyone else would want to earn profits and never spend or invest them, unless someone happens to be a fetishist deriving pleasure from literally rolling in the money itself. This is unusual.

Far and away the best defenses and descriptions of a pure free market in money are Jörg Guido Hülsmann’s book The Ethics of Money Production and Jeffrey Herbener’s astonishing 2012 congressional testimony before Ron Paul’s monetary policy subcommittee. I strongly urge you to read at least the Herbener testimony. It is beautifully written and its logic practically compels the reader’s assent. (While you’re at it, watch this video in which Professor Herbener explains why he became an Austrian mid-career, even though he stood to gain nothing professionally by doing so.)

In short, there is no need to replace the Fed with another government creation. There is no good reason to replace the Fed’s monopoly with a more directly exercised government monopoly. All we need for a sound money system are the ordinary laws of commerce and contract.

Let’s oppose the Fed for the right reasons, and let’s oppose it root and branch: not because it doesn’t create enough money out of thin air (is this really a fundamental critique of the Fed, after all?) but because the causes of freedom, social peace, and economic prosperity are at odds with any coercively imposed monopoly, and because the naive confidence in the American political class that the Greenbacker alternative demands is beneath the dignity of a free people.

*There is a tradition within the Austrian School, particularly among Rothbardians, of separating these functions of banks. Banks can act as money warehouses or as credit intermediaries, or as both. These are not the same thing. It is possible to imagine banks that offer one service or the other, as well as to conceive of banks that offer both services but distinguish sharply between them. Checking deposits, for instance, would be available to customers on demand, and so in that case the bank would be operating as a money warehouse, while savings accounts, CDs, etc., would be considered a loan to the bank, with which the bank could engage in intermediation activities.

Presented at the 2013 Austrian Economics Research Conference, Mises Institute, Auburn, Alabama

One of Ron Paul's great accomplishments is that the Federal Reserve faces more opposition today than ever before. Readers of this site will be familiar with the arguments: the Fed enjoys special government privileges; its interference with market interest rates gives rise to the boom-bust business cycle; it has undermined the value of the dollar; it creates moral hazard, since market participants know the money producer can bail them out; and it is unnecessary and at odds with a free market economy.

Unfortunately, not all Fed critics, even among Ron Paul supporters, approach the problem in this way. A subset of the end-the-Fed crowd opposes the Fed for peripheral or entirely wrongheaded reasons. For this group, the Fed is not inflating enough. (I have been told by one critic that our problem cannot be that too much money is being created, since he doesn't know anyone who has too many Federal Reserve Notes.) Their other main complaints are (1) that the Fed is u201Cprivately ownedu201D (the Fed's problem evidently being that it isn't socialistic enough), (2) that fiat money is just fine as long as it is issued by the people's trusty representatives instead of by the Fed, and (3) that under the present system we are burdened with what they call u201Cdebt-based moneyu201D; their key monetary reform, in turn, involves moving to u201Cdebt-free money.u201D These critics have been called Greenbackers, a reference to fiat money used during the Civil War. (A fourth claim is that the Austrian School of economics, which Ron Paul promotes, is composed of shills for the banking system and the status quo; I have exploded this claim already – here, here, and here.)

With so much to cover I don't intend to get into (1) right now, but it should suffice to note that being created by an act of Congress, having your board's personnel appointed by the U.S. president, and enjoying government-granted monopoly privileges without which you would be of no significance, are not the typical features of a u201Cprivateu201D institution. I'll address (2) and (3) throughout what follows.

The point of this discussion is to refute the principal falsehoods that circulate among Greenbackers: (a) that a gold standard (either 100-percent reserve or fractional reserve) or the Federal Reserve's fiat money system yields an outcome in which outstanding loans cannot all be paid because there is u201Cnot enough moneyu201D to pay both the principal and the interest; (b) that if the banks are allowed to issue loans at interest they will eventually wind up with all the money; and that the only alternative is u201Cdebt-freeu201D fiat paper money issued by government.

My answers will be as follows: (1) the claim that there is u201Cnot enough moneyu201D to pay both principal and interest is false, regardless of which of these monetary systems we are considering; and (2) even if u201Cdebt-freeu201D money were the solution, the best producer of such money is the free market, not Nancy Pelosi or John McCain.

To understand what the Greenbackers have in mind with their proposed u201Cdebt-free money,u201D and what they mean by the phrase u201Cmoney as debtu201D they use so often, let's look at the money creation process in the kind of fractional-reserve fiat money system we have. Suppose the Fed engages in one of its u201Copen-market operationsu201D and purchases government securities from one of its primary dealers. The Fed pays for this purchase by writing a check on itself, out of thin air, and handing it to the primary dealer. That primary dealer, in turn, deposits the check into its bank account – at Bank A, let us say.

Bank A doesn't just sit on this money. The current system practically compels it to use that money as the basis for credit expansion. So if $10,000 was deposited in the bank, some $9,000 or so will be lent out – to Borrower C. So Borrower C now has $9,000 in purchasing power conjured out of thin air, while Person B can still write checks on his $10,000.

This is why the Greenbackers speak of u201Cmoney as debt.u201D The $9,000 that Bank A created in our example entered the economy in the form of a loan to Person B. In our system the banks are not allowed to print cash, but they can do what from their point of view is the next best thing: create checking deposits out of thin air. Banks issue loans out of thin air by opening up a checking account for the customer, whose balance is created out of nothing, in the amount of the loan.

The Greenbacker complaint is this: when the fractional-reserve bank creates that $9,000 loan at (for example) 10 percent interest, it expects $900 in interest payments at the end of the loan period. But if the bank created only the $9,000 for the loan itself and not the $900 that will eventually be owed in interest, where is that extra $900 supposed to come from?

At first this may seem like no problem. The borrower just needs to come up with an extra $900 by working more or consuming less. But this is no answer at all, according to the Greenbacker. Since all money enters the system in the form of loans to someone – recall how our fractional-reserve bank increased the money supply, by making a loan out of thin air – this solution merely postpones the problem. The whole system consists of loans for which only the principal was created. And since the banks create only the principal amounts of these loans and not the extra money needed to pay the interest, there just isn't enough money for everyone to pay off their debts all at once.

And so the problem with the current system, according to them, is that our money is u201Cdebt based,u201D entering the economy as a debt owed to a bank. They prefer a system in which money is created u201Cdebt freeu201D – i.e., printed by the government and spent directly into the economy, rather than lent into existence via loans by the banks.

In the comments section at my blog I have been told by a critic that even under a 100-percent gold standard, with no fractional-reserve banking, the charging of interest still involves asking borrowers to do what is literally impossible for them all to do at once, or at the very least will invariably lead to a situation in which the banks wind up with all the money.

All these claims are categorically false.

It is not true that u201Cthere is not enough money to pay the interestu201D under a gold standard or a purely free-market money, and it is not even true under the kind of fractional-reserve fiat paper system we have now. It certainly isn't true that u201Cthe banks will wind up with all the money.u201D There are plenty of reasons to condemn the present banking system, but this isn't one of them. The Greenbackers are focused on an irrelevancy, rather like criticizing Barack Obama for his taste in men's suits.

I want to respond to this claim under both scenarios: (1) a 100-percent gold standard with no fractional reserves; and (2) our present fractional-reserve, fiat-money system.

In order to do so, let's recall what money is and where it comes from.

Money emerges from the primitive system of barter, in which people exchange goods directly for one another: cheese for paper, shoes for apples. This is an obviously clumsy system, because (among a great many other reasons I trust readers can conjure for themselves) paper suppliers are not necessarily in the market for cheese, and vice versa.

A money economy, on the other hand, is one in which goods are exchanged indirectly for each other: instead of having to be a hat-wanting basketball owner in the possibly vain search for a basketball-wanting hat owner, the basketball owner instead exchanges his basketball for whatever is functioning as money – gold and silver, for example – and then exchanges the money for the hat he wants.

People dissatisfied with the awkward and ineffective system of barter perceive that if they can acquire a more widely desired and more marketable good than the one they currently possess, they are more likely to find someone willing to exchange with them. That more marketable good will tend to have certain characteristics: durability, divisibility, and relatively high value per unit weight. And the more that good begins to be used as a common medium of exchange, the more people who have no particular desire for it in and of itself will be eager to acquire it anyway, because they know other people will accept it in exchange for goods. In that way, gold and silver (or whatever the money happens to be) evolve into full-fledged media of exchange, and eventually into money (which is defined as the most widely accepted medium of exchange).

Money, therefore, emerges spontaneously as a useful commodity on the market. The fact that people desire it for the services it directly provides contributes to its marketability, which leads people to use it in exchange, which in turn makes it still more marketable, because now it can be used both for direct use as well as indirectly as a medium of exchange.

Note that there is nothing in this process that requires government, its police, or any form of monopoly privilege. The Greenbackers' preferred system, in which money is created by a monopoly government, is completely foreign and extraneous to the natural evolution of money as we have here described it.

And make no mistake: money has to emerge the way we have described it. It cannot emerge for the first time as government-issued fiat paper. Whenever we think we've encountered an example in history of a pure fiat money being imposed by the state, a closer look always turns up some connection between that money and a pre-existing money, which is either itself a commodity or in turn traceable to one.

For one thing, pieces of paper with politicians' faces on them are not saleable goods. They have no use value, and therefore could not have emerged from barter as the most marketable goods in society.

Second, even if government did try to impose a paper money issued from nothing on the people, it could not be used as a medium of exchange or a tool of economic calculation because no one could know what it was worth. Are three Toms worth one apple or seven fur coats? How could anyone know?

On the other hand, the money chosen by the market can be used as a medium of exchange and a tool of economic calculation. During the process in which it went from being just another commodity into being the money commodity, it was being offered in barter exchange for all or most other goods. As a result, an array of barter prices in terms of that good came into existence. (For simplicity's sake, in this essay we'll imagine gold as the commodity that the market chooses as money.) People can recall the gold-price of clocks, the gold-price of butter, etc., from the period of barter. The money commodity isn't some arbitrary object to which government coerces the public into assigning value. Ordering people to believe that worthless pieces of paper are valuable is a difficult enough job, but then expecting them to use this mysterious, previously unknown item to facilitate exchanges without any pre-existing prices as a basis for economic calculation is absurd.

