Chapter VII:
The Banker Defense of Paper Money

Given their interest in paper money, the bankers have always been concerned to fabricate arguments defending it and to win as many supporters for these arguments as they could. In the eighteenth century, bankers claimed that paper money benefited the farmer. They (falsely) asserted that the average farmer was deeply in debt and would benefit from paying his debts in cheap money. (Since the vast majority of people at that time were farmers, one has to wonder who it was who lent them all so much money. In reality, commercial banks do not lend to average people. Despite the television commercial of a few years back, only a very small portion of their loans go to black, female bikers. They lend to big businessmen. They did in the eighteenth century; and they do today.)

But as the industrial revolution took people off the farms, the number of farmers shrunk, and there was no point for the bankers to try to win farm support.1 They therefore gave up the paper-money-and-farmer argument (which had been decisively rejected by the American people anyway) in favor of more modern arguments. It was the acceptance of the three following arguments by most Americans in the first half of the 20th century which has led to our present crisis.

(1) The Argument from Inflation

Outside of economics, an inflation is a going up, as in the inflation of a balloon. When the word is taken into economics, it means a going up also. We have seen how the bankers argued that the currency was not going down in value but that goods were going up and that therefore the problem was caused by goods, not money. The problem, they said, was not a depreciation of the currency; it was an inflation of goods.

It is second nature for an American in the 1990s to classify a general price increase as an inflation. He does not realize that, when he does so, he is admitting one of the bankers’ myths, the unjustified premise that the cause of the problem is goods rather than money.

We know that an oil shortage causes oil to go up, a coffee shortage causes coffee to go up, etc. In order for there to be inflation, something akin to a shortage must happen to thousands of goods at the same time. This would be an incredible coincidence (see Chapter V), and in fact such a thing has never occurred. Through all of the periods of general price increase in history, we have not had shortages of large numbers of goods.2 All of these increases were caused by depreciations of the respective currencies. This is shown by the sudden and sharp increases in the supply of money during those times, and it also may be shown by the fact that prices expressed in another money, which was not being depreciated, remained relatively constant. While prices in Revolutionary War America skyrocketed in terms of Continentals, these prices remained constant in terms of British gold. Although U.S. prices have multiplied by over 10 in terms of paper dollars over the last 60 years, expressed in terms of a one ounce gold coin they are nearly the same.3

In the early 1920s, the German bankers created truly immense amounts of paper money, causing the German mark to collapse in value. This was expressed within Germany by a severe depreciation of the mark in terms of all goods and services and outside of Germany by a severe depreciation of the mark in terms of sound currencies. It took more marks to buy a pair of pants, to buy a loaf of bread or to pay the month’s rent (all internal prices); and it took more marks to buy a British pound or a U.S. dollar (about ¼ and 1/20 ounce of gold respectively at the time).

Within Germany the assumption was made that the mark retained its value; hence the price increases were called an inflation, i.e., an increase in goods. But outside Germany the banker-economists were in trouble. Since the various monies were changing value with regard to each other, they could not all be stable. So in this case it was admitted that the mark was losing value, and the increased prices of the dollar, franc, pound and other hard currencies were called a depreciation of the mark. (You see, it took more marks to buy an ounce of gold. When the ounce of gold was a piece of jewelry, that was called inflation. When the ounce of gold was a U.S. 20 dollar piece, that was called depreciation. Understand?4) I have even found writers who do not realize that the German inflation and the depreciation of the mark in foreign exchange were two aspects of the same thing, and some idiots are still debating whether the depreciation caused the inflation or vice versa.

The confusion is caused by the money illusion, the belief that money has a given value which is fixed and cannot change. Once we see through this error, we can recognize that all of the price increases recorded in history were currency depreciations and none of them were inflations.

By convincing you that the rise in prices is an inflation, the paper money faction shifts the blame away from the bankers. Much of the public discussion then consists of finding a suitable scapegoat. When the country is in a left-wing mood, it blames business; when it is in a right-wing mood, it blames labor. But in fact there is no inflation, and there never has been. Our paper currency is depreciating because the greedy bankers issue too much of it. But that is a secret they will go to extreme lengths to hide.

