By Bron Suchecki, on April 6th, 2009
An extract from the book Money by Hartley Withers, 1935:
Since, then, it seems to be true that prices vary with fluctuations in the quantity of money, and since the quantity of gold, and consequently of gold-paper money, has certainly varied considerably in the past, and price have varied with them, the critics of the gold standard have logic on their side when they argue that stability in buying power has not been secured by it; that money is defective as a measure of value when the amount of commodities that it will command is subject to variation; and that it would be just as sensible to use, for measuring lengths of timber or pieces of land, a yard-stick made of an elastic material.
But having thus seen that there is much truth in the premises of the critics’ argument, is it necessary that we should follow them to their conclusion and abolish the gold standard? It is a long step from admitting that the gold standard has not been perfect to replacing it by one which, when tried, has shown the same imperfection in a highly exaggerated form. During and after the war we had no gold standard, but money that was paper, issued, at the will and pleasure of governments, by governments or by central banks acting at their bidding; and prices whirled up in a mad witches’ dance. It is true that the circumstances were enormously exceptional, but the experience has left, in the minds of most of us, a deep mistrust of any change that would leave our money in the hands of politicians who could multiply its amount whenever they preferred that mode of paying their way to taking money out of our pockets by taxation.
It is so easy and tempting, and politicians are so human. In fact, Mr. Stanley Baldwin, an austere but kindly judge, has stated publicly that there was no government on earth that he would trust to manage a currency, and the one outstanding advantage to his mind of a gold currency was that, so far as anything in the world could be, a gold currency was knave-proof. Moreover, recent exceptional experience has shown that the power of public authority to endow pieces of paper with buying power fails if it is worked too hard. A government can make certain money legal tender for the payment of debts, but it cannot compel shopkeepers to party with their goods in exchange for it if they do not want to, as was shown in Germany when the printing press was producing its most monstrous effects, and the trade and business of the country began to be done in dollars and other foreign currencies.
For the present the gold standard, in spite of the hard truths that are behind many of the criticisms with which it is bespattered, holds the field as a working scheme, under which, during the century before the war, immense and unprecedented progress was made in improving the material conditions of man’s existence. The circumstances which led to its collapse in 1931, chief among which were panic in America and political funk in Europe, seriously though unreasonably discredited it. But its loss showed how valuable was the work that it did, in steadying rates of exchange, and so promoting commercial and financial intercourse between the nations.
By Bron Suchecki, on March 24th, 2009
Nice reply to Michael Sesi’s Bloomberg piece “Gold Standard Fans Yearn for Great Depression” by Robert P. Murphy of the Mises Institute:
But that is clearly not what Sesit is arguing in his Bloomberg piece. No, he is arguing that the gold standard is a bad idea because it keeps the central bankers from using all the latest, cutting-edge macro models to fine-tune the economy.
Rather than his proposal, I would far prefer the classical gold standard. It’s true that the government can always renege on its pledge to maintain a fixed peg to gold, but at least everybody would know exactly when the government cheated. You would at least avoid absurdities such as the present crisis, in which people are actually praising the Fed for pumping in unprecedented amounts of new money in order to “help.”
And while we are on the topic of the Gold Standard, this is a handy link list The History of the Gold Standard: 25 Great Web Sites to Research Its Rise and Fall, although some of the links are pretty simplistic.
By J.D. Seagraves, on January 14th, 2009
To partisans of the Austrian theory of the business cycle, the cause of the current financial crisis is as plain as day — and that’s why we’ve been predicting it for years. You would think that the neo-Keynesians, monetarists, and Marxists who made fun of us Austrians in 2006 and 2007, and said we’d never have a housing meltdown and financial crisis exactly like the one we’re having now, would come over to our way of thinking — or at least acknowledge that we were right in this one case. But instead, they continue to make fun of us and deride the gold standard as “quackery.” Have they no shame?
