Chapter VIII:
How the Power Structure Deceives You

At this point we have an understanding of how commercial bankers create money, how they benefit from this at your expense, and what the effects are throughout the economy. But the most baffling aspect of the bank paper scheme is that virtually no one seems to be aware of it. How do the bankers put one over on the American public, including university trained economists and our leading magazines and intellectual organs. We live in a country which has freedom of speech. Surely someone must have discovered the truth up to this point. How could all the authorities be fooled for so long?

To put the question in this way gives us the clue to the answer, because America was founded by men who understood that authority does not flow from the top down. It flows from the bottom up. This is to say, in any society, those individuals who are recognized as authorities are the people who best appeal to the beliefs of the majority. If the majority in a society is superstitious and irrational, then it will raise superstitious and irrational men to positions of leadership over it.

In the Middle Ages the authorities of the time proclaimed that the earth had been created in 4004 B.C., was flat and stood still while the sun traversed the heavens; scientists who believed the opposite were treated as criminals. In primitive times other authorities stuck pins in dolls or performed dances to bring rain. Yet these authorities were respected and honored individuals in their various cultures.

People who themselves do not understand money but who expect to use money and pass along responsibilitv for understanding it to certain authority figures are asking the impossible. If they are ignorant, they have no way to tell who is a true expert and who is a fraud out to deceive them. Indeed, the real expert must always deal with truth. Therefore, he sometimes finds it necessary to say things that are unpleasant or implausible, things that we do not want to hear. On the other hand, the man out to defraud us will be very careful to only tell us what we are predisposed to believe.

In the year 1620, a man in Europe was claiming to be the supreme authority on the subjects of morality and the nature of the universe. Black was considered to be white if this gentleman said it was. But a small group of Englishmen, who called themselves Independents, declared the opposite, that each man must judge the truth for himself using the power of his own mind. Driven out of their country for their beliefs, they came to America and formulated the principles for this nation.

The reason we have fallen into such difficulties on the subject of money is that Americans have abandoned the principles of the Pilgrim Fathers. We default on the responsibility to understand even such a fundamental, everyday object as the money in our pocket; we choose authority figures to regulate our money, and we expect that by the simple expedient of giving these figures impressive titles we can get more out of them than we put in.

Again and again, when your author and his associates would go to a congressman to explain the monetary legislation which his predecessors had passed in 40 minutes, the congressman or his aide would smile and say, ‘Oh we don’t understand anything about money. We follow Congressman Jones on that subject.' The smile would indicate that there was nothing wrong in seeking a position which required knowledge one did not have. So we would go to Congressman Jones only to be told, ‘Oh we follow Congressman Smith,' etc. Pursuing this trail it was quickly apparent that all the conservatives in the U.S. House followed one conservative congressman, and all the liberals in the House followed one liberal congressman. These two congressmen were dominated by their aides, who were monetary experts and genuinely understood the subject and supported paper money. The same thing was true of the Senate. Time and again I wanted to cry out, ‘If you don’t understand what you are doing and if you don’t have the time to educate yourself, why did you seek office? You have gone out of your way to acquire the responsibility for action. Ignorance can not be an excuse.'

The result of this default is that most of the monetary legislation that passes the U.S. Congress is the product of approximately four people. The commercial bankers, being aware of this, have long ago moved to plant toadies1 loyal to themselves in these sensitive positions. The rest is a default.

The same default of responsibility occurs in the media and throughout our society. The banker (for example, Paul Warburg of the Manhattan Bank) endows a chair of economics at Harvard University (The Paul Warburg Chair of Economics); and Harvard appoints to that chair a banker-economist (John Kenneth Galbraith) who defends the bankers’ privilege to create money and ridicules the gold standard. Galbraith’s theories are the economic equivalent of thePtolemaictheory of astronomy, but people default on the responsibility for making their own judgments and are awed by the name of Harvard into submission.2 Other universities rush to copy Harvard and institute this new Keynesian theory of economics. Newspaper reporters on the subject of economics continue the default. Of course it is possible to set society on the road to plenty by printing paper money. Harvard University says so. Thus the ignorance which the average person has on the subject of money is translated into a class of fraudulent experts who pander to that ignorance and use it to exploit him. When he opens his morning paper, he reads, as most certain fact, the lies of these authority figures. His own ignorance has been erected into an idol before which he bows and sacrifices. The false experts are paid with banker wealth which has been stolen from him. And no reform can succeed unless he ends his default and attempts to understand for himself the nature of the money about which he centers such an important part of his life.

