But this conspiracy is far worse than cloaked figures in dark rooms because this is a conspiracy of economics. But what is exciting is that some of the fundamental tectonic plates of economics have begun shifting and what has appeared to the perceptive is actionable, peaceful and extermely effective strategies to harness the ecnomics in favor of the average person’s freedom.

MONEY, ILLUSIONS AND CURRENCY

Currency is usually the most widely used medium of exchange in economic transactions. Currency can be composed of either money, money substitutes or illusions. The only significant element for money is that it must be a tangible asset and throughout history there has been a wide range of substances that functioned as money ranging from seashells to salt and giant stones to the King and Queen of commodities; gold or silver.

Money substitutes are merely certificates for money and a common form were silver or gold certificates that operated as currency in various countries and formed the foundation for terms like Dollar, Franc, Mark, Pound, etc. that have since been redefined as they have become illusions.

Illusions are figments of people’s imagination that, as long as they are accepted, maintain some amount of purchasing power. Illusions are usually represented as ephemeral entries in databases or can take corporeal form as little colored coupons like the Federal Reserve Note Dollar, Euro, Yen, etc. Illusions have no intrinsic value and can become worthless. Their only value is in the mass delusion of people’s imagination that they represent real value.

The main cause of the 2008 financial crisis was the loss of faith in debt denominated in illusions. The real and inevitable financial and economic crisis, which will make 2008 look like a calm Sunday picnic, will be the evaporation of trust in the prima donna fiat legal tender currency illusion and world reserve currency the Federal Reserve Note Dollar, through hyperinflation.

LEGAL TENDER

Fiat currency is a medium of exchange used in commerce that has no intrinsic value but does receive legal privileges. Legal tender laws are used to force one of the exchange partners to accept a payment for debt in a form that is against their will. The market interference acts like a price control and supports the market value for the legal tender.

This is how an intrinsically worthless illusion that is the figment of someone’s imagination gains economic value. Because more people are willing to own these illusions this results in an inflation of the legally privileged currency because it can be produced and held in larger amounts than would otherwise be possible without the price control.

This type of price control has many deleterious effects such as (1) a higher purchasing power for the legally assisted currency, (2) a decline in purchasing power and price of competing currencies because of the lack of demand for cash balances even if they enjoy legal tender status such as the $50 1 ounce American gold eagle, (3) exacerbations of the business cycle due to inaccurate interest rate signals and (4) costly logistical efforts to reduce currency risk by exchanging one medium of exchange for a more reliable substitute.

With these nefarious economic effects it begs the questions: Why are legal-tender laws so frequently undertaken throughout history by monetary organizations? Only two rational answers are possible: (1) ignorant political leadership or (2) brazen villainy.

Many apologists for The State support the first defense. But since political leaders are often surrounded by court economists and enjoy the services of knowledgeable counselors it only makes sense that they are engaged in brazen villainy with the intent to reap personal profits, export the undervalued currency and reduce the real economic effect of contracted debts, a subtle form of sovereign default.

Legal tender laws allow illusions to function as currency which should be valued like the common stock of the governments. The main source of revenue for governments is confiscation through inflation which is a form of taxation without representation. Legal tender laws eliminate all technical obstacles to an infinite debasement of coins or currency. The governments throughout the world are engaged in quantitative easing and are acting like penny-stocks with no sustainable or rational business model so the only way to ensure the next paycheck is through massive dilution.

FRACTIONAL RESERVE BANKING

Fractional reserve banking is the practice of accepting demand deposits, deposits that can be demanded at anytime by the depositor, while at the same time lending a fraction of those deposits where the loan repayment cannot be demanded at anytime. Usually depositors become general unsecured creditors of the bank.

The result is a mismatch of time horizon between the bank’s assets and liabilities which renders the bank de facto insolvent. Because the bank has deliberately and with specific intent engaged in conduct knowing that it cannot meet its outstanding liabilities therefore it has committed fraud by engaging in the practice of a fractional reserve banking conspiracy.

The reserve ratio is the ratio between demands held by the bank divided by total demand deposits. For example, if deposits are $100 and loans are $85 and there is $15 at the bank then the reserve ratio would be 15%. For a bank to not be engaged in fraud it would have a 100% reserve ratio.