Of course, fiat moneys exist all over the world today, so it seems at first glance as if what I have just argued must be false. Evidently governments have been able to introduce paper money out of nothing.

This is where Murray Rothbard's work comes in especially handy. In his classic little book What Has Government Done to Our Money? he builds upon the analysis of Ludwig von Mises and concisely describes the steps by which a commodity chosen by the people through their voluntary market exchanges is transformed into an altogether different monetary system, based on fiat paper.

The steps are roughly as follows. First, society adopts a commodity money, as described above. (As I noted above, for ease of exposition we'll choose gold, but it could be whatever commodity the market selects.) Government then monopolizes the production and certification of the gold. Paper notes issued by banks or by governments that can be redeemed in a given weight of gold begin to circulate as a convenient substitute for carrying gold coins. These money certificates are given different names in different countries: dollars, pounds, francs, marks, etc. These national names condition the public to think of the dollar (or the pound or whatever) rather than the gold itself as the money. Thus it is less disorienting when the final step is taken and the government confiscates the gold to which the paper certificates entitle their holders, leaving the people with an unbacked paper money.

This is how unbacked paper money comes into existence. It begins as a convertible substitute for a commodity like gold, and then the government takes the gold away. It continues to circulate even without the gold backing because people can recall the exchange ratios that existed between the paper money and other goods in the past, so the paper money is not being imposed on them out of nowhere.

Free-market money, therefore, is commodity money. And commodity money is not u201Cdebt-basedu201D money. When a gold miner produces gold and takes that gold to the mint to be transformed into coins, he simply spends the money into the economy. So free-market money does not enter the economy as a loan. It is an example of the u201Cdebt-free moneyu201D the Greenbackers are supposed to favor. I strongly suspect that many of them have never thought the problem through to quite this extent. If what they favor is u201Cdebt-free money,u201D why do they automatically assume it must be produced by the state? For consistency's sake, they should support all forms of debt-free money, including money that takes the form of a good voluntarily produced on the market and without any form of monopoly privilege.

The free-market's form of u201Cdebt-free moneyu201D also doesn't require a government monopoly, or rely on the preposterously naive hope that the government production of u201Cinterest-free moneyu201D will be carried out without corruption or in a non-arbitrary way. (Any u201Cmonetary policyu201D that interferes with or second-guesses the stock of money that the voluntary array of exchanges known as the free market would produce is arbitrary.)

But now what of the Greenbacker claim that interest payments, of their very nature, cannot be paid by all members of society simultaneously?

This is clearly not true of a society in which money production is left to the market. The Greenbacker complaint about interest payments in a fractional-reserve system is that the banks create a loan's principal out of thin air, and that because they don't also create the amount of money necessary to pay the interest charges as well, the collective sum of loan payments (principal and interest) cannot be made. Some people, the Greenbackers concede, can pay back their loans with interest, but not everyone.

But this is not what happens in the situation we have been describing, in which the money is chosen spontaneously and voluntarily by the individuals in society, and in which government plays no role. Money in this truly laissez-faire system is spent into the economy once it is produced, not lent into existence out of thin air, so there is no problem of u201Cdebt-based moneyu201D yielding a situation in which u201Cthere is not enough money to pay the interest.u201D There is no u201Cdebtu201D created at any point in the process of money production on the free market in the first place. The free market gives us u201Cdebt-free money,u201D but the Greenbackers do not want it.

Suppose I, a banker, lend you ten ounces of gold, at 10 percent interest. Next year you will owe me 11 ounces: ten ounces for the principal, and one ounce for the interest. Where do you earn the money to pay me the interest? Either by abstaining from consumption to that extent and saving up the money, or by earning it through providing goods or services to others. In other words, you earn the money to pay the interest the same way you earn the money to pay for anything else.

(Even under the classical gold standard, in which gold backed only some of the paper money in circulation, there is still a portion of the money supply – namely, the money substitutes that have gold backing – that were not lent into existence, and which can therefore serve as the source of interest payments.)

Although the u201Cthere isn't enough money to pay the interestu201D argument fails, I want to take up a related warning about sound money – a warning I noted at the beginning of this essay – that I read in the comments section of my blog: moneylending at interest by the banks will yield a long-run outcome in which the bankers have all the money.

The argument runs like this: if banks can lend 1,000 ounces of gold today and earn 100 ounces in interest (assuming a 10 percent rate of interest) at the end of the loan period, then in the next period they'll have a new total of 1,100 ounces to lend out, and in turn they can earn 110 in interest on that. Then they'll have a total of 1,210 ounces, and when they lend that out they'll earn 121 ounces in interest. In the next period they'll have 1,331 (which is 1,210 plus the 121 they earned in interest in the previous period) ounces, etc. Eventually, they'll have everything.

This is completely wrong, although even if it were right, presumably even bankers need to buy things at one point or another, so the money would be recirculated into the economy in any case. The money commodity itself rarely yields people so much utility that they will hold it at the expense of food, water, clothing, shelter, entertainment, etc. And when it is recirculated, the same money can be used to make interest payments on multiple loans.

The more important reason that red flags should be going up here is that this warning would apply to any business, not just banking. For example, if Apple sells us great electronic equipment, it earns profits. Those profits allow it to invest in more efficient production processes, which means Apple will be able to produce even more and better computers and other devices next year. If we buy those, Apple will have still more profits, which means they'll be able to produce still more and better products the year after that, and before you know it, Apple will have all our money.

So what's left out of these scenarios? Demand. Consumers do not have an infinite demand for electronic products. If Apple keeps producing more iPods, it will have to sell them at lower and lower prices in order to induce us to buy them. This is economics 101 – the law of demand, derived in turn from the law of marginal utility. The more electronics I buy, the less utility I derive from additional units of such goods (and thus the less eager I am to purchase more). Meanwhile, as my remaining cash balance is depleted by these purchases, the marginal utility of my remaining money increases (and thus the more eager I am to hold on to that money rather than exchange it for still more consumer electronics).

The same goes for consumer (and producer) loans. The Greenbacker objection assumes that demand for loans is infinite. Like zombies, we'll continue to demand loans no matter what the interest rate, and banks will always be able to find more people willing to take on more credit. But as we saw above, in order to induce us to absorb a greater supply of Apple electronics, and/or to induce additional buyers to enter the market, the prices of those goods had to fall.

This principle holds true for credit as well. To induce us to accept an increasing supply of credit, the banks will have no choice, given the law of demand, but to lower the rate of interest. Two consequences follow. As they earn less in interest, they will be less able to afford to pay their customers competitive interest rates on savings accounts and on financial products like CDs. And as those customers turn away from the banking system in search of higher yields outside banking, the banks will have less to lend. These twin pressures place an upper limit on the amount of credit the banks can extend.

So you can breathe easy. The banks won't wind up with all the money after all.

On the free market, the production of money would occur in the same way that the production of any other good takes place, with no money producer being granted any monopoly privilege. The average person doubtless has a difficult time imagining how money could exist without a monopoly producer. Wouldn't everyone want to go into the money-production business? After all, you get to create money. Why, I'll just create my own money and spend it! Isn't that naturally more lucrative than producing other goods?

First of all, no one can expect to print pieces of paper with his face on them and spend them into circulation. Nobody would accept them, needless to say, and as we have seen, it is impossible for money to be introduced ex nihilo in this way. The only kind of money that can emerge on the free market is one that, at least at one time, had been considered a useful commodity. Paper money can come into existence on the free market and without coercion if it serves as a redemption claim for the commodity money, but irredeemable paper money cannot originate without government threats or violence.

Again, as we saw previously, the pattern is this: a commodity is freely chosen by market participants to serve as money, for convenience paper receipts fully convertible into that money begin to circulate as money substitutes, and finally the government removes the commodity backing from the paper and only the paper circulates. That is in fact what happened in the United States in 1933.

So your friend Joe shouldn't expect in a free market to be able to print up some paper notes with his face on them and be able to exchange them for goods and services. In addition to the logical problems with this that we examined before, he'd also look crazy for even trying such a thing.

Also, as with every other industry, profit regulates production. The production of money, like the production of all other goods, settles on a normal rate of return, and is not uniquely poised to shower participants in that industry with premium profits. As more firms enter the industry, the rising demand for the factors of production necessary to produce the money puts upward pressure on the prices of those factors. Meanwhile, the increase in money production itself puts downward pressure on the purchasing power of the money produced.

In other words, these twin pressures of (1) the increasing costliness of money production and (2) the decreasing value of the money thus produced (since the more money that exists, ceteris paribus, the lower its purchasing power) serve to regulate money production in the same way they regulate the production of all other goods in the economy.

Once the gold is mined, it needs to be converted into coins for general use, and subsequently stamped with some form of reliable certification indicating the weight and fineness of those coins. Private firms perform such certification for a wide variety of goods on the free market. This service is provided for newly coined money by mints.

Banking services would exist on the free market to the extent that people valued financial intermediation, as well as the various services, such as check-writing and the safekeeping of money, that banks provided.*

The intermediation of credit consists of borrowing money from savers, pooling those funds, and using those pooled funds to extend loans to borrowers. Banks earn the interest-rate differential that exists between the rates they charge to borrowers and the rates they pay to savers. The pooling of savings and the identification of projects to which those funds can temporarily be directed is an important service in a market economy.

And as with the production of all other goods and services on the market, credit intermediation is regulated by profit. It cannot be multiplied indefinitely, as a great many Greenbacker commentators appear to believe. In the same way that high profits in any industry attract newcomers to that industry and thereby dissipate those profits, a high interest-rate differential between borrowers and savers will attract more people into credit-intermediation services. These entrants will need to pay higher interest rates to savers in order to acquire additional funds to intermediate to borrowers. Conversely, in order to attract additional borrowers they will need to lower the interest rates charged to those borrowers. These twin pressures – higher rates paid to savers, and lower rates earned from borrowers – dissipate bank profits and place an upper bound on credit intermediation activities. So again, the banks face a natural limit to their activities, and cannot earn all our money.

So far, we have considered the case of a gold standard or a pure free market in money. But under a non-market system of fiat-money and fractional-reserve banks the Greenbackers' concerns are still misplaced. There are plenty of reasons to criticize fiat money and fractional-reserve banking, but since the case against them is undercut by false arguments, I want to take apart this particular false argument.

