Unsound Money and War in the 20th Century

0:00I'm not a technical person but I had some help from Chad Parrish who's copied some things for me. I keep a collection of money, paper money and gold money and over the years and so I brought them over here and Chad copied those for me and so as an introduction to my talk I'll just show you some of this collection that I have. If I can work this, Chad has taught me how to do. First a couple of This is an old McNeely cartoon. You see the Federal Reserve sitting on a ladder with interest rates and the money supply is flowing in and the taxpayer is standing up there and he says I found out why I was getting so wet I was not far enough up the ladder. So raising interest rates is the Federal Reserve system to cure an inflation rather than stopping the money supply.

0:52Why? Here's my favorite data cartoon. What are you doing about inflation? Print more money. And his advisor, we can't do that, sir. Why not? There's no more gold to back it up. And he sighs with relief and says, for a moment there I thought we were out of I'll start off sort of with the historical thing of the early American Revolution. This is the Continental, the $5 Continental, and it states this bill entitles the barit of five Spanish mill dollars or the value they are of in gold and silver according to a resolution of Congress passed at Philadelphia July 22, 1776.

1:42and of course what came, the Spanish mill dollar was the most widely circulated hard currency at the time and this continental of course as you know they stopped being convertible into anything and that's where we get the slang, something's not worth a continental. So that's the five dollar bill. This is a state continental, I guess you could call it, printed during the revolution, Rhode The State of Rhode Island, $7 bill July 1780 and it's submitted by State of Rhode Island and the Providence Plantation and it says on there the proffer or offer of this bill should be paid seven Spanish mill dollars by the 31st day of 1786 so you've got some time to wait before you can get it but you get interest at the rate of five percent by the State of Rhode Island and the Providence Plantations according to the Act of Legislature July 2, 1780. And then this is the Spanish Mildala with Charles III on it. This was actually minted in 1803 and all of you who have read Treasure Island know about pieces of eight.

2:51The Spanish Mildala was divided up by many people to be the smaller denomination so you'd have a piece of eight of the Spanish Mildala. This is an assinat. It's only printed on one The Asenat was printed during the French Revolution, and here is a drawing made at that time at the end of the Asenat madness, a seven-year orgy of fiat money inflation that last ended with the new government, the Revolutionary of France, which returned specie as decreed. The Haiti currency was joyfully burned in a great public bonfire throughout France.

3:39That's the burning of the ass in that. This is a little southern history for you. This is all of the Dixie. And this was issued by a bank in Louisiana, the Citizen Bank of Louisiana. It's a ten dollar bill and it was printed in French and English. And in French, Dix is ten. And so most of the trade came down the Mississippi River and they were paid in Dixies. And eventually, a minstrel by Dan Emmett was written about the land of the Dixies, so that's how the South became called Dixie, rather than the Mason-Dixon line, it was the land of the Dixies. So this was a very strong bank that survives, a successor survives to this day. Now we get into the war between the states, and this is the fractional reserve greenback.

4:32I want to really tell you what it has on there. This is a five cent that was the first fractional currency and on the back it says, exchangeable for U.S. notes by Assistant Treasurer and designated depositors of the United States in sums not less than three dollars, receivable in payment of all dues to the United States less than five dollars, except customs. and you pay gold and there's a lot of litigation over this because it had a living person there named Spencer Clark and they didn't litigate about it being worthless it was just that you had a picture of a living person. This is a ten cents greenback they changed and put George Washington on there and it It was approved July 17, 1862 and here's a Confederate $20 bill, I believe that's Alexander Stevens, the vice president on there, and this is interesting to me, it's in the back, it says printed at Richmond, February 17, 1864 and redeemable two years after the ratification of the peace treaty, so that could be a long time away, and next is

5:50$100 Alabama, state of Alabama, redeemable in Confederate treasure notes or in 5% coupon bond in the state office and it's payable up for all taxes and public debts and then you get to the real stuff this is a collection of the gold type set and gold was widely circulated and backed up the currency from 1881 through 1912 so it's longer than that but these are minted at those times and this shows you the various denominations This is the gold back dollar and real money and it says certified that it has been deposited in the treasury of the United States of America, ten dollars in gold coins.

6:43So, don't you wish we had that back? This is the famous German 10 million marks printed in August 22, 1923. The German inflation went on for about seven years and the pre-inflation rate of the German dollar to the American gold dollar was four to one and at the end of that German inflation it was four trillion to one. Here's a picture of German children standing with a gold-backed dollar and those are stacks and the tax of 1,000 million mark notes and that's equivalent to one American gold dollar. Here's a little local history.

