Chapter VII:
‘How You Can Profit From The Coming …’

There is a school of thought — principally the followers of Ludwig Von Mises — which is well aware of the dangers of paper money. Although they are reluctant to attack the bankers and big business, their analysis of economic causes and effects is accurate.

The best exposition of this point of view is Harry Browne's book, How You Can Profit from the Coming Devaluation, which I recommend highly for a clear explanation of the monetary situation. However, Mr. Browne claims that you, as an individual, may protect yourself from paper money by an investment program. With this I must disagree. There is no way to fightthe bankers as an individual. The alternatives faced by the country are continuing depreciation of the currency at a greater and greater rate or a currency stabilization or contraction.

It is true that there is an investment program which will enable you to profit from the depreciation of the currency. It consists of, in effect, joining the bankers. It encourages you to go into debt; it advises you to hold common stocks (except for gold stocks), with a seasoning of the more risky groups; it recommends real estate and does not look askance on such investments as rare coins and art.

Similarly, there is an investment program for a period of stabilization in the value of the currency. It tells you to avoid common stocks except for very conservative investments and gold stocks. It recommends putting, your money into bonds and savings accounts, and, for those inclined to greater risk, allows a little short selling.

The point is that these two investment programs are mutually exclusive. What will benefit from depreciation will be harmed by stabilization and vice versa. There is no investment program which will protect one from all possibilities.

I have observed that people tend to make their investments in accord with their political convictions. Because the investment program of the banking establishment has proven so successful over the past 40 years, it has lured many people into buying into this kind of a program and thus acquiring a vested interest in the depreciation of the currency. These people, like those whose jobs are dependent on currency depreciation, have a vested interest in a course of action which will lead to the destruction of the nation.

The point I wish to make here is that no individual can stand aside and save himself. There is no way to ensure one's economic survival while everyone else's wealth is expropriated by the aristocracy. If the President will expand the money supply, cut the final tie between our currency and gold, and enact price and wage controls for these people, then he will pass other laws which they find necessary, and since it is impossible for them to profit without your losing, you will be robbed in one way or another.

One cannot even gain by joining the bankers, not in the long run. In the first place, if one does, then a victory by the sound money forces will leave one poorer. In the second place, as the depreciation progresses, it wipes out the wealth of the productive members of the society, and the members of the establishment are forced to devour one another.

An example of this occurred in early 1969. At that time the New Breed on Wall Street — those adopting their business practices to extreme issues of paper money — were taking over numerous established companies. The management of these companies who had been running their businesses on the traditional basis of mild issues of paper money — were threatened. When James Ling took over Jones and Laughlin, an old line steel company, it sent a chill through the powers-that-be in the business community. Who would be next? What was needed was a good dose of sound money. It would hurt the establishment. But it would totally destroy the New Breed. I cannot help but think that the influence of this group of people — some of the wealthiest and most powerful men in the country — was responsible for the determination of the Nixon administration to fight inflation in 1969. Surely, after the New Breed had been destroyed, the Nixon administration reversed its position quickly enough. Thus the best explanation for the 1970 recession and slowing of the rate of inflation which it produced is that it represented a battle between the present establishment and the New Breed for economic and political power in this country. In this battle the New Breed was defeated, as the establishment thought it better to take slightly lower profits for a few years in order that their challengers might be put down. On such considerations does the economic condition of the country depend.

No individual, as an individual, can protect himself from the ravages of the bankers. So long as the government will do their bidding, all our wealth can be expropriated at any time. There is no place to hide where you can sit out the storm while everyone else is destroyed. There is only one way to fight against the bankers. We must join together through the political process and wrest from them their power to exploit us. We must elect men to public office who oppose paper money. We are, by far, the majority in this country. All who labor and all who save are on our side. When we have recognized this truth, no one can stop us.

Those who join the fight may take heart from another incident in American history. The Revolutionary War was fought with paper moneywhich depreciated greatly and which had the usual effect in enriching members of the banking establishment of the time. The expanding currency and consequent depreciation in the value of money had immediately resulted in a corresponding rise of prices, which for a while the States attempted to control. But in 1778 Congress threw up its hands in despair and voted that (all limitations of prices of gold and silver be taken off, although the States for some time longer continued to endeavor to regulate prices by legislation. The fluctuating value of the currency increased the opportunities for speculation which war conditions invariably offer, and immense fortunes were suddenly accumulated. A new financial group rose into prominence composed largely of those who were not accustomed to the use of money and who were consequently inclined to spend it recklessly and extravagantly.54 exactly as happened in 1967-68.

