vs. Badges and Guns
by Gary North: Why
Really Good Looking Women Are Not Taken Seriously . . . Which They
Can Use to Their Advantage
Do you trust
men with guns and badges to provide long-term economic growth? Or
do you trust the free market?
When push comes
to shove recession most people trust guns and badges
far more than they trust the free market.
Do you trust
the Federal Reserve System to maintain prosperity? Or would you
prefer to trust gold coins held by millions of Americans?
and virtually all professors of economics trust the Federal Reserve
That was not
true in 1913, the year Congress voted (just before the Christmas
recess) to create the Federal Reserve System.
There is a
way to avoid recessions, argued Ludwig von Mises in 1912: (1) the
gold coin standard and (2) no government licensing of fractional
We never did
have both. No nation did in modern times. Ever since World War I
broke out in August 1914, we lost the gold coin standard in Europe.
We lost it in the United States in 1933, when Roosevelt stole the
nation's gold coins by fiat decree. In short, the entire world has
rejected Mises' argument.
SPECIAL INTEREST GROUPS
There are four
main groups of critics of the gold coin standard: the greenbackers,
the politicians, the academics, and the investment elite.
began their propaganda early, in the 1870s. They defend fiat money
that is controlled by Congress. These self-taught promoters of government
fiat money are monetary statists. They include lawyer Ellen Brown
and Bill Still, producer of "The Money Masters" video. They have
no influence in Congress or academia, because they oppose fractional
reserve banking. But their system relies on people with guns and
badges to support legal tender laws. In Brown's case, she has now
come out in favor of Bernanke's QE2 policies. She is Bernanke's
major cheerleader on the Right. You
can read about her on my website.
What is their
motive? They want big government. They come to the far Right and
the far Left with the same argument: private fractional reserve
banking is bad, because it makes big banks rich. They come with
the same solution: "Trust Congress." Trust it to do what? To spend
fiat money to create a vast welfare state.
They are all
Leftists, but they recruit on the Right by an appeal to the sin
of envy: "Let's bust the bankers by law!" They are statists. They
parade as conservatives when they pitch the Right.
Just like the
greenbackers, the politicians want cheap money, so that they can
spend more than they take in by direct taxation, which is always
unpopular. The central bank guarantees to buy government debt at
low rates. This lets politicians borrow more money on behalf of
taxpayers than would otherwise have been the case, since high rates
make it more costly to go into debt. This is why politicians have
universally created central banks with a monopoly of control over
are the vast majority of academics all over the world. They are
apologists for the prevailing system. They are paid to support it.
They take the king's shilling, and they do the king's bidding.
Some of these
academics are paid directly by the state as faculty members in tax-funded,
state-licensed, accredited universities. Others are paid indirectly
as faculty members in private universities that are protected from
competition by means of accreditation systems that are backed up
by laws against unaccredited institutions that use the word "university."
university is part of a cartel. This is why universities are not
price competitive. This is why they can afford to grant tenure
a practice unknown in the private sector.
There is an
army of academic critics of Mises' argument that the free market
should be trusted to provide economic planning, and that people
backed up by other people carrying guns and badges should not be
trusted. In this army are thousands of state-trained and state-accredited
economists, who assert that they believe in the free market. When
push comes to shove, they don't.
In the entire
academic profession, all over the world, there is not a single textbook
in economics that says that central banking is conceptually and
operationally a cartel-enforcement institution for privately owned
large banks: an anti-free market institution. There never has been
such a textbook. Every economics textbook separates the chapter
on cartels from the chapter on central banks. Neither chapter refers
the reader to the other chapter.
This is not
random. This is a crucial part of the arrangement between the national
government and the bankers' cartel in every nation. The academic
cartel joins with the bankers' cartel to screen out any suggestion
in a textbook that either of these state-licensed cartels is in
fact a cartel. "You scratch my back, and I'll scratch yours. You
promote the right of my agents to carry guns and badges, and I'll
is the investment elite. They want a safety net for bad investments
they have recommended. They also want leverage: debt-funded, high-return
speculation. They want to be on the winning side of "moral hazard."
This is what central banking gives them.
these four special-interest groups hate the gold coin standard.
They hate it for the same reason: it transfers economic authority
from the cartels to private citizens. In short, it offers no guns
or badges to the government.