As we have discussed in a previous chapter, when the economic indicators calculated by the false experts go up, it does not indicate a prosperous economy. It indicates a transfer of wealth from the general public to the paper aristocracy. So the newspaper headline that you never think to question — Economy Up — is a lie. And the same is true for the opposite headline — Economy Down. What the (first) headline should actually say is, Paper Aristocracy Up, At Public Expense.

In other words, the newspapers and magazines you read are not reports on reality. They are the power structure's means of controlling you by a series of lies. And if the locals in your home town press are not deliberately lying, it is because they too are guilty of this default.

For example, in 1981 newspapers throughout the country were blaring in large headlines that Reagan was slashing social programs to the bone, sharply cutting non-defense spending. In fact, while Reagan sharply increased the military budget, he also increased the non-military budget, increased it by almost as much as Carter. Thus total government spending has increased much more rapidly under Reagan than Carter. Here are the U.S. Government figures:

Budget Outlays3 (billions)
  Non-defense spending in current dollars Non-defense spending in constant (1967) dollars  
Real increase in non-defense spending, 1976-80 = 11.26%.
Real increase in non-defense spending, 1980-84 = 10.10%

When your author began his campaign for the gold standard in 1972, he quickly discovered that the majority did not know that we were off the gold standard. Such a fundamental fact had been successfully hidden from the American people for over 40 years.

But this ignorance about going off the gold standard has a parallel in the creation of the central bank. As noted, when the Federal Reserve act was voted into law in December of 1913, its advocates denied that it was a central bank. They kept denying it until the 1960s. At that time, the issue was treated as though the bank had always existed. Thus the question of whether a central bank ought to exist has not been debated in 20th century America, and the entire history of 19th century American opposition to the central bank has been erased from the history books and from the public mind.

The most important event of the 1970s was the cutting, on August 15, 1971, of the tie between the paper dollar and gold. This permitted the bankers to double the money supply over the decade, causing the dollar to lose half its value. This affected every person in the country, making fortunes for a few and causing losses for most others. It was an open admission that the bankers controlled the Nixon Administration4 (probably through the influence of Arthur Burns) and that prices would head higher for the foreseeable future. But the event was given almost no coverage, and the headlines on August 16, 1971 treated the price and wage controls as though they would stop the inflation. This gold embargo, as it was called, directly led to: the price and wage controls of 1971-72 (and thereby the oil crisis of the ‘70s, the meat boycott and the shortages of 1973), the doubling of average prices in the ‘70s, the gigantic budget deficits we now experience and the soaring national debt, the rise in the price of a new house above the level that an average American can afford, the crisis that almost destroyed the savings and loan industry in 1981-82 and the decline in real wages for the average American which began in 1972.

For two weeks prior to the cutting of the tie, a run had developed against the dollar as foreigners raced to get the gold they had been promised. This run was reported on the Dow Jones news wire and made headlines in my economic letter, The Speculator.5 It was not reported in the U.S. media except for a few, obscure, cryptic back-page references.

In 1980,Congress expanded the bankers’ privilege to create money from 6 times their cash to 8 times. This is allowing an additional 25% increase in the money supply above and beyond the normal process of money creation via Federal Reserve notes as described in Chapter III. This bill, almost a hundred pages of complex banking legislation, was delivered from the Government printing office on a Monday and had passed Congress by Thursday. There was no way that any Congressman could have read the legislation before voting on it, and not more than a handful of legislators had the slightest idea of what they were doing. The capacity of the legislation to raise prices by 25% was completely ignored by the media.