This practice of having a reserve ratio less than one also has an inflationary effect because there usually more total demand deposits and loans than underlying currency. In as much as the debt functions as currency, like Auction Rate Securities, Commercial Paper or Money Market Funds, this has an effect of increasing the currency supply. In aggregate, the liquidity pyramid is increased.

THE FIAT LEGAL TENDER CURRENCY FRACTIONAL RESERVE BANKING CONSPIRACY

One likes to think that one man equals one vote. But if that is the case then why do banks receives trillions of dollars in bailouts while millions of people get evicted from their homes on the basis of fraudulent mortgage documents used in sham forclosure proceedings?

Well, as Eric Schmidt, CEO of Google remarked, “Laws are written by the lobbyists.” The lobbyist industry has grown because as a whole it generates a positive return on investment.

Frank Fetter in the 1904 version of The Principles of Economics made two great insights: (1) “The market is a democracy where every penny gives a right to vote.” (page 395) and (2) “So each is measuring the services of all others, and all are valuing each. It is the democracy of valuation.” (410).

When viewing access to lobbyists and political influence through the lens of economics it becomes apparent that the effect of fractional reserve banking conspiracy and legal tender laws has is to create votes out of nothing which dilutes existing voting power.

Thus fraudulent actors engaged in a fractional reserve banking conspiracy are able to use ill acquired gains from criminal activity of the fractional reserve banking conspiracy to fund lobbying efforts that ex post facto legalize their immoral behavior. This vote inflation through merger of bank and state apportions to bankers many more votes than they would otherwise have in a free society or a society where one man equaled one vote.

But this insight is not new as both Nicholas Oresme, a 14th century French bishop and Thomas Jefferson warned about this vile activity. Nicholas Oresme wrote in chapter 17 page 28 (page 105 of the PDF) of A Treatise On The Orgin, Nature, Law and Alteration of Money,

The usurer has lent his money to one who takes it of his own free will, and can then enjoy the use of it and relieve his own necessity with it, and what he repays in excess of the principal is determined by free contract between the parties. But a prince, by unnecessary change in the coinage, plainly takes the money of his subjects against their will, because he forbids the older money to pass current, though it is better, and anyone would prefer it to the bad; and then unnecessarily and without any possible advantage to his subjects, he will give them back worse money …. In so farthen as he receives more money than he gives, against and beyond the natural use of money, such gain is equivalent to usury; but is worse than usury because it is less voluntary and more against the will of his subjects, incapable of profiting them, and utterly unnecessary. And since the usurer’s interest is not so excessive, or so generally injurious to the many, as this impost, levied tyrannically and fraudulently, against the interest and against the will of the whole community, I doubt whether it should not rather be termed robbery with violence or fraudulent extortion.

As I quote in chapter three of The Great Credit Contraction Thomas Jefferson wrote:

The [Bank of the United States] is one of the most deadly hostility existing against the principles and form of our Constitution. The nation is, at this time, so strong & united in its sentiments that it cannot be shaken at this moment. But suppose a series of untoward events should occur sufficient to bring into doubt the competency of a republican government to meet a crisis of great danger, or to unhinge the confidence of the people in the public functionaries; an institution like this, penetrating by its branches every part of the Union, acting by command and in phalanx may, in a critical moment, upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any other authority than that of the nation or its regular functionaries.

Because of the unfair, immoral and dangerous consequences vote inflation poses to a free society or system of government the Founding Fathers enacted into law restrictions on legal tender such as Article 1 Section 10 of the United States Constitution that reads ‘No State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts’.

In addition they enacted extremely draconian penalties for engaging in activities like treason or quantitative easing which is the debasement of the currency. For example, Section 19 of the 1792 Coinage Act reads:

SEC. 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death.

Under Section 3 of the United States Constitution it should be noted that “The Congress shall have power to declare the Punishment of Treason, but no Attainder of Treason shall work Corruption of Blood, or Forfeiture except during the Life of the Person attainted.” This means that should a person be convicted of treason and executed then Congress may confiscate the property of traitors but that property must be inheritable at the death of the person convicted.

Therefore, the Founding Fathers used gold and silver not as mere commodities but as essential checks and balances in the political machinery. Additionally, they felt so strongly that tampering with these essential checks and balances posed such a threat to the peace and safety of society and government that they prescribed capital punishment as a strong deterrent to engage in these morally hazardous activities. Thus we see that if bankers were receiving the death penalty instead of bailouts then there would be a quick economic recovery and increased standard of living because moral hazard would be greatly reduced and malinvestments quickly liquidated.