7:29First loan I tried to make at the bank, very reluctant, told me, do you remember the depression and when they paid our school teachers and public employees in script, I had no idea what they were talking about, but this is script. So this is as the mayor's signature and the city clerk and that's for one dollar. So when the teachers got paid they gave them a script which was just an IOU but some of the merchants and some of the people around town would accept that as though it was money and they had to get it back. You have to put coupons on the back and it's not convertible until you get it full of those little stamps. Here's some privately minted gold coins in 1979, it's a Frederick Hayek and says denationalization of Money, half ounce gold coin, and this is a Harwood one ounce gold coin also. Mr. Harwood was chairman emeritus of the Institute for Economic Research, and over here for integrity

8:31there is no substitute. So it is possible to have privately minted gold. So that's some Some of the history, now you can come up to see this one. This is a 500 billion dinar of Yugoslavia issued in December 23, 1993 at the height of runaway inflation, so inflation is not an ancient thing. The rate of inflation exceeded 313 million percent a month at its peak. This rare and unique note has more zeros of any bank note ever issued in the world at any time. This one bank note of 500 billion dinars would buy one gallon of milk. So that's how bad it can get. The founding fathers of America thoroughly understood the danger of paper money which is not backed by gold and silver. They had had vivid memories of the destructiveness of the continental dollars, and George Mason of Virginia stated that he had, quote, a mortal hatred of paper money, end quote.

9:46Constitutional convention delegate Oliver Ellsworth from Connecticut thought that the constitutional convention was a favorable moment to shut and bar the door against any paper money. Even the founder most in favor of big government realized the problem with paper money, and Alexander Hamilton stated, the emitting of paper money is wisely prohibited to the state governments. And I'm sure he meant that. And then I think the next thing is in tongue and cheek, and he says, in the spirit of the prohibition in the Constitution, ought not to be disregarded by the United States government. He wouldn't go quite that far to bat it for the government. Later, Andrew Jackson, who along with Thomas Jefferson fought the central bank more than and any other presidents and they condemn paper money and Andrew Jackson said, quote, It is apparent from the whole context of the Constitution as well as the history of times which gave birth to it that it was the purpose of the convention to establish a currency

10:43consisting only of precious metals, end quote. Ron Paul has repeatedly stated his opposition to fiat paper money and in his book Pillars of Prosperity, he states, quote, one of the strongest restraints against unnecessary war is the gold standard. And of course, gold is also a restraint on the size and power of government, end quote. Congressman Paul also in his excellent book, Gold, Peace and Prosperity, The Birth of a New Currency, quotes Ludwig von Mises as saying, quote, people fight the gold standard because they want to substitute national autarky, which is the word he used for meaning government Power for Free Trade, Substitute War for Peace, Substitute Totalitarian Government Omnipotence for Liberty.

11:29Ron Ben states his own idea that it is no coincidence that the 19th century, a time of gold coins, gold coin standard for the most part, was an era of peace, nor is it a coincidence that the 20th century combines war with paper money. In his conclusion to that book, Ron states, everyone who believes in freedom must work diligently for sound money, fully redeemable, anything else that is compatible with humanitarian goals of peace and prosperity. One thing that I found I could not agree upon was whether or not we should have a central bank. Central banks have always been the enemies of gold because the very idea of a central A central bank is to make the currency elastic and allow government to expand without taxation.

12:19Ron Paul states in his book Pillars of Prosperity, quote, A central bank and fiat money enable governments to maintain an easy war policy that under strict monetary rules would not be achievable. In other words, countries with sound monetary policies would rarely go to war because they could not afford to, especially if they were not attacked. People cannot be taxed enough to support the wars without destroying their economy, but by printing money, the costs can be delayed and hidden, sometimes for years or decades. In states to be truly opposed to preemptive and unnecessary wars, one must advocate sound money to prevent the promoters of war from financing their imperialism. He continues, Look how the military budget is exploding, deficits are exploding, tax revenues are going down, but it's no problem.

13:07The Fed is there and we will print whatever is needed to meet our military commitments, whether it's wise to do so or not. Murray Rothbard's great book on the mystery of banking goes into the history of the first central bank, the Bank of England, which was created in 1694. And the need for the central bank arose out of the civil wars of England that had been going on for some time and enabled them to fight future wars, especially with France. So war was part of the creation and has been part of the reason for the creation of the for a Central Bank. Here's what Murray states, banking in England in the 1690s consisted of scriveners, loan bankers who loaned out borrowed money and goldsmiths who accepted gold on deposit and were beginning to make loans. The harrowing and expensive civil wars had finally concluded in 1688 with the deposition of James the Second and the installation of of William and Mary.

