The Drive for a World Central Bank

0:00Before I will explain why there is a drive toward a World Bank, I will have to discuss briefly another question that is, why is there a drive toward world government? Because the drive toward a World Bank can be best understood as an intermediate step in the underlying drive toward world government. So let me begin then with a definition of what government A government is a compulsory territorial monopolist of ultimate decision-making or of jurisdiction. And this is implied in this first part of the definition. It is a compulsory territorial monopolist of taxation.

0:46That is, a government is the ultimate arbiter for the inhabitants of a given territory regarding what is and what is not just, and it can then determine unilaterally without requiring the consent of those who seek justice or arbitration the price that these justice seekers must pay to the government for providing this very service. Now, except for some so-called public choice economists such as James Buchanan, it should be obvious that such an extraordinary institution cannot arise naturally as the outcome of voluntary contractual agreements among individual property owners, for no one would agree to a deal that entitled someone else, once and for all, to determine whether or not one was truly the owner of one's own property, and certainly no one would agree to a deal that entitled this monopoly judge with the power to impose taxes on oneself, rather an institution such as government would normally and from the outset be regarded as an illegitimate and and indeed criminal protection racket. And as a protection racket, this institution would

2:14tend to be brought down quickly. It is possible for such an extraordinary institution to survive for any length of time only if and in so far as this institution succeeds in instilling in the Protected Public, a myth that is a false yet nonetheless generally held and because of this effective belief. In order to make the public accept it and not to resist it, the protection racket must be made to believe the public that without it, without the monopoly of jurisdiction and taxation, in a so-called state of nature, constant warfare among individuals and individual property owners would exist. And I have called this belief in the necessity of a monopolist in order to create peace, the Hobbesian myth, and identified it as the most powerful and most effective and widespread myth of the modern world.

3:24Now it is not my intention here to further analyze this, rather I want to analyze and develop the consequences that follow from the fact that this view about the nature of government is actually believed by people and hence a protection racket is regarded as a legitimate institution, that is as a government instead of a protection racket. Now first, if a government is generally held to be necessary for the establishment of internal peace, then it follows that the agents of this institution will take advantage of their monopoly. They will increase taxes and they will reinterpret the law to their own advantage.

4:12The price of justice will rise and the quality of justice will permanently fall. or to put it differently, government has indeed an interest in making peace among its subjects, that is to prevent one subject from warring against another or robbing another subject, but it has this interest only so as to rob all of its subjects more successfully itself. Now however, instead of concentrating on the internal consequences of government, I want I want to concentrate my attention on the external consequences, that is, on its foreign rather than on its domestic policy. And in this regard, two observations are of fundamental importance.

5:00On the one hand, by virtue of its power to define and interpret the law and to tax, every government is faced with the risk of exit. Its subjects might leave the territory over which a government's authority extends in order to avoid its taxation and its perversions of the law. And every such exit, of course, implies a loss of potential revenue to the government, whereas any population increase promises potentially higher tax revenue. And on the other hand, at least at the outset, there exist many competing governments, each one faced with the threat of exit, but each one also equipped with the power to tax, that is, of externalizing the cost of territorial expansion and of foreign aggression onto its own subject population.

6:01Instead of having to pay the price of aggression out of its own pocket, it can make other people pay for its being aggressive. Because of this, it can be then predicted that competing states will come into conflict with one another over population. And the competition between governments is, however, different from the competition between private firms. In any given territory, only one monopolist of jurisdiction and taxation can exist. There cannot be free competition in ripping off other people. Because of this, the competition between governments tends to be a violent competition and tends to result in interstate wars and be eliminative.

6:49That is to say, by means of war, one state expands its territory at the expense of another one, and the number of remaining states will progressively fall. There is then a tendency toward political centralization set in motion, which would come theoretically speaking only to a halt once there is a single world government, when the threat of exit is of course completely be eliminated. Now we can even be more specific regarding the tendency toward political concentration in raising the following question. Which states will tend to be victorious in interstate warfare? Now victory or defeat depends of course on many factors, but in the long run the decisive factor for this is the relative amount of economic resources at a government's disposal.