INDUSTRIAL AGE VERSUS INFORMATION AGE ECONOMICS OF VIOLENCE

During the Industrial Age the return on investment from engaging in violence was extremely high. For example, a factory, mine, railroad or skyscraper required tremendous amounts of capital for their construction and the barrier to exit was extremely high. This allowed governments or labor to organize and extort the holders of capital through strikes, collective bargaining agreements and other coercisive tactics.

Additionally, the barrier to exit geographically was likewise extremely high. How easy is it to move a mine, factory or skyscraper? This allowed governments or labor, which derive jurisdiction based on geography, to extort holders of capital through regulations, taxes and other legal tender laws. After all, politics is force and force is violence.

But in the Information Age the return on investment from engaging in violence is falling tremendously and in most cases going negative. While some economists would attribute the decline in violent crime to the legalization of abortion, implying that low-income crime destined babies are the majority being aborted, instead I would attribute it to the fact that engaging in violent crime profitably is getting increasingly difficult.

One reason is the cost of protection in the Information Age is so much lower. For example, if someone were to rob you how much valuable stuff will they get and what is the probability that they will be caught? Even nefarious criminals, whether strutting around in costumes or not, perform mental calculations of value to determine whether their behavior will be profitable. One example for why robberies have declined is like that so much less cash is carried while credit or debit cards can be quickly canceled leading to lower expected returns from the behavior.

Another example that illustrates the extreme disparities between protection costs and violence returns is a pure Information Age technology: encryption. TrueCrypt is free and it takes about 10 or 20 seconds to mount and close a volume which then protects your information against snoops, identity thieves or other nefarious individuals. TrueCrypt and Dropbox make a particularly potent duo. What are the costs to access the information against the will of the encryptor?

Sure, even strong encryption like 256-bit AES or Swordfish which meets Department of Defense standards and is used by TrueCrypt can be broken but it requires thousands of dollars worth of resources and lots of time. This creates an expontially expensive curve for the extortionar in terms of both time and money as you can create 100 encrypted volumes for free in less than 10 minutes for every volume that contains actionable useful information and then if someone were to try and access that information without your consent it would cost hundreds of thousands of dollars. Thus, the cost benefit analysis begins to weigh heavily in favor of the individual using encryption. And the more people who use encryption to protect their information against criminals the more likely it is that criminals will look for easier targets.

One result of the high return on investment from violence in the Industrial Age was the greater use of violence. The transition from the Agricutural Age to the Industrial Age, which took about 500 years, led to the rise of tremendously large nation-states that exercised tremendous amounts of violence because it was profitable and the elites needed their capital assets protected.

An unfortunate side-effect of these economics was that during the 20th century the leading non-natural cause of death was governments; Mao, Polpot, Stalin, Lenin, Hitler, Hiroshima, Nagasaki, Vietnam and etc. What do you expect when violence is so profitable?

But there is a new order of the ages that is rising like the sun and requiring the vampire squids that rely on violence to retreat into the increasingly scarce shadows. And unlike the 500 year transition into the Industrial Age we are already 15 years into a 40-50 year transition into the Information Age because of the rapid relentless advance of technology.

HOW TO HARNESS THE INFORMATION AGE ECONOMICS TO DEFEAT THE CONSPIRACY

I have found that the number one comment I receive from people who unsubscribe from my email list is ‘No time’. This is probably because they have designed their lifestyle in such a way that it is far too complicated. They probably have too many committments, too many distractions and too much stuff. As Tyler Durden said in Fight Club, “The things you own end up owning you.”

First, simplifying your life is an excellent example of how to starve the vampire squid while increasing your quality of life. The social change of the 1960′s was not caused by the marches or the police dogs, the fire hoses or the riots. The social change of the 1960′s was caused by one thing: boycotts.

Every aspect of our lives have been pervaded by corporations and government. Instead of fresh, simple, wholesome and local food we eat processed, unnatural and packaged or fried food at chain restaurants. Starbucks coffee, Apple computers, Microsoft or Adobe programs, Nike shoes, Gap clothes, etc. paid with Visa or Mastercard with debt denominated in illusions. When not drooling in front of the TV being programmed by lies our time is spent at the mall, or talking on the iPhone or Crackberry while consuming news from CNN or The New York Times being connected by AT&T or Verizon.