(2) The Road to Plenty

Through the 19th century the bankers developed refined arguments for paper money. The most important of these is contained in a book written in 1928 called The Road to Plenty. It argues that printing paper money creates something for nothing, putting society on the road to plenty. It was written by William Trufant Foster, an employee of the investment banking firm of Kuhn Loeb, and Waddill Catchings, an employee of the Wall Street law firm of Sullivan and Cromwell.5

The argument of The Road to Plenty is a bit bizarre. It first claims that wealth is created by consuming (or destroying) it. It then argues that issues of paper money will increase consumption, thus increasing wealth. One would think that the adherents of such a theory would be hustled off to an institution for the mentally retarded. But sad to say, this crackpot theory dominates late 20th century American society. Foster and Catchings begin by saying:

The only reason the business world does not produce more is because it cannot sell more. Lack of markets is the trouble.6

If this is considered a narrow prescription for the problems of one business or industry, then it is passable. But here it is intended as a general statement of economics. What Foster and Catchings are saying is that, if the world consumes more, it will be richer, that consumption causes production. They make this clear when they say:

sales regulate consumption, and consumption regulates production … a community has to consume more in order to have more.7

and drive home the point by stating:

we do not ride in automobiles because we are prosperous; we are prosperous because we ride in automobiles.8

This is an extremely important message to carry to the poverty-stricken peoples of the world. If they would only start riding in automobiles, that would create the automobiles for them to ride around in. And this millenium is only prevented by the stubborn opposition, dear reader, of people such as you and I who believe that the road to plenty lies through hard work. We insist on pointing out that a few industries can increase their production if faced with more consumer demand, but they can only do this by diverting resources from (and thus decreasing the production of) other industries. You can’t get something for nothing.

Unfortunately, Foster and Catchings’ plan was not intended for the poor. It was rather a road to plenty for their Wall Street employers. What is their plan to increase consumption? You see, if people had more money, they would consume more. Therefore, print money; this will increase consumption and lead us on the road to plenty.

Now if you are going to advocate something this stupid, you should be careful never to say openly what you mean, and modern disciples of Foster and Catchings always use circumlocutions (such as easing credit or generating consumer demand) when they want to advocate the creation of money. But the masters were more honest and let the truth slip, stating:

When, for example, a mechanic takes five dollars out of his pay envelope and invests it instead of spending it — invests it in such a way that some other consumer receives and spends the five dollars — there is no increase in money or consumer demand.9 So the construction of additional facilities out of savings brings about no additions to retail buying; … but the building of facilities actually does involve increases in the volume of money in circulation … because many of the builders borrow money for the purpose, directly or indirectly from the banks, and there is a resultant expansion of the volume of bank credit.10

And again:

If the new Policy succeeded, it would necessitate constant increases in the volume of money in circulation; but the time would come when no further increases would be possible without abandoning either the gold standard or the present gold reserve ratio.11

Despite these two slips, Foster and Catchings try to play down the creation of money and credit. Their real contribution to paper money theory consists of a rather complicated system to do this. Instead of openly advocating the creation of money, they focus attention on the effects of a money expansion (as described in Chapters V and VI), and they propose a government bureau to measure these effects, keeping statistics on prices, consumer income, production, domestic and foreign trade, employment, money supply, distribution of income, projected expenditures, interest rates, real estate prices and construction. Later banker-economists topped this by inventing one great index to supposedly measure the wealth of the society — gross national product. (Today we use a slight variation of this, gross domestic product.) The government bureau Foster and Catchings proposed is today’s Council of Economic Advisors.

In his younger days, your author would go around to establishment economists explaining that gross national (domestic) product was not a valid measure of the nation's wealth. Wealth consists of incommensurables — things which cannot be measured against each other — like a pound of butter, a textbook on engineering and a hit record. You can add these numbers together, but you do not get a meaningful answer. The problem with GNP/GDP is that, when paper money is issued, (real) GNP/GDP goes up due to waste (even though real wealth is going down). To say that GDP measures the economy is another way of saying that the paper aristocracy is the economy. (See the argument in Appendix A of my first book, The Paper Aristocracy, [New York, Books in Focus, 1976]; see, also, Government and the National Product, 1929-1932, the appendix to America’s Great Depression by Murray N. Rothbard, [Los Angeles, Nash Publ., 1963], p. 296.) When these statistics go up, banker-economists say the economy is in a boom or a period of growth. When they go down, banker-economists say it is in a recession or depression. They then call on the Government (shifting blame away from the bankers) to assume the responsibility to encourage growth or recovery and avoid a recession or depression.