In 1980-81, in order to advance their case for easy credit, the banks started to lie about the rate they charged their prime commercial customers, exaggerating it by as much as 4%. Not only the newspapers, but all the statistical services ignored the House Banking Committee's discovery of this fraud and are reporting the announced prime rate in their tables as though it were real (thus invalidating all statistical research on the prime rate for the next several centuries).6

In order to keep the expansion of the late ‘70s going, the bankers began to scream, as early as 1977, that a recession was imminant. As we have seen, the concept of recession itself is a lie, designed to deceive the public into thinking that the country is getting poorer when, in fact, most of the people in it are getting richer. But in 1980, the process of fraud was carried to comical extremes. Tired of predicting a recession that never came, the banker-economists simply declared one to exist. The facts are as follows. Although banker-economists are unable to prove that the country’s wealth declines during the time they label recession, they have at least formulated an objective criterion: two consecutive quarters of decline in real Gross National Product. When this happens, the National Bureau for Economic Research7 declares a recession, and The New York Times (followed by the rest of the media baa-ing at a respectable distance) ballyhoos it across the country. There were not two quarters decline in real GNP in 1980. Three of the fotir quarters for that year showed a rise. But, as we have noted, the NBER seized upon the declining second quarter and simply declared a recession to exist.8 No explanation was required. No dissenting voice was heard. Propaganda was then whipped up to a fiery pitch declaring this to be the worst recession in the country’s history.

What actually happened in 1980-81 was a very mild period of tightening. In the late ‘70s money supply growth had gotten above 8% (in both ‘77 and ‘78). During 1980-81 this was reduced to about 6 1/2%. It was certainly not a contraction in the money supply; it was a slightly reduced rate of expansion. This caused a weakening in real GNP, which fluctuated from ‘80 to ‘82. But it was not until the very end of 1981 and the first quarter of ‘82 that they got two consecutive quarters of decline in real GNP, thus fulfilling their criterion. The recession of 1981-82 was one of the mildest on record.9 But this fact will only be of interest to those who believe in recessions and possess the integrity to require that their beliefs remain consistent from one year to the next.

Another example of media manipulation was the 1983 campaign to renominate Paul Volcker as chairman of the Federal Reserve. Volcker came up through the ranks of the Chase-Manhattan Bank and has always been a loyal servant of David Rockefeller. He has supported the banker interest and been an enemy of the gold standard. As Under Secretary of the Treasury he set the Nixon Administration on the path of demonitization of gold in the international monetary system and in 1973 frightened Congress into voting down legalization of gold ownership.10 One of his fellow members on the Trilateral Commission, Jimmy Carter, appointed him head of the Federal Reserve in 1979, an appointment which was described by Jim Dines as putting Dracula in charge of the blood bank.

Volcker did what all previous Fed chairmen have done; that is, following the scenario which your author laid out in The Paper Aristocracy, he increased the issues of paper money through cycles of relatively tight or easy credit. But Volcker was presented by the media in just the opposite way. He was presented as a conservative11 who wanted to restrict the growth in the money supply. Upon taking office in 1979, Volcker described himself as an advocate of Milton Friedman’s monetary rule, which requires that the money supply be expanded by no less than 2% and no more than 6% each year. Volcker had no trouble getting above 2%, but it was a lot harder getting below 6%.

When it became known that Reagan, because of his conservative ideology, was considering dumping Volcker (an Eastern Establishment type) and putting in his own man at the Fed, the power structure pushed the panic button. The Wall Street Journal and The New York Times began to run article after article praising Volcker to the skies. They did not attempt to defend the policies Volcker was actually following. Instead, they presented him as a sound money man who would help to win the battle against inflation.12 Paul Volcker had proved this by two years of somewhat reduced monetary growth and a mild recession, accompanied by a great deal of strident propaganda. If Reagan had appointed his own man to chair the Fed, there would be no question that this man would be subservient to the bankers and would want to issue more paper money. But that might subject him to public criticism. He would have to establish his credibility, perhaps by reducing the growth in the money supply from the 9.3% rate it was hittingat the time. This would kill the recovery and end the stock market boom. Voicker had already proved himself and thus was free to print money at a faster rate. On with the show. The Wall Street Journal was surprisingly frank.