Consider that a corporation wants to maximize shareholder value with profits and to do so it will often cut corners, endangering our health and the environment. BP, Bhopal, Valdez, Iraq, etc. It will deceive us to spend our money on its products. It will treat its employees horribly to cut costs and increase production. It will happily make us fat then employ lobbyists to pass laws forcing us to buy their healthcare all the while knowing that by selling fried food devoid of nutrition is good for profits and increased rates of heart disease, diabetes and cancer just mean higher revenues from the sickness industry.

The madness can be stopped. The corporation and government are a hungry beast that we keep feeding. The solution: walk away and let it die from hunger.

There are many advantages to voluntary austerity. By stripping out the unnecessary you are able to make more room for what gives you joy. You will have more freedom, time, room for important things, less worry, more pleasure, develop provident living principles, frugality and most important become healthier. Want to start chopping off the vampire hydra’s heads and simultaneously cauterizing the neck so it cannot grow back? Instead of buying stuff then simply buy gold, silver or platinum with any disposable income.

Second, work towards increasing your location independence. Governments derive their jurisdiction based on geography. Why do you think as the Information Age has risen that banks and their subsidiaries, governments, have attempted to make geography more important through KYC (Know Your Client) and AML (Anti-Money Laundering) regulations and laws? The PATRIOT ACT, over a third of which is devoted to financial institutions, could better be called the Cash-Flow Control Act which is primarily aimed at keeping capital in the Federal Reserve Note Dollar illusion.

But the Information Age makes geography far less important than before. To achieve location independence you simply arrange your affairs so that your geography is irrelevant to your ability to enjoy life and conduct business. In desperation as governments become increasingly desperate for revenue they will continue raising income and sales taxes, registration requirements and fees, etc.

So it will become increasingly important to consider the last of four criteria in Meredith Whitney’s 600 page report about municipal versus state debt. As Bloomberg reported, “Whitney’s report rates the states on four criteria: the economy, fiscal health, housing and the flexibility to raise taxes.” For those serious about increasing their ‘tax flexibility’ which results in decreasing the ability to have their taxes raised then I highly recommend getting our new report State Income Tax Optimization because you can keep a lot more of your money through proper planning and be better prepared for the future.

Third, begin to use alternative and substitute currencies. Legal tender laws are undergirded by the ability to require someone to use a medium of exchange against their will. GATA has done tremendous work in exposing the central bank gold price suppression scheme, besides the de facto manipulation that results from legal tender laws, which is resulting in the recent CFTC denouncement of the silver price manipulation. There are approximately 100-140 ounces of paper gold or silver for every one physical ounce.

So if you begin acquiring physical bullion you can exercise principles of reverse leverage with the potential for huge profits. If your bullion is unencumbered then you can remain solvent longer than the market can remain irrational.

As you develop a location independent lifestyle you will need the ability to transmit value around the world. So begin using a substitute currency in the ordinary daily transactions that you can. I find GoldMoney a perfect solution to (1) acquire gold, silver and platinum that is held in (2) 100% reserves and (3) can be used in ordinary daily transactions like more expensive alternatives such as Paypal or wire transfers to buy assets, pay contractors, receive payment for services or goods, etc. Even billionaires like Eric Sprott, who was recently interviewed by Eric King, endorse this practice.

I don’t know the exact number but I would bet my number is way beyond 50% in precious metals and I sleep very well at night. I would not be sleeping that well if I were owning government bonds or a mortgage on a building somewhere. It is the one asset that no-one has a claim on so I heartily endorse everyone moving all of their currencies [into gold and silver]. … There are lots of ways to do it to. I think of GoldMoney and I happen to have a small interest GoldMoney that James Turk runs. And I have some of my money there and that is perfect. I get to put my money in the bank and it is gold at the same time. How cool is that?

Fourth, as the economics of violence have changed and because those economics undergird the largest and most powerful institutions the Information Age inspired massive sea-change for society, business and government in favor of peaceful and cooperative behavior will continue to intensify.