14:05The Tory Party, which had been in favor, now lost its dominance and was replaced by the Whig Party, of noble landlords and merchant companies enjoying monopoly privileges from the government. Whig foreign policy was mercantilistic, imperialistic, with colonies sought and grabbed for greater glory of the Crown, trading advantages, investments in raw materials and markets for shipping and exports. England's great rival was the mighty French Empire, and England set out on a successful half-century long effort to attack and eventually conquer the rival empire. Murray continues, the policy of war and militarism is expensive, and the British government found in the 1690s that it was short of money and its credit was poor. It seemed impossible after a century of civil wars and poor record repayment for government to tap sufficient savings by inducing people to buy government bonds.

14:55The British government would have loved to levy higher taxes, but England had just emerged from half-central civil wars, much of which had been waged over the king's attempt to extend the taxing powers. So the taxing route was therefore politically unfeasible. He states that a committee of commons was therefore formed in 1693 on how to raise money for the war effort. There came to the committee the ambitious Scottish promoter William Paterson, who on On behalf of his financial group proposed a remarkable new scheme to Parliament in return for a set of important special privileges from the state. Patterson and his clique would form the Bank of England which would issue new notes, much of which would be used to finance the English deficit. In short, there was not enough private savers willing to finance the deficit, so Patterson and his group graciously were willing to buy government bonds provided they could do so So with newly created, out of thin air, banknotes carrying a raft of special privileges, Patterson

15:54urged that the government grant the banknotes legal tender power, which meant they would not be compelled to pay back in money or gold, which the Bank of England and Federal Reserve notes today are like that with its legal tender. The British government first refused this request, believing it was going too far, but The parliament did give the new bank the advantage of holding all government deposits as well as the power to issue new notes to pay for government debt, and the king was allowed to be a 20% stockholder in the Bank of England. Later, the Bank of England was granted the power to suspend payment in gold. In May of 1696, the English government simply allowed the Bank of England to suspend specie payment, that is, refuse to pay contractual obligations redeeming its notes in gold, yet to continue in operation and issuing notes and enforcing payments upon his own debtors.

16:49Specie payments resumed two years later and then Rothbard points out, quote, the rest of the early history of the Bank of England was a shameful period of periodic suspensions and specie payment. Alexander Hamilton, of course, as you know, and if you haven't read Tom DiLorenzo's great book on Hamilton, I strongly recommend it. Hamilton was a great fan of the British Empire, and he was especially envious of the Bank of England because it was the primary method which allowed the British to expand their government and create their empire. While Hamilton fully supported independence from Britain, he preferred to see the new independent American government copy most of the British ways, especially the building of an empire, and it needed a central bank to do so.

17:34Our Constitution did not allow for the creation of the central bank, but Hamilton pushed for Washington had Hamilton and Jefferson submit papers to him with Jefferson stating the reasons to oppose the bank, and as we know, Washington sided with Hamilton when the first bank was created. The rest of American history is a battle of whether or not to have a central bank and whether or not to suspend specie payments in gold and silver for bank notes. Notes. During our lifetime we have seen the Federal Reserve, which was created in 1913, grow to a monopoly status and all specie payments have now been suspended. August 16, 1968 was the last day the Federal Government would redeem silver coins for silver certificates. In August 15, 1971 was the date that President Nixon stopped all foreign central banks from being able to use American money to buy gold. Since 1971 there has been no obligation of the government to pay gold or silver in exchange for the American dollar. From the creation

18:34of the Federal Reserve in 1913 until 1968, the Federal Reserve notes circulated side by side with U.S. Treasury notes. But in 1968, all U.S. Treasury notes stopped and we now only have Federal Reserve notes and there's no tie whatsoever to gold or silver. Another thing that I found I could not agree on at the Constitutional Convention and during ratification was the extent of power to be given to the central government. Recently I have been studying the debate between the Federalist and Anti-Federalist during the Constitutional Convention, but especially after the Constitution was created and was made public and sent to the various states for ratification. It was at that time that the Federalist Papers were composed by Hamilton, Madison and Jay to support the Constitution and various Anti-Federalists wrote under names like Brutus and other Roman political figures.