7:46Now in taxing and in regulating, governments of course do not contribute to the creation of economic wealth. In fact, they parasitically draw on existing wealth. However, governments can influence the amount of existing wealth negatively. That is to say, other things being equal, the lower the tax and regulation burden imposed by a government on its domestic economy, In the European economy, the larger its population tends to grow, because of internal reasons as well as of immigration factors, and the larger the amount of domestically produced wealth on which this government can draw in its conflicts with neighboring states.

8:33States which tax and regulate their domestic economies comparatively little, in the European sense liberal states, tend to defeat and expand their territories at the expense of less liberal ones. This explains, for instance, why during the 19th century Great Britain became the dominant imperial power and why in the 20th century this role has fallen to the United States and even more specifically it explains why the United States internally one of the more liberal states has conducted the most aggressive foreign policy while the Soviet Union for instance which is entirely illiberal domestic policies has engaged in a comparatively speaking peaceful and cautious foreign policy.

9:25The reason is quite simple, the US knew that it can militarily beat any other state and and hence it is aggressive, whereas the Soviet Union knew that it was bound to lose a military confrontation with any state of substantial size unless it would win the war within a few days or weeks. Now let me turn to the next question that is the relationship of government and money. In these circles, Walter Block spoke about this already to a certain extent, it is hardly It is already necessary to explain in great detail that money is a natural outgrowth of a market economy. In Barter, as Walter has explained, due to the existence of uncertainty, there exist fundamental obstacles to trade.

10:14Not always are double coincidences of once in existence, and hence direct trade becomes impossible. And as a way out of this predicament, mankind begins to look for especially marketable goods and trades whatever one has to sell for more marketable goods in order to be able then to turn around and acquire with these more marketable goods those things that one really wants. That is, man begins to demand things to be used neither as a consumer good nor as a producer good, but as a medium of exchange, that is, as a facilitator of exchange. And other people then copy this practice and sooner or later most people in society use the same good for the same purpose as money, that is, as a commonly used medium of exchange.

11:08and as trade becomes worldwide, a tendency toward the use of a single worldwide used medium of exchange comes into existence and that is historically the international gold standard. Money then comes into existence as a commodity money and in fact money is the most easily saleable of all commodities. It is produced by the market like any other good. There exists competition in gold mining, there exists competition in gold minting, and there exists next to and besides genuine money also money substitutes, that is titles, bank notes, titles to money. And that then is the situation that governments find themselves confronted with, that is a commodity money such as gold produced by profit-driven money producers and entirely outside of control, outside of the control of government itself.

12:06Now recall the definition of government as a monopolist of jurisdiction and of taxation and assume no more than self-interest for government agents. That is, just like everyone else, government agents prefer more over less income. Now what then will be a government's position vis-a-vis a market provided money? As should be immediately clear, it will try to gain monopolistic control over the supply of money, so as to be able to enrich itself at the expense of its subjects, very much in the same way as it enriches itself at the expense of its subjects by the means of taxation.

12:51In order to reach this goal, a government must take three consecutive steps. And all governments everywhere have taken these steps. Some of them have that done earlier and some later, but all of them have done so and did so in the same order. The first step is a government monopolizes the minting of gold. No one except the government mint is permitted to produce gold coins. With this step it becomes possible for the government to engage in coin clipping, that is to reduce surreptitiously the gold content of coins. In recalling and reminting gold coins and reducing, let's say, the gold content of a coin by 10% and increasing the supply of coins by 10%, the government essentially accomplishes the same thing as raising the tax rate by 10%, Except of course that it is more difficult to understand the causes and consequences of inflation than it is to understand the causes and consequences of higher taxes.