Like a hapless idiot that falls into the piranha infested Amazon river or like an iron beam submerged in nitric acid; the current Establishment is being corroded on all sides all at once by this ginormous change in the economics of violence. As a result The Great Credit Contraction has started and cannot be stopped which has resulted and will continue to result in both real and fictitious capital burrowing down the liquidity pyramid searching for safety and liquidity.

The choice you have is to go with the new mega-trend or try or resist it. The economics of the age were not kind to carriage makers, telegraph operators or blacksmiths. Change is not mandatory; you can go extinct. This change in economics coupled with the Internet makes other epics of human history and advances in technology look miniscule.

You can continue getting milked or turned into hamburger by corporations and governments or you can take matters into your own hands and implement simplicity in your life, increase your location independence and use alternative currencies in order to starve the beast to death.

That is where things are going anyway so why give them any extra fruits from your labor? Remember the golden rule: He who has the gold makes the rules. Will you be among those who make the rules in the Information Age?

CONCLUSION

For hundreds of years the fiat legal tender currency and fractional reserve banking conspiracy has been tyrannically oppressing mankind. In the Information Age the economics of violence are radically different so as the world transitions into a new order of the ages there will be significant turmoil and likely greater degrees of violence from desperation. But when the dust settles there will be a much more free, prosperous and peaceful world. The trick will be to avoid becoming collateral damage.

Now we can see the mutually exclusive conclusion Dr. Edwin Vieira asserts: “Thus, the fight over gold and silver as media of exchange is about more than mere money, let alone making money. For it is a fight with only two possible outcomes: either control of their own lives by the people themselves, or control of the people and their lives by political and economic elitists.”

Please tell us what you think!

DISCLOSURES: Long physical gold, silver and platinum and short governments.

During the first part of his discussion, he spoke to his encounters with a variety of notable economists including Milton Friedman, Murray Rothbard, Ludwig von Mises and Gary Becker amongst others.  With his characteristic Brooklyn sense of humor, Block had the audience laughing as he recounted stories like that of his defense of his dissertation on rent control against one of his judges, a rent control commissioner, and his meeting with Nathaniel Branden and Ayn Rand back when he was a rabid young socialist and subsequent conversion to libertarianism.

He then dealt with more substantive issues across the spectrum of political economy with aplomb.  Block tackled the mainstream economists’ failures in their dealing with welfare economics, in which as Block argues there is a lack of recognition of each individual’s unique subjective utility with regard to various products proving amongst other reasons why marginal utility as justification for wealth redistribution fails, and in dealing with the absurdity of antitrust laws that are either used to prosecute companies for evil price gouging, ruthless undercutting or dastardly collusion.

Block also tackled fractional-reserve banking.  Now we can all agree that fractional-reserve banking is an evil and fraudulent system that is the principle mechanism for inflating the money supply.  However, my view had been that if two parties agreed to a contract that allowed demand deposits to be lent out, this was fine as both parties did so at their own risk.  Block argues that two parties agreeing to a contract based upon fractional reserve proves illegitimate because a contract has to be consonant with property rights.  In Block’s view, fractional reserve creates a system where multiple titles are given to a single piece of property (money); the obligations to the parties are greater than the assets involved, so the system is thus not Kosher.

Block also tackled social issues such as immigration, where he made a couple of interesting arguments.  First, he rightly pointed out that those who wish to restrict immigration because of the belief that immigrants would take advantage of the welfare state were dealing with the symptoms rather than the root cause of the problem which is the welfare state.  Second, he argued that being against immigration meant being against babies, since they both represent new additions to the population.  I would differ with Block in that I don’t believe babies born into a certain society are equivalent in their socialization to those coming from societies with differing values.  This is not to say I am against legal immigration, but that I do not believe newborns and immigrants are necessarily equivalent in terms of their effect on society.  I also have not sufficiently examined my immigration views with respect to defense.  If a certain group clearly poses an existential threat to your society, then should you invite them over the border and deal with them only when mass murder has been committed?  This may be dealing with a symptom of immigration rather than a root cause of the militancy of a foreigner or group of foreigners, but nevertheless these issues amongst many others must be reconciled.