Even if in the event the next chairman proved equally good,13 the markets would have to worry until he in fact proved himself.14 This means interest rates would be higher … with the recovery and the next election campaign both just starting, the possibility that dumping the chairman will dump the markets and the recovery strikes us as a terribly high risk to run merely to have your ‘own man’ at the Fed.15

This inspired two professors from Montana (Norman D. French and Clifford F. Thies) to write and say that Volcker should be given the Nobel prize.16 The Journal also quoted the Independent Bankers Association saying: In God and Volcker we trust,17 and Stan M. Yassukovich, managing director of European Banking Co. saying: it is the instinctive wish that Paul Volcker be reappointed.18

The New York Times, which has to hide its subordination to the New York bankers, was a bit more veiled. It simply quoted third parties saying:

He [Volcker] broke the back of the worst inflation in United States history.19


He [Volcker] stands as a unique symbol of economic integrity and rectitude.20

As the campaign for renomination reached its climax, James Grant, who then wrote the interest rate column for Barron’s (the national business and financial weekly), remarked:

Bond prices rallied last week, and the veneration of Paul A. Volcker, the incumbent Federal Reserve Board chairman, reached a pitch just short of that normally sufficient for canonization.21

Ronald Reagan, the Cowboy22 conservative, who hates the Eastern Establishment, immediately snapped to attention. All thought of appointing his own man was banished. Reagan reappointed Volcker, describing the banker toady in the following terms:

Paul Volcker is a man of unquestioned independence, integrity and ability. He is as dedicated as I am to continuing the fight against inflation23 and with him as chairman of the Fed, I know we’ll win that fight.24

With the victory in the bag, Leonard Silk told the story to his The New York Times audience, carefully couched in banker language so that only those in on the scam would understand:

In naming Volcker, the President has apparently come around to the view that even if he were to appoint a new man with views close to those of Volcker, such as Alan Greenspan, the great disadvantage of changing the head of the Federal Reserve was that the new man would still have to tighten money more than Volcker to establish his credibility.

Volcker has established his credibility as a fighter against inflation … and in doing so has gained greater freedom of action for the Federal Reserve …

Volcker has been willing to use the vocabulary and targets of monetarism when it suited his purposes of bringing inflation down … But he has also displayed a pragmatism and flexibility which permitted him to disregard money targets when he thought the main job of monetary policy was to check and reverse recession, or promote the recovery …

What now seems to lie ahead for the economy is ongoing recovery.25

And it did.

In celebrating Volcker’s renomination, The Wall Street Journal, rubbed salt in the wound, declaring: Mr. Volcker made his reputation as a hard-dollar man.26 And The New York Times editorialized:

With inflation under control, at least for the moment, Mr. Volcker can be counted on to keep a cautious hand on monetary restraints, supporting recovery while averting a new round of inflation.27

Readers of The New York Times, believing this analysis, were unable to predict the stock market boom of the mid-’80s. Indeed, The Times kept printing articles warning that the stock market was on the verge of another 1929. Readers of my publication, The Gold Bug, however, understood that Volcker was a representative of the bankers and had only tightened money temporarily to lay a base for a more radical expansion. They were therefore prepared for the expansion and, in December 1984, were told:

If we step back and look at developments in the absence of an election, we find the economy poised for a takeoff to a major paper money expansion. This is symbolized by the stock market [then at DJI 1100], whose long term chart broke out into new high ground in 1982 and which has now made a pullback to its breakout point. That is reminiscent of gold in 1970, and on this basis it would not be at all daring to predict a major bull market in stocks of the order of magnitude of a decade or more with near term objectives of 1500 and 2000 DJI and long term objectives anybody’s guess.28

Volcker increased the money supply by 12.1% in 1985 and by 18.6% in 1986. By the time he stepped down in August 1987, the stock market had gone above 2600 DJI. Because this money growth had not yet been reflected in the price indexes, the Times was still claiming that he had freed the economy from inflation, saying:

Paul A. Volcker's legacy is an economy that he and he alone freed from its worst predicament since the Depression — the long-brewing inflation that had turned virulent as he was taking office at the end of the l970s.29

In the face of this steady stream of lies, omissions and distortions, the media viciously attacks and ridicules gold bugs when they advance their theories and ignores them when these theories prove right. Gold bugs were repeatedlv insulted in the late 1960s for daring to predict that the price of gold would rise above $35/oz. (Congressman Henrv Reuss, on the premise that money is simply a social convention, predicted that gold would decline to $6/oz. once it was no longer supported bv its association with paper money.) But after the price of gold had multiplied by 25 over the course of a decade, the same people who had insulted us simply denied that we had ever made such a prediction.