But after the War, when the paper money ceased, there was a contraction which bore most heavily on the new financial group. Closely associated with the coinage problem was the paper-money situation in the states. In some, new taxes permitted the partial retirement of bills and improved the credit of what remained; but the depression, as we have seen, brought fresh demands for inflation which reached their climax in 1785 and 1786.55 exactly as happened in 1970-71.

But the good men of that time did not give up in despair as Harry Browne advises. They did not retire from the public arena to devise plans to save their individual fortunes while the country went to pieces. They banded together through the political process and devised a plan which would put an end to paper money. This plan consisted of forming a strong central government which would prohibit the State governments from issuing paper money. Its document of implementation was the Constitution. The character of the two contending parties of the time (Federalist and anti-Federalist) has been described by Justice John Marshall:

At length two great parties were formed in every state which were distinctly marked and which pursued distinct objects with systematic arrangement. The one struggled with unabated zeal for the exact observance of public and private engagements. By those belonging to it, the faith of a nation or of a private man was deemed a sacred pledge, the violation of which was equally forbidden by the principles of moral justice and of sound policy. The distresses of individuals were, they thought to be alleviated only by industry and frugality, not by a relaxation of the laws or by a sacrifice of the rights of others. They were consequently the uniform friends of a regular administration of justice, and of a vigorous course of taxation which would enable the state to comply with its engagements. By a natural association of ideas, they were also, with very few exceptions, in favor of enlarging the powers of the federal Government. The other party marked out for themselves a more indulgent course. Viewing with extreme tenderness the case of the debtor their efforts were unceasingly directed to his relief. To exact a faithful compliance with contracts was, in their opinion, a harsh measure which the people would not bear. They were uniformly in favor of relaxing the administration of justice, of affording facilities for the payment of debts, or of suspending their collection, and of remitting taxes. The same course of opinion led them to resist every attempt to transfer from their own hands into those of congress powers which by others were deemed essential to the preservation of the union. In many of these states the party last mentioned constituted a decided majority of the people, and in all of them it was very powerful. The emission of paper money, the delay of legal proceedings, and the suspension of the collection of taxes were the fruits of their rule wherever they were completely predominant.56

To defeat the paper money forces the Federalists called a convention in the summer of 1787 to propose a more extensive grant of powers to the federal government.

In contrast to the cheap-money victories in several commonwealths was the resistance by conservatives, notably in New England outside Rhode Island; in New York, where issues were so restricted as to prevent serious depreciation; and in the Chesapeake states, where inflationist sentiment, though formidable, was ultimately defeated. The popular agitation, however, proved sufficiently disturbing to indicate the need of federal control. So the Federal Convention, composed largely of merchants, lawyers and substantial landowners, readily agreed to place coinage and currency legislation under the exclusive jurisdiction of Congress. While this made the Constitution attractive to the mercantile and financial interests, it antagonized the agrarian and other debtor elements, which came dangerously near defeating ratification.57

Dr. David Ramsay, in a pamphlet advocating the ratification of the Constitution, makes it clear just who he expects to be on the other side: Be on your guard against the misrepresentations of men who are involved in debt; such may wish to see the Constitution rejected because of the following clause, no state shall … emit bills of credit, make anything, but gold and silver coin a tender in payment of debts, pass any … ex post facto law, or law impairing the obligation of contracts. This will doubtless bear hard on debtors who wish to defraud their creditors, but it will be a real service to the honest part of the community.58 And Charles Beard made this the major point of this economic interpretation of the Constitution:

In addition to being frequently in debt for their lands, the small farmers were dependent on the towns for most of the capital to develop their resources. They were, in other words, a large debtor class, to which must be added, of course, the urban dwellers who were in a like unfortunate condition.

That this debtor class had developed a strong consciousness of identical interests in the several states is clearly evident inlocal politics and legislation. Shays' Rebellion in Massachusetts, the disturbances in Rhode Island, New Hampshire, and other northern states, the activities of the paper money advocates in state legislatures, the innumerable schemes for the relief of debtors, such as the abolition of imprisonment, paper money, laws delaying the collection of debts, propositions requiring debtors to accept land in lieu of specie at a valuation fixed by a board of arbitration — these and many other schemes testify eloquently to the fact that the debtors were conscious of their status and actively engaged in establishing their interest in the form of legal provisions. Their philosophy was reflected in the writings of Luther Martin, delegate to the Convention from Maryland, who disapproved of the Constitution, partly on the ground that it — would put a stop to agrarian legislation …

Money capital was suffering in two ways under the Articles of Confederation. It was handicapped in seeking profitable outlets by the absence of protection for manufactures, the lack of security in investments in western lands, and discriminations against American shipping by foreign countries. It was also being positively attacked by the makers of paper money, stay laws, pine barren acts, and other devices for depreciating the currency or delaying the collection of debts. In addition there was a widespread derangement of the monetary system and the coinage due to the absence of uniformity and stability in the standards.