Apparently not. And it shouldn’t be surprising. After all, followers of non-Austrian schools are practitioners of non-reality based economics. To them, economics is a religious faith. Since everything is make-believe, they can just pretend that the Austrian school didn’t predict this crisis years ago and that they weren’t poo-pooing those predictions. They can pretend that the Phillips Curve has validity and that stagflation is impossible. They can even delude themselves into thinking that Herbert Hoover was a laissez-faire “do-nothing” and FDR’s New Deal “got us out of the Depression” — or worse yet, that war is good for the economy!
Believing in any of these bogus ideas is akin to medieval doctors practicing the humoural theory of medicine. It was the official doctrine of the church, and therefore, it was accepted even when it was clearly false. Today, the state has replaced the church and Keynesianism is the official state religion.
Why don’t more economists recognize the reality staring them in the face? Well, for one, they’re educated in government-controlled schools. Only two universities in the entire United States do not accept federal money, and as central banking and fiat money are vital tools of Big Government, little else is going to be taught. What’s more, over 50 percent of professional economists in the United States work for the government, with 32 percent working directly for the feds. How can we expect economists to be objective on the question of central banking when their paychecks are monetized by the Federal Reserve? Heck, a huge share of the world’s economists are employed directly by central banks!
So it’s no surprise that “respected” economists — propagandists, really — are pro-Fed. Only one central-banking critic has ever won the Nobel prize: F.A. Hayek of the Austrian school. The greatest economists of the 20th century — Ludwig von Mises and Murray Rothbard — never got the recognition they deserved. But as the predictions they made continue to come true, one has to wonder how long the general public will maintain its faith in the high-priests of economic voodoo that dominate the economics profession.
By J.D. Seagraves, on January 8th, 2009
One good thing about the current economic crisis is that it has greatly increased people’s interest in Austrian economics in general, and in the gold standard in particular. There had already been several high-profile leaders in economics, finance, and business who had come out in favor of hard money and abolishing the Fed. Then on December 17, political shock jock Rush Limbaugh had the following to say about the gold standard:
“When you take the dollar off the gold standard, for example, there’s nothing backing up the dollar. When the dollar is worth, you know, whatever the inflated value of it is, when there’s nothing substantive behind it, when you have all these runaway trains here — and we’ve reached a point where it’s all coming due here at one time; and we’re going to make it even worse with this trillion-dollar stimulus package of Obama’s. The idea that we’ve gotta go in there and have all this new government spending because we’re going to emulate FDR? Well, the dirty little secret is that FDR prolonged the Great Depression with the exact thing Obama is going to do.”
Of course Limbaugh, a GOP hack, cannot comment on anything without getting a potshot in on Obama or some other leading Democrat, but if Limbaugh were to use his powers for good rather than evil, this would be a good thing, right?
Well, maybe. But if Limbaugh does come out for gold — and it’s not exactly clear he’s going all the way with the idea from the quote above — it could actually be a bad thing, in my opinion, since it would further perpetuate the misguided notion that laissez-faire libertarians are in league with “conservatives” like Rush Limbaugh, Sean Hannity, Ann Coulter, etc. We’re not.
Limbaugh and his ilk have no interest whatsoever in libertarian ideas when their political party rules the White House or Congress (or God forbid, both!). No, when conservatives are in power, they’re too busy expanding government for their own pet interests. But the truth of the matter is, we would be totally unable to fund the Right Wing progam under the gold standard.
War, in particular, is virtually impossible to fund under a hard-money regime, and that’s why the gold standard was suspended during the Civil War, World War I, World War II, and Vietnam. In fact, any anti-war liberal — the type of people that Limbaugh hates — should embrace the gold standard as the ultimate companion of international peace. How sweet it would be for the Left to return to its laissez-faire roots and shut up the fake capitalists like Rush Limbaugh once and for all. Almost as sweet as it would be if Cindy Sheehan and Dennis Kucinich renounced socialism in favor of laissez-faire.
By Cheryl Grey, on November 28th, 2008
There’s been a lot of chatter in the financial news this
past week concerning deflation, with one blogger for the Motley Fool [http://caps.fool.com/blogs/viewpost.aspx?bpid=111216&t=01001019292467236494]
even proclaiming, “Clearly deflation is here.” But is it?
