Chapter V: The Modern Priesthood

In backward societies there usually exists a relationship between the political leaders and the intellectuals similar to that described by Ayn Rand in her categorization of Attila and the Witch Doctor. The political leader gives the intellectual a comfortable, prestigious perch in the society (an ample income and freedom from material concerns). And the intellectual convinces the average person to accept the rule of the political leader.

This symbiotic relationship arises from the nature of an aristocracy. In order to make exploitation worthwhile, the exploiting class must be much smaller than the exploited. If 70% of the people enslave the other 30%, they can not get enough from them to make it worthwhile. But if 5% of the people can enslave the other 95%, then they can live in luxury off the labor of others.

The problem is that 5% of the population cannot enslave 95% by pure force. The power is clearly on the side of the majority. What is the solution to this? The solution, as practiced countless times throughout history, lies with the intellectuals. The function of the intellectual in this context is to convince the 95% majority that the system which exploits them is proper and just (or necessary and unavoidable or eternal and true). In the Middle Ages the priests preached submission to the kings and nobles and told the people that a bad ruler was the punishment of God. Rebellion was disobedience to God.

For convincing the vast majority to submit to their own exploitation, the intellectual is rewarded by the aristocracy with money and prestige. From the original witch doctor to the Medieval priest to the Communist theoretician of today, most intellectuals have played this role. The shining, exceptions were the intellectuals of the 17th and 18th centuries (such as Locke and Jefferson) who preached freedom for the people and resistance to aristocracies.

In the 20th century we have seen a return to the Medieval type of intellectual, but now he is not garbed in the robe of a priest. Now he adopts a modern point of view and dresses himself in the guise of science. No longer does he talk of ethics and theology; in tune with the times, he talks of economics. But his function is the same as that of the Medieval priest — to rationalize and justify the current aristocracy and convince the majority of people to submit to it.

Modern economics claims to be a science. This is a sham and a fraud. It has all of the outer paraphernalia of science and none of its essence. It ostentatiously flaunts mathematical symbols (such as the supply and demand functions) and formulae (MV=PT) without any real understanding of what these things are. When it fails to predict future events (an occurrence of continual embarrassment to modern economists), it does not act like the scientist, disregarding false theories in search of the truth; it acts like the Indian Medicine Man who has failed to make rain. It equivocates, rationalizes and tries to make minor adjustments.

This is because modern economics can not disregard its theories. It must cling to its present theories because it is these theories which rationalize and justify the present aristocracy. And it is by virtue of supporting the aristocracy that modern economists get their prestigiouspositions in business, government and universities. Modern economists are like the priests of the Middle Ages. They have created a set of myths to convince the majority of Americans to acquiesce in their own exploitation.

What really happens in the world is that there are two groups of people; one has the privilege of creating paper money and the other has the obligation to accept it. The first group uses its privilege to exploit the second. When this exploitation occurs, the economists label the phenomenon a boom and claim that everyone is gaining. When the exploitation slows, they label it a recession. When the exploitation goes into reverse and the common people regain some of their losses, they call it a depression.

The gains on the part of business and the banks are called "stimulation of the economy." The losses on the part of the common person are called "inflation." In this way modern economics pretends that these are two different phenomena, and the objective they preach is to have the first without the second.

But these are not different phenomena. They are part and parcel of the same phenomenon. If a bank can print paper money and get richer by it, then you and all of the other people are getting poorer. There is no way to have "stimulation of the economy" without "inflation." If a thief steals my money, you can not applaud his gain and deplore my loss and resolve to try to have one without the other. His gain is my loss.

Yet it is precisely the attempt to "stimulate the economy" without causing "inflation" which constitutes the economic policy of every country in the "free" world. As we have seen, according to the Keynesian mythology "stimulation of the economy" (i.e., issuing paper money) will not cause "inflation" (i.e., depreciation of the currency) as long as there is unemployment. Of course there is "inflation" on a worldwide scale. But the fact that modern economic theories have never worked at any time in any country does not prevent modern economists from clinging tenaciously to them.