Creditors, naturally enough, resisted all of these schemes in the state legislatures and failing to find relief there at length turned to the idea of a national Government so constructed as to prevent laws impairing the obligations of contract, emitting paper money, and otherwise benefiting debtors. It is idle to inquire whether the rapacity of the creditors or the total depravity of the debtors (a matter much discussed at the time) was responsible for this deep and bitter antagonism. It is sufficient for our purposes to discover its existence and to find its institutional reflex in the Constitution.59

The above historical context makes it clear that Marshall never intendedhis doctrine of implied powers to be used to defend paper money. Being a Federalist, he would have had an abhorrence of paper money. According, to Beard the main reason for writing the Constitution was to ban such debtor legislation as paper money. Furthermore, the whole thrust of the Federalists' program was to increase the power of the Federal Government at the expense of the States, not at the expense of the individual. In fact what the Federalists were trying to do was to protect the individual from abuse by the state governments. Daniel Shays had demanded an equal division of property, abolition of debts and paper money; in all of these regards he looked to the state government to legislate them. It was to protect people's rights against such threats that section ten of Article I was inserted into the Constitution.

With this historical context, we can see how the aristocracy’s arguments have evolved to the present day. 200 years ago the paper money party claimed that they represented the interests of the poor farmer. This claim had two advantages. It won for them the sympathy which one has for the poor, and it had the very practical advantage that the overwhelming majority of people in the country were farmers. Beard swallowed this claim and reported it as historical fact, but it was not true. Anyone familiar with business practice knows that the poor never become big debtors for the simple reason that no one will lend them any significant amounts of money. In any society it is the rich who are the big debtors because it is they who have the lines of credit. Further more, if the class lines were as simply drawn as is suggested by Beard, agrarian versus commercial class, the agrarians would have won overwhelmingly because they were by far the majority. The paper money party was led by the debtor element, people who had bought land on heavy credit playing for a rise and represented themselves as speaking for the farmers. This analysis is confirmed by the fact that the one state where the paper money faction met its greatest success, Rhode Island, was the state with the largest commercial class and the fewest farmers. Thomas Jefferson, writing in 1786, could say, there is not a single man in Rhode Island who is not a merchant of some sort.60 While this is doubtless an exaggeration, it makes the point. Rhode Island refused for several years to join the Union because the Constitution prohibited paper money. Jefferson himself, the agrarian par excellence, was a devoted hard money man and later led the agrarian class in a fight against the first Bank of the United States. If in the 1780s the interests of the agrarians were served by paper money, it is strange that in the 1790s their interests were served by hard money.

When farmers ceased to be a majority of the population, the political base of the debtors' argument was shattered, and they cast about for another social class to carry their banner. They chose the common laborer. Their argument had two points, which I call the Marxian point and the Keynesian point. The first (Marxian) point was to be pro labor by advocating raising a worker's wages above the value of his labor. This point is behind the minimum wage legislation and the legislation giving labor unions the power to restrict entry into their field. The effect of this legislation was to create unemployment.

The problem then became to reduce unemployment. The second (Keynesian) point was to be pro labor and reduce unemployment by lowering wages. Just as raising wages above the value of the worker's labor caused unemployment, so lowering the wages again would reduce it. However, in the political atmosphere of the 1930s it was not considered pro labor to lower wages outright. Keynes' scheme was to lower the real value of wages by depreciating the currency. He well understood the point that in a currency depreciation prices rise faster than wages, thus lowering the real value of the workers' pay. As he stated: 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, they do not raise the obstacle to any increase in aggregate employment which is attributed to them by the classical school.61 The net result of all these pro-labor measures was that wages were reduced again, and the associated vested interests were left with a perfect rationalization for the depreciation of the currency. If someone spoke out against issuing paper money, then he could be condemned as anti labor because he was for unemployment. If he advocated eliminating unemployment by ending the measures which caused it, the minimum wage and the power of unions to restrict entry, he was condemned as anti-labor because he was in favor of lowering wages.

The net effect of the Marxian and Keynesian points was not to leave the worker exactly where he otherwise would have been. The working of thetwo measures is uneven. Some workers are left with (the obligation to demand) wages above the value of their labor and hence are unemployed. And other workers are left with wages below the value of their labor.