ON THE FED
The archetype of the seemingly pro-free market professors was Milton
Friedman. In a recent report, "Milton
Friedman's Contraption," I went into detail about Friedman's
faith in central banking. His faith was misplaced. He trusted the
banking cartel as a concept. He did not reject it as the creation
of the United States government. He did not reject it as a cartel.
On the contrary, he promoted it avidly and famously.
that the Federal Reserve System's Federal Open Market Committee
(FOMC) stop planning. He recommended a 3% to 5% per annum increase
in fiat money. If the FOMC would just follow his advice, he assured
us, there would be stable economic growth and stable prices.
terminally naïve. To promote any system of central planning ignores
the obvious: this is too much power to entrust to anyone. The bureaucrats
always do the wrong thing. What is the wrong thing? This: to prohibit
the free market from providing the solution to the problem at hand.
The central planners hold power specifically to thwart the free
market. This is why the state gives them guns and badges.
viscerally committed to Federal Reserve Notes, as Mark Skousen and
I learned at a dinner meeting with him back in the late 1990s. I
don't want to spoil your fun. Read
about it halfway through this article. It's about a $20 gold
piece vs. a $20 Federal Reserve Note. I did not know what was coming.
I was an innocent bystander, not an unindicted co-conspirator.
There are only
two conceptual options in monetary theory: a full gold coin standard
in which the citizens hold the golden hammers or a system of economic
planning in which elite members of the planning bureaucracy hold
the digital hammers. There is no third choice. A mixture always
leads to inflation, recession, and centralization.
gold-haters reject gold because they do not want the public to hold
the hammers. They hate decentralized economic authority. They want
people like themselves to have the final say.
will always adopt a policy different from the correct one. What
is the correct one? To revoke the legal authority of the nation's
central bank and let the free market replace it. As Ludwig von Mises
said, when asked what the government should do to overcome a recession:
"Nothing. Earlier." Friedman spent his entire career advising economists
and even the U.S. Treasury (in 1943) on how to plan more efficiently.
They followed his advice only when this meant taxing more efficiently
and regulating more efficiently. He never caught on to how they
were using him.
Is this too
harsh? Not at all. In 1942, when 20-year Rockefeller agent, Beardsley
Ruml, who was then president of the New York Federal Reserve Bank,
proposed Federal withholding taxes, Friedman went to work devising
reasons. He was in the Treasury Department. Did the government accept
these arguments? Yes. Did Ruml ever ask Friedman's advice on Federal
Reserve policy? No.
In 1963, Friedman
offered his now-famous critique of the FED's policies, 1930–33.
He said the FED did not inflate enough. Did academia accept this
argument? Of course. Did Bernanke accept it? Yes. He
said the following in a speech honoring Friedman on the latter's
90th birthday celebration.
Schwartz's insight was that, if monetary contraction was in fact
the source of economic depression, then countries tightly constrained
by the gold standard to follow the United States into deflation
should have suffered relatively more severe economic downturns.
Although not conducting a formal statistical analysis, Friedman
and Schwartz gave a number of salient examples to show that the
more tightly constrained a country was by the gold standard (and,
by default, the more closely bound to follow U.S. monetary policies),
the more severe were both its monetary contraction and its declines
in prices and output.
He got Friedman's
main message: "gold . . . bad." Did Bernanke ever follow Friedman's
advice on 2% to 5% money growth? Yes: in 20067. Did this create
a recession? Yes, just as Austrian economists publicly began saying
in 2006, based on the Austrian theory of the business cycle. Did
he then abandon Friedman's slow growth rule and adopt Friedman's
economic crisis policy: a doubling of the monetary base? Yes.
vouchers his program for the more efficient use of confiscated
property tax revenue the Establishment never bothered to
get around to implementing it. The teachers' union opposes it. "Nice
idea in theory, Milton," academia said, "but it's just too Utopian.
We'll get back to you on that." They will, too: whenever private
schools constitute a major threat to the teachers' union, and the
government decides to take over the private schools by providing
"free" money, along with the regulations that always accompany free
money from the government.
the ruling elite always trotted out Friedman when it was convenient,
but it ignored him when it wasn't. In short, it acted in its own
self-interest. He was there to help where it counted most: taxation
policy and a defense of the legitimacy of central banking and 100%
all economists other than Austrian School economists hate the idea
of a gold coin standard. A lot of them carry this hatred into the
financial markets. They hate gold as an investment, not just as
a monetary policy. They hate it at all times. They tell people not
to buy it when it is cheap. They tell them this after it has doubled,
then tripled, then quadrupled.
to buy gold is to vote against the Keynesian-planned economy. It
is to vote against the Keynesian-dominated central bank. It is a
vote against the high-tax, debt-funded government bureaucrats who
think they are wiser than the decentralized planning of private
citizens in a free market. They hate it because they are part of
the self-appointed, self-regulated elite. They want to feather their
nests by sending out people with guns and badges to extract wealth
from the general public.
