Our Belittled Founding Father

Thomas Paine (1737-1809) is a figure from our revolutionary past who emerged from obscurity to upset the world with his popular writings.  “He wrote the three top-selling literary works of the eighteenth century, which inspired the American Revolution, issued a historic battle cry for individual rights, and challenged the corrupt power of government churches,”researcher Jim Powell tells us.

After enduring a long illness Paine, 72, died in Greenwich Village, New York City on June 8, 1809.  Though he was known throughout the world his friends, such as they were, were in short supply.  Wikipedia says only “six mourners came to his funeral, two of whom were black, most likely freedmen.”  The free world had abandoned Paine.  Why?

Politically, the US had changed since he published his explosive anti-government pamphlet, Common Sense, in January 1776.  The Federalists, under the intellectual leadership of Alexander Hamilton, were pushing for a United States of England, with all the corruption and taxes that came with it.  Paine, writing during Jefferson’s administration, fired back with a series of articles titled "To the Citizens of the United States and Particularly to the Leaders of the Federal Faction (p. 908).”  Referring to the Federalists as apostates who clung to the word while changing its meaning, Paine wrote that “federalism” now

served as a cloak for treason, a mask for tyranny. Scarcely were they placed in the seat of power and office, than federalism was to be destroyed, and the representative system of government, the pride and glory of America, and the palladium of her liberties, was to be over- thrown and abolished.  [p. 915]

Given his scathing attack on Jefferson’s political opponents, why didn’t Jefferson and friends pay their respects to Paine at his funeral?  Because he wrote a book, The Age of Reason; Being an Investigation of True and Fabulous Theology, in three parts, that broke an unwritten rule: It critiqued the Bible in language commoners could understand. 

Citing Numbers 31:13–47 as an example, in which Moses orders the slaughter of thousands of boys and women, and sanctions the rape of thousands of girls, at God's behest, Paine calls the Bible a "book of lies, wickedness, and blasphemy; for what can be greater blasphemy than to ascribe the wickedness of man to the orders of the Almighty!” [Wikipedia]

For comments such as these Theodore Roosevelt libeled Paine a “filthy, little atheist,” 

a phrase with as many errors in it as words, since Paine was fastidiously clean, stood taller than most of his contemporaries at five feet ten inches, and was a professed believer in God. [J. H. McKenna, Ph.D. ]

Double Standard at Work

Yet Jefferson is well-known today for a Bible he assembled in which he kept the words of Jesus and some of his deeds, but removed any mention of miracles or God.  There was no virgin birth, no resurrection, no Easter Sunday.  In a letter to John Adams in 1823, he wrote that “the day will come when the mystical generation of Jesus, by the supreme being as his father in the womb of a virgin will be classed with the fable of the generation of Minerva in the brain of Jupiter.”

In a letter to his nephew Peter Carr in 1787, Jefferson advised, “Question with boldness even the existence of a God; because, if there be one, he must more approve of the homage of reason, than that of blindfolded fear.”

Our third president could pass for an atheist, could he not?

We’ve been told since childhood that Jefferson is one of the greatest US presidents.  He has his bust chiseled in stone on a mountain in South Dakota.  He’s been enshrined in the Jefferson Memorial — but with a twist: The famous inscription reads “I have sworn upon the altar of God eternal hostility against every form of tyranny over the mind of man,” which sounds like something a Christian might say.  But Jefferson wrote “god,” not “God,” in the letter from which this quote is extracted, and refers only to his impassioned opposition to a state religion.  And as the author of the Declaration of Independence he has a front-row seat among the Founding Fathers.

Paine, however, “is, at best, [considered] a lesser Founder,” writes Harvard history professor Jill Lepore.  

[Yet] Paine’s contributions to the nation’s founding would be hard to overstate. “Common Sense” made it possible to declare independence. “Without the pen of the author of ‘Common Sense,’ the sword of Washington would have been raised in vain,” Adams himself wrote. [Adams hated Paine.]  But Paine lifted his sword, too, and emptied his purse. Despite his poverty—he was by far the poorest of the Founders—he donated his share of the profits from “Common Sense” to buy supplies for the Continental Army, in which he also served. His chief contribution to the war was a series of dispatches known as “The American Crisis,” and printed in newspapers throughout the states. 

The American Crisis essays lifted the flagging spirits of soldiers and citizens alike. 