Are we there yet?
Deflation is defined as falling prices over a lengthy and sustained
period of time, often combined with a decrease in the money supply. Therefore,
an unusual one-time tick lower of the monthly Consumer Price Index [http://www.bls.gov/news.release/cpi.nr0.htm]
does not qualify. Granted the core CPI measure also fell slightly, which is
even less common because it doesn’t register the volatile effects of energy and
food prices.
Instead, the October decrease in CPI is the unwinding of the
run-up in prices during the first half of the year, the one that culminated
with gasoline at $4.50 per gallon and crude oil at $147.27 per barrel. Keep in
mind that, although retail prices fell 1.0% in October, they nevertheless
remain 3.7% higher than they were in October 2007, almost double the Federal
Reserve’s unofficial “soft” inflationary target of ~2%.
Analysis of the cycle
The disastrous deflationary spiral known as the Great
Depression actually began in August 1929 when the U.S. slipped into recession,
arguably due to a poorly-timed tightening of interest rates by the Federal
Reserve. Not long after, an asset bubble burst (in this case, the overly
leveraged stock market), leading step by step to loss of wealth, defaults on
loans, undercapitalized banks, and bank failures. As banks deleveraged by
reducing the ratio of credit to deposits, they ceased writing loans, causing a
credit crunch which further damaged businesses and the underlying “real” economy.
At the same time, nervous depositors yanked their money from
banks and dumped it in the Mattress Savings and Loan, withdrawing it from
circulation and slowing the economic recovery further. Meanwhile, fiscal policies
enacted by the Hoover administration were ineffective (and sometimes
ill-judged) and the Federal Reserve’s monetary policy is generally considered
to have been nothing short of disastrous. To be fair, they were hampered by the
rigidity of the gold standard then in effect.
As economic historians (and just about everybody else) like
to point out, that same description holds true for the current U.S. situation.
However, there are a few important deviations. For example, investors are hoarding
money in Treasury securities rather than mattresses, and the Federal Reserve
has aggressively loosened monetary policy since the initiation of the crisis in
the summer of 2007.
One of the most important of these deviations is the abandonment
of the gold standard in 1971. A strict adherence to a gold standard is
inherently deflationary, as there’s only so much gold to spread around while
the population worldwide is increasing. As pointed out by Ben Bernanke, the
head of the Federal Reserve System and an expert on the economics of the Great
Depression, the strictness with which a nation stuck to the gold standard was
directly related to how deeply that nation was affected [http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm].
Real-world defense
In a speech delivered November 21, 2002 [http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm#fn17],
Bernanke stated that the first line of defense against deflation is to prevent
it by maintaining an interest rate above zero, which is why the Federal Reserve
does everything in its power to ensure you spend more for food and clothing
this year than you did last year.
Should the first line of defense fail for whatever reason,
the second is to inject sufficient liquidity (money) into the economy to shock
the system back to health. In his November 21 speech, Bernanke mentions the
famous solution offered by Milton Friedman (the father of monetarism) of
throwing money from helicopters, as good a liquidity injection as any other. The
comment earned Bernanke the nickname of “Helicopter Ben” among journalists for
some time.
As the Great Depression and other recessionary episodes
(such as the Lost Decade in Japan) have shown, slow or inappropriate monetary
policy can exacerbate a downturn into deflation or delay recovery significantly.
Seven decades of economic research and study are now being applied in a
real-world model by a student of the first round. We’ll find out if it works.
By J.D. Seagraves, on October 20th, 2008
On October 13, British Prime Minister Gordon Brown called for a new-world financial order. “We must create a new international financial architecture for the global age,” Brown said. “We must have a new Bretton Woods.”
Brown’s statement echoed the sentiments of French and EU president Nicolas Sarkozy, who on September 26 said, “We must rethink the financial system from scratch, as at Bretton Woods.”