On June 5, 1970, with gold close to $35/oz., your author had written:

If this is the peak in interest [It was, as I had predicted.], it is also the time to buy golds … As interest rates drop further the U.S. dollar will come under attack, and this will accelerate the demand for gold.30

and on October 23, 1970, with gold at $38.50/oz.:

Despite this pessimism all of the major golds completed important bottom formations in the past two weeks … All of these are buys for a major move.31

I maintained this bullish view on gold while the price multiplied by more than 5. Jim Dines, and others, were in the same camp.

But almost a decade later, Fortune Magazine called us the ‘gold bug' lunatic fringe, and said:

Nobody ever predicted — nobody ever imagined — the tidal wave that has swept over the gold markets in the wake of demonitization. All the recognized oracles, in fact, had pointed the other way.32

The article then went on to quote recognized oracle, Henry Wallich (one of the governors of the Federal Reserve), saying:

Nobody ever thought what would happen if we went off gold and the price went sky high.33

Some hard money advocates attribute the continual stream of falsehoods, the hysterical campaigns, the omissions of crucial fact, to innocent error, which they seek to remedy by education. But, paraphrasing Shakesphere, if this be error, yet there is method in it. The falsehoods which the established media are willing to print at any moment are precisely those falsehoods which tend to justify bigger issues of paper money. The truths they omit are those which argue for the opposite side. And every now and then they let it slip that they are not at all ignorant of the American money system. For example, on August 15, 1983, The Wall Street Journal stated:

Many economists consider the monetary base particularly important because it is directly subject to Fed control and because bank reserves, the crucial component, tend to determine the growth rate of the money supply. Banks must maintain reserves equal to specified percentages of the deposits on their own books. When their reserves expand, they can make the loans and investments that add to their deposits — and the money supply.34

A week later The New York Times agreed:

In theory, of course, the Federal Reserve can create unlimited supplies of new money if it cares to.35

Early in February, 1984, the Federal Reserve admitted that it had set new peacetime records in printing paper money during 1983. The New York Times headlined this news item as:


I don’t know what a stable rise is, but The Times lied about the money supply figure, reporting the figure for the last 6 months of ‘83 as the number for the full year and refusing to correct it when I wrote them and pointed out the error. The Wall Street Journal headlined the record growth as:

Fed to Keep Tight Grip on Money Supply This Year, Saying Inflation Test to Come as Recovery Matures.37

They didn’t actually lie. They just printed the false figure up front and added an obscure footnote that got them off the hook.

On the highest level, the defense of the men and policies that are creating this new money is not an error. To end the paper money privilege is to destroy the power structure.

The importance of this media manipulation is that The Times is in most respects a great newspaper and largely deserves its reputation. Newspapers all over the country copy it faithfully. But if this is the best that we have, then Anerica is in trouble. Such copying is a manifestation of the authoritarianism which is the source of the problem in the first place.

As a final note, when the U.S. Gold Commission met on February 12, 1982, and recommended the gold coin which will put the country on the gold standard, the media reported:

Commission Votes Against Revival of Gold Standard38


Monetary Use of Gold is Rejected39

It was par for the course.

Authority flows from the bottom up. Politicians and university professors and newspaper columnists will for the most part tell you what you already believe. On a few rare occasions, someone will tell you what is true; and if he convinces the majority, then all of the authority figures will change their position. That is what authority is all about. So put down your can of beer; turn off the television set; and start to search for the truth with your own mind. Then you will be able to keep for yourself the product of your own labor.