A little perspective can be attained on modern economics by reviewing the state of economic knowledge 150-200 years ago. Milton Friedman has made quite a splash in modern economics with his advocacy of thequantity theory of money. But this "latest word" in today's economic realm was well known in 1810. In that year an American pamphleteer wrote: ". . . there is nothing more evident than that the prices of every article in life is determined by the quantity of money in circulation.... Since, then, it has been proved, that increasing the circulation, must necessarily increase the prices of commodities, it becomes evident, that bank notes, by which the money circulation of this country has been so prodigiously increased, are the real cause of the present exorbitant prices of provisions; ... consequently, increasing the quantity of money in one part of society, must have the same effect, as taking so much from the other part.... Therefore, the bankers might, with as much justice, take a certain sum of money out of their neighbors' pockets, as to increase their own by means of bank notes."19 And a committee of the British House of Commons reported:

Your Committee conceive that it would be superfluous to point out in detail, the disadvantages which must result to the country, from any such general excess of currency as lowers its relative value. The effect of such an augmentation of prices upon all money transactions for time;the unavoidable injury suffered by annuitants, and by creditors of every description, both private and public;the unintended advantage gained by government and all other debtors ;are consequences too obvious to require proof, and to repugnant to justice to be left without remedy. By far the most important portion of this effect it appears to your Committee to be that which is communicated to the wages of common country labor, the rate of which, it is well known, adapts itself more slowly to the changes which happen in the value of money, than the price of any other species of labor or Commodity.20

That which was well known to the House of Commons in 1810 is unknown to modern economists. Because, if they had to admit that a depreciation of the currency lowers the wages of the common laborer, they could no longer posture as the friend of the little man. They could no longerrationalize the printing of paper money and they would be of no use to the new aristocratic class.

It is not that such a fact is denied. Keynes himself admitted it, It is simply met by a conspiracy of silence. In the light of all the manufactured "injustices" and all the "oppressed" groups which are extant in our political life today, this very real injustice affecting so great a number of people is never even a subject for discussion. Dissent is tolerated within the bounds the aristocracy fine permissible (Milton Friedman being the radical extreme); but their is no dissent which questions the validity of the system.

A key element in the modern economist's intellectual repertoire is what I call banker language. This is a special terminology designed to rationalize most of the aspects of paper money. If you don't call it a spade, perhaps people can be fooled into thinking it's not a spade:

(1) Reserves — When the original depositors brought their gold to the goldsmith, the moral-legal relationship was quite clear. The gold belonged to the depositor; the goldsmith-banker merely stored it and issued a paper receipt as proof of ownership. If the banker used the depositor's gold for some other purpose, he was a thief. If he issued notes for which there was no gold, he was guilty of fraud.

But bankers began to refer to their depositor's gold as their reserves. The clear implication was that a banker could do as he liked with his reserves. It became "responsible" banking practice to maintain enough reserves so that under ordinary circumstances he could meet all demands for redemption that would be made. For example, a banker might keep 20% reserves. This means that he would issue five times as many bank notes as he had gold. But if it were rare for the public to demand redemption of more than 10% at a time (before new deposits came in to offset the outflow), this was considered "responsible" banking practice.

An analogous situation would be the following: Assume that all men"s hats were the same, and in a given hotel there were continual functions so that day in and day out there were always hats deposited with the hat check girl. (The hat check girl issued little tickets which served as receipts so that the men could claim their hats when they wanted them.) Suppose then, that the hat check girl noticed that it was very rare for a demand tocome in for more than 50% of the hats at one time without this being offset by a new deposit of hats from new customers. Suppose further that an "enterprising" hat check girl decided to sell 25% of the hats and pocket the money or — what amounts to the same thing — issue tickets for hats which don't exist and exchange those tickets for money. Such an event would clearly be fraudulent. The customers, who have a right to their hats, are being deceived. If the girl maintained that she was doing nothing wrong because the hats were her reserves and she maintained enough "reserves" to meet the normal demand for hats, this argument would not be valid. It is not valid with regard to bankers either.

(2) Paper dollars — As previously noted, the word "dollar" was defined to mean a weight of gold — 25.8 grains, 9/10 fine. The paper notes which circulated prior to 1933 were receipts for dollars. But in banker language these receipts became dollars. This eased the transition in 1933 when people were forced to accept paper money in place of gold.

(3) Convertibility — When a depositor would take his paper receipt and demand his gold, the bankers called this converting paper money into gold. The implication was that paper money and gold money are two kinds of money of equal status and one is being converted into the other. But of course this is not true. The paper bank note was not a kind of money which was converted into gold. It was a receipt which was being redeemed. When you take your ticket to the hat check girl and demand your hat, you are not converting the ticket into a hat; similarly, when you take your claim check to the baggage department to claim your baggage, you are not converting your claim check into baggage. The ticket or the claim check is simply a token of the department's promise that the hat or baggage in its possession is yours, and it will give it back to you whenever you demand it.

(4) Balance of payments problem — When too many people come to the bank demanding their gold and the bank begins to get worried that it will have to default on its obligation, this is called a bank run. Between 1944 and 1971, the U.S. central bank allowed foreigners to redeem their notes in gold, but American citizens were not so allowed. When, due to the depreciation of the U.S. currency and the resulting higher prices of U.S. goods, Americans began to buy more from other countries, foreigners began to accumulate more and more central bank notes, some of which were redeemed for gold.