So is a new “Bretton Woods” a good idea? Before we can answer that question, we need to take a look at the original Bretton Woods System, which was the world’s first fully negotiated international monetary order. What inspired global leaders to create it, and what ultimately led to its demise?
The Monetary Role of Gold
By 1900, most Western European nations had evolved from centrally planned monarchies to pseudo-capitalist republics. This resulted in the heyday of the International Gold Standard, in which market economies of the West engaged in relatively free trade, facilitated by the ultimate global currency of gold.
Gold, according to Austrian economist Carl Menger, emerged as money millennia ago. In fact, gold’s monetary nature predates the existence of the nation-state. It is “real money” in the sense that no one has to be forced to accept it: they do so willingly. And thus, gold presents a problem for nation-state governments—they can’t manipulate it as easily as paper money.
True, nation-states dating back to the Roman Empire and before have attempted to make money a state institution through the implementation of “monetary policy.” The chief tactics of these ancient states were coin clipping and debasement (mixing cheap alloys in with gold) and forcing people under “legal tender” laws to accept devalued coins at full face value. These monetary tricks ultimately led to the ruination of numerous empires throughout history, with the Romans being neither the first nor the last.
The End of the International Gold Standard
Fast-forwarding 150 decades or so, the nation-states of the early 20th century were in a similar bind: they couldn’t finance the wars they wanted to fight under the strictness of a gold standard. “War,” after all, as Randolph Bourne said, “is the health of the state,” as it lends itself to an intense concentration of government power. But early twentieth-century bureaucrats found it difficult or impossible to fund wars through taxation without inspiring domestic revolts. The other option—printing money—wasn’t feasible under a gold standard, since each paper note had to be backed by real gold. So what were war-makers to do?
What aggressive governments did do, time and time again, was temporarily suspend the convertibility of notes. Typically under a gold standard, individuals could trade in a fixed number of dollars (or pounds or francs, etc.) for an ounce of gold. To make war, governments would simply print up extra notes and all money unconvertible for the duration of the conflict—and then devalue their currencies after the war. European nations did this countless times, and the U.S. suspended convertibility during the Civil War, World War I and World War II. But then the Allied nations of that final conflict had a better idea: why not do away with the International Gold Standard once and for all and inflate without limit?
The Creature from Bretton Woods, NH
Unfortunately for them, nation-states had not yet developed the means of social control necessary to impose fiat currencies on the world. So instead, global leaders did the next best thing—they abandoned the too-restrictive International Gold Standard in favor of a new monetary order: the Bretton Woods System.
For three weeks in July of 1944, 730 delegates from all 44 World War II Allies met in Bretton Woods, New Hampshire, as part of the UN’s Monetary and Financial Conference. By the time they were done, they had created the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD). These entities—created by “democratic nations” with no democratic approval—would be the enforcers of the new world-financial order.
Ostensibly, the IMF and IBRD were supposed to facilitate “free trade.” In truth, just like modern “free trade” agreements, the IMF and IBRD inhibited and indeed prohibited truly free trade and, instead, created rules to promote government-managed and controlled trade.
Regardless, if we can believe the architects of the post-war order, Bretton Woods was intended to end the protectionist currency manipulation that occurred under the International Gold Standard. Under the gold standard, a country with a trade deficit could simply revalue its currency relative to gold, thereby encouraging exports and discouraging imports. But under Bretton Woods, all member nations had to “peg” their currencies to a weight of gold, plus or minus 1 percent.
The Death of Bretton Woods I
The U.S. dollar, however, had a different role under Bretton Woods: it would take the place of gold and serve as the world’s reserve currency. Only the U.S. dollar could be converted to gold (at $35 an ounce), and only foreign central banks could do the converting. Following Frank D. Roosevelt’s draconian Gold Confiscation Act of 1933, private ownership of gold was banned in the U.S. and remained illegal into the 1970s.
When Bretton Woods was set up, the U.S. held about 60% of world gold reserves. However, beginning with the New Deal, the ever-expanding federal government had quite an appetite and, like empires of old, preferred to fund its growth via monetary trickery instead of taxation. Thus, the government’s central bank—the always eager-to-inflate Federal Reserve—created far more dollars than there were ounces of gold backing them.