19:24And as you know, Hamilton wrote about two-thirds of the Federalist Papers and Jay only wrote What was surprising to me in that study was discovering that over 50% of the Federalist Papers in support of the Constitution were primarily for the purpose of national security. The Anti-Federalists were alarmed at the language used by Hamilton, especially that he wanted unlimited power for direct taxation over the people rather than having to go to the states, and he wanted an energetic central government. The Anti-Federalist stated it was the violation of the purpose for the American Revolution and it was fought for the purpose of protecting individual freedom and the rights of the people against a strong central government. I did another chart that I thought about over this.

20:23When I was reading these studies, I composed this red figure for the power of government for national security and then the blue for Bill of Rights freedom and then political freedom and democracy. And as you see this debate going on in the Federalist Papers, you see the red Hamilton rights and the red increases and the anti-Federalist right and the red decreases and that was the battle that went on. Here's another chart just to show you ancient Athens, here is at that time the Greeks were at war about three out of every four years and for hundreds of years the business of government was to conquer other lands and slaves and that was the business of government was War. And Heraclitus, the philosopher, stated that war is the father of all things. And when you read the speech of Heracles about the Peloponnesian War, he praises those that have died for Athens because they had more freedom from government than did Sparta. So if you look at Sparta, it would have very little blue of either shade. Therefore, what

21:42What happens in studying history is that all war tends to jeopardize the personal freedom of civil liberties of citizens in order to give the government sufficient power to protect you from foreign enemies. Ludwig von Mises addressed this problem, and I'll quote two sentences from his book Omnipotent Government, quote, No citizen of a liberal or democratic nation profits from a victorious war. Mises went on to state, war is harmful not only to the conquered, but to the conqueror. Society has arisen out of the works of peace. The essence of society is peacemaking. Peace and not war is the father of all things. Only economic action has created wealth around us. Labor, not the profession of arms, brings happiness.

22:29Peace builds, war destroys. After the fall of the Roman democracy, political freedom virtually disappeared for about a thousand Years and reappeared only in the feudal era of the Middle Ages, such as the Magna Carta in 1215, which put restraints upon the power of the king and therefore the American Revolution then produced the Bill of Rights as the main restraint on government. This is a third chart and this is from the U.S. Department of Defense for 1980. This shows you the military spending in the world in 2008, United States spending 48 percent of all that's spent in the world.

23:15You go around and see Russia at 5 percent, China at 8 percent and Europe at 20 percent. So you can see that the United States of America is way out of kilter. Madeline Albright, the Secretary of State, said, why do we have a big army if we don't use it? You know, so this is what's happening around the world. We now have 761 military bases in 151 countries. And that's according to a recent article by Chalmers Johnson and a LewRockwell.com release dated October 8, 2008. Furthermore, we are obligated by formal alliances like NATO and other treaties to come to the military defense of 50 countries if they are attacked.

24:08We should not forget that Osama bin Laden said he would bankrupt America. He never said he would conquer it. But the military industrial complex is almost in total control of the country and the primary beneficiaries of the central bank and lack of payment in gold. Here's what Ron Paul states in Pillars of Prosperity. Those who are receiving, on the receiving end of government contracts, especially military industrial contracts, during wartime receive undeserved benefits. The debasing amount of metallic currency was a practice of kings for centuries until, and in various times, paper has been tried as a substitute for gold and silver, but eventually it always fails. We're now on a course where the American dollar is being inflated by excessive printing to to cover our deficits in war's imperial policy and to bail out banks and other businesses recently.

25:01At some point, I think the people in the world will stop accepting our money in payment for oil and other goods, and the American dollar will cease, I believe, to be the reserve currency of the world, a position that's held since the Bretton Woods agreement in 1944. I believe it's a matter of a short time before China will begin to drop our dollars. In a recent Bloomberg report, the former advisor to the Chinese Central Bank, Mr. Yu Yongding, recommended a rapid agreement between Japan and China to avoid panicky rush to sell their combined U.S. dollars because it could lead to a global financial collapse. We may be getting there. Japan is the biggest owner of U.S. Treasury bills in the amount of $593 billion. China is second with $519 billion.

25:46Asian countries together hold half of the $2.67 trillion U.S. Treasury bills. What appears to be happening is China and Japan are dribbling their dollars out slowly to avoid a stampeding run on the bank. Finally, I believe that part of the problem we now see with the Bush administration having with oil producing countries like Iraq, Iran and Venezuela because of those countries threat to stop selling their oil for dollars. A pragmatic reason for them to do this is the declining value of the dollar. If we are to be successful in returning America to its true course stated by our founders of peace and prosperity, we must work to abolish the central bank or the Federal Reserve system and restore sound money, meaning paper dollars fully convertible into gold and silver.