Growth and Recession

Since the various statistics in the Foster and Catchings schema can only go up when the banks issue paper money, the Government’s responsibility to cause growth in the economy comes down to permitting the banks to issue paper money. Naturally a banker-favored politician much prefers to say, We’ve got to get the economy moving again,12 rather than having to say, We’ve got to steal the people’s wealth and give it to the bankers, which is what he really means. Thus the intellectual rationalization, the series of lies, confusions and distortions invented by banker-economists which allows him to say the first when he is doing the second, becomes a crucial step in the working of the system. For this reason let us take a moment to analyse the concepts of boom, growth, recession, recovery and depression as they are used in current economic writing.

A depression is a period of generally decreasing wealth. A boom is a period of generally increasing wealth. The first thing to understand is that in reality there are no depressions and no booms. If someone works harder and/or invents a new product, this causes a small increase in the nation's wealth. However, such inventions and improvements are randomly distributed throughout the population and through time. They do not cluster together in such a way as to produce a boom.

Similarly, if a misfortune occurs, causing a loss of wealth, it harms a few people. But such misfortunes also occur randomly and do not cluster to form a depression. Perhaps a giant cataclysm, such as a war or a famine, could cause a depression, but this has never been the cause of any of the periods labeled depression by the banker-economists.

It will probably surprise you to learn that Adam Smith did not know what a depression was. He had no idea of the phenomenon. He wrote about a dear year (when the crop was short and prices were high) and a cheap year (when the crop was plentiful and prices were low). If a depression (or a dear year) is a time of scarcity, it makes sense that prices would be high. Unfortunately, banker-economists are stuck with the fact that all the periods they designate as depressions are marked by low prices. Conversely, a boom (or a cheap year) is a plentiful time and ought to be characterised by cheap prices. But all the periods designated boom by the banker-economists are periods in which prices are high and going up. This makes no sense at all.13

The explanation is that boom, depression, growth, recession and recovery as used today are false concepts. They are like the concept witch. There was an idea of a witch in people's minds, and there were examples in reality (unfortunate, persecuted women) that people would point to as witches. However, the two things were not the same. Similarly, we have ideas of boom, depression, growth, recession and recovery in our minds; and we have periods so designated in economic history. The problem is that the two are not the same. The thing in our minds never occurs in reality; and the thing we point to in reality is quite different from what we believe.

What is really happening is the paper money cycle. Paper money is issued and takes wealth away from the saver and the worker, giving it to the banker and the debtor. Wealth is transferred from one class to another. Then the paper money is reduced.14

Prices fall (or in the mid-2Oth century recession slow their rate of increase), and wealth is transferred from the banker and his friend back to the mass of the people.

The periods when the paper aristocracy was benefiting at the expense of the people (by increasing the money supply) were labeled booms by banker-economists prior to Foster and Catchings. The perverse aspect of this label is that these are periods of malinvestment. They are periods when people are stimulated to waste scarce resources. The periods when the paper aristocracy was suffering because of a decrease in money were labeled depressions. But these were periods when the waste was being corrected.

Like good confidence men, the bankers are constantly changing their terminology to keep their victims off guard. In the mid-2Oth century, they stopped talking about booms and depressions and started talking about growth and recessions. The most recent approach is to play fast and loose with the criteria for a recession.

Given that the very concept of recession was a deceptive package-deal intended to mislead, in the beginning at least the banker-economists had an objective criterion for its existence: two consecutive quarters of decline in real Gross National Product. For example, Thomas C. Hayes reported in The New York Times: A recession is usually defined as two or more consecutive quarters of decline in the nation's output of goods and services [GNP].15

In 1980, the bankers were desperate to make the country believe that we were in a recession (so that it could serve as an excuse for expansionary policies to get us out). One of their toadies, Michael Evans, had been predicting a recession ever since 1977, to no avail. Finally, in 1980 they seized upon one big quarter’s decline in real GNP and simply declared a recession. Real GNP was up for three of the four quarters of 1980, but it doesn’t really matter. All economic literature now records a recession in 1980. As George Orwell predicted, Big Brother has spoken, and mere logic dare not stand in the way.

Thus, there is a certain (perverted) truth to Foster and Catchings’ analysis. Issues of paper money by the bankers do not stimulate the American economy in fact. They stimulate the profits of the bankers and big corporations. The state; it is I, said Louis XIV of France. The economy; it is I, say the bankers and big corporations of today. If we were to grant this gigantic lie, then the Foster and Catchings theory would make sense.