No Common Sense, no Declaration of Independence.  Yet Paine is not considered a Founder, and in some circles he’s only regarded as among “other notable people of the period.” [source]

Paine has been dealt a cruel injustice.  A case could be made that he is the country’s greatest Founder, by far, yet as I’ve discovered many Americans only vaguely recall mention of his name somewhere.  

For Paine, in his view of the world, there can be no separation of Church and State.  As he wrote in The Age of Reason, 

It has been the scheme of the Christian church, and of all the other invented systems of religion, to hold man in ignorance of the Creator, as it is of government to hold him in ignorance of his rights. The systems of the one are as false as those of the other, and are calculated for mutual support.

For those who disagree, let them offer rebuttals, not vilifications.

A hero is as a hero does

Thomas Paine (1737-1809) is a figure from our revolutionary past who emerged from obscurity to upset the world with his popular writings.  “He wrote the three top-selling literary works of the eighteenth century, which inspired the American Revolution, issued a historic battle cry for individual rights, and challenged the corrupt power of government churches,”researcher Jim Powell tells us.  To the extent he is not ignored he is still upsetting the world.  

Paine placed a high value on human reason, and as such it is doubtful even he would agree with everything he wrote throughout his life, inasmuch as some of his ideas about government stood in flat opposition to others (e.g., see Rights of Man, Part II).  Yet in his last years his passion for human liberty burst forth once again as he slammed the Federalists for attempting to build a government as belligerent and corrupt as the one from which the American colonies had seceded. (See “To the Citizens of the United States and Particularly to the Leaders of the Federal Faction,” p. 908)

After enduring a long illness Paine, 72, died in Greenwich Village, New York City on June 8, 1809.  Though he was known throughout the world his friends, such as they were, were in short supply.  From Wikipedia:

At the time of his death, most American newspapers reprinted the obituary notice from the New York Evening Post that was in turn quoting from The American Citizen, which read in part: "He had lived long, did some good, and much harm". Only six mourners came to his funeral, two of whom were black, most likely freedmen. 

Why did the free world abandon Thomas Paine?

The US had changed since he published his explosive anti-government pamphlet, Common Sense, in January 1776.  The Federalists, under the intellectual leadership of Alexander Hamilton, were pushing for a United States of England, with all the corruption and taxes that came with it.  Where Paine crossed the line with Christians were his three books about deism and the Bible, published under the title Age of Reason, in 1794, 1795, and 1807.  His views were familiar to the educated elite of his day but they refrained from discussing them publicly.  

Paine’s great sin was putting his undaunted pen to work for all to read, including commoners.  Wikipedia:

Using methods that would not become common in Biblical scholarship until the nineteenth century, Paine tested the Bible for internal consistency and questioned its historical accuracy, concluding that it was not divinely inspired. 

Paine also argues that the Old Testament must be false because it depicts a tyrannical God. The "history of wickedness" pervading the Old Testament convinced Paine that it was simply another set of human-authored myths. He deplores people's credulity: "Brought up in habits of superstition," he wrote, "people in general know not how much wickedness there is in this pretended word of God." Citing Numbers 31:13–47 as an example, in which Moses orders the slaughter of thousands of boys and women, and sanctions the rape of thousands of girls, at God's behest, Paine calls the Bible a "book of lies, wickedness, and blasphemy; for what can be greater blasphemy than to ascribe the wickedness of man to the orders of the Almighty!”

Theodore Roosevelt libeled Paine as a “filthy, little atheist,” though Paine's writings made it clear he was not godless.  Curiously, the same description has not been applied to Thomas Jefferson, who wrote to his nephew Peter Carr in 1787, “Question with boldness even the existence of a God; because, if there be one, he must more approve of the homage of reason, than that of blindfolded fear.”  Was a future US president corrupting his nephew?  

From his Notes on the State of Virginia: “The legitimate powers of government extend to such acts only as are injurious to others. But it does me no injury for my neighbor to say there are twenty gods, or no god. It neither picks my pocket nor breaks my leg.”  

In a letter to John Adams, April 11, 1823, three years before his death, he wrote:

And the day will come when the mystical generation of Jesus, by the supreme being as his father in the womb of a virgin will be classed with the fable of the generation of Minerva in the brain of Jupiter. But may we hope that the dawn of reason and freedom of thought in these United States will do away with this artificial scaffolding, and restore to us the primitive and genuine doctrines of this most venerated reformer of human errors.

