Although the matter seems settled among those charged with reporting the news, the Republican nomination for president still has three candidates. Regrettably, voters in most states, with a few notable exceptions, have rejected Ron Paul’s message of constitutional government and honest money. I’d like to think it is because they simply don’t understand the fraud that politicians and bankers are running on us. Never the less, Dr. Paul and his message are still in the race.
Years of public schooling has dumbed us down to the appalling point where most of us believe the little paper portraits of dead presidents we use in commerce are actually "money." Miseducated as we are, we have granted a cartel of bankers the limitless power that comes with being able to print up these little portraits at will.
Dr. Paul is an expert on economics and money, but is often less than enthralling to listen to when he explains them. I, on the other hand, a master of oversimplification and metaphor, will explain the mysterious flim flam of inflation in this one short essay, in the hope that I can demonstrate the folly of central banking and gain support for Dr. Paul’s effort to return to honest money.
Unbacked paper money allows its creators to steal. It is the same theft that is committed by counterfeiters. Since the bogus notes circulate as if they were real, the scam has no obvious victim. The creators of unbacked paper money steal the same sly way that counterfeiters steal, a tiny bit from every holder of already existing bills.
Every new paper dollar is evidence of a crime of theft and fraud. The crime is particularly loathsome because it is done without the knowledge of the victim, and accompanied by pious lies about “fairness” and “compassion;” as if casting an entire nation into uniform, groveling dependency on politicians were a noble act.
It works like this. Politicians buy votes with promises of benefits from the public treasury. There are two ways to pay for such benefits, extortion or fraud. Taxes are the extortion model, the traditional protection racket, pay or suffer. Nobody gets elected raising taxes, however. Therefore the preferred method of financing government largess is fraud, where money is borrowed with no intention of paying it back.
Gold backed dollars can’t just be printed up at will. Gold or silver backed "bills" are just that, claims that have to be paid in “lawful money." Old bills had promises printed right on them that the bearer would be paid in gold on demand. If someone demanded gold and wasn’t paid, word traveled fast. Before long no one would accept the bills.
Such a situation severely limited the power to buy votes. It also happened that the gold standard also hampered bankers’ ability to loan money they didn’t have. Having to maintain a reserve of gold against the possible demands of depositors put a severe crimp in a bank’s ability to generate new loans and obscene profits.
In 1913, for their mutual benefit, politicians and bankers put together the greatest swindle in history. They conspired to abandon the discipline of gold and opened the door to the greatest financial bubble the world has ever seen.
The Federal Reserve Act granted the Fed the exclusive power to issue new dollars. Bankers were allowed to back these dollars, issued as loans, with paper “reserves” consisting of government IOU’s, which politicians can issue in unlimited amounts. The Fed would always have money to lend. Congress would always be able to borrow from the Fed because government IOU’s supplied the unlimited reserves to back the loans. Together bankers and politicians granted themselves the power to borrow all the wealth in the world and never pay it back.
There was just one hitch. The suckers who would have to provide the real wealth against which the flood of paper would have claims, ordinary working Americans, could still escape to God’s own money, gold. After the first inflationary bubble blew in 1929, people did just that, pulling cash out of banks at a furious pace. This was unacceptable to the bankers and politicians. Franklin D. Roosevelt, therefore, by executive order, eliminated Americans’ right to own gold.
There was then no escape. The transition to a “fiat” currency (that is, a currency whose value is determined by law, by fiat, rather than intrinsic value) was complete for U.S. citizens. In 1971 Richard Nixon would extend the system to the world when he halted the redemption of dollars for gold by foreign banks.
The Fed churns out paper on demand from banks and politicians. Politicians get votes. Special political interests get subsidies. Banks get an infinite supply of deposits. The public gets screwed. More and more dollars create only more and more claims against real wealth, not real wealth itself. Printing more dollars doesn’t increase the supply of beer, burgers and cigars, only their price.
Nearly 100 years after this scheme was hatched, the world’s finances are floating on an unimaginably vast ocean of paper dollars, dollars created via loans, loans which, in their unfathomable immensity, can never be repaid. When those holding paper dollars figure out they are not going to be paid anything, the paper notes will trade at deeper and deeper discounts until finally they return to their intrinsic value.
Inflation is a device for shifting wealth from those who produce it to those who manipulate the money supply. The only way to prevent that transfer is to forbid any central authority over the creation of money. That, in a single sentence, is the monetary policy Dr. Paul proposes we return to.
In the first 100 years of American history, under a system of honest money, prices hardly changed at all and the United States became the most prosperous nation on earth. An ounce of gold was $20 in 1800 and in 1900. Since the Fed took over our money supply, the dollar has dropped in value to where it takes nearly a thousand of them to buy that same $20 gold piece. Americans are less prosperous now than they were when Jimmy Carter was president.
The connection between honest money and prosperity is fundamental. President Paul would restore it. No one else will even talk about it.