If we examine the periods labeled boom or depression by the banker economists, we find their designations in direct conflict with common sense. For example, the period of the early 1940s in America is called a boom. But during this time it was impossible to buy a new car; basic foods, such as meat and butter, had to be rationed, and housewives had to work. This was the period of World War II, and while common sense might say that war leads to a destruction of wealth, the banker indicators say it was a period of great increase of wealth.

Conversely, we can look at the period in American history from the end of the Civil War to 1896. This was a time of tremendous growth. The average worker almost doubled his real wages. New inventions vastly improved the conditions of life. It was the greatest increase in wealth ever recorded in any country on this planet at any time. Yet the statistics of the banker-economists indicate that it was also a time of repeated depressions; the Depression of 1866, the Depression of 1873-79, the Depression of 1884, the Depression of 1893 and of 1896, etc.

The idea that there really are cycles of boom and bust inherent in the economy is nonsense. Every principle of economics promotes stability. If the price of an item goes up too high, that causes more production, which tends to lower it. If there is too much buying of one good, it diverts money from other goods. If profits are too high, it encourages competition in business, which causes them to go down. There is nothing in economics which could account for a snowball effect. Nothing causes itself to increase, or even to continue. Everything tends to counteract itself and moderate itself. The history of economics is the story of outside events (such as a drought or a new invention) which produce dramatic effects on society and then are dampened and moderated by the action of economic man moving to achieve his self interest. It is not true, as Marx preached, that the business cycle is inherent in a free enterprise economy. The business cycle is inherent in any economy which permits the bankers to create money.16 And the nature of that cycle is not, as is so widely believed, a wavelike up and down (boom and depression or growth/recovery and recession). It is in the nature of a transfer. Wealth does not increase and then decrease. Wealth is moved from the people to the bankers and their friends (the boom or recovery or period of growth in the economy) and then moved back (the depression or recession).

By committing itself to avoiding recessions and encouraging stimulation of the economy, that is, to making Foster and Catchings' statistics and the GNP go up, the Government is committing itself to supporting the bankers’ expansion of money and credit. Since there are no booms or recessions in reality, since the statistics go up when the bankers profit from creating money and go down when the money supply is curtailed, this is a Government committment to help the bankers and their friends at the expense of the vast majority of the people.

If we give the matter a little thought, it becomes apparent that a government committment to help the economy, i.e., a government committment to create wealth, is an absurdity. People can organize themselves in many different ways. To say that government can create wealth is to say that people organized under the aegis or authority of government (i.e., a government bureau, a legislature, a mayor, etc.) can create more wealth than these same people organized in any other way.

It must be argued that something happens to such people when they are acting as a government agency or unit which makes them more productive and efficient than when they are acting on their own.

People do not become more productive when working for the government. They acquire only one characteristic — the ability to enforce their will by means of law. A private builder who wants your land offers you a price and tries to win your consent. A legislature which wants your land seizes it by eminant domain and gives you what the government decides is a fair price. A private bus company tries to get your money by offering you transportation. A government bus line takes your money via taxes and offers you the transportation whether you want it or not (often adding insult to injury by pretending that its transportation is free). The individuals running the government project are not smarter or more efficient nor do they work harder. The only difference is that they have the ability to enforce their will on you. You cannot refuse to sell your land to them or refuse to pay for the bus service. The only element which the government has added is the use of force.

But force is not a constructive or a productive element. It can never aid in the creation of wealth. Indeed, it is often used for the destruction of wealth.17 To expect people organized with this power to be more productive than people organized without it is unsophisticated nonsense. Government can provide for the common defense or establish justice. It does not have the power to create wealth.

The Myth of the Great Depression

One of the great lies which form the basis for the modern power structure is the myth of the Great Depression, the depression of the 1930s. This myth is so important to the continued existence of the modern power structure that any ideas which tend to cast doubt upon it or to deny it constitute heresy and must be suppressed by all right-thinking people. For this reason, all obedient vassels of the modern power structure will rise up in violence against those who dare to speak the truth about the Great Depression: which is that it was indeed a bad time for the bankers and their friends. But to say that it was a bad time for the American people as a whole is a lie.

'When F.D.R. came into office, people were starving. They were jumping out of office buildings.18 I was living in them days, Mr. Katz. The gold standard [established in 1789] led us to the depression of the 1930s. Millions were out of work, and the working classes suffered as never before. F.D.R. struggled manfully to end the depression, but it was not until World War II that the country really emerged from it.'