Many of Jefferson’s comments would pass for Paine’s:  “My opinion is that there would never have been an infidel, if there had never been a priest.” - (Letter to Mrs. Samuel H. Smith, August 6, 1816);  “In every country and in every age, the priest has been hostile to liberty. He is always in alliance with the despot, abetting his abuses in return for protection to his own.” - (Letter to Horatio G. Spafford, March 17, 1814)

Where do they differ?

Try this test.  Who is the author of the following passages, Jefferson or Paine?  

But the christian story of God the Father putting his son to death, or employing people to do it, (for that is the plain language of the story,) cannot be told by a parent to a child; and to tell him that it was done to make mankind happier and better, is making the story still worse; as if mankind could be improved by the example of murder; and to tell him that all this is a mystery, is only making an excuse for the incredibility of it. [Source, p. 498]

Accustom a people to believe that priests or any other class of men can forgive sins, and you will have sins in abundance. [Source]

They fit either writer.

In addition to the foregoing, why hasn't Jefferson been ostracized over his famous “Bible,” the second of two he assembled.  The first, created in 1804 while he was President of the United States, disappeared.  

In this book, he kept the words of Jesus and some of his deeds, but left out the miracles and any suggestion that Jesus is God. The virgin birth is gone. So is Jesus walking on water, multiplying the loaves and fishes, and raising Lazarus from the dead. Jefferson’s version ends with Jesus’ burial on Good Friday. There is no resurrection, no Easter Sunday. Jefferson called this version “The Life and Morals of Jesus of Nazareth.”

We’ve been told since childhood that Jefferson is one of the greatest US presidents.  He even has his bust chiseled in stone on a mountain in the Black Hills of South Dakota.  He’s been enshrined in the Jefferson Memorial — but with a twist: The famous inscription reads “I have sworn upon the altar of God eternal hostility against every form of tyranny over the mind of man.” Is this an affirmation of his Christian belief?  Not quite.  Jefferson wrote “god,” not “God,” in the letter from which this quote is extracted, and refers only to his impassioned opposition to a state religion.  That slightest of changes works wonders among the faithful.  And as the author of the Declaration of Independence he has a front-row seat among the Founding Fathers.

No Common Sense, No Declaration of Independence

Check your history books — without Paine’s Common Sense there would not have been a Declaration for Jefferson to write.  I’ll say it again: No Common Sense, No Declaration of Independence.  Yet Paine is almost never considered a Founder.  Wikipedia lists him among “other notable people of the period.”  In 2006 Harvard history professor Jill Lepore wrote:

Thomas Paine is, at best, [considered] a lesser Founder. . .  [Yet] Paine’s contributions to the nation’s founding would be hard to overstate. “Common Sense” made it possible to declare independence. “Without the pen of the author of ‘Common Sense,’ the sword of Washington would have been raised in vain,” Adams himself wrote. [Adams hated Paine.]  But Paine lifted his sword, too, and emptied his purse. Despite his poverty—he was by far the poorest of the Founders—he donated his share of the profits from “Common Sense” to buy supplies for the Continental Army, in which he also served. His chief contribution to the war was a series of dispatches known as “The American Crisis,” and printed in newspapers throughout the states.

The American Crisis essays lifted the flagging spirits of soldiers and citizens alike. 

Paine not a Founder?

Have Paine’s contributions to American independence been downplayed or ignored because his dissection of the Bible and his affirmation of deism came into the hands of the unwashed, and thus left them exposed to arguments shaking the foundations of a profitable and controlling orthodoxy?  Is Paine another victim of politics?

Paine’s distrust of power in all its forms, especially as it exists in state and church, is the great lesson Americans need to learn and never forget.  One could compose a thick book of insightful Paine quotations, but I leave you with these to think about. 

Government

It is scarcely possible to touch on any subject, that will not suggest an allusion to some corruption in governments.

To establish any mode to abolish war, however advantageous it might be to Nations, would be to take from such Government the most lucrative of its branches.

War involves in its progress such a train of unforeseen circumstances that no human wisdom can calculate the end; it has but one thing certain, and that is to increase taxes.

To say that any people are not fit for freedom, is to make poverty their choice, and to say they had rather be loaded with taxes than not.

The portion of liberty enjoyed in England, is just enough to enslave a country more productively than by despotism; and that as the real object of all despotism is revenue, a government so formed obtains more than it could do either by direct despotism, or in a full state of freedom, and is therefore, on the ground of interest, opposed to both.