Incredibly, this dual rationalization is extremely common today. The majority of people accept that it is pro-labor to raise wages (causing unemployment) and pro-labor to lower wages by depreciating the currency (to reduce unemployment). The final result of all these pro labor measures is that bankers, big businessmen — and promoters get rich at the expense of the working class.

In the 19th century there were bitter political battles over hard money versus soft money, but the soft money forces of the time have the character of a vested interest.'It is not until the 20th century that they begin to take on the characteristics of an aristocracy. This occurred with their adoption of a liberal guise.

Paper money is inherently anti-liberal. It robs from the poor to give to the rich; it is conducive to war; it leads to the centralization of economic power in the hands of a few big corporations; it leads to restrictions on individual freedom. But starting with Wilson the paper money forces in America have gone to great lengths to portray themselves as of the left. It is the pro-labor measures of Marx and Keynes which have been the key element in this masquerade.

In all public and highly visible areas the Wilson and FDR administrations and their successors adopted leftist measures. But in terms of real effect, their administrations were highly reactionary. (Gabriel Kolko's excellent book The Triumph of Conservatism unmasks the real pro-business aspect of the Wilson administration.) Take, for example, the social welfare programs of the New Deal.

The social welfare programs gave the New Deal an extreme left wing image. Such slogans as Rob from the rich to give to the poor convinced people that FDR was willing to go to extreme lengths, even in violation of simple justice, to favor the laboring class. The highly public decisions of the National Labor Relations Board were extremely biased in favor of labor and served, quite properly, to outrage the business community. FDR was delighted when his enemies called him a traitor to his class.

But FDR was not a traitor to his class. Let us do a little economic calculation. It was the social programs which won liberal support for the Roosevelt budget deficits. Important elements of the liberal community started supporting budget deficits in the 1930s on the (correct) political observation that it was easier to put across some additional social programs when spending could exceed income.

These liberals should go back and do their economic homework. The original American liberals, men such as Thomas Jefferson and Andrew Jackson, took the exact opposite position. Jefferson and Jackson were hard money men and against paper money whether it was legal tender or a central bank promoting the smaller banks in their lending of money which does not exist. Jefferson and Jackson understood that the transfer of wealth from poor to rich which occurs from the factors described in Chapter III far dwarfs the transfer from rich to poor from any social programs. They took the side of the common man by supporting hard money and opposing the paper money issued by the Bank of the United States. The next time that modern liberals toast these men at an annual inner they should stop and do a little calculation.

Assume a budget deficit of $20 billion which leads to a currency depreciation of 6%. This is in reasonable conformity with recent experience. Of this $20 billion perhaps $10 billion may go to social programs, the rest going to things like a space shuttle or aid to Lockheed, etc. Of the $10 billion perhaps $2 to S3 billion may work its way down through the bureaucracy and actually get to the poor.

Total debt in the U.S. is now about $2 trillion. (That is, $2 thousand billion.) If the currency depreciated by 6% and the rate of interest did not rise to discount the depreciation, this would result in a transfer of wealth from creditor to debtor amounting to $120 billion.

More realistically let us assume that the rate of interest has risen 3% above what it otherwise would have been to discount the depreciation. That is, of the 6% currency depreciation, 3% is compensated for by an increase in interest rates and 3% represents a transfer of wealth from creditor to debtor. (The fact that interest rates do not rise fully to compensate for the currency depreciation is due to the intervention of the Federal Reserve.) If we take 3% times $2 trillion, we get $60 billion transferred from creditors to debtors by the depreciation of the currency.

The major debtors in the U.S. today (as in all countries in all times) are the big corporations. It is they who have the lines of credit from the banks. The major creditors are the thrifty middle class who save small amounts for a rainy day; this especially applies to the elderly who are now living off their savings, many of whom have been reduced to poverty by the recent currency depreciation.

Thus to secure a $2 to $3 billion transfer of wealth from the rich to the poor, modern liberals help create a $60 billion transfer of wealth, most of which is from the poor and middle classes to the rich. This $60 billion figure, large as it is, does not even begin to measure the transfer of wealth from poor to rich due to a depreciation of the currency because it does not include the loss in real wages due to the fact that wages do not rise as rapidly as prices nor does it include the money coaxed from the gullible by Wall Street promoters.