He also argued against intellectual property, as in Block’s eyes ideas are not scarce and can’t be owned.  The argument goes that if ideas were property, then one would not be able to speak because someone else would have laid claim to each word.  Again, IP is an issue which I have yet to study enough to firmly pick a side on, but at face value to me the issue seems to deal on the one hand with incentivizing people to produce things (by granting them a monopoly right to that product for a limited time), and on the other trying to ensure a free market in which competition amongst producers is robust, driving down costs while increasing quality for the consumer.  I know the Boldrin book addresses a variety of discoveries that occurred without the incentive of a patent or copyright, but again I have not settled on this issue.

Block also put forth the view that man is not naturally predisposed towards liberty because while he initially developed explicit cooperation in helping out his fellow hunter-gatherers, he was never hardwired for implicit cooperation through the price system of the market.  The argument goes that this spontaneous system coordinating the wants of individuals is foreign to us inherently because back in the days of hunting and gathering, we were not dealing with voluntary transactions with people from all over the world.  We simply worked together in small traveling groups.  To this argument, he also added that the ruling class has brainwashed the people and quashed perceived “radical” voices like that of Ron Paul.  I don’t believe these reasons are sufficient to explain why collective tyranny continues to trump individual liberty, especially when many people support legalized plunder because they benefit from it, and because there are certain Judeo-Christian values some construe as supporting socialism, amongst many other reasons.

Finally, Block addressed one of my questions on the private provision of defense.  Since I find the defense as private insurance companies argument interesting, I asked Block what happens if one’s enemies buy out their defense company.  Block admitted there would be a problem here, but made the case that a government military could be bought out by enemies as well.  This was a fair though in my view somewhat tenuous response, and there are numerous other arguments as a practical matter that can be made against private defense.  Briefly, in my view, defense is not about economic efficiency, but defending a group of people with common values.  And too, in our society we have allowed for the proliferation of private defense forces to assist our public defense — in other words we allow our military to yield the benefits of free market institutions.  I believe that defense and the courts are the proper realms of government, problem-riddled as they may be.  I believe in our Constitution when read in its plain language.  To expound upon this debate will be left for another occasion.

Overall, Block’s arguments were welcome banter for this writer so infrequently exposed to anarcho-capitalist ideas promulgated by a real person in the flesh.  The evening made for great entertainment and deep reflection on a plethora of issues.  It was a pleasure to hear Professor Block’s unique perspective on the world.  To be exposed to radical arguments on either side of the issues certainly helps one to check one’s principles and grow intellectually.  Without challenges to our beliefs and constant intellectual criticism, we become complacent.  Luckily, as I have found on my intellectual journey of the past few years, the libertarian community keeps its members constantly on their toes.

2. The Federal Reserve has the monopoly power to print or inflate the money supply, thus artificially lowering the cost of money (the aforementioned interest rate).  This means that they can (and always do) devalue the money in your pocket as every dollar printed decreases the value of all dollars to come before them.  Inflating the money supply may not lead to an increase in prices if an equal or greater amount of goods is produced, but the purchasing power of the dollar will still be reduced because without printing money, your dollars would have been able to buy more goods.  Alternatively, if more dollars are printed than goods are produced, prices will increase though not necessarily uniformly across all goods.  Inflation may not manifest itself in explicitly higher prices but merely impede prices from falling for certain goods as they would were the money supply to remain constant.

3. When you deposit money in a regular checking account, the bank doesn’t hold onto this money.  Banks only keep a small percentage of the money you deposit on hand in their reserves, lending the majority of the money you (or the Fed for that matter) deposit to others who lend it to still others and so on, in the process substantially increasing the money supply.  This is known as fractional reserve banking.  If everyone in America or even a decent percentage of Americans tried to take their money out of the bank on a given day, millions would be unable to access their cash.  Effectively, even with FDIC Insurance, all of the banks are insolvent as they do not hold anywhere near 100% of the money you deposit in their vaults.  The hypothetical that the Fed could potentially print up money for the FDIC to distribute is beyond the scope of this post.

4. The government’s debt is merely an insidious tax like inflation.  Government debt can only be paid down by taxing the people.  This tax can occur through direct confiscation by government, or indirectly when holders of our government’s debt demand a higher rate of interest, which in turn signals to markets that our economy is not generating sufficient revenues to pay down the debt, which leads to a perception of economic weakness and thus an increased cost of borrowing for everyone in the economy.  If the government prints money to pay down debt (which in and of itself should cause our creditors to flood the markets with our debt and thus raise interest rates on everyone), this will represent a tax on the people as well.