Before we go on to analyse this myth, it should be noted that people stupid enough to actually believe that a war can create wealth (i.e., that World War II brought us out of a depression), are capable of swallowing the other lies and absurdities that make up the myth. Indeed, our society’s level of economic wisdom is no different from the scientific level of certain African countries whose leaders consult witch doctors.

First, it should be mentioned that from 1873 to 1879 the country went through another great depression (i.e., another large scale transfer of wealth from the bankers and their friends to the average person), one almost as severe as the depression of the ’30s. There was, at that time, a great deal of unemployment. But there are no reports that people were jumping out of windows. There is no evidence of political unrest leading to a change in the party in power. There are no complaints of widespread suffering among the working class, and the American worker solidly supported returning to the gold standard (which was done in 1879). Again, the same type of thing happened in the 1820s with no literature of hardship and with the general public supporting the hard money platform of Andrew Jackson and Martin van Buren to abolish the central bank.

In fact, neither the period when wealth is transferred from the people to the paper money interests (the boom) nor the period when it is transferred back (the depression) is good for the economy as a whole. Both disrupt the process of production. In this sense the Great Depression was bad for the economy. But because it involved a transfer of wealth from the bankers to the majority of the people, this majority (that is, the workers who kept their jobs) were better off. There was even a song, Potatoes are Cheaper, popularized by Eddie Cantor, pointing out the well-known fact that prices had declined and the average person was wealthier in real terms.

The average person was wealthier because his nominal wages were not declining as fast as prices. This caused a lot of unemployment, but it made the salaries of the employed (which at the worst of the depress ion were the vast majority) go farther. Banker propaganda, operating through the newspapers, told the average person that he was poorer (because his nominal wages were lower), and many people believed it.

The Great Depression was so bad, Mr. Katz, that to get a job you had to kick-back part of your salary to the employer. That is to say, if a person’s salary was $50/week, he would walk around a corner after receiving his paycheck and hand back $10.

The rational mind might inquire, what is the point of this pretense? The man was receiving $40 per week, not a bad salary considering prices at the time. It would be equivalent to over $400/week in 1995 dollars. Why not give him $40? Why go through the charade of paying him $50 and taking back $10?

The answer is that people believed that the price decline of the 1930s was a deflation, i.e., a drop in goods. They did not recognize it as a rise in the value of money. If the $50/week worker of 1929 had recognized that the dollar was worth 25% more in 1933, he could have accepted a $40/week salary without a loss of self respect. Because he did not realize this the pretense had to be employed.

(3) The Liberal Disguise

It may well be asked how the crackpot theories of Foster and Catchings have come to be established in the U.S. today. Indeed, the very first reaction to The Road to Plenty was to regard Foster and Catchings as crackpots and dismiss them as unworthy of serious study (an opinion which still holds). But their theories (as distinct from the men) were rehabilitated by John Meynard Keynes, whose famous work, General Theory of Employment, Interest and Money, is directly plagerized from The Road to Plenty.

Keynes was a member of the British upper class, an elitist and a reactionary with an instinctive love of Germany and German institutions. His goal was to discredit liberal economics and to bring back the old mercantilist school of thought. His method was a technique which I call the wolf in sheep's clothing, and it constitutes the third, and most successful, banker argument. This was to disguise reactionary medieval ideas and institutions (the wolf) in the outer form of a progressive and liberal ideology (the sheep's clothing).

Liberal economists had pioneered the idea that economics was a science, not a branch of religion. To cloak himself in this tradition, Keynes added a sprinkling of mathematics to his economic writings to make them appear more scientific.19 Keynes described himself as a liberal, and his disciples were quite vocal in attacking the bankers (although many of them were bankers themselves). To complete his posture as a liberal, Keynes posed as a friend of the workers. Considering that Keynes' goal was to lower the workers’ wages, this was no mean feat, and it was achieved as follows.

In a free economy, all of the workers are employed, receiving, on average, a wage equal to the value of their labor. If labor is unemployed, or employed at a rate lower than its value,20 it creates a strong incentive for people to start new businesses or expand old ones, and this employs more labor and causes wages to rise. There may be a few people inbetween jobs, but this does not last very long, and it is not a serious problem for almost anyone to find work. In the almost free economy in the U.S. at the turn of the 20th century, unemployment was far lower than at present (average 3.7% for the first decade of the century). As new immigrants poured into the country by the millions, American workers saved up capital, quit their jobs and went into business for themselves, thus employing the immigrant labor.21

The proper condition for labor, with everyone employed at a wage equal to the value of his labor, can go wrong in two ways. If wages get too high (above the value produced by the laborer), then employers will not be able to pay them, and there will be unemployment (as happened in the 1930s). Wages can be too high, causing unemployment, or they can be too low. Wages and employment are like the two ends of a see-saw; when one goes up, the other goes down. The best state of affairs for the worker is when the seesaw is in balance.