The instant formal government is abolished, society begins to act. A general association takes place, and common interest produces common security.  

Arms discourage and keep the invader and plunderer in awe, and preserve order in the world as well as property... Horrid mischief would ensue were the law-abiding deprived of the use of them.

The independence of America would have added but little to her own happiness, and been of no benefit to the world, if her government had been formed on the corrupt models of the old world. It was the opportunity of beginning the world anew, as it were; and of bringing forward a new system of government in which the rights of all men should be preserved that gave value to independence.

Foreign vices should they survive the voyage from Europe,

either expire on their arrival, or linger away in an incurable consumption. There is a happy something in the climate of America, which disarms them of all their power both of infection and attraction.  [An expression of Paine’s deep admiration for his adopted country]

A thousand years hence (for I must indulge in a few thoughts), perhaps in less, America may be what England now is! The innocence of her character that won the hearts of all nations in her favor may sound like a romance, and her inimitable virtue as if it had never been. The ruins of that liberty which thousands bled for, or suffered to obtain, may just furnish materials for a village tale or extort a sigh from rustic sensibility, while the fashionable of that day, enveloped in dissipation, shall deride the principle and deny the fact.

Religion & the Bible

The Creation speaks a universal language, independently of human speech or human language, multiplied and various as they be. It is an ever-existing original, which every man can read. It cannot be forged; it cannot be counterfeited; it cannot be lost; it cannot be altered; it cannot be suppressed. It does not depend upon the will of man whether it shall be published or not; it publishes itself from one end of the earth to the other.  [Paine’s affirmation of deism.]

The whole religious complexion of the modern world is due to the absence from Jerusalem of a lunatic asylum.  [Havelock Ellis, but often mistakenly attributed to Paine]

The Popish Councils of Nice and Laodicea, about 350 years after the time the person called Jesus Christ is said to have lived, voted the books that now compose what is called the New Testament to be the 'word of God.' This was done by yeas and nays, as we now vote a law. The pharisees of the second Temple, after the Jews returned from captivity in Babylon, did the same by the books that now compose the Old Testament, and this is all the authority there is, which to me is no authority at all. I am as capable of judging for myself as they were, and I think more so, because, as they made a living by their religion, they had a self-interest in the vote they gave.

All our ideas of the justice and goodness of God revolt at the impious cruelty of the Bible. It is not a God, just and good, but a devil, under the name of God, that the Bible describes.

Persecution is not an original feature in any religion; but it is always the strongly marked feature of all religions established by law.

It is necessary to the happiness of man that he be mentally faithful to himself. Infidelity does not consist in believing, or in disbelieving; it consists in professing to believe what he does not believe.

George Ford Smith is the author of eight books, including The Flight of the Barbarous Relic, Eyes of Fire: Thomas Paine and the American Revolution, and The Fall of Tyranny, the Rise of Liberty.  He is also a filmmaker whose latest work is a five-minute documentary about the Christmas Truce of 1914, A Christmas to Remember.

Unsound money, unsound economy

Most people who have undertaken a formal study of economics end up accepting such things as the necessity of a central bank to prevent or at least ameliorate recessions.  They take as a given the need for government intervention in the economy, or if not as a given, as explained by countless historical incidents of injustice.  Perhaps most of all, they regard anyone calling for an unregulated gold coin standard as so hopelessly backward and naive that refutation seldom goes further than rolling one’s eyes.  

Everyone “knows” the gold standard fostered those 19th century Panics, which high-minded bankers finally addressed by creating the federal reserve system in 1913.  Under the federal reserve, the government was able to create enough debt to send our boys into the bloodbath known as World War I to die (116,708) and suffer in horrendous numbers.  With the federal reserve engaged in money printing, including Fed chief Benjamin Strong's famous "coup de whiskey" in 1927, stocks soared stupendously from 1922-1929, until they didn't.  Following the Crash, the very thing the Fed was supposed to prevent, it attempted to inflate us out of the Depression that followed but, as the story goes, was hamstrung in part by the barbarous relic, gold.  For this reason President Roosevelt, almost immediately after being elected in 1933, ordered Americans to turn in their gold under threat of fine and imprisonment.  

Voila!  We now had the Depression without sound money.