This led to an old-fashioned bank run. Foreign governments were smart enough to know there wasn’t enough gold to back all of the dollars in circulation, so they raced to redeem their dollars while they still could. By 1970, the U.S. held just 16% of world gold reserves.
Clearly, the system was unsustainable, so on August 15, 1971, President Nixon “closed the gold window” and reneged on America’s promise to redeem paper dollars in gold, severing the U.S. dollar’s 179-year tie to gold and converting the greenback into a full-fledged fiat currency.
The Birth of Bretton Woods II?
It’s said that the nations that came together for Bretton Woods I all shared a belief in “capitalism.” Austrian economists would scoff at this notion. One of the primary architects of the Bretton Woods System and the notorious IMF was John Maynard Keynes, a Fabian socialist and advocate for central planning in a “mixed economy.” Keynes attended Bretton Woods on behalf of the UK and argued for a world central bank issuing fiat notes known as “bancos.” The U.S., then a creditor nation, resisted. Now, of course, the United States—the world’s biggest and most broke debtor—would have no such leverage.
World leaders are meeting next month to talk about the possibility of setting up a new Bretton Woods System. If these leaders share a common belief, you can be sure it isn’t in capitalism, and you can bet all the fiat money in the world that gold will not play a role in Bretton Woods II. A much more likely scenario is that John Maynard Keynes will finally get his wish, 64 years later, and we’ll have a world central bank and the beginnings of true global government. Everything else Keynes advocated has failed so miraculously and led to so much misery, one can only imagine how bad life under the “banco” might be.
By J.D. Seagraves, on October 7th, 2008
Evelyn Black wrote a great blog on September 26 explaining the financial inter-connectedness of the U.S. and China. To sum it up, she says that the U.S. imports more from China than it exports to China. This difference, the trade deficit, is made up by the Chinese government’s investment in U.S. government debt. In other words, China trades the U.S. real goods in exchange for paper promises. Now, as the assets backing those paper promises (housing prices in the case of mortgage-backed securities, “full faith and credit” otherwise) are depreciating in value, China’s government is in a pickle. If it dumps its U.S. dollars and dollar-denominated debt instruments on the open market, the value of those assets will fall further and faster. But holding them as they depreciate isn’t an attractive option, either.
I’d like to expand on Evelyn’s article and answer these questions: Why the heck would China put itself in this predicament? Why trade real goods for paper promises? Why put so much faith in the value of the Federal Reserve Note (FRN) and in the ability of the United States’ central bank to maintain the value of dollar-denominated assets?
As a developing (nearly developed) country transitioning from socialist central planning to a market economy, China has relied on the U.S. dollar as a means of stabilizing its own domestic currency, the yuan. For a long time, the yuan was pegged directly to the dollar so that its value went up or down with the FRN. But the U.S. Congress viewed this as “currency manipulation” and threatened high tariffs against Chinese imports if the yuan weren’t revalued. In other words, Congress demanded that China make the U.S. dollar weaker vs. the yuan, which would diminish the trade deficit – at least on paper.
Ever since the end of World War II, when the international gold standard was abandoned, the U.S. dollar has served as the world’s reserve currency. It has been the most stable and widely accepted of the world’s fiat money. But years of monetary expansion have eroded the FRN’s value, and the policies of aggressive debasement of Alan Greenspan and Ben Bernanke have led us to the place we find ourselves today: with the dollar rapidly losing its status to the euro.
What prevents China from switching out of the dollar and into the euro? Again, it holds too many dollars and dollar-denominated assets to make the trade without severely throwing the relationship between the dollar and the euro out of whack. Many other governments are in a similar quandary. And the U.S.’s military dominance still holds sway, particularly over petroleum-exporting countries who are literally forbidden from accepting anything other than the U.S. dollar in exchange for barrels of oil. Just ask Saddam Hussein.