Keynes was an advocate of paper money and a supporter of the banks and big corporations of his day. His goal was to lower wages. As we have seen, issues of paper money depreciate the currency and cause nominal wages to rise. But because nominal wages do not rise as fast as nominal prices, real wages decline. Even as he loudly claimed to be their friend, Keynes looked with contempt on the stupid working man who could be so easily fooled into thinking that his wages were rising when in fact they were falling. (He wrote, Every trade union will put up some resistance to a cut in money wages, however small. But since no trade union would dream of striking on every occasion of a rise in the cost of living,22 they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school.23)

Keynes’ strategy was to scream about his love for the working man and his desire to reduce unemployment. His formula for reducing unemployment consisted of lowering real wages through a depreciation of the currency (rise in the cost of living). Every step in this process was described in euphamisms. For example, increasing the money supply was called increasing consumer demand. (Consumers can only demand more goods when they have more money.)

Before the Keynesian/Foster and Catchings system could be put into operation, the gold standard had to be abandoned. This was accomplished before Keynes' major work was published;24 nevertheless, his arguments have been most often used to justify the act.

Keynes did not give economic reasons for his opposition to the gold standard (except to repeat Foster and Catchings' crackpot ideas). He used the wolf in sheep's clothing strategy and criticized the gold standard for being a conservative issue. It was as though one could refute an idea, not on its merits, but according to its position on the political spectrum. ‘The gold standard is old fashion. It is on the side of the bankers. It is against the workers. It is unscientific. It is a barbarous relic.'

To their eternal shame, most of the educated class in America were deceived by this disguise. They rejected the gold standard because, they thought, it was a conservative position.

As it happens, hard money is not a conservative position, and oppostion to the bankers’ privilege does not come from the bankers. Thomas Jefferson was for hard money. So was Andrew Jackson and so was Karl Marx. On the other hand, Alexander Hamilton, the conservative, was somewhat less hard money than Jefferson, and both Adolf Hitler and Father Coughlin25 (the fascist priest of the 1930s who tried to stir up racial prejudice in America) were anti-gold. Of course, even if gold had been a conservative position, this would not constitute an argument against it. One would still have to consider the merits of the issue.

(On the merits, the Keynesian argument does not seriously tax a third grader. Pretending not to know that a federal deficit is financed by the printing of paper money, they argue.that the additional spending by the government stimulates the economy, i.e., causes additional buying of the products sold by business.26 If the government runs a deficit of $200 billion (they say), then that amount of money goes into people's hands and is used to buy goods.

The third grader replies that, when the government runs a deficit of $200 billion without printing paper money, then it must borrow $200 billion from the people. So $200 billion goes out of people's hands, and this exactly cancels the effect of the $200 billion that went into their hands via the government spending. Embarrassing. Embarrassing.)

The Keynesian thrust caught American hard money advocates off guard. They were prepared to debate economics. They were not prepared to debate where their economic position belonged on the political spectrum. Most of them were not terribly conscious of the political spectrum and believed that the most important thing about an idea was whether it was true, not whether it was on the political right or left. Thus Henry Hazlitt, a liberal, hard money economist of the 1930s who wrote the economic articles for The Nation, allowed himself to be classified as a conservative economist (without changing any of his views). Keynes' lie that gold was a conservative position became self-fulfilling. Some liberals started to consider it their duty to oppose the gold standard. Liberal gold advocates began to believe that they were conservatives. Conservatives were publicly expected to say something nice about gold. Because everyone believed that it was true, they acted in ways that seemed to confirm it.

This myth that the gold standard is a conservative position has led to a peculiar situation among modern conservatives. The vast majority do not support the gold standard but, in line with the Keynesian myth, feel that they have to pretend to. The late Nicholas Deak, Arthur Laffer, Howard Ruff, Alan Greenspan and Jack Kemp are examples of this type. (Kemp, in particular, is a crafty, ambitious politician who plays both sides of the gold/paper monev street in his drive toward power.) On the other hand, true gold advocates are often labeled conservatives, and it is necessary to study them closely to discover that they are not.