And what has happened since?  In a speech before The Economic Club of New York on December 19, 2002, Fed Chairman Alan Greenspan told his audience:

“Although the gold standard could hardly be portrayed as having produced a period of price tranquility, it was the case that the price level in 1929 was not much different, on net, from what it had been in 1800. But, in the two decades following the abandonment of the gold standard in 1933, the consumer price index in the United States nearly doubled. And, in the four decades after that, prices quintupled. Monetary policy, unleashed from the constraint of domestic gold convertibility, had allowed a persistent overissuance of money. As recently as a decade ago, central bankers, having witnessed more than a half-century of chronic inflation, appeared to confirm that a fiat currency was inherently subject to excess.”

But, he went on to say, central bankers are learning to treat the money they print as if it had the restraints of gold, or in his words “a prudent monetary policy . . . can contain the forces of inflation.”  This was in 2002, before the economy blew up in 2007-2008 because of Fed money printing.

The Bernanke solution to the crisis, as the world witnessed, was even more aggressive money printing, creating staggering levels of debt and moral hazard, so that today financial pundits are predicting another crisis, likely worse than the last.  

The Austrian school of economics rejects the need for government intervention in the economy.  It goes further: the Austrians maintain that interventions not only fail but are almost always used to justify further interventions to fix the previous failures.  (See Mises' Planned Chaos for a discussion of interventionism.). This continues at enormous cost and suffering until we find ourselves in the mess we are in today, where Democratic candidates in 2019 openly call for socialism to fix the failures of the free market they have spent decades destroying, along with their partners-in-crime, the Republicans.

Where can someone get a straight story on the item that is involved in virtually every economic transaction — money — and how its corruption has led to economic misery and injustice?

One excellent source is Joseph Salerno’s “Money, Sound and Unsound,” available online at Mises Institute or from Amazon in various formats.

As Salerno writes in the Introduction:

“[T]he new millennium dawned with the Austrian sound money paradigm thriving—but still ignored by the mainstream. The bursting of the housing bubble and the meltdown of financial markets changed all this. A small number of economists and participants in financial markets forecast these events using the Austrian theory of the business cycle, which gives the only coherent explanation of booms, bubbles, and depressions. Word spread quickly through the banking and financial sector and among the general public via the Internet. Soon several high-profile financial pundits and other members of the official media were publicly recognizing and embracing the Austrian analysis. Even a few mainstream financial economists were stimulated to give it a sympathetic hearing. 

“Prominent (and not-so-prominent) mainstream economists were nonplussed, if not alarmed, by this spreading challenge to their authority and attempted to respond to it by engaging Austrian business cycle theory on blogs and in popular periodicals.  But these attempts were little more than hysterical diatribes based on a very inadequate knowledge of the literature and a profound misconception of the nature and claims of the theory.  In the meantime, the doctrine of sound money, with Austrian monetary and business cycle theory at its core, has continued to flourish and grow and has emerged as the main challenger to the collapsing Keynesian spending paradigm.”

What would monetary policy look like under a gold coin standard?  Would Austrians serve on the FOMC to impart their SWAGs?  Would they concoct mathematical magic to unswervingly aim for the natural rate of interest?  For the answers, Salerno quotes Milton Friedman:


“If a domestic money consists of a commodity, a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself.” 

How about that.  Under a gold coin standard, monetary policymakers would join the unemployed.  

The remainder of his book explains why only a sound money is compatible with sustainable prosperity, individual freedom, and world peace.

I highly recommend it.

George Ford Smith is the author of eight books, including The Flight of the Barbarous Relic, Eyes of Fire: Thomas Paine and the American Revolution, and The Fall of Tyranny, the Rise of Liberty.  He is also a filmmaker whose latest work is a five-minute documentary about the Christmas Truce of 1914, A Christmas to Remember.

Imagine a world without monetary policy

“If a domestic money consists of a commodity, a pure gold standard or cowrie bead standard, the principles of monetary policy are very simple. There aren’t any. The commodity money takes care of itself.” -- Milton Friedman (quoted by Joseph Salerno in Money, Sound and Unsound)

Though it is not light reading, Joseph Salerno's "Money, Sound and Unsound" belongs in every thinking individual's library.  More than that, the 26 essays that comprise the book should be studied as one would study any topic of supreme importance.  The complaints from readers about complex passages do not outweigh consideration of the book's countless merits.  Moreover, a passage one finds difficult to follow can usually be understood with a little extra effort.