Evelyn said it best when she called the U.S. financial system “Orwellian, bizarre, and unbalanced.” Another word she could have used is “unsustainable.” How and when the system will come crashing down remains to be seen, but my bet is that it happens sooner than most of us are are expecting.
By Stephan Zimmermann, on September 30th, 2008
Based on a September 18 Times (UK) report regarding the meeting of Middle Eastern finance ministers, the question was asked about the veracity of a plan for a single currency for the Middle East based on oil.
The answer is both true and false and maybe.
Yes, the immediate goal of the meeting last week was to establish a single currency for the Mideast. In that sense, the new currency would be similar to the euro, where various countries have joined under a common umbrella.
No, there were no (public or published) talks of an oil-based currency, which would effectively replace the U.S. dollar as the principal currency of oil trade.
Maybe? The idea of replacing the US dollar with an oil-based currency is not new. The late Saddam Hussein, various Iranian leaders and others have often broached the idea.
As early as 1987, financier George Soros in his book The Alchemy of Finance outlined just such a plan.
A single, oil-based currency would require the agreement of the various Middle Eastern heads of state as well as further agreement by OPEC.
Recent U.S. financial disasters do not rule out such an eventuality. However, the cumbersome and institutional process required should not add fuel to existing speculation.
The single currency issue addressed (without the use of oil) is planned for slightly more than two years hence. However, instability in world financial markets may prompt more rapid agreement to reach the goal.
The Arab oil ministers meeting agreed in principle to establish a single currency. While there was no mention of oil or another commodity backing the potential currency, there is some speculation that the euro, rather than the U.S. dollar, could be designated for oil trades.
Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. If you would like Stephan to answer your economics-related questions, read his post “Got an Economics Question?” and submit your questions in the comments area there.
By J.D. Seagraves, on September 10th, 2008
Economically speaking, the Democratic and Republican conventions were exercises in massive self-delusion. Barack Obama and his party acolytes bragged about how they would spend money we don’t have (we’re $10 trillion in the hole, by the way), and McCain and the Republicans promised to balance the budget, strengthen the dollar, and close the $70 trillion Medicare/Social Security shortfall, all without a tax hike or fundamental changes to the monetary system.
Yeah, right.
Neither party talked about the Federal Reserve. The “debate,” if it can be called that, is between a top tax rate of 39.5% (Obama) or 35% (McCain). On economic matters, there is considerably more agreement between the two, supposedly competing American political parties than between factions within the Communist Party of China – and the ChiComms are considerably more economically literate, too.
But ten miles down the road from the Republican Party’s Orwellian big-government love fest, Ron Paul’s Rally for the Republic drew more than 10,000 economically educated patriots, who stood and cheered at the mention of the “Austrian theory of the business cycle,” and repeatedly broke out into impromptu chants of “End the Fed!” Imagine asking John McCain what he thought of the Austrian theory – “we might as well be speaking Chinese,” said author and historian Thomas Woods.
The speakers at Ron Paul’s Rally were a little more diverse than those at the GOP’s official convention, from which Paul – a Republican congressman – was banned. There were arch-conservatives such as Howard Phillips, the founder of Constitution Party, and John McManus, president of the John Birch Society; there were “paleolibertarians” such as Lew Rockwell and the aforementioned Thomas Woods, both of the Ludwig von Mises Institute; and there were fairly mainstream Republicans, such as former New Mexico Governor Gary Johnson and a pair of former Reagan aides, who have come to believe that their party has been hijacked by a dangerous cabal known as the neocons. Oh, and there was the unpigeonholeable Jesse “The Mind” Ventura, who railed against the two-party system for giving us our national debt and also floated some questions about 9/11.
Yes, it was a bit of a motley crew assembled in St. Paul, but that’s what’s great about America: it’s not the land of the lame and home of the homogeneous but the land and home of the free and brave. The conformist conventions of the duopoly, with all of their rules and restrictions, represent an America I don’t want to visit, let alone live in. But if you want diversity, look to the Ron Paul movement: there are pro-lifers and pro-choicers. There are Christian fundamentalists and gay-rights activists. There are border hawks and free-immigration libertarians.