5. Deflation, or a decrease in the money supply is the only antidote to inflation.  If the money supply is decreased, each dollar in your pocket becomes worth more.  The concomitant fall in prices will correct the artificial initial rise in prices from government printing of money.  In the process, since decreasing the money supply increases the cost of money, unsustainable enterprises with heavy debt loads will be put out of business, cleansing the economy by freeing up unproductive resources.  Where debtors benefit from an increase in the money supply because they can pay down their borrowings with cheaper dollars, creditors will benefit from a decrease in the money supply because they are paid back with more valuable dollars, which is one of the reasons why government prefers to inflate as it can lessen its own debt load and that of its constituents.  Deflation in prices while a symptom of deflation of the money supply is also the natural result of increases in productivity, as goods produced more cheaply in greater quantities (in the absence of money printing) will lead to falling prices which benefits consumers.  The so-called “paradox of thrift” that the MSM uses to vilify deflation in prices is wrongheaded, as people will spend on all sorts of products knowing that over time they will fall in price, as we have witnessed with numerous electronics over the years.  Even during a depression, when asset prices fall to certain levels there will necessarily be buyers, presumably those who saved prior to the downturn.  And if people are paying off their debt and/or saving in a time of falling prices in lieu of spending, this will be good for the economy because deleveraging corrects the excesses of the boom and increasing the pool of real savings lowers the interest rate and allows businesses and individuals to borrow funds for investment at a lower cost, legitimately stimulating the economy.

6. The last point mentioned above is imperative.  Growth in an economy occurs when real savings increase.  This is true whether in a booming market or a depression.  In fact, saving is the only way out of a depression.  Saving creates a pool of funds for banks to lend to businesses so they can expand their capital, increase expenditures on R&amp and generally take the entrepreneurial risks necessary for innovation and growth.  Americans have long consumed far more than we have produced, leaving us as massive net debtors to the rest of the world.  The only way to get out of debt and expand our economy is to save.  One cannot solve a problem of too much money and credit with more money and credit.  This however is what our government is trying to do by continuing to run the printing presses, trying to inflate our way out of debt.

7. Government cannot create wealth.  All it can do is take money from some people and redistribute it to others.  Every dollar the government uses must be taken from the private economy. Printing money to pay for things as we noted merely devalues your dollars, effectively taxing you.  Government financing through debt represents a claim on your wealth, a tax which as noted may be paid directly or indirectly.  Thus, while federal, state and local taxes may appear on a historical basis relatively low, the tax rate is deceptively masked by excluding government bilking through inflation and debt.  In addition, all government enterprises ultimately fail because government is not subject to the profit and loss mechanism of the market and thus does not respond to the demands of consumers, amongst other reasons.  In the process of failing, government wastes resources that could be better put to use by private individuals.  Government is a wealth killer, not a wealth creator.

8. The purchasing of all sorts of less than creditworthy assets from the big banks by the Federal Reserve allows the government to pump money into the financial system, and allows the banks to foist assets it doesn’t want onto the back of the taxpayer.  When we combine these asset purchases with the rest of the wasteful deficit spending on government jobs and reckless bailouts of the financial institutions and auto companies, our appraisal of the situation is as follows: while the little guy delevers, the government counteracts this necessary private balance sheet cleansing by levering up its own balance sheet at the expense of the taxpayer,  for the benefit of the financiers and the unions.

9. The real estate problem in our economy centers on the fact that people owe more money on their mortgages than they are able to pay down.  The only fix to this problem is for people to either generate more income to service their mortgages, or default.  Any intervention to keep people in homes they can’t afford will merely perpetuate market imbalances, propping up the value of real estate and preventing qualified buyers from purchasing homes at fair prices.  There will be no true recovery in the mortgage-backed securities  market until the forces of supply and demand sort out this mess (a mess which will be made worse as there are continued resets in mortgage rates over the coming years).  The same goes for any of the other assets whose values were bid up to unjustified levels because of easy money and credit.

10. Our economic crisis at the most basic level occurred because too much money and credit were pumped into the economy, given that again the interest rate was set artificially low not by supply and demand in the market but by government fiat.  The recession signals that we must fix the distortions and malinvestments resulting from the centrally planned interest rate. The healthy path to recovery is to allow prices to fall (aided by debt repayment), liquidate failed enterprises (reallocating of land, labor and capital to more productive and profitable lines of business) and encourage saving to increase the pool of loanable funds for economic expansion. Any actions to the contrary (i.e. more or less all government policies being implemented or bandied about) will merely prolong the pain.