We know from our earlier analysis that money has to emerge on the market as a useful commodity, and that the state theory of money, whereby money has value only when and because the state declares it to have value, is untenable.

When Franklin Roosevelt confiscated Americans' gold in 1933 and gave them paper money in exchange, this money did not enter the system u201Cas debt.u201D It was a simple act of conversion of specie into paper. (Thanks to J.P. Koning for tracking down that link.) This is how all hard-money systems become fiat ones: the precious metal that backs the currency is taken away, and the people are left only with paper given to them in exchange for their metal. And since that portion of the money stock that consists of the redemption of the people's specie into paper is not debt-based – the government is giving them the money, not lending it – it becomes a permanent portion of the overall money stock from which interest payments can be drawn. There is, therefore, always a portion of the money stock that is unconnected to any debt, so there is no built-in process even in a fractional-reserve fiat paper system by which debts must be collectively unpayable.

Under the gold standard as it existed in the United States, the banks issued both kinds of money substitutes in the Misesian typology: money certificates (paper that serves as a receipt for gold on deposit) and fiduciary media (paper that, while physically indistinguishable from money certificates, does not correspond to any gold on deposit; this is what the banks create when they want to increase the money supply beyond just the stock of gold). Only the fiduciary media would qualify as being u201Cdebt-based money,u201D because only the fiduciary media enters the system as new loans. The money substitutes that correspond to gold in the banks' reserves are not debt-based. They do not enter the economy in the form of a loan. They enter the economy as receipts for gold on deposit with the banks. This portion of the money stock, too, becomes a permanent fund, even after the transition to a fiat money system, from which interest payments can be drawn.

Remember, once again, that when people pay banks interest on their loans, these interest payments themselves will in large measure be spent into the economy by employees of the bank. The same unit of money can thus be used to pay principal or interest on multiple loans as it circulates again and again. There is no reason that bankers or anyone else would want to earn profits and never spend or invest them, unless someone happens to be a fetishist deriving pleasure from literally rolling in the money itself. This is unusual.

Far and away the best defenses and descriptions of a pure free market in money are Jrg Guido Hlsmann's book The Ethics of Money Production and Jeffrey Herbener's astonishing 2012 congressional testimony before Ron Paul's monetary policy subcommittee. I strongly urge you to read at least the Herbener testimony. It is beautifully written and its logic practically compels the reader's assent. (While you're at it, watch this video in which Professor Herbener explains why he became an Austrian mid-career, even though he stood to gain nothing professionally by doing so.)

In short, there is no need to replace the Fed with another government creation. There is no good reason to replace the Fed's monopoly with a more directly exercised government monopoly. All we need for a sound money system are the ordinary laws of commerce and contract.

Let's oppose the Fed for the right reasons, and let's oppose it root and branch: not because it doesn't create enough money out of thin air (is this really a fundamental critique of the Fed, after all?) but because the causes of freedom, social peace, and economic prosperity are at odds with any coercively imposed monopoly, and because the naive confidence in the American political class that the Greenbacker alternative demands is beneath the dignity of a free people.

*There is a tradition within the Austrian School, particularly among Rothbardians, of separating these functions of banks. Banks can act as money warehouses or as credit intermediaries, or as both. These are not the same thing. It is possible to imagine banks that offer one service or the other, as well as to conceive of banks that offer both services but distinguish sharply between them. Checking deposits, for instance, would be available to customers on demand, and so in that case the bank would be operating as a money warehouse, while savings accounts, CDs, etc., would be considered a loan to the bank, with which the bank could engage in intermediation activities.

Thanks to Robert Murphy for his comments on this essay.

Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods's Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul's foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

The Best of Thomas Woods

The Cato Institute has now joined the Heritage Foundation in telling Americans they’re not allowed to nullify unconstitutional laws – because, after all, that’s what we have the Supreme Court for. Plus, says Cato chairman Robert Levy, nullification hasn’t worked so well in the past, though he doesn’t give us an update on how 100 years of relying on the Supreme Court to safeguard our liberties has been going.

Levy does allow the states something, because the Supreme Court has graciously allowed them these things:

First, are states required to enforce federal laws and enact regulatory programs that Congress mandates? The answer on both counts is “No.”

In the 1997 case, Printz v. United States, the Supreme Court ruled that the federal government could not command state law enforcement authorities to conduct background checks on prospective handgun purchasers.

In the 1992 case, New York v. United States, the Court ruled that Congress couldn’t require states to enact specified waste disposal regulations.

So on waste disposal and background checks, we may stick it to the man.

Levy’s article is fairly conventional law school fare, a string of statements that such-and-such must be true because federal courts have said so. It is what I would expect to read from the Heritage Foundation, from John Marshall admirers, and from nationalists. There is nothing particularly libertarian about Levy’s analysis. The message is this: play by the rules. The rules have been laid down by people who despise you, but play by them.

If I am correct that the peoples of the states are the sovereigns in the American system, and I believe I have shown this to the satisfaction of a reasonable person, then the idea that there can be no state-level resistance to the federal government – even to the divinities on the Supreme Court – becomes obviously absurd. If the peoples of the states created the federal government and its subdivisions as their agent, how do they permanently lose the ability to stop their own creation from destroying them? Since when does the agent tell the principals what its powers are?

To say that the Supreme Court must decide constitutionality in the last resort is to beg all the relevant questions. To say that the Supreme Court has itself decided that it must be this arbiter is to take question-begging to quite an extreme. How can the Supreme Court, part of an agent of the states, have the absolutely final say, even above the sovereign entities that created it? As Madison explained in 1800, the courts have their role, but the parties to the Constitution naturally have to have some kind of defense mechanism in the last resort.

On these points, see my post “Is Nullification Unconstitutional?”

Read the rest of the article

The Cato Institute has now joined the Heritage Foundation in telling Americans they’re not allowed to nullify unconstitutional laws – because, after all, that’s what we have the Supreme Court for. Plus, says Cato chairman Robert Levy, nullification hasn’t worked so well in the past, though he doesn’t give us an update on how 100 years of relying on the Supreme Court to safeguard our liberties has been going.

Levy does allow the states something, because the Supreme Court has graciously allowed them these things:

First, are states required to enforce federal laws and enact regulatory programs that Congress mandates? The answer on both counts is “No.”

In the 1997 case, Printz v. United States, the Supreme Court ruled that the federal government could not command state law enforcement authorities to conduct background checks on prospective handgun purchasers.

In the 1992 case, New York v. United States, the Court ruled that Congress couldn’t require states to enact specified waste disposal regulations.

So on waste disposal and background checks, we may stick it to the man.

Levy’s article is fairly conventional law school fare, a string of statements that such-and-such must be true because federal courts have said so. It is what I would expect to read from the Heritage Foundation, from John Marshall admirers, and from nationalists. There is nothing particularly libertarian about Levy’s analysis. The message is this: play by the rules. The rules have been laid down by people who despise you, but play by them.

If I am correct that the peoples of the states are the sovereigns in the American system, and I believe I have shown this to the satisfaction of a reasonable person, then the idea that there can be no state-level resistance to the federal government – even to the divinities on the Supreme Court – becomes obviously absurd. If the peoples of the states created the federal government and its subdivisions as their agent, how do they permanently lose the ability to stop their own creation from destroying them? Since when does the agent tell the principals what its powers are?

To say that the Supreme Court must decide constitutionality in the last resort is to beg all the relevant questions. To say that the Supreme Court has itself decided that it must be this arbiter is to take question-begging to quite an extreme. How can the Supreme Court, part of an agent of the states, have the absolutely final say, even above the sovereign entities that created it? As Madison explained in 1800, the courts have their role, but the parties to the Constitution naturally have to have some kind of defense mechanism in the last resort.

On these points, see my post “Is Nullification Unconstitutional?”

Read the rest of the article

Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods's Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul's foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

The Best of Thomas Woods

One of Ron Paul’s great accomplishments is that the Federal Reserve faces more opposition today than ever before. Readers of this site will be familiar with the arguments: the Fed enjoys special government privileges; its interference with market interest rates gives rise to the boom-bust business cycle; it has undermined the value of the dollar; it creates moral hazard, since market participants know the money producer can bail them out; and it is unnecessary to and at odds with a free-market economy.

Unfortunately, not all Fed critics, even among Ron Paul supporters, approach the problem in this way. A subset of the end-the-Fed crowd opposes the Fed for peripheral or entirely wrongheaded reasons. For this group, the Fed is not inflating enough. (I have been told by one critic that our problem cannot be that too much money is being created, since he doesn’t know anyone who has too many Federal Reserve Notes.) Their other main complaints are (1) that the Fed is “privately owned” (the Fed’s problem evidently being that it isn’t socialistic enough), (2) that fiat money is just fine as long as it is issued by the people’s trusty representatives instead of by the Fed, and (3) that under the present system we are burdened with what they call “debt-based money”; their key monetary reform, in turn, involves moving to “debt-free money.” These critics have been called Greenbackers, a reference to fiat money used during the Civil War. (A fourth claim is that the Austrian School of economics, which Ron Paul promotes, is composed of shills for the banking system and the status quo; I have exploded this claim already – here, here, and here.)

With so much to cover I don’t intend to get into (1) right now, but it should suffice to note that being created by an act of Congress, having your board’s personnel appointed by the U.S. president, and enjoying government-granted monopoly privileges without which you would be of no significance, are not the typical features of a “private” institution. I’ll address (2) and (3) throughout what follows.

The point of this discussion is to refute the principal falsehoods that circulate among Greenbackers: (a) that a gold standard (either 100 percent reserve or fractional reserve) or the Federal Reserve’s fiat money system yields an outcome in which outstanding loans cannot all be paid because there is “not enough money” to pay both the principal and the interest; (b) that if the banks are allowed to issue loans at interest they will eventually wind up with all the money; and that the only alternative is “debt-free” fiat paper money issued by government.

My answers will be as follows: (1) the claim that there is “not enough money” to pay both principal and interest is false, regardless of which of these monetary systems we are considering; and (2) even if “debt-free” money were the solution, the best producer of such money is the free market, not Nancy Pelosi or John McCain.