13:57But of course this first step is still highly unsatisfactory from the point of view of government because it cannot engage in this practice over and over again without some people eventually noticing what is going on. Hence the second step will be taken. The government now monopolizes the production of money substitutes, that is of paper titles to gold property. No one except the government bank can issue bank notes redeemable at par into genuine money. The commercial banks may only produce checkbook money, that is substitutes of money substitutes, that is paper that is convertible at par into government produced paper which in turn can be converted into genuine money or gold.

14:46Now with this step it becomes possible for a government to engage in fractional reserve banking practices. practices. That is, the government bank creates, out of thin air, additional money substitutes, additional titles uncovered by genuine money. Or put it differently, it creates more titles to money property than there is money property in existence. By bringing these titles into circulation, it enriches itself at the expense of the general public. Again, an increase The increase of money substitutes created practically at zero cost of, again, let's say, 10% beyond gold coverage has the same effect as a 10% tax increase, but once again, taking the course of inflation, it is more difficult to detect than the tax increase.

15:39However, even the second step is of course unsatisfactory from the point of view of government, because eventually the public will perceive what is going on, and when it does, runs on the central bank will occur. The holders of titles of money will want to have their titles redeemed into the genuine thing that is gold, but of course, since there exist more titles goes to gold, then there is gold, the central bank will be faced with a run, either it will have to go bankrupt or it will have to suspend specie payment and accordingly then the third step follows, the government goes off the gold standard, the gold deposited in government vaults is confiscated and the private ownership of gold is outlawed and having acquired purchasing as something more than mere pieces of paper, namely as titles to genuine money, the former money, the former money substitutes, now become real money.

16:44We have then a pure fiat paper currency that takes the place of the former commodity gold standard. Finally, or so it seems, the government has reached complete counterfeiting autonomy and can print money out of thin air and acquire real goods with this paper. The only remaining task seems to be that of avoiding hyperinflation. But in fact other problems and obstacles remain in place even then. And I will immediately come to address these problems. Before doing so, however, I want to make a few remarks concerning the question of how the government can get away with taking the three steps that I just outlined. It can only do so if it succeeds in creating a favorable public opinion. And in order to do so, it will have to promote a few myths. That is, make the public believe a few erroneous but But somehow plausible sounding propositions. The first one of these is that competition in money production will lead to fraud by profit driven capitalists. Even though in

17:55fact of course competition is precisely the means of reducing the likelihood of fraud and fraud will actually be made more likely if money is produced by a monopolist, by a The second myth that governments promote in this transition is that a commodity money involves substantial resource costs, which could be saved and the resources could be productively invested if one had a paper money instead of a gold standard in place. In fact, however, as even an ardent paper money fan as Milton Friedman had to admit late in his life, a paper money standard and the increased financial uncertainty brought about by a paper money standard actually increases expenditures. It increases the waste of resources insofar as activities such as hedging will become necessary, financial newsletters and advisement agencies that otherwise Otherwise would be unnecessary spring into existence and in fact the price of demonetized gold has risen in fact and according to the volume of gold production has actually increased rather than decreased. And the third miss governments promote is that money is part

19:23of social wealth. That is to say that more money means greater wealth. While in fact Money is not part of social wealth and any amount of money is equally optimal and a larger amount of money only leads to a falling purchasing power of money. And more importantly, more money leads to a redistribution of existing wealth in society and benefits the early receivers and spenders of the money at the expense of those who receive this money later and spend Now, back to the obstacles that still remain in the path of governments wanting to achieve total counterfeiting autonomy. These obstacles become obvious once we introduce the existence of more than one government into the picture. And let us first assume that these competing governments are of roughly equal strength as regards their military power, only to then And one return to my initial considerations regarding the drive toward political concentration.

20:33So let us take an example of two countries, let's say France and Italy, and briefly analyze the situation for the first two stages in the process of the destruction of the gold standard. And we start with stage one. or stage two, both France and Italy have monopolized the minting as well as the production of money substitutes. If the French government in this case, based on its monopoly in the production of money substitutes, that is titles to gold, If the French government now increases the production of paper francs beyond the increase of the Italian governments of paper liras, then prices in France will increase relative to prices in Italy.