Those who own
gold are able to evade some of the effects of laws enforced by people
with guns and badges. This enrages the elite. It has enraged them
in the United States ever since 1791. From Alexander Hamilton to
James Madison to Daniel Webster to Henry Clay to Abraham Lincoln
to Teddy Roosevelt to Woodrow Wilson to Herbert Hoover to Franklin
Roosevelt to today, the gold coin standard has enraged them. They
want the citizenry to submit to fiat money, guns, and badges. They
want the citizenry to submit to their plans. They are monetary statists
because they are statists. They want fiat money because they want
guns and badges.
GOLD WILL FALL!"
After the central
banks stop inflating, gold will indeed fall. So will everything
else except currency, including Treasury bonds. Will this be before
the central banks produce hyperinflation? I hope so. If not, gold
will fall on the far side of a currency collapse, where the value
of a dollar fell to zero value. Gold will never fall to zero value.
The dollar could.
"But gold will
fall," the experts tell us. Fall from what? "Today's unsustainable
price." Did you recommend buying gold before the price got unsustainable.
"No." Why not? "Because gold's price is always unsustainable." It
was unsustainable at $257 back in 2001. "No, I mean it is unsustainable
this high." How high? "Whatever it is today." So, gold will fall
from where it is today. "Yes," So, you have shorted gold on the
futures market. "No." Why not? "Because gold might go up." Why?
"Because gold may be sustainable for a while." How long until it
falls? "One of these days."
Here is their
rule: "Buy low, sell high, except when it's gold. Never buy gold."
Here is the
meaning of this rule: "Believe in the power of the central bank
to provide wealth, in good times and better times."
bad times? "There will be no bad times, as long as central banks
have the power to create money."
workers are having bad times. "They don't count." Why not? "Because
they don't work on Wall Street or in Washington."
home owners are having bad times. "Only briefly. Home prices are
unsustainable." You mean they will fall further. "No, I mean they
are unsustainable this low." Why? "Because the Federal Reserve System
is pumping in money."
I buy gold? "No." Why not? "Because gold's price is unsustainable."
You mean it will fall. "Yes." But housing prices will not fall.
"Correct." But they have been falling this year. "This is a temporary
correction." Like the price of gold whenever it falls? "No. When
the price of gold falls, it is a return to normal pricing." So,
when the price of gold rises, this is a temporary correction. "Correct."
It has been
rising for over nine years. "It's a temporary correction." How long
is temporary? "However long it takes for gold to fall."
Would you favor
a policy of the government selling its gold? "No." Why not? "Because
that would require a full audit of the Federal Reserve System."
Why shouldn't there be an audit of the Federal Reserve System? "Because
we must maintain the independence of the Federal Reserve System."
Just as we do with respect to . . . to. . . . what other government
agency? "The CIA." You think the CIA should be independent. "I think
the CIA has guns and badges and bombs and poisons, so I don't mess
with the CIA. The CIA gets what it wants." But so does the Federal
Reserve. "This is a good thing." Why? "Because the Federal Reserve
is the source of wealth." So, digits are wealth. "Yes."
Gold is wealth.
"You can't eat gold." You can't eat digits, either. "You can get
people to accept digits in exchange for wealth." How? "With badges
and guns." Like the CIA. "Now that you mention it, yes."
There is an
intellectual battle between the vast majority of experts and a handful
of Austrian School economists. The battle is over which system to
trust: one in which individuals buy and sell with their money of
choice or with money issued by state-licensed banks that are under
the control of the national government.
It is a debate
over free market decentralized planning based on private ownership
vs. central planning based on government coercion.
It is a debate
over gold money or government digital money.
The next time
you hear some expert spouting off on the evils or foolishness of
gold, mentally imagine a bureaucrat with two uniformed goons with
badges and pistols standing at your front door. The bureaucrat says,
"I'm from the government, and I'm here to help you."
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
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