To understand what the Greenbackers have in mind with their proposed “debt-free money,” and what they mean by the phrase “money as debt” they use so often, let’s look at the money creation process in the kind of fractional-reserve fiat money system we have. Suppose the Fed engages in one of its “open-market operations” and purchases government securities from one of its primary dealers. The Fed pays for this purchase by writing a check on itself, out of thin air, and handing it to the primary dealer. That primary dealer, in turn, deposits the check into its bank account – at Bank A, let us say.

Bank A doesn’t just sit on this money. The current system practically compels it to use that money as the basis for credit expansion. So if $10,000 was deposited in the bank, some $9,000 or so will be lent out – to Borrower C. So Borrower C now has $9,000 in purchasing power conjured out of thin air, while Person B can still write checks on his $10,000.

This is why the Greenbackers speak of “money as debt.” The $9,000 that Bank A created in our example entered the economy in the form of a loan to Person B. In our system the banks are not allowed to print cash, but they can do what from their point of view is the next best thing: create checking deposits out of thin air. Banks issue loans out of thin air by opening up a checking account for the customer, whose balance is created out of nothing, in the amount of the loan.

The Greenbacker complaint is this: when the fractional-reserve bank creates that $9,000 loan at (for example) ten percent interest, it expects $900 in interest payments at the end of the loan period. But if the bank created only the $9,000 for the loan itself and not the $900 that will eventually be owed in interest, where is that extra $900 supposed to come from?

At first this may seem like no problem. The borrower just needs to come up with an extra $900 by working more or consuming less. But this is no answer at all, according to the Greenbacker. Since all money enters the system in the form of loans to someone – recall how our fractional-reserve bank increased the money supply, by making a loan out of thin air – this solution merely postpones the problem. The whole system consists of loans for which only the principal was created. And since the banks create only the principal amounts of these loans and not the extra money needed to pay the interest, there just isn’t enough money for everyone to pay off their debts all at once.

And so the problem with the current system, according to them, is that our money is “debt based,” entering the economy as a debt owed to a bank. They prefer a system in which money is created “debt free” – i.e., printed by the government and spent directly into the economy, rather than lent into existence via loans by the banks.

In the comments section at my blog I have been told by a critic that even under a 100% gold standard, with no fractional-reserve banking, the charging of interest still involves asking borrowers to do what is literally impossible for them all to do at once, or at the very least will invariably lead to a situation in which the banks wind up with all the money.

All these claims are categorically false.

It is not true that “there is not enough money to pay the interest” under a gold standard or a purely free-market money, and it is not even true under the kind of fractional-reserve fiat paper system we have now. It certainly isn’t true that “the banks will wind up with all the money.” There are plenty of reasons to condemn the present banking system, but this isn’t one of them. The Greenbackers are focused on an irrelevancy, rather like criticizing Barack Obama for his taste in men’s suits.

I want to respond to this claim under both scenarios: (1) a 100% gold standard with no fractional reserves; and (2) our present fractional-reserve, fiat-money system.

In order to do so, let’s recall what money is and where it comes from.

Money emerges from the primitive system of barter, in which people exchange goods directly for one another: cheese for paper, shoes for apples. This is an obviously clumsy system, because (among a great many other reasons I trust readers can conjure for themselves) paper suppliers are not necessarily in the market for cheese, and vice versa.

A money economy, on the other hand, is one in which goods are exchanged indirectly for each other: instead of having to be a hat-wanting basketball owner in the possibly vain search for a basketball-wanting hat owner, the basketball owner instead exchanges his basketball for whatever is functioning as money – gold and silver, for example – and then exchanges the money for the hat he wants.

People dissatisfied with the awkward and ineffective system of barter perceive that if they can acquire a more widely desired and more marketable good than the one they currently possess, they are more likely to find someone willing to exchange with them. That more marketable good will tend to have certain characteristics: durability, divisibility, and relatively high value per unit weight. And the more that good begins to be used as a common medium of exchange, the more people who have no particular desire for it in and of itself will be eager to acquire it anyway, because they know other people will accept it in exchange for goods. In that way, gold and silver (or whatever the money happens to be) evolve into full-fledged media of exchange, and eventually into money (which is defined as the most widely accepted medium of exchange).

Money, therefore, emerges spontaneously as a useful commodity on the market. The fact that people desire it for the services it directly provides contributes to its marketability, which leads people to use it in exchange, which in turn makes it still more marketable, because now it can be used both for direct use as well as indirectly as a medium of exchange.

Note that there is nothing in this process that requires government, its police, or any form of monopoly privilege. The Greenbackers’ preferred system, in which money is created by a monopoly government, is completely foreign and extraneous to the natural evolution of money as we have here described it.

And make no mistake: money has to emerge the way we have described it. It cannot emerge for the first time as government-issued fiat paper. Whenever we think we’ve encountered an example in history of a pure fiat money being imposed by the state, a closer look always turns up some connection between that money and a pre-existing money, which is either itself a commodity or in turn traceable to one.

For one thing, pieces of paper with politicians’ faces on them are not saleable goods. They have no use value, and therefore could not have emerged from barter as the most marketable goods in society.

Second, even if government did try to impose a paper money issued from nothing on the people, it could not be used as a medium of exchange or a tool of economic calculation because no one could know what it was worth. Are three Toms worth one apple or seven fur coats? How could anyone know?

On the other hand, the money chosen by the market can be used as a medium of exchange and a tool of economic calculation. During the process in which it went from being just another commodity into being the money commodity, it was being offered in barter exchange for all or most other goods. As a result, an array of barter prices in terms of that good came into existence. (For simplicity’s sake, in this essay we’ll imagine gold as the commodity that the market chooses as money.) People can recall the gold-price of clocks, the gold-price of butter, etc., from the period of barter. The money commodity isn’t some arbitrary object to which government coerces the public into assigning value. Ordering people to believe that worthless pieces of paper are valuable is a difficult enough job, but then expecting them to use this mysterious, previously unknown item to facilitate exchanges without any pre-existing prices as a basis for economic calculation is absurd.

Of course, fiat moneys exist all over the world today, so it seems at first glance as if what I have just argued must be false. Evidently governments have been able to introduce paper money out of nothing.

This is where Murray Rothbard’s work comes in especially handy. In his classic little book What Has Government Done to Our Money? he builds upon the analysis of Ludwig von Mises and concisely describes the steps by which a commodity chosen by the people through their voluntary market exchanges is transformed into an altogether different monetary system, based on fiat paper.

The steps are roughly as follows. First, society adopts a commodity money, as described above. (As I noted above, for ease of exposition we’ll choose gold, but it could be whatever commodity the market selects.) Government then monopolizes the production and certification of the gold. Paper notes issued by banks or by governments that can be redeemed in a given weight of gold begin to circulate as a convenient substitute for carrying gold coins. These money certificates are given different names in different countries: dollars, pounds, francs, marks, etc. These national names condition the public to think of the dollar (or the pound or whatever) rather than the gold itself as the money. Thus it is less disorienting when the final step is taken and the government confiscates the gold to which the paper certificates entitle their holders, leaving the people with an unbacked paper money.

This is how unbacked paper money comes into existence. It begins as a convertible substitute for a commodity like gold, and then the government takes the gold away. It continues to circulate even without the gold backing because people can recall the exchange ratios that existed between the paper money and other goods in the past, so the paper money is not being imposed on them out of nowhere.

Free-market money, therefore, is commodity money. And commodity money is not “debt-based” money. When a gold miner produces gold and takes that gold to the mint to be transformed into coins, he simply spends the money into the economy. So free-market money does not enter the economy as a loan. It is an example of the “debt-free money” the Greenbackers are supposed to favor. I strongly suspect that many of them have never thought the problem through to quite this extent. If what they favor is “debt-free money,” why do they automatically assume it must be produced by the state? For consistency’s sake, they should support all forms of debt-free money, including money that takes the form of a good voluntarily produced on the market and without any form of monopoly privilege.

The free-market’s form of “debt-free money” also doesn’t require a government monopoly, or rely on the preposterously naive hope that the government production of “interest-free money” will be carried out without corruption or in a non-arbitrary way. (Any “monetary policy” that interferes with or second-guesses the stock of money that the voluntary array of exchanges known as the free market would produce is arbitrary.)

But now what of the Greenbacker claim that interest payments, of their very nature, cannot be paid by all members of society simultaneously?

This is clearly not true of a society in which money production is left to the market. The Greenbacker complaint about interest payments in a fractional-reserve system is that the banks create a loan’s principal out of thin air, and that because they don’t also create the amount of money necessary to pay the interest charges as well, the collective sum of loan payments (principal and interest) cannot be made. Some people, the Greenbackers concede, can pay back their loans with interest, but not everyone.

But this is not what happens in the situation we have been describing, in which the money is chosen spontaneously and voluntarily by the individuals in society, and in which government plays no role. Money in this truly laissez-faire system is spent into the economy once it is produced, not lent into existence out of thin air, so there is no problem of “debt-based money” yielding a situation in which “there is not enough money to pay the interest.” There is no “debt” created at any point in the process of money production on the free market in the first place. The free market gives us “debt-free money,” but the Greenbackers do not want it.

Read the rest of the article

One of Ron Paul’s great accomplishments is that the Federal Reserve faces more opposition today than ever before. Readers of this site will be familiar with the arguments: the Fed enjoys special government privileges; its interference with market interest rates gives rise to the boom-bust business cycle; it has undermined the value of the dollar; it creates moral hazard, since market participants know the money producer can bail them out; and it is unnecessary to and at odds with a free-market economy.

Unfortunately, not all Fed critics, even among Ron Paul supporters, approach the problem in this way. A subset of the end-the-Fed crowd opposes the Fed for peripheral or entirely wrongheaded reasons. For this group, the Fed is not inflating enough. (I have been told by one critic that our problem cannot be that too much money is being created, since he doesn’t know anyone who has too many Federal Reserve Notes.) Their other main complaints are (1) that the Fed is “privately owned” (the Fed’s problem evidently being that it isn’t socialistic enough), (2) that fiat money is just fine as long as it is issued by the people’s trusty representatives instead of by the Fed, and (3) that under the present system we are burdened with what they call “debt-based money”; their key monetary reform, in turn, involves moving to “debt-free money.” These critics have been called Greenbackers, a reference to fiat money used during the Civil War. (A fourth claim is that the Austrian School of economics, which Ron Paul promotes, is composed of shills for the banking system and the status quo; I have exploded this claim already – here, here, and here.)