Today the Foster and Catchings system, in its Keynesian guise, is firmly in place. Statistics which measure the well being of the bankers and big corporations are widely regarded as measuring the economy. When these indicators falter briefly, the banker apologists start to cry that they want growth (if they are conservative) or that they want to reduce unemployment (if liberal).27 So the administration in power runs a bigger budget deficit, and the Federal Reserve prints money to finance it (as described in Chapter III). Then the commercial bankers create even more money, the currency depreciates, real wages decline, and the standard of living of the average American worker goes down. This is the reality of what passes for the economic discussion in America today.


  1. Ironically, with the reduction in family farms today and the growth of agribusiness, many farmers are now in debt (the big ones). But the argument is no longer useful to the bankers.
  2. I mean here shortage in the weaker sense of a sudden underproduction which leads to a rise in price. There is a strict sense of the word in which shortage means that there isn’t any of the stuff around — at any price.
  3. In 1995, as in 1933, a good man’s suit sells for 1 ounce of gold; an inexpensive car sells for 20 ounces of gold; a pair of men’s shoes sells for 1/10 ounce of gold; and a ritzy room at a New York hotel rents for ¼ ounce of gold.
  4. If you do, there is something wrong.
  5. Sullivan and Cromwell later came to have a dominant influence in 20th century American politics, supplying many of our most important public figures.
  6. Foster and Catchings, The Road to Plenty, 19289 p. 65.
  7. Ibid., pp. 66-67 (Foster and Catchings’ italics).
  8. Ibid., p. 92.
  9. Thus, saving and investing, the true path to increase wealth, are condemned under this system.
  10. Ibid., pp. 85-86.
  11. Ibid., p. 176.
  12. J.F.K.
  13. You have probably heard an establishment economist on TV saying it's a good thing not to have too strong a recovery (because it will lead to inflation). If you thought this didn’t make sense, you were right. If you thought that the problem lay with you and that the fellow on TV was a real economist, you were wrong.
  14. In the 19th and early 20th centuries the actual quantity of paper money would be reduced; from the mid-2Oth century on only the rate of increase would be reduced.
  15. Thomas C. Hayes, Economists Scale Back Predictions of Growth, The New York Times, Oct. 28, 1987, p. D-1.
  16. a privilege which violates economic freedom
  17. In practice, most government intervention in the economy is at the request of a (favored) interest group which wants to use the government's power to get wealth from some other group. It is legalized theft.
  18. This is another myth. There was no increase in the suicide rate in 1929, just a few highly publicized cases.
  19. Keynes’ success started a vogue for mathematical economics in academic circles, and this vogue has now become a mania. Today when you hear an economist spout mathematics at you, he is at best irrelevant and at worst a fraud.
  20. as measured by the selling price of its product
  21. Such unemployment as did exist in that nearly free economy and as exists now is mainly due to the correction of malinvestment and its resulting malemployment. Due to paper money, people get employed producing the wrong goods; to correct this waste some unemployment is a temporary requirement.
  22. which means a cut in real wages
  23. John Maynard Keynes, General Theory of Employment, Interest and Money, (London, 1936), [rights controlled by Harcourt Brace Jovanovich, Inc.] p. 15.
  24. Conservative Mariner Eckles (Federal Reserve Board Chairman under F.D.R.) was a major influence against the gold standard in the early days of the New Deal.
  25. The New York Times will not allow any hard money view on their Op-Ed page, but some years back they printed an hysterical, anti-gold diatribe by Father Coughlin.
  26. As Michael Kinsley argued in a recent issue of The New Republic, the national debt is no cause for alarm because we owe it to ourselves. A nation's debt to its own citizens is different from a family’s debt to the bank. The debt itself doesn’t make the nation as a whole any poorer, aud deficit spending can even make the nation richer if used at the right time to stimulate a weak economy. (Michael Kinsley, Liberals and Deficits, The New Republic, December 31, 1983, p. 15.) A lot of the nation’s (i.e., the government’s) debt is owned to the bankers not to ourselves. Of course, to a Keynesian, the banks and big corporations are the economy.
  27. Both minimum wage legislation and unemployment compensation (enacted shortly after the paper money system came in) are intended to increase unemployment so that it can be lowered by banker-issued paper money. Most of the progressive legislation of this period operates in a similar, round-about way to benefit the power structure.