21:34And consequently, exports from France to Italy will fall and imports into France from Italy will increase. Yet, in order to pay for this increasing volume of imports, gold will have to flow out of France and into Italy. And consequently, the ratio of gold reserves to paper francs in France will fall, increasing the likelihood of a run on the French central bank. France Governments must now contract the money supply of paper francs and the imbalance of imports and exports will be reversed. As much as the individual government, the government of France, would like to inflate, this inclination is constrained, restricted by the existence of of other governments, the Italian government and their currency.

22:35Similarly is the situation in stage three, where we have pure paper monies in existence. Gold being completely out of the picture. Now if France now inflates faster than does Italy, again exports from France will decline and imports into France will increase, but But instead of an outflow of gold from France to Italy, now the French franc will depreciate relative to the Italian lira and the trade imbalance will be reversed in this way. And again, the tendency of each individual government to engage in inflation is then curtailed by the existence of other governments and the fluctuations in the currency markets.

23:22So now finally back to my initial remarks in order to recognize how the remaining obstacles to counterfeiting autonomy are to be overcome. So let's consider a world where in the process of political concentration has been effective for some time. As a result of interstate wars, there exist large and mighty superpowers as the United States and smaller, militarily defeated and dominated countries such as, let's say, Germany. Now in contrast to the situation between two equal countries, as in the France-Italy example, monetary relations between the US and Germany will be significantly different and will be reflective of the power difference between these two countries. In this case, again, We can distinguish between two stages of development. An exemplary of the first one is the system as it was established roughly with the Bretton Woods system. So the US is off the gold standard domestically, but it assumes the official responsibility of redeeming paper dollars into gold at a fixed rate to the German central bank. While the German central bank promises

24:45Germany is then still on the gold standard, at least indirectly. Marks can be redeemed into dollars, and dollars can be redeemed into gold. In fact, however, matters are completely different. The German central bank is now pressured not to make use of its right to redeem dollar notes into gold, but to use the dollars instead as reserves on top of which it piles its own currency, that is, the German mark notes.

25:30What is in existence now is this, and let me put matters in the starkest possible terms so as to make things as clear as possible. Now, let's say the U.S. Central Bank creates $50,000 out of thin air, and it uses this money to buy 150,000 German marks, assuming that the exchange rate is 1 to 3. So it buys these 150,000 German Marks from the German Central Bank. And then the US Central Bank turns around and buys, let's say, a Mercedes for these 150,000 Marks. And what does the German Bank do with the $50,000 that they received?

26:17Does the German Central Bank then buy something in the United States or insist on redeeming this sum into gold? And the answer is of course no. Rather, the $50,000 that the German Central Bank has received are now registered as an increase in the Central Bank's dollar reserves. And given this increase, the German Bank in turn creates an additional 150,000 German marks out of thin air. And then it turns around and buys itself a new Mercedes too. Now, obviously, the US has now a trade deficit with Germany. Imports exceed exports. But it is a deficit without tiers, because no payments, no exports are being made for the imported Mercedes. And neither does the dollar fall against the German mark. Instead, a system of two-fold exploitation is imposed on the German public. First, it gets gets ripped off by the U.S. Central Bank and then facilitated by this first round of rip-offery.

27:29It gets ripped off once more by its own central bank and we can call this, of course, a system of monetary imperialism. But even this first stage of monetary imperialism is still imperfect from the point of view of the dominant country, that is the United States. Because there may There may still exist other countries that are not yet fully controlled by the United States. Let's say France under someone like General de Gaulle, who fancied himself to be the president of a mighty military power in its own right. In this case, the German central bank might be tempted to sell its dollars to the French bank in exchange for French francs.

28:14and the French central bank in turn may be audacious enough to approach the United States with a request for redemption into gold. But of course the United States does not have the gold or at least not sufficient amounts of it. The bluff has now been called and the United States is faced with a bank run. What to do in this situation? And the answer of course depends on the relative strengths of the parties involved. as we know, given the superpower status of the United States and the actually nobody status of France, France essentially was not able to do anything about the United States defaulting on its obligation. It did nothing but accept it as a fait accompli and the world The world entered stage two of U.S. managed monetary imperialism.