With so much to cover I don’t intend to get into (1) right now, but it should suffice to note that being created by an act of Congress, having your board’s personnel appointed by the U.S. president, and enjoying government-granted monopoly privileges without which you would be of no significance, are not the typical features of a “private” institution. I’ll address (2) and (3) throughout what follows.

The point of this discussion is to refute the principal falsehoods that circulate among Greenbackers: (a) that a gold standard (either 100 percent reserve or fractional reserve) or the Federal Reserve’s fiat money system yields an outcome in which outstanding loans cannot all be paid because there is “not enough money” to pay both the principal and the interest; (b) that if the banks are allowed to issue loans at interest they will eventually wind up with all the money; and that the only alternative is “debt-free” fiat paper money issued by government.

My answers will be as follows: (1) the claim that there is “not enough money” to pay both principal and interest is false, regardless of which of these monetary systems we are considering; and (2) even if “debt-free” money were the solution, the best producer of such money is the free market, not Nancy Pelosi or John McCain.

To understand what the Greenbackers have in mind with their proposed “debt-free money,” and what they mean by the phrase “money as debt” they use so often, let’s look at the money creation process in the kind of fractional-reserve fiat money system we have. Suppose the Fed engages in one of its “open-market operations” and purchases government securities from one of its primary dealers. The Fed pays for this purchase by writing a check on itself, out of thin air, and handing it to the primary dealer. That primary dealer, in turn, deposits the check into its bank account – at Bank A, let us say.

Bank A doesn’t just sit on this money. The current system practically compels it to use that money as the basis for credit expansion. So if $10,000 was deposited in the bank, some $9,000 or so will be lent out – to Borrower C. So Borrower C now has $9,000 in purchasing power conjured out of thin air, while Person B can still write checks on his $10,000.

This is why the Greenbackers speak of “money as debt.” The $9,000 that Bank A created in our example entered the economy in the form of a loan to Person B. In our system the banks are not allowed to print cash, but they can do what from their point of view is the next best thing: create checking deposits out of thin air. Banks issue loans out of thin air by opening up a checking account for the customer, whose balance is created out of nothing, in the amount of the loan.

The Greenbacker complaint is this: when the fractional-reserve bank creates that $9,000 loan at (for example) ten percent interest, it expects $900 in interest payments at the end of the loan period. But if the bank created only the $9,000 for the loan itself and not the $900 that will eventually be owed in interest, where is that extra $900 supposed to come from?

At first this may seem like no problem. The borrower just needs to come up with an extra $900 by working more or consuming less. But this is no answer at all, according to the Greenbacker. Since all money enters the system in the form of loans to someone – recall how our fractional-reserve bank increased the money supply, by making a loan out of thin air – this solution merely postpones the problem. The whole system consists of loans for which only the principal was created. And since the banks create only the principal amounts of these loans and not the extra money needed to pay the interest, there just isn’t enough money for everyone to pay off their debts all at once.

And so the problem with the current system, according to them, is that our money is “debt based,” entering the economy as a debt owed to a bank. They prefer a system in which money is created “debt free” – i.e., printed by the government and spent directly into the economy, rather than lent into existence via loans by the banks.

In the comments section at my blog I have been told by a critic that even under a 100% gold standard, with no fractional-reserve banking, the charging of interest still involves asking borrowers to do what is literally impossible for them all to do at once, or at the very least will invariably lead to a situation in which the banks wind up with all the money.

All these claims are categorically false.

It is not true that “there is not enough money to pay the interest” under a gold standard or a purely free-market money, and it is not even true under the kind of fractional-reserve fiat paper system we have now. It certainly isn’t true that “the banks will wind up with all the money.” There are plenty of reasons to condemn the present banking system, but this isn’t one of them. The Greenbackers are focused on an irrelevancy, rather like criticizing Barack Obama for his taste in men’s suits.

I want to respond to this claim under both scenarios: (1) a 100% gold standard with no fractional reserves; and (2) our present fractional-reserve, fiat-money system.

In order to do so, let’s recall what money is and where it comes from.

Money emerges from the primitive system of barter, in which people exchange goods directly for one another: cheese for paper, shoes for apples. This is an obviously clumsy system, because (among a great many other reasons I trust readers can conjure for themselves) paper suppliers are not necessarily in the market for cheese, and vice versa.

A money economy, on the other hand, is one in which goods are exchanged indirectly for each other: instead of having to be a hat-wanting basketball owner in the possibly vain search for a basketball-wanting hat owner, the basketball owner instead exchanges his basketball for whatever is functioning as money – gold and silver, for example – and then exchanges the money for the hat he wants.

People dissatisfied with the awkward and ineffective system of barter perceive that if they can acquire a more widely desired and more marketable good than the one they currently possess, they are more likely to find someone willing to exchange with them. That more marketable good will tend to have certain characteristics: durability, divisibility, and relatively high value per unit weight. And the more that good begins to be used as a common medium of exchange, the more people who have no particular desire for it in and of itself will be eager to acquire it anyway, because they know other people will accept it in exchange for goods. In that way, gold and silver (or whatever the money happens to be) evolve into full-fledged media of exchange, and eventually into money (which is defined as the most widely accepted medium of exchange).

Money, therefore, emerges spontaneously as a useful commodity on the market. The fact that people desire it for the services it directly provides contributes to its marketability, which leads people to use it in exchange, which in turn makes it still more marketable, because now it can be used both for direct use as well as indirectly as a medium of exchange.

Note that there is nothing in this process that requires government, its police, or any form of monopoly privilege. The Greenbackers’ preferred system, in which money is created by a monopoly government, is completely foreign and extraneous to the natural evolution of money as we have here described it.

And make no mistake: money has to emerge the way we have described it. It cannot emerge for the first time as government-issued fiat paper. Whenever we think we’ve encountered an example in history of a pure fiat money being imposed by the state, a closer look always turns up some connection between that money and a pre-existing money, which is either itself a commodity or in turn traceable to one.

For one thing, pieces of paper with politicians’ faces on them are not saleable goods. They have no use value, and therefore could not have emerged from barter as the most marketable goods in society.

Second, even if government did try to impose a paper money issued from nothing on the people, it could not be used as a medium of exchange or a tool of economic calculation because no one could know what it was worth. Are three Toms worth one apple or seven fur coats? How could anyone know?

On the other hand, the money chosen by the market can be used as a medium of exchange and a tool of economic calculation. During the process in which it went from being just another commodity into being the money commodity, it was being offered in barter exchange for all or most other goods. As a result, an array of barter prices in terms of that good came into existence. (For simplicity’s sake, in this essay we’ll imagine gold as the commodity that the market chooses as money.) People can recall the gold-price of clocks, the gold-price of butter, etc., from the period of barter. The money commodity isn’t some arbitrary object to which government coerces the public into assigning value. Ordering people to believe that worthless pieces of paper are valuable is a difficult enough job, but then expecting them to use this mysterious, previously unknown item to facilitate exchanges without any pre-existing prices as a basis for economic calculation is absurd.

Of course, fiat moneys exist all over the world today, so it seems at first glance as if what I have just argued must be false. Evidently governments have been able to introduce paper money out of nothing.

This is where Murray Rothbard’s work comes in especially handy. In his classic little book What Has Government Done to Our Money? he builds upon the analysis of Ludwig von Mises and concisely describes the steps by which a commodity chosen by the people through their voluntary market exchanges is transformed into an altogether different monetary system, based on fiat paper.

The steps are roughly as follows. First, society adopts a commodity money, as described above. (As I noted above, for ease of exposition we’ll choose gold, but it could be whatever commodity the market selects.) Government then monopolizes the production and certification of the gold. Paper notes issued by banks or by governments that can be redeemed in a given weight of gold begin to circulate as a convenient substitute for carrying gold coins. These money certificates are given different names in different countries: dollars, pounds, francs, marks, etc. These national names condition the public to think of the dollar (or the pound or whatever) rather than the gold itself as the money. Thus it is less disorienting when the final step is taken and the government confiscates the gold to which the paper certificates entitle their holders, leaving the people with an unbacked paper money.

This is how unbacked paper money comes into existence. It begins as a convertible substitute for a commodity like gold, and then the government takes the gold away. It continues to circulate even without the gold backing because people can recall the exchange ratios that existed between the paper money and other goods in the past, so the paper money is not being imposed on them out of nowhere.

Free-market money, therefore, is commodity money. And commodity money is not “debt-based” money. When a gold miner produces gold and takes that gold to the mint to be transformed into coins, he simply spends the money into the economy. So free-market money does not enter the economy as a loan. It is an example of the “debt-free money” the Greenbackers are supposed to favor. I strongly suspect that many of them have never thought the problem through to quite this extent. If what they favor is “debt-free money,” why do they automatically assume it must be produced by the state? For consistency’s sake, they should support all forms of debt-free money, including money that takes the form of a good voluntarily produced on the market and without any form of monopoly privilege.

The free-market’s form of “debt-free money” also doesn’t require a government monopoly, or rely on the preposterously naive hope that the government production of “interest-free money” will be carried out without corruption or in a non-arbitrary way. (Any “monetary policy” that interferes with or second-guesses the stock of money that the voluntary array of exchanges known as the free market would produce is arbitrary.)

But now what of the Greenbacker claim that interest payments, of their very nature, cannot be paid by all members of society simultaneously?

This is clearly not true of a society in which money production is left to the market. The Greenbacker complaint about interest payments in a fractional-reserve system is that the banks create a loan’s principal out of thin air, and that because they don’t also create the amount of money necessary to pay the interest charges as well, the collective sum of loan payments (principal and interest) cannot be made. Some people, the Greenbackers concede, can pay back their loans with interest, but not everyone.