What follows are a few selected passages from Salerno's book that I think are important, interesting, and clearly presented:

John Law (1671–1729) is a prominent character both in the history of monetary events and in the development of monetary doctrines. As the founder and head of what, in effect, was one of the first national central banks in history, the Banque Générale Privée (later, the Banque Royale) of France, Law almost singlehandedly destroyed the French monetary system in the course of four short years (1716–1720).  As a monetary theorist, Law has been called the “ancestor of the idea of a managed currency” by no less an authority on economic doctrine than Joseph Schumpeter. . . .

Law initiates his monetary theorizing with two fundamental assumptions about the nature and function of money. The first is that if money is not exactly an original creation of political authority, it ideally functions as a tool to be molded and wielded by government. Law believes that the State, as incarnated in the King, is the de facto “owner” of the money supply and that it therefore possesses the right and the power to determine the composition and quantity of money in light of the “public interest.”

***

Under the quintessential hard-money regime, therefore, the money-supply process is totally privatized. The mining, minting, certification, and warehousing of the commodity money are undertaken by private firms competing for profits in an entirely unrestricted and unregulated market.

***

Mises thus conceived inflation as a time-spanning process in which an increase in the stock of money invariably results in a sequential adjustment of prices, which necessarily alters relative prices and brings about a reallocation of productive resources and a redistribution of real income and wealth. The specific temporal sequence in which prices are adjusted, and thus the identity of those market participants experiencing gains or losses, is not deducible from economic theory. Rather, it depends concretely on the specific point at which the new money is injected into the economy and on the marginal utility schedules of those who receive and spend the new money. . . .

***

As 2003 dawned, the economy had been mired in recession and “jobless recovery” for two years, and Greenspan’s tattered reputation was threatening to disintegrate along with the New Economy he had trumpeted for so long. His convoluted and banal pronouncements were increasingly met with skepticism, if not with outright incredulity, by the media and the markets. His cherished serious image as the profound Maestro of Money was giving way to the perception of a cunning but clueless Master of Illusion who has suddenly run out of tricks. Greenspan did have one more trick up his sleeve, however, and so he played the deflation card—and he did so with all the guile at his command. . . .

***

"Like gold, [Salerno quoting Ben Bernanke] U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude then that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." 

This passage is both true and chilling. Bernanke’s analogy is based on correct economic analysis: the Fed indeed does have the power to bring about a collapse in the value of the dollar. What is so frightening is that Fed governor Bernanke, an allegedly moderate free-market macroeconomist who was appointed by a Republican administration, dares to propose the use of such power as the remedy for a minor rise in the value of money. . . .

***

It is because politicians and their privileged banks were unable to tamper with and inflate a gold money that prices in the U. S. and in Great Britain at the close of the nineteenth century were roughly the same as they were at the beginning of the century. Within weeks of the outbreak of World War One, all belligerent nations departed from the gold standard. Needless to say, by the war’s end the paper fiat currencies of all these nations were in the throes of inflations of varying degrees of severity, with the German hyperinflation that culminated in 1923 being the worst. To put their currencies back in order and to restore the public’s confidence in them, one country after another re-instituted the gold standard during the 1920s. 

Unfortunately, the new gold standard of the 1920s was fundamentally different from the classical gold standard. For one thing, under this latter version, gold coin was not used in daily transactions. In Great Britain, for example, the Bank of England would only redeem pounds in large and expensive bars of gold bullion. But gold bullion was mainly useful for financing international trade transactions. . . .

While the U.S. dollar was technically redeemable in honest-to-goodness gold coin, banks no longer held reserves in gold coin but in Federal Reserve notes. All gold reserves were centralized, by law, in the hands of the Fed and banks were encouraged to use Fed notes to cash checks and pay for checking and savings deposit withdrawals. This meant that very little gold coin circulated among the public in the 1920s, and residents of all nations came increasingly to view the paper IOUs of their central banks as the ultimate embodiment of the dollar, franc, pound, etc.

***

Salerno also includes articles originally posted in The Freeman in which he explains the Fed's role in bringing on and prolonging the Depression of the 1930s.  Salerno was responding to The Freeman articles of monetarist Richard Timberlake, who took the position that the Fed was at fault for failing to inflate sufficiently after the Crash.

 As Salerno concludes, "... once the data have been properly arranged and interpreted, it becomes clear that the Fed does not deserve praise for the bank credit deflation of 1930–1933. This honor goes to private dollar-holders, domestic and foreign, who attempted to reclaim their rightful property from a central bank-manipulated and inflationary financial system masquerading as a gold standard that had repeatedly betrayed their trust."