29:12So the second stage then is essentially like stage one, except that gold plays no role anymore whatsoever. All countries are now on a pure fiat money standard. The United States initiates the process of inflation, and by using dollars as reserve currency, U.S. inflation is imported to other U.S. dominated countries. while goods of course flow in the opposite direction. Paper dollars flow to other countries and the goods flow to other countries to the United States. Yet a run on US gold reserves is of course no longer possible because gold plays no role anymore. Even this system, however, is still unsatisfactory because in a world of many countries and even if the United States is a superpower with troops stationed in well above 100 countries around the globe, this system of coordinated inflation is bound to crack again and again.

30:15On the one hand, a U.S. dominated country might inflate more than the U.S. and its currency might depreciate against the dollar and then the United States in order to save government-connected Investors in those countries may be compelled to engage in expensive bailout operations, that is to buy up the falling currency in order to stabilize it or, and on the other hand and this is the more important problem, a US dominated country may inflate less than the United States and its currency appreciates against the dollar and if this becomes a trend, The dollar tends to lose trust and may be abandoned in favor of other or harder currencies.

31:06Accordingly then, as a final solution in the drive toward monetary imperialism and as a decisive intermediate step in the drive toward world government, the United States has been working long and hard to establish a world central bank, controlled of course by the of the United States, which would issue a single worldwide accepted paper currency. For only then are all obstacles to government counterfeiting eliminated, because then the currency can no longer rise or fall against any other currency, because there are no other currencies left. The monetary integration that is currently underway in Europe, that is the establishment of a Europe-wide euro. It's an important step in this direction.

31:59The euro will of course be more inflationary than the least inflationary of the previously existing national European currencies. That is the German mark. And as it is easier for the United States central bank to cooperate with a single European central bank than it is to cooperate with some fifteen or so different banks and moreover whereas these fifteen different banks or so also could and in fact did use other reserve currencies besides the dollar namely those of the European currencies notably the German Mark. Now with these other currencies gone what else but the dollar can the European bank use for its reserves for this purpose?

32:49Now once more however, to succeed in this attempt of establishing a world central bank, public support is of course necessary. And to secure the support, it is necessary to promote another myth. Indeed, the same myth that is currently propagated in Europe to establish the Euro. And that is the myth that a single currency reduces transaction costs. No more tedious exchanging of money when you travel from Germany to Italy. That is the central argument that is currently used in Europe. Now, this myth contains an important half-truth, and this makes it, of course, particularly dangerous and potentially effective, because it is in fact true that money serves its purpose The more this purpose as a medium of exchange better, the more widely it is used.

33:50And international trade and economic calculation is in fact facilitated by the existence of a single money. After all, commodity money such as gold, which emerges in and as a result of free markets and of market exchange, The French has itself the tendency to become a universally used money, to become ultimately, as trade expands, a worldwide used commodity money. Matters are fundamentally different, however, if this money is a fiat money produced by a governmental world central bank. Given the nature of government, we can safely predict that such a money, paper money issued by a Central Bank will be more inflationary and will lead to more massive redistribution of income and wealth in favor of government and at the expense of the general public than anything that we have seen so far. In fact, if we are to have a fiat money at all rather than a commodity money and the only alternative is to have either competing national paper As much as competing and fluctuating paper currencies are dysfunctional of the very purpose of money, that is, to function as a facilitator of exchange, the alternative of competing fiat moneys, if we are supposed to have a fiat money, this alternative is infinitely better than the other alternative.

35:34of having a world governmentally produced fiat currency. Whether the drive toward a world bank will succeed or not then depends on us, whether or not we will be able to succeed in making the public understand this message, the fraudulent argument used that paper monies, worldwide used paper monies, will reduce transaction costs. Thank you very much.