But this is not what happens in the situation we have been describing, in which the money is chosen spontaneously and voluntarily by the individuals in society, and in which government plays no role. Money in this truly laissez-faire system is spent into the economy once it is produced, not lent into existence out of thin air, so there is no problem of “debt-based money” yielding a situation in which “there is not enough money to pay the interest.” There is no “debt” created at any point in the process of money production on the free market in the first place. The free market gives us “debt-free money,” but the Greenbackers do not want it.

Read the rest of the article

Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods's Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul's foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

The Best of Thomas Woods

Now on some level, we shouldn’t care: resisting violent people who claim the right to expropriate you and force you around is a natural right, and doesn’t rely on any parchment guarantee.

But I for one prefer to address my opponents from every angle I can, including their own.

These days we’re seeing a lot of newspaper columns condemning the idea of state nullification of unconstitutional federal laws. A common claim is that nullification is “unconstitutional.” I’ve addressed this claim in bits and pieces elsewhere, but I figured I’d write up one post I can use to counter this argument once and for all.

The most common claim, which one hears quite a bit from law professors (this is not meant as a compliment), is that the Supremacy Clause precludes nullification. “Federal law trumps state law” is the (rather inane) way we hear the principle expressed these days.

What the Supremacy Clause actually says is: u201CThis Constitution, and the Laws of the United States which shall be made in pursuance thereof…shall be the supreme law of the land.u201D

In other words, the standard law-school response deletes the most significant words of the whole clause. It’s safe to assume that Thomas Jefferson was not unaware of, and did not deny, the Supremacy Clause. His point was that only the Constitution and laws which shall be made in pursuance thereof shall be the supreme law of the land. Citing the Supremacy Clause merely begs the question. A nullifying state maintains that a given law is not u201Cin pursuance thereofu201D and therefore that the Supremacy Clause does not apply in the first place.

Such critics are expecting us to believe that the states would have ratified a Constitution with a Supremacy Clause that said, in effect, u201CThis Constitution, and the Laws of the United States which shall be made in pursuance thereof, plus any old laws we may choose to pass, whether constitutional or not, shall be the supreme law of the land.u201D

Hamilton himself explained at New York's ratifying convention that while on the one hand u201Cacts of the United States … will be absolutely obligatory as to all the proper objects and powers of the general government,u201D at the same time u201Cthe laws of Congress are restricted to a certain sphere, and when they depart from this sphere, they are no longer supreme or binding.u201D In Federalist 33, Hamilton noted that the clause u201Cexpressly confines this supremacy to laws made pursuant to the Constitution.u201D

At North Carolina's ratifying convention, James Iredell told the delegates that when u201CCongress passes a law consistent with the Constitution, it is to be binding on the people. If Congress, under pretense of executing one power, should, in fact, usurp another, they will violate the Constitution.u201D In December 1787 Roger Sherman observed that an u201Cexcellency of the constitutionu201D was that u201Cwhen the government of the united States acts within its proper bounds it will be the interest of the legislatures of the particular States to Support it, but when it leaps over those bounds and interferes with the rights of the State governments they will be powerful enough to check it.u201D

Another argument against the constitutionality of nullification is that the Constitution nowhere mentions it.

This is an odd complaint, coming as it usually does from those who in any other circumstance do not seem especially concerned to find express constitutional sanction for particular government policies.

The mere fact that a state's reserved right to obstruct the enforcement of an unconstitutional law is not expressly stated in the Constitution does not mean the right does not exist. The Constitution is supposed to establish a federal government of enumerated powers, with the remainder reserved to the states or the people. Essentially nothing the states do is authorized in the federal Constitution, since enumerating the states' powers is not the purpose and is alien to the structure of that document.

Read the rest of the article

Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods's Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul's foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

The Best of Thomas Woods

Plenarchist writes:

You might find this talk Nassim Taleb gave at Google interesting. He explains antifragility (from his latest book, which I haven’t read).

His theory with respect to societies argues in favor of small government to reduce societal fragility. It is an argument in favor of competing states theory and even for nullification. (Though I have a hard time believing states can “compete” peacefully…)

Bottom line, the bigger the government the more homogeneous and fragile the society and the greater the risk of a black swan event (a total system shock). He sees the US and the world becoming more fragile as governments become more consolidated and centralized.

A very predictable progressive, I might add. Once in a while a progressive, like Jeff Taylor at Jacksonville State, realizes that gigantic, unresponsive bureaucracies that bomb foreign populations at the drop of a hat, just might – might! – not be so progressive. And that the old progressive slogan “small is beautiful” just might apply to the political order as well.

But then there are the Predictable Progressives, who stick to the 3×5 card of allowable opinion, and trot out all the old arguments. Half the time they’re not even arguments. It’s just, “Hey, this is an old idea! That means it’s stupid. Today we’re so much more sophisticated. The modern state has showered the world with so many blessings; what kind of uppity troublemaker could ever want to challenge it?”

Hence the “Progressive Professor,” who teaches at Florida Atlantic University, has a blog post called “Rand Paul Revives Nullification from the Pre-Civil War Years.” He writes:

By bringing up “nullification,” [Paul] is forgetting that the Civil War was fought over precisely that issue, the concept of states rights, that a state could nullify laws or actions of the federal government. And that viewpoint lost the war!

Rand Paul is not “forgetting” the Civil War, obviously, so that snide comment serves no purpose. The Civil War was not fought over nullification; in fact, South Carolina complained about nullification in its ordinance of secession, and Jefferson Davis condemned it in his farewell speech to the U.S. Senate. The war was indeed fought over the concept of state sovereignty, but it is obviously correct that the peoples of the states were sovereign. I have covered this. I am waiting for someone to refute me. Maybe the Progressive Professor will try. Probably not.

Read the rest of the article

Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods's Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul's foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

The Best of Thomas Woods

Julie Borowski, who goes by Token Libertarian Girl on YouTube, makes some good videos and is a smart libertarian. The other day, though, she ran afoul of the Libertarian Thought Police, Humorless P.C. Automaton division.

Julie made a video exploring why the libertarian movement attracts so few women. It is a two-minute video describing some of her anecdotal impressions, not a peer-reviewed journal article. She gave an incorrect answer, according to the Banishers. The correct answer, evidently, is that libertarians are mean and say mean things, and that this general libertarian perversity keeps women away. The possibility that any kind of difference between men and women might at least be partially responsible for the disparity is not even raised, needless to say.

Julie was thus subjected to the kind of stern ideological correction one would expect from leftists who have had their p.c. pieties challenged. This is no surprise, since these folks’ criticism of other libertarians is that we don’t embrace leftism with sufficient gusto.

I won’t go through the whole dreary, predictable thing, which you can read for yourself.

Among other things, Julie’s critics say she “slut shames women who engage in casual sex.” (Shows how sheltered I am: evidently there are people in the world who use the phrase “slut shames.”) Doesn’t Julie know that such behavior, far from being a “cause for shame,” is just one of the “complex choices that smart, thoughtful women can and do make”?

And while of course the author of a blog post is not responsible for the comments readers leave, I found this one revealing: “Why does she [Borowski] rail against other women’s choices? Surely a core libertarian value is neutrality between different conceptions of the good?”

Actually, no. I replied: “The core libertarian value is nonaggression. ‘Neutrality between different conceptions of the good’ has nothing to do with libertarianism. If you were truly neutral between different conceptions of the good, you wouldn’t be arguing against Julie’s conception of the good.”

Unfortunately, this kind of thinking dominates a certain wing of the libertarian movement, which congratulates itself for its “thick” libertarianism, as opposed to the (I guess) thin kind embraced by the rest of us. Yes, yes, they concede, nonaggression is the key thing, but if you really want to promote liberty you can’t just oppose the state. You have to oppose “the patriarchy,” embrace countercultural values, etc.

Then, once libertarianism has been made to seem as freakish and anti-bourgeois as possible, these same people turn around and blame the rest of us for why the idea isn’t more popular.

Physician, heal thyself.

Incidentally, by the reasoning of Julie’s critics, one would be led to the equally patronizing conclusion that the reason there are so few female chess champions is that women can’t succeed, or won’t even try, unless everything is just so. Since male/female differences are ruled out, what other explanation is left? Not enough “role models” for women? Then how did anyone, anywhere, ever start doing anything?

Read the rest of the article

Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods's Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul's foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

The Best of Thomas Woods

This was published on January 2, 2013, in Ron Paul's Monetary Policy Anthology: Materials From the Chairmanship of the Subcommittee on Domestic Monetary Policy and Technology, US House of Representatives, 112th Congress.

We have heard the objection a thousand times: why, before we had a Federal Reserve System the American economy endured a regular series of financial panics. Abolishing the Fed is an unthinkable, absurd suggestion, for without the wise custodianship of our central bankers we would be thrown back into a horrific financial maelstrom, deliverance from which should have made us grateful, not uppity.

The argument is superficially plausible, to be sure, but it is wrong in every particular. We heard it quite a bit in the financial press ever since the announcement that Congressman Ron Paul, a well-known opponent of the Fed, would chair the House Financial Services Subcommittee on Domestic Monetary Policy. Fed apologists were beside themselves — a man who rejects the cartoon version of the history of the Fed will hold such an influential position? He must be made into an object of derision and ridicule.

The conventional wisdom runs something like this: without a central bank or its lesser cousin, a national bank, we had frequent episodes of boom and bust, but since the creation of the Federal Reserve System the economy has been far more stable. People who believe in a free market in banking, as opposed to these cartel arrangements, are evidently so uninformed or so blinded by ideology that they have never heard or internalized this one-sentence encapsulation of 19th- and 20th-century monetary history.

Modern scholarship has not been kind to this thesis. Mainstream economists have begun to acknowledge that the alleged instability of the period before the Federal Reserve has been exaggerated, as the posited stability of the post-Fed period. Christina Romer, who chaired the Council of Economic Advisers under Barack Obama, finds that the numbers and dating used by the National Bureau of Economic Research (NBER, the largest economics research foundation in the U.S., founded in 1920) exaggerate both the number and the length of economic downturns prior to the creation of the Fed. In so doing, the NBER likewise overestimates the Fed's contribution to economic stability. Recessions were in fact not more frequent in the pre-Fed than the post-Fed period.