It is instructive to compare the past 35 years in American economic history, which have been a period of continually rising prices, with the period from 1865 to 1900, a period of continually falling prices. In the past 35 years, we are taught, the country has been extremely pro-labor. Unions have grown in size and power. The dominant political party identifies itself as the party of the working, man. Politicians swear their allegiance to labor. During this period the gain in real wages has been about 50%. In the period from 1865 to 1900, we are, taught, the country was extremely anti-labor. Business was ruled by the Robber Barons. There were only tiny unions with little power, and even these were often surpressed by the police or National Guard. Yet during this period the gain in real wages was over 100%.

The reason is, of course, that a currency depreciation lowers wages and a currency appreciation raises wages. Keynes understood this and devised an economic theory which on the surface was pro-labor but which opened the door for paper money. Taken as an economic theory with a long record of failure, Keynesianism is very unimpressive. One is led to wonder what an intelligent man like Keynes was doing espousing such foolish theory. But taken as dogma for a modern priesthood — as a set of myths to enable modern economists to fool the public into accepting their own exploitation — Keynesian economics is a work of art.

Like any good confidence man Keynes had a sharp ear for the prejudices and biases of the people of his time. By the early 20th century, liberalism was dominant. Science, progress and humanism were the values which were esteemed. By dressing his economic theories up in a scientific and liberal guise Keynes was able to convince people of their validity.

Keynesian economics is in fact a return to 17th century mercantilism. It comes to conclusions long since refuted by the 18th and 19th century economic greats — Adam Smith, Jean Baptiste Say, Fredric Bastiat and others. It is an economic theory which belongs in the age of dukes and kings. Yet Keynes took these ideas, old in the year 1800, and presented them as the New Economics. He took a set of beliefs which rationalize an aristocracy and presented it as the latest in liberal thought. He defended a system which robs from the poor and gives to the rich and yet postured as a friend of the poor. He advocated the theory that something can be created from nothing, yet he posed as a believer in science and an opponent of mysticism. Although Keynes' conclusions are very close to the economic conclusions of fascism, he always maintained his image as a liberal. This was necessary as Keynes needed liberal support to put his ideas across. Yet there was one occasion when he was willing to lift the mask a little. In his introduction to the German (but not the English) edition of his book General Theory of Employment, Interest and Money, Keynes wrote: The theory of aggregate production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire.62

Laissez-faire means let alone. If the aristocracy were to let the common people alone, it could not steal their wealth. You would be able to keep for yourself the product of your own labor.

As New York Times economic writer Leonard Silk recently commented, the Keynesian revolution … could be called the Hitlerian economic revolution, since the policy was first put into effect in Nazi Germany in the nineteen-thirties.63

In the nations of black Africa, reports appear of leaders reaching political decisions by means of voodoo or witchcraft. We in our scientific, Western society feel smugly superior when we hear such stories. But in fact, in the realm of money, we are just as mystical as the practitioner of voodoo, and our heads of state make decisions which are just as irrational and superstitious as those of the nations of black Africa.

In the realm of economics there is a virtual unanimity with regard to the following propositions: Which might be restated by the witch doctor as:
It is possible to get something for nothing. Nothing is real
Economic growth is greatly affected by what people think it will be. That is, if people think there will be prosperity, then there will be; if people think there will be blight, then that will occur. Thus the most important element necessary for prosperity is confidence. Appearance is everything
Value can be created by the waving of a wand by the head of the state (fiat money). Magic

There is no excuse for these beliefs. They are rank superstition out of the Middle Ages. The men who hold them are not scientists and can not help us to deal with reality.


  1. Max Farrand, The Fathers of the Constitution (New Haven, 1921), pp. 31-32.
  2. Evarts Boutell Greene, The Revolutionary Generation 1763-1790, A History of American Life, eds. Schlessinger and Fox, IV (New York, 1943), p. 353.
  3. John Marshall, The Life of Washington, 11, 1850 Edition, p. 99ff, as quoted by Charles A. Beard, An Economic Interpretation of the Constitution of the United States (New York, 1914), p. 297.
  4. A History of American Life, op. cit., p. 353.
  5. David Ramsay, as quoted by Beard, An Economic Interpretation of the Constitution, op. cit., p. 323.
  6. Beard, op. cit., pp. 28-32.
  7. Jefferson, Writings, op. cit., Answers to questions propounded by M. De Meusnier - Jan. 24, 1786.
  8. Keynes, General Theory, op. cit., p. 15.
  9. John Maynard Keynes, German Edition of General Theory of Employment, Interest and Money (1936), as quoted by Henry Hazlitt, The Failure of the New Economics, An Analysis of the Keynesian Fallacies (Princeton, 1967), p. 15.
  10. Leonard Silk, Economics I — The Summit, in New York Times Magazine, Sept. 22, 1974, p. 99.