Sennholz - Money and Freedom (1985)

MONEY
AND
FREEDOM
Hans F. Sennholz
Center for Futures Education, Inc.

Cedar Falls, Iowa
Copyright 1985 by Hans F. Sennholz, Grove City, Pennsylvania. Printed with permission
of Hans F. Sennholz and Libertarian Press, Inc., Spring Mills, Pennsylvania, by the
Center for Futures Education, Inc., Cedar Falls, Iowa. All rights reserved. No portion of
this book may be reproduced without written permission from Libertarian Press, Inc.,
except by a reviewer, who may quote brief passages in a review.
ISBN 0-915513-14-5
MANUFACTURED IN THE UNITED STATES OF AMERICA

CONTENTS
FOREWORD . . . . . . . vii
PREFACE. . . . xi
INTRODUCTION: LIVING ON BORROWED TIME. 1
A World Money Standard 3
Gold and the Growth of International Debt . . . . . .. 5
Building Socialism