In wrapping up his monetary analysis of the Great Depression, Salerno writes:

Our conclusion, then, is that the Fed’s monetary policy, except for very brief periods in 1929 and 1936–1937 when it turned mildly disinflationist, was consistently and unremittingly inflationist in the 1920s and 1930s. This inflationism was the cause of the Great Depression and one of the reasons why it was so protracted.

***

As for the nearly universal agreement among economists and commentators that deflation and depression have a strong empirical connection, Salerno discusses in detail a 2004 study "by two economists with impeccable mainstream credentials and affiliations" that upends that view: “Deflation and Depression: Is There an Empirical Link,” American Economic Review Papers and Proceedings, authored by Andrew Atkeson and Patrick J. Kehoe.

Writes Salerno:

Finally, the study is potentially devastating to the now widely accepted Friedman-Schwartz explanation of the Great Depression. In a recent symposium celebrating the fortieth anniversary of their famous work, A Monetary History of the United States, Milton Friedman correctly noted, “The most controversial of [our major themes]—our attribution to the Federal Reserve of a major share of the responsibility for the 1929–1933 contraction—has become almost conventional wisdom.”  Friedman and Schwartz ascribed culpability to the Fed for what they called the “Great Contraction” because it allegedly pursued deflationary policies in the early 1930s.  

Unfortunately, for Friedman and Schwartz the causal connection they posited between the deflation and depression of the early 1930s was purely empirical, based not on sound praxeological reasoning, but on statistical correlations using the data of a single country for the years 1857–1960. 

With the validity of their correlations now called into serious question by a study using well over 100 years of data from seventeen different countries, we may yet see the deflation-depression link follow another supposedly ironclad empirical relation, the Phillips Curve, into well-deserved oblivion. 

***

If you're new to monetary economics, try reading an introductory volume on the topic first.  Though there are several good ones to choose from, my own personal favorite is Gary North's "What is Money?" available on Kindle.

George Ford Smith is the author of eight books, including The Flight of the Barbarous Relic, Eyes of Fire: Thomas Paine and the American Revolution, and The Fall of Tyranny, the Rise of Liberty.  He is also a filmmaker whose latest work is a five-minute documentary about the Christmas Truce of 1914, A Christmas to Remember.

How much State do we need?

Starting roughly with Classical Liberalism concerned Americans have taken us to where we're teetering on full-blown socialism.  And so the question looms over us: should we or shouldn't we go all out for complete state rule? 

For those who fear we're about to become another Cuba, Venezuela, or North Korea, perish the thought.  It can't happen here because we're Americans.  Our leaders and political candidates have only our best interests in mind.  Seriously contemplate for a moment the overwhelming success of the War on Drugs as an example of their concern.  See here and here if you need help. Or if you prefer something on the indisputable success of government schools try this essay by John Taylor Gatto, named New York City Teacher of the Year in 1989, 1990, and 1991, and New York State Teacher of the Year in 1991.  And who could argue with the claim that the government's foreign wars are creating a safe and prosperous world?  Let's not forget the forever solvency of the government's safety net programs, either.

Discussing a society in which coercion has no legal role has been out of the question, and for good reason.  Everyone knows anarchy is chaos, and we also know we have to entrust our lives and the lives of our children to powerful elites who understand our needs -- all 320 million of us.

Remember, we've been told since day one that under anarchy anything goes.  Your friendly neighbor becomes your mortal enemy.  We could rob, murder, and rape and get away with it.  The strong would crush the weak or enslave them.  Anarchy's the ultimate Robber Baron wet dream.  This is why a large part of us, but not a majority, continue to do the same thing over and over by casting their votes on Election Day to keep society from breaking down.

You could ask: Have we not suffered "a long train of abuses and usurpations" that "evinces a design to reduce [us] under absolute Despotism"?  Is it not "[our] right, [and] duty, to throw off such Government, and to provide new Guards for [our] future security"?

Today that passage is bundled with right-wing paranoia.  More importantly, it was penned by a slave-owner.  A white male slave-owner at that.  Who listens to him?  (Some slaves did, a year later.) Free stuff is more important than freedom.  And so the cheers go up among the net takers of government largess. 

Sane conclusion: The only way to end government abuse permanently is to remove "government" from the chart permanently.  Be sure to check out the links and my recent articles for further information.