By mid- 1971 this had developed into a run on the central bank and led to the August 15, 1971, "gold embargo." But the public was told during this period that the nation had a balance of payments problem.

What is wrong with this is that it is not the nation's problem at all. It is the central bank's problem. The event which is threatened by a bank run is that the bank will be forced to stop issuing paper money. This is a problem for the bank and the business interests which benefit from paper money, but it is not a problem for the majority of the people. It is to the benefit of the majority to force the central bank to stop issuing paper money. By saying that the nation has a balance of payments problem economists lead people to believe that a run on the central bank is a threat to their interests.

The developing American aristocracy is based on certain unique principles which distinguish it from traditional aristocracies. America as a nation is still too much a product of the Age of Reason, still too dedicated to the ideal "all men are created equal" to easily accept an aristocratic class. This gives our aristocracy certain problems which no other aristocracy has had.

One of the central pillars of its power is the modern division between liberal and conservative. Both extreme left and extreme right in. America have strong anti-aristocratic convictions. Were either of these powerful groups to take control of the government, our aristocracy would be smashed within a few years. The aristocracy maintains its position by continually balancing these two large forces and portraying itself as moderate and centrist.

Both left and right in America are descendants of the Jeffersonian tradition, and in the realm of money both have part of the truth. The left retains the anti-bank, anti-big business, pro-democratic elements of Jeffersonianism. The right retains the pro-hard money, balanced budget, small government, laissez-faire elements of Jeffersonianism. What neither left nor right recognizes is that these two sets of views are logically related — and parts of a larger whole.

The reason Jefferson was opposed to banks was that banks issued paper money. The reason Jefferson wanted a balanced budget was because budget deficits are traditionally financed through paper money issued by acentral bank. The reason Jefferson was anti-big business and pro-the common man was that paper money robs the common man to give to the rich. The reason Jefferson was opposed to large government projects and excessive government spending was that this leads to deficits and thus paper money.

The left in America rages against the wealthy capitalists in the "power structure." The right rages against the "Eastern Establishment" and the "Council on Foreign Relations." Yet both believe that this establishment represents a middle of the road point of view, preferable to the other extreme.

Thus in 1964, when the right made its bid with the Goldwater candidacy, it was defeated by a combination of the center and the left. Similarly in 1972, when the left made its bid with the McGovern candidacy, it was defeated by a combination of the center and the right. Left and right continually find themselves paralyzed and blocked by each other.

But in truth, if left and right would take a closer look at each other's ideas, they would find that they have more in common than they think. The ideas which each espouse were originally part of the Jeffersonian philosophy. It was Jefferson who had an integrated philosophy; it is the modern American left and right which are in contradiction.

The right wants to see a balanced budget, but it is continually raising the alarm of a Communist threat, and it has been a supporter of our two past wars. But wars and armaments have always been financed through paper money. There is no surer way to create budget deficits than to whip up public sentiment against "the enemy." There is no such thing as a sound currency during a war.

The left wants to see a redistribution of wealth from the rich to the poor. But it espouses the Keynesian economic theory which is a rationalization for paper money and which leads to a redistribution of wealth from the poor to the rich. If the left really wants to redistribute the wealth from the rich to the poor, they would be best advised to support an ultra-conservative who would give us a balanced budget.

Perhaps it is a cliche, but in this case it is true. The method of political action to fight the aristocracy must be based on tolerance and good will. The resent established order triumphs by a policy of divide and conquer. It feeds on hate. It grows stronger every time liberal and conservative battle. Hate distorts man's reason and prevents each side from seeing where the true enemy lies.

The real political forces in America are those of liberal and conservative. The banker aristocracy is a relatively small political power which maintains its supremacy by keeping these large forces in continual opposition. Both the American left and right have more to gain from the victory of the other than they have from a continuation of the status quo. The Jeffersonian viewpoint is a logical whole, and it is impossible to put one half of it into effect without the other. The first error in modern political thought is when they teach you: "The political arena is divided into liberals and conservatives."


  1. Benjamin Davies, The Bank Torpedo, (New York, 1810), p.7.
  2. "The Bullion Report of the House of Commons, June 8, 1810," as quoted by William G. Sumner, History of American Currency (New York, 1968), pp. 387-88.

This material is made available with the generous permission of Howard Katz (1931-2012).

Copyright © 1976 by Books in Focus, Inc. ISBN 0-916728-01-3