Suppose we compare only the post-World War II period to the pre-Fed period, thereby excluding the Great Depression from the Fed's record. In that case, we do find economic contractions to be somewhat more frequent in the period before the Fed, but as economist George Selgin explains, "They were also three months shorter on average, and no more severe." Thus recoveries were faster in the pre-Fed period, with the average time peak to bottom taking only 7.7 months as opposed to the 10.6 months of the post-World War II period. Extending our pre-Fed period to include 1796 to 1915, economist Joseph Davis finds no appreciable difference between the frequency and duration of recessions as compared to the period of the Fed.

But perhaps the Fed has helped to stabilize real output (the total amount of goods and services an economy produces in a given period of time, adjusted to remove the effects of inflation), thereby decreasing economic volatility. Not so. Some recent research finds the two periods (pre- and post-Fed) to be approximately equal in volatility, and some finds the post-Fed period in fact to be more volatile, once faulty data are corrected for. The ups and downs in output that did exist before the creation of the Fed were not attributable to the lack of a central bank. Output volatility before the Fed was caused almost entirely by supply shocks that tend to affect an agricultural society (harvest failures and such), while output volatility after the Fed is to a much greater extent the fault of the monetary system. (For citations on this point and for the previous paragraphs, see the paper by George Selgin, William D. Lastrapes, and Lawrence H. White, "Has the Fed Been a Failure?" available online.)

The 19th-century boom-bust cycles that are supposed to discredit the idea of a free market in money and banking are in fact consistently attributable to artificial credit expansion, a practice given artificial stimulus by means of the various government privileges granted to the banking industry. According to Richard Timberlake, a well-known economist and historian of American monetary and banking history, "As monetary histories confirm…most of the monetary turbulence — bank panics and suspensions in the nineteenth century — resulted from excessive issues of legal-tender paper money, and they were abated by the working gold standards of the times." It is the old story of the faults of interventionism being blamed on the free market.

Contemporaries by and large attributed the Panic of 1819, for example, to the inflationary and then rapidly contractionary policies of the Second Bank of the United States. As often happens when the country is flooded with money created out of thin air, speculation of all kinds grew intense, as eyewitness testimony abundantly records.

During the years when the U.S. had no central bank (the period from 1811, when the charter of the first Bank of the United States expired, and 1817), government had granted private banks the privilege of expanding credit while refusing to pay depositors demanding their funds. In other words, when people came to demand their money from the banks, the banks were allowed to tell them they didn't have the money, and depositors would simply have to wait a couple years — and at the same time, the bank was allowed to continue in operation. By early 1817 the Madison administration finally required the banks to meet depositor demands, but at the same time chartered the Second Bank of the United States, which would itself be inflationary. The Bank subsequently presided over an inflationary boom, which came to grief in 1819.

The lesson of that sorry episode — namely, that the economy gets taken on a wild and unhealthy ride when the money supply is arbitrarily increased and then suddenly reduced — was so obvious that even the political class managed to figure it out. Numerous American statesmen were confirmed in their hard-money views by the Panic. Thomas Jefferson asked a friend in the Virginia legislature to introduce his "Plan for Reducing the Circulating Medium," which the Sage of Monticello had drawn up in response to the Panic. The plan sought to withdraw all paper money in excess of specie over a five-year period, then redeem the rest in specie and have precious-metal coins circulate exclusively from that moment on. Jefferson and John Adams were especially fond of Destutt de Tracy's hard-money Treatise on the Will (1815), with Adams calling it the best book on economics ever written (its chapter on money, said Adams, defends "the sentiments that I have entertained all my lifetime") and Jefferson writing the preface to the English-language edition.

While the Panic of 1819 confirmed some political figures in the hard-money views they already held, it also converted others to that position. Condy Raguet had been an outspoken inflationist until 1819. After observing the distortions and instability caused by paper-money inflation, he promptly embraced hard money, and went on to write A Treatise on Currency and Banking (1839), one of the great money and banking treatises of the nineteenth century. Davy Crockett, future president William Henry Harrison, and John Quincy Adams (at least at that time) were likewise opposed to inflationist banks; in contrast to the inflationary Second Bank of the United States, Adams cited the hard-money Bank of Amsterdam as a model to emulate. Daniel Raymond, disciple of Alexander Hamilton and author of the first treatise on economics published in America (Thoughts on Political Economy, 1820), expressly broke with Hamilton in advocating a hard-money, 100 percent specie-backed currency.

Popular references to the Panic of 1837 today urge us to blame President Andrew Jackson for having dissolved the Second Bank of the United States. The most common argument is this: without a national bank to discipline the state banks, the state banks that received the federal deposits after the closure of the Second Bank went on an inflationary binge that culminated in the Panic of 1837 and another downturn in 1839. This standard diagnosis is partly Austrian, surprisingly, in that it blames artificial credit expansion for giving rise to unsustainable booms that end in busts. But the alleged solution to this problem, according to modern commentators, is a robust central bank with implicit regulatory powers over smaller institutions.

Senator William Wells, a hard-money Federalist from Delaware, had been unconvinced from the start that the best way to encourage sound practices among smaller unsound banks was to establish a giant unsound bank. "This bill," he said in 1816,

came out of the hands of the administration ostensibly for the purpose of curtailing the over-issue of Bank paper: and yet it came prepared to inflict on us the same evil, being itself nothing more than a simple paper making machine; and constituting, in this respect, a scheme of policy about as wise, in point of precaution, as the contrivance of one of Rabelais's heroes, who hid himself in the water for fear of the rain. The disease, it is said, is the Banking fever of the States; and this is to be cured by giving them the Banking fever of the United States.

Another hard-money U.S. senator, New York's Samuel Tilden, likewise wondered, "How could a large bank, constituted on essentially the same principles, be expected to regulate beneficially the lesser banks? Has enlarged power been found to be less liable to abuse than limited power? Has concentrated power been found less liable to abuse than distributed power?"

A much better solution recommended by hard-money advocates at the time is what became known as the "Independent Treasury," in which the federal deposits, instead of being distributed to privileged state banks and used as the basis for additional rounds of credit creation there, were retained by the Treasury and kept out of the banking system entirely. Hard-money supporters believed that the federal government was propping up (and lending artificial legitimacy to) an unsound system of fractional-reserve state banks by (1) distributing the federal deposits to them, (2) accepting their paper money in payment of taxes and (3) paying it back out again. As William Gouge put it,

If the operations of Government could be completely separated from those of the Banks, the system would be shorn of half its evils. If Government would neither deposit the public funds in the Banks, nor borrow money from the Banks; and if it would in no case either receive Bank notes or pay away Bank notes, the Banks would become mere commercial institutions, and their credit and their power be brought nearer to a level with those of private merchants.

Contemporary opponents of the Bank have sometimes been portrayed as antimarket, antiproperty populists. "Last time we had a central bank," wrote a critic of Congressman Paul in 2010, "its advocates were conservative, hard-money businessmen, and its opponents were subprime borrowers and lenders who convinced President Jackson the bank was holding back the nation." That is as wrong as wrong can be, as we'll see in a moment. But our critic proceeds from this error to the false conclusion that supporters of the market economy then as now should be supporters of the central bank.

To be sure, opponents of the Second Bank of the United States were no monolith, and even today the central bank is criticized both by those who condemn its money creation as well as by those who criticize its alleged stinginess. On balance, though, the fight against the Second Bank was a free-market, hard-money campaign against a government-privileged paper-money producer. "The attack on the Bank," concluded Professor Jeff Hummel in his review of the literature, "was a fully rational and highly enlightened step toward the achievement of a laissez-faire metallic monetary system."

In fact, the most important monetary theorist of the entire period, William Gouge, was a champion of hard money who opposed the Bank; he considered these two positions logically coordinate, indeed inseparable. "Why should ingenuity exert itself in devising new modifications of paper Banking?" Gouge asked. "The economy which prefers fictitious money to real, is, at best, like that which prefers a leaky ship to a sound one." He assured Americans that "the sun would shine, the streams would flow, and the earth would yield her increase, if the Bank of the United States was not in existence." The conservative Bankers' Magazine, upon Gouge's death, said that his hard-money book A Short History of Paper Money and Banking was "a very able and clear exposition of the principles of banking and of the mistakes made by our American banking institutions."

Another important hard-money opponent of the national bank was William Leggett, the influential Jacksonian editorial writer in New York who memorably called for "separation of bank and state." Economist Larry White, who compiled many of Leggett's most important writings, calls him "the intellectual leader of the laissez-faire wing of Jacksonian democracy." He denounced the Bank for its repeated expansions and contractions, and for the economic turmoil that such manipulation left in its wake.

The Panic of 1819 had likewise been due to such behavior on the part of the Bank, said Leggett during the 1830s. "For the two or three years preceding the extensive and heavy calamities of 1819, the United States Bank, instead of regulating the currency, poured out its issues at such a lavish rate that trade and speculation were excited in a preternatural manner." Leggett continues,

But not to dwell upon events the recollection of which time may have begun to efface from many minds, let us but cast a glance at the manner in which the United States Bank regulated the currency in 1830, when, in the short period of a twelve-month it extended its accommodations from forty to seventy millions of dollars. This enormous expansion, entirely uncalled for by any peculiar circumstance in the business condition of the country, was followed by the invariable consequences of an inflation of the currency. Goods and stocks rose, speculation was excited, a great number of extensive enterprises were undertaken, canals were laid out, rail-roads projected, and the whole business of the country was stimulated into unnatural and unsalutary activity.

As in later crises, banks were allowed to suspend specie payment (a fancy way of saying that the law permitted them to refuse to hand over their depositors' money when their customers came looking for it) while permitting them to carry on their operations. The knowledge that government could be counted on to bail out the banks in this way created a lingering problem of moral hazard that would affect banks' behavior in the future.

Leggett blamed artificial credit creation for the Panic of 1837:

What has been, what ever must be, the consequence of such a sudden and prodigious inflation of the currency? Business stimulated to the most unhealthy activity; a vast amount of over production in the mechanick arts; a vast amount of speculation in property of every kind and name, at fictitious values; and finally, a vast and terrifick crash, when the treacherous and unsubstantial basis crumbles beneath the stupendous fabrick of credit, and the structure falls to the ground, burying in its ruins thousands who exulted in the fancied security of their elevation. Men, now-a-days, go to bed deeming themselves rich, and wake in the morning to find themselves stripped of even the little they really had. They count, deluded creatures! on the continued liberality of the banks, whose persuasive entreaties seduced them into the slippery paths of speculation. But they have now to learn that the banks cannot help them if they would, and would not if they could. They were free enough to lend their aid when assistance was not needed; but now, when it is indispensable to carry out the projects which would not have been undertaken but for the temptations they held forth, no further resources can be supplied.