And by the way, Anarchism:  The political theory that a community is best organized by the voluntary cooperation of individuals, rather than by a government, which is regarded as being coercive by nature. [source]

One more by-the-way: American colonists won a war of secession against the most powerful nation on earth without an officially established government.  

George Ford Smith is the author of eight books, including The Flight of the Barbarous Relic, Eyes of Fire: Thomas Paine and the American Revolution, and The Fall of Tyranny, the Rise of Liberty.  He is also a filmmaker whose latest work is a five-minute documentary about the Christmas Truce of 1914, A Christmas to Remember.

Return to WHAT gold standard?

With President Trump’s nomination of Judy Shelton to the Federal Reserve Board some gold supporters are hopeful the precious metal will make a comeback if she’s confirmed by the Senate.  “As it happens, Ms. Shelton is a believer in the gold standard and a critic of current Federal Reserve policies,” wrote a contributor to GoldTelegraph.com.  Sounds encouraging until we think about the world at large and who calls the shots.  

Money, as Mises defined it, is the most marketable commodity.  Today in the US and many other places, federal reserve notes are the most marketable commodity.  One reason the notes are the most marketable is that competing monies are outlawed — a nice arrangement for the Fed and for those who profit from its policies.

Every central bank ever created has been a creature of the State.  Or more precisely, the biggest bankers used the coercive apparatus of the State to establish a monetary monopoly, always in the name of serving the public interest.  A central bank “is not a natural product of banking development,” Vera Smith wrote in her famous study of 1936.  “It comes into being as a result of government favors.”  Rothbard hammers this home in The Case Against the Fed as does G. Edward Griffin in The Creature from Jekyll Island, along with many others. 

Why would bankers need government favors?  Recall the Panics of the 19th century in which banks were overwhelmed with the rush of depositors demanding redemption in gold or silver coins.  Bankers have had a habit throughout history of loaning more money than they have on deposit, an honored practice called fractional-reserve banking, a euphemism for embezzlement.  When their loans become noticeable the public gets suspicious and starts withdrawing their deposits.  Those who arrive too late on the scene leave without their money.  Eventually the banks close or get a temporary reprieve from the state to keep their doors open while legally declining to redeem any deposits.  A well-structured central bank, using paper or digital fiat money, can forestall this development.  Throw in federally-supported deposit insurance and bank runs of old disappear.  When money enters the world by means of digital decree the only limit to its quantity is how high Fed bureaucrats can count.

If confirmed Ms. Shelton will be one of seven members of the federal reserve board and one of 12 on the FOMC who decide how much money The Wall Street - Government Complex should get.  Wall Street would be Pall Street without easy money.  The hyper-bloated state with its endless handouts and wars can’t survive without an endless revenue stream.  A market-controlled monetary standard such as a gold coin standard would kill the State.  As wonderful as that sounds, at least to me, it will not be allowed to happen.

There was great enthusiasm among libertarians when Alan Greenspan took over the Fed in 1987.  Like Ms. Sheldon, Greenspan understood how a gold standard put severe limits on government theft.  As he wrote in his famous essay Gold and Economic Freedom, “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold.” 

But look again at his essay.  He also wrote “Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits . . .”

“Only a fraction of his total deposits”?  

But the government sides with the bankers.  “As Murray Rothbard observed [source], a bank that fails to meet its deposit obligations is just another insolvent, not an embezzler. Following the British ruling in Foley v. Hill and Others in 1848, US courts consider that money left with a banker is, ‘to all intents and purposes, the money of the banker, to do with as he pleases.’

“This holds even if the banker engages in ‘hazardous speculation.’ Thus, according to the state, there can be no embezzlement because the money belongs to the bank, not the depositor. But was there ever a depositor who thought he was turning his money over to the banker so he could ‘do as he pleases’ with it?”

Returning to some variation of a government-controlled gold standard will work about as well as it once did, with elite decision-makers deciding whether to permit gold’s discipline or abandon it altogether.  An honest money arises only when free market participants agree on what to use for a medium of exchange, without state interference, ever.

George Ford Smith is the author of eight books, including The Flight of the Barbarous Relic, Eyes of Fire: Thomas Paine and the American Revolution, and The Fall of Tyranny, the Rise of Liberty.  He is also a filmmaker whose latest work is a five-minute documentary about the Christmas Truce of 1914, A Christmas to Remember.