  1. such as Richard Axelrod or Carl Mintz
  2. an awe that would not have been shared by the Puritan founders of that formerly great university
  3. Economic Indicators, Council of Economic Advisors, (U.S. Gov't Printing Office), Feb. 1985, pp. 23, 33 and July 1984, p. 23. First column is total spending minus defense spending. Second column is first column divided by Consumer Price Index.
  4. After the mid-term election of 1970, Nixon stated, I am a Keynesian, He had been elected in 1968 on an anti-Keynesian platform.
  5. which predicted the cutting of the tie on August 13, 1971, two days before it occurred
  6. The fraudulent prime rate plus the erratic behavior of the consumer price index (which overshot the money supply in the late ‘70s and lagged behind it in the ‘80s) calls into real question the validity and accuracy of our economic indicators. This seriously undercuts the methodology of Milton Friedman and the positivist school, which uses such indicators as a starting point.
  7. founded by Arthur Burns
  8. It was the prestige of The New York Times which put this fraud over on the country and led other papers to repeat the propaganda, even though it contradicted the two-quarter decline rule which the Times had been preaching for the past several decades. How dare mere logic come into conflict with the great reputation of The New York Times? Needless to say, none of these papers will publish a hard money view as rebuttal.
  9. as measured by real GNP, the paper aristocracy’s criteria
  10. fortunately, only a temporary defeat
  11. taking advantage of the previous (Keynesian) lie that conservatives are for sound money
  12. Once the public believes this, the next expansion is justified by the argument, ‘Even a sound money man like Volcker believes that expansionary policies are needed at the present time.'
  13. By this they mean, willing to print money and politically skillful at hiding the fact.
  14. By this they mean, proved himself to be the opposite of what he in fact was.
  15. The Federal Reserve Board under Volcker engineered a dramatic decline in interest rates in the 6 months prior to the 1984 election. lead editorial, The After-Volcker Market, Wall Street Journal, 6-9-83, p. 32.
  16. Letters to the Editor, Ibid., 6-14-83, p. 35.
  17. Independent Bankers Association, as quoted by Washington Wire, Ibid., 6-17-83, p. 1.
  18. Stan M. Yassukovich, managing director of European Banking Co., as quoted by Matthew Winkler, European Bankers Voice Strong Support For Volcker, Hopes He Gets Another Term, Ibid., 6-16-83, p. 34.
  19. Allen Sinai, as quoted by Peter T. Kilborn, Appraising Volcker's Record, The New York Times, 6-15-83, p. D-l.
  20. Arthur Levitt, chairman of the American Stock Exchange, as quoted by Ibid.
  21. James Grant, Current Yield, Barron's, 6-20-83, p. 58.
  22. The Republicans have been described as torn between a western, conservative, Cowboy, faction and an eastern, liberal, Yankee one, as per the conflict between Barry Goldwater and Nelson Rockefeller.
  23. This is true but not in the way that Reagan meant.
  24. Ronald Reagan, as quoted in, Reagan ends the guessing: Volcker will stay on at Fed, The Providence Sunday Journal, 6-19-83, p. 1. (from L.A. Times)
  25. Leonard Silk, New term for Volcker may extend recovery, Providence Sunday Journal, 6-19-83, p. A-12. (from The New York Times, my italics)
  26. lead editorial, Seeing the Light With Paul, Wall Street Journal, 6-21-83, p. 34.
  27. lead editorial, Mr. Volcker, Continued, The New York Times, 6-21-83, p. A-28. ‘9
  28. Howard S. Katz, Overview, The Gold Bug December 1984, p. 1.
  29. Peter T. Kilborn Anti-Inflation Legacy. The New York Times. June 3, 1987, p. 1.
  30. Howard S. Katz, The Speculator, June 5, 1970, p. 4.
  31. Howard S. Katz, Ibid., October 23, 1970, p. 5.
  32. Martin Mayer, The Message From the Gold Markets, Fortune, 11-5-79.
  33. Henry Wallich, as quoted by Martin Mayer, Ibid.
  34. Lindley H. Clark, Jr., Managing Money, Wall Street Journal, August 15, 1983, p. 10.
  35. Karen W. Arenson, Recovery’s Threat to Credit, The New York Times, August 22, 1983, p. D-3
  36. headline,The New York Times, Feb. 7, 1984, p. 1.
  37. headline, Wall Street Journal, Feb. 7, 1984, p. 2.
  38. headline, Washington Post, February 13, 1982, p. 1.
  39. headline, The New York Times, April 1, 1982, p. D-1.