Toward the end of 1837, he added:

Any person who has soberly observed the course of events for the last three years must have foreseen the very state of things which now exists…. He will see that the banks…have been striving with all their might, each emulating the other, to force their issues into circulation and flood the land. He will see that they have used every art of cajolery and allurement to entice men to accept their proffered aid, that in this way they gradually excited a thirst for speculation which they sedulously stimulated until it increased to a delirious fever and men in the epidemic frenzy of the hour wildly rushed upon all sorts of desperate adventures. They dug canals where no commerce asked for the means of transportation, they opened roads where no travelers desired to penetrate and they built cities where there were none to inhabit.

The Panic of 1857 was the result of a five-year boom rooted in credit expansion. The most capital-intensive industries of that decade, railroad construction and mining companies, expanded the most during the boom. States had even backed railroad bonds, promising to make good on those bonds if the railroad companies did not.

President James Buchanan engaged in no vain effort to reflate the economy. He observed in his first annual message, "It is apparent that our existing misfortunes have proceeded solely from our extravagant and vicious system of paper currency and bank credits." The economy recovered within six months, even though the money supply fell, interest rates rose, government spending was not increased, and businesses and banks were not bailed out. But Buchanan cautioned Americans that "the periodical revulsions which have existed in our past history must continue to return at intervals so long as our present unbounded system of bank credits shall prevail."

Buchanan envisioned a federal bankruptcy law for banks that, instead of giving legal sanction to their suspension of specie payments (that is, their failure to honor their depositors' demands for withdrawal), would in fact shut them down if they failed to make good on their promises. "The instinct of self-preservation might produce a wholesome restraint upon their banking business if they knew in advance that a suspension of specie payments would inevitably produce their civil death."

Until recently it was customary to refer to the 1870s as the period of the "Long Depression" in the United States. The modern consensus holds that there was no "Long Depression" after all. Even the New York Times recently observed:

Recent detailed reconstructions of nineteenth-century data by economic historians show that there was no 1870s depression: aside from a short recession in 1873, in fact, the decade saw possibly the fastest sustained growth in American history. Employment grew strongly, faster than the rate of immigration; consumption of food and other goods rose across the board. On a per capita basis, almost all output measures were up spectacularly. By the end of the decade, people were better housed, better clothed and lived on bigger farms. Department stores were popping up even in medium-sized cities. America was transforming into the world's first mass consumer society.

Farmers, moreover, who panicked at falling prices for agricultural commodities, at first failed to note that other prices were falling still faster. The terms of trade for American farmers improved considerably during the 1870s.

As for historians, they seem to have been fooled by the statistics on consumer prices, which fell an average of 3.8 percent per year. And since the conventional wisdom holds that falling prices and depression are intimately linked — they are not — they concluded that this must have been a time of terrible depression. With the gold standard restored in 1879 after being abandoned during the Civil War, the 1880s were likewise a period of great prosperity, with real wages rising by 20 percent.

The post–Civil War panics in the United States were due in large part to the unit-banking regulations in many states that forbade branch banking of any sort. Confined to a single office, each bank was necessarily fragile and undiversified. Canada experienced none of these panics even though it did not establish a central bank, the establishment's trusted panacea, until 1934. As Milton Friedman was fond of pointing out, when 9,000 banks failed in the U.S. during the Great Depression, not a single bank failure was taking place in Canada, where the banking system was not damaged by these regulations.

Moreover, as Charles Calomiris has noted, the bank failure rate during the pre-Fed panics was small, as were the losses depositors suffered. Depositor losses amounted to only 0.1 percent of GDP during the Panic of 1893, which was the worst of them all with respect to bank failures and depositor losses. By contrast, in just the past 30 years of the central-bank era, the world has seen 20 banking crises that led to depositor losses in excess of 10 percent of GDP. Half of those saw losses in excess of 20 percent of GDP.

Just from an empirical point of view, therefore, the case for the Fed is far weaker than its proponents admit or realize. Still, as in so many other areas, critics of the status quo are reflexively condemned as cranks, and alternatives are dismissed as unthinkable. But they are unthinkable only because we have allowed fashionable opinion to keep us from thinking them. We have been forced into a box that confines our choices to various forms of statism. The movement to end the Fed is an astonishing and most welcome first step toward clawing our way out.

Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods's Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul's foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

The Best of Thomas Woods

The Southern Poverty Law Center, the thought-control outfit by which millionaire Morris Dees terrifies old ladies into sending him their Social Security checks, is an important arm of the regime. Its targets often include quite despicable people, but just as often seem to include normal Americans whose views happen to fall outside the three-by-five card of acceptable opinion as defined by the New York Times. By conflating the two groups, the SPLC seeks to destroy the reputations of dissidents. And no matter how violent the federal government should become, it is always safe from SPLC criticism, which is directed at critics of the police state and the empire, never the perpetrators themselves.

This time the target is anarcho-capitalists, who are evidently on the verge of taking over this here country, and who hold the dangerous view that no one should initiate violence against anyone else. Note that the Southern Poverty Law Center said nothing when a Florida legislator endorsed the execution of dissidents. Even if that had been a joke – which, given the context, it obviously wasn’t – the SPLC is not known for its patient indulgence of violent humor. Evidently when violence is directed at a party the SPLC doesn’t like, it’s not really violence.

Anarcho-capitalists wield zero power over anyone. According to the bipartisan foreign policy consensus, on the other hand, it’s not even newsworthy when the federal government engages in murderous drone strikes. For the SPLC, that kind of “extremism” isn’t even worth mentioning. And see Lew Rockwell on this.

Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods's Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul's foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

The Best of Thomas Woods

People often ask me what books they ought to read in order to get quickly up to speed on economics, politics, and history. Here are some suggestions.

If you’re like me, you are annoyed by books that teach you three new things. My time is limited. I like books that are full of things I didn’t know, or ideas I’d never thought of.

The books I recommend below belong in that category. They teach you something new and unexpected on every page. And they are a perfect antidote to the propaganda fed to us in the ideological prison camps where most of us spent our formative years. I list them in no particular order.

Economics in One Lesson, by Henry Hazlitt. Important for beginners. You can read it online. Also useful for beginners is Peter Schiff’s book How an Economy Grows and Why It Crashes.

The Revolution: A Manifesto, by Ron Paul. This is another good one for beginners. It has a good track record as a proselytizing device.

Democracy: The God that Failed, by Hans-Hermann Hoppe. Just read it. Trust me on this.

The Quest for Community, by Robert Nisbet. Here is a graduate course in political philosophy. Except in this one, the state is not the glorious summit of civilization and the indispensable source of human flourishing. As the new edition explains, "Nisbet argued that the rise of the powerful modern state had eroded the sources of community – the family, the neighborhood, the church, the guild. Alienation and loneliness inevitably resulted. But as the traditional ties that bind fell away, the human impulse toward community led people to turn even more to the government itself, allowing statism – even totalitarianism – to flourish."

The Left, the Right, and the State, by Lew Rockwell. Lew (who of course runs the indispensable LewRockwell.com) did the world an incalculable service with the founding of the Ludwig von Mises Institute, but he is grossly underrated as a thinker in his own right. He has extended Rothbardian thought in numerous ways, and has influenced my own thinking more than almost anyone in the world.

The Austrian Theory of the Trade Cycle and Other Essays. Features essays by Ludwig von Mises, F.A. Hayek, Gottfried Haberler, and Murray N. Rothbard. An effective introduction to the Austrian theory of the business cycle. You can read or listen to it online.

What Has Government Done to Our Money? by Murray N. Rothbard. An excellent little overview of the origin of money and its fate at the hands of government. You can listen to this book (along with The Case for a 100 Percent Gold Dollar) for free.

Egalitarianism as a Revolt Against Nature and Other Essays, by Murray N. Rothbard. The quality of the essays in this book is astounding. You will not think the same way ever again after reading “Anatomy of the State” and “War, Peace, and the State,” to name just two. You can read it online.

After you read these, I recommend the following:

A Theory of Socialism and Capitalism, by Hans-Hermann Hoppe. Hoppe’s books put everything together for me. You can read this one online.

The Economics and Ethics of Private Property, by Hans-Hermann Hoppe. This book blew me away when I first read it. Its title makes it sound dull. It is one of the most intellectually exciting books I have ever read.

Man, Economy, and State: A Treatise on Economic Principles, by Murray N. Rothbard. This one, and the two that follow, are for the especially ambitious. This is a systematic exposition of Austrian economics. The sheer elegance of the Austrian system is on impressive display here. The entire text is available online. A study guide is available for purchase and online.

Human Action: A Treatise on Economics, by Ludwig von Mises. Available online, and as a free audiobook. See also the study guide, which can be purchased or read online. (Some disagree with me, but I favor beginning with Rothbard before moving on to Human Action.)

Money, Bank Credit, and Economic Cycles, by Jesús Huerta de Soto. Here is the Austrian theory on money, banking, and business cycles, presented in systematic fashion, and compared with the Chicago and Keynesian alternatives. I have a friend who was so impressed by this book that he learned Spanish so he could pursue his Ph.D. under the author in Spain. It is also available in pdf.

I could name other books, naturally, but to my mind these are the absolutely indispensable ones.

One of the goals of my own books, for that matter, has been to get people up to speed on various topics as quickly and with as little exertion on their part as possible. Rollback, my most recent title, covers a very wide range of topics and replies to the most common objections to the free society. I was delighted to hear a student tell me just the other day, “I realized as I was reading this book that it would help me win debates.” That was part of the idea, for sure. I tried to do the same thing in some of my other titles, like The Politically Incorrect Guide to American History, 33 Questions About American History, Meltdown [on the financial crisis], and Nullification.

Thomas E. Woods, Jr. [send him mail; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods's Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul's foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

The Best of Thomas Woods