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What Has Government Done To Our Money is 119 pages while The Case For A 100% Gold Dollar is 61 pages.  It is printed on archival quality acid-free paper and has a sleek cover.  This book makes a great addition to any library.

WHAT HAS GOVERNMENT DONE TO OUR MONEY

This is a well done objective monetary history.  It discusses how money developed, the rise of fractional reserve banking and the constant meddling by government in money and currency.  A key reason governments meddle in the money and currency markets is because it is a source of funding.

The reader learns some some basics of history, government and economics such as the development of monetary names, benefits of money, a short discussion on legal tender application and an entire part on The Monetary Breakdown of the West.

THE CASE FOR A 100% GOLD DOLLAR

This is a persuasive essay on why a 100% gold Dollar should be adopted.  This essay originally appeared in the out of print and hard to find In Search Of A Monetary Constitution by Leland Yeager and published in 1962 by the Harvard University Press.  While the arguments Rothbard makes are sound; I do not really agree because of advances in information technology and monetary evolution over the past 47 years.

Four and a half decades ago there was no Fandango, online checkin for airplane flights, etc.  So likewise there have been advances made in monetary application and I am of the opinion that private digital commodity currencies, like GoldMoney, provide the most efficient solution to the monetary chaos the world has found itself in.

WHO THIS BOOK IS FOR

What Has Government Done To Our Money And The Case For A 100% Gold Dollar by Murray Rothbard is a quick and easy read divided into two main portions.  I think the objective presentation of monetary history is a good read for anybody.  The persuasive essay is a good read to for anyone who wants to stimulate their analytical capacities but keep in mind it is obsolete.  Therefore, I think everyone should get and read a copy of this book.

You can get a free digital copy from the Mises Institute or purchase a physical copy from Amazon.

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When my friend Jim asked my reaction to this quote, I said that I didn’t know that he knew Murray Rothbard. Jim replied: “I didn’t know that he knew me, but I think he is making a good point.”

I asked Jim whether he thought most people really believed that banks were like warehouses that kept the money deposited with them until people wanted to withdraw it. Jim said: “Most people know that banks lend the funds deposited with them to other people, but the point is that banks do promise to repay deposits on demand. They know that they can’t keep this promise if everyone wants their money back at the same time. Banks shouldn’t be allowed to make promises they can’t keep.”

I tried to argue that the financial system generally works well even though exceptional circumstances can arise where financial intermediaries make promises that they cannot keep. I suggested that it is very rare for situations to arise when a high proportion of borrowers do not meet their commitments and the value of the security held by banks falls below the value of loans outstanding.

Jim said: “Look, you can’t pretend that these situations where banks can’t keep their promises occur so infrequently that they should be ignored. Democratic governments don’t just look the other way when banks go bust. Do you think that the best solution for this problem is for governments to get involved by offering deposit insurance, guarantees that banks will not be allowed to fail and close supervision and regulation to ensure that such guarantee do not result in irresponsible behaviour? Don’t you see that this government intervention has arisen because banks are allowed to make promises that they can’t keep.”

I asked Jim whether he was suggesting that instead of promising to repay deposits on demand, banks should convert themselves into unit trusts. That would mean that the amount that investors could get back on demand would vary according to the market value of the financial institution’s loan portfolio.

Jim replied: “I don’t think many people would view that system as a good substitute for conventional bank deposits that are repayable on demand. What I have in mind is that a bank would specify in its agreement with depositors that in the event that it could not meet its promise to repay deposits in full within, say, a month of the request being made, then equity holdings in the bank would immediately be canceled and re-issued to depositors in proportion to the nominal value of their deposits. The former depositors could decide whether they wanted to liquidate these equity holdings immediately by selling them on the stock market, or to hold on in the hope that the bank’s financial situation would improve.”

I have been thinking about Jim’s proposal. I do not imagine that the conversion of deposits in a troubled bank into equity holdings would be as quick and simple as Jim envisages. Nevertheless his proposal seems to me to be preferable to the current shambles that has arisen as government regulators have sought to substitute their assurances for dodgy promises that financial institutions are not able to keep.