What the heck could unite all these people?
The answer: a sound understanding of economic reality. The Paul crowd is not agitating for an income tax of 35% or even 25% but zero percent. Why? Because they know that the power to tax is the power to destroy. And they don’t pay lip service to “strengthening the dollar” without specific proposals; they know what must be done: the Fed must go the way of Enron, for it is just as corrupt and infinitely more destructive; and gold must be restored to its proper status as monetary base.
Sure, there are “mainstream” economists who would debate these radical proposals. But at the Democratic and Republican national conventions, there was no debate. Four and a half percentage points cannot possibly distinguish a “conservative” from a “liberal” if those terms are to have any meaning. And that the banking and currency system of the U.S. is above reproach – even in light of the recent bubbles, busts, and bailouts – is a black mark against American “democracy.”
A hundred years ago, the people of America were smart enough to debate economic issues. William Jennings Bryan built an entire presidential campaign on silver coinage. The Rally for the Republic showed the American people are still smart enough to consider issues of money and banking.
By J.D. Seagraves, on September 2nd, 2008
Last week, I discovered a new rap artist named Tahir Jahi had recorded and released a song called “Man Make Da Money” on his MySpace page. No, this isn’t another “bling-bling” materialistic tune – though those can be good, too – but a rap song critical of…the Federal Reserve?
You bet! Jahi heaps scorn upon the president under whom the Federal Reserve Act of 1913 was passed, Woodrow Wilson, and bemoans the transition from sound money to government fiat currency. Here are some lyrics of interest:
If you don’t know where this nation is headed
our nation is controlled by a system of credit
Woodrow Wilson is the one you can thank
birthed the Federal Reserve a privately owned bank
Each dollar bill includes interest from lender
got rid of gold, paper is legal tender
No Constution, will use our little clause
control the nation’s money who cares about its laws
Jahi is not the only rap artist to criticize America’s central bank, either. The much more well-known Prodigy, of the legendary hip-hop group Mobb Deep, also voiced his opposition to the Fed and support for Republican presidential candidate and anti-Fed crusader Ron Paul. Now Prodigy’s in jail on weapons charges.
But anti-Fed expression in media goes beyond the world of hip hop and of music in general. Last year’s Mad Money – the movie; not to be confused with the CNBC show hosted by mad inflationist Jim Cramer – was, in the opinion of radical free-market economist Doug French, an anti-Fed film. Here’s what he said in an article written for LewRockwell.com, the most widely read libertarian site on the Internet:
Heroically, Mad Money portrays the higher-ups at the KC Fed as pompous and clueless, while normal entrepreneur Junior (Mathew Greer), owner of Junior’s Blues BBQ joint where the three ladies meet to hatch their plans over Budweiser and peanuts, is the sharpest guy in the movie.
It’s about time us hard-money folks had an anti-Federal Reserve movie to enjoy. I’m with Lew, “May this be only the first of a string of anti-Fed movies.”
And finally, there is a new novel out: The Flight of the Barbarous Relic. I was sent a promotional copy of this book, and I haven’t been able to put it down. It tells the story of a free-market, gold-standard-loving economist who “sells out” and becomes Fed chairman, much like Alan Greenspan. The difference is, this fictional Fed head plots the destruction of the fiat-money based monetary system. The novel is a suspense thriller that deals with the government’s efforts to thwart a return to sound money and explains why a fiat-money system is good for only one class of people: those in power. I haven’t finished the book yet, but so far, I’ve found it enormously entertaining, and I highly recommend it.
Mainstream economists like to pretend that monetary theory is something only they care about. They’re deluding themselves, though. There is a growing awareness of the damage caused by the Federal Reserve System among the general public, and Ron Paul’s historic presidential campaign – largely fueled by anti-Fed, pro-free market rhetoric – showed this. Now, these pop-culture anti-Fed works are driving the point home. When will anti-Fed beliefs reach critical mass, and how will the government react when they do? The Flight of the Barbarous Relic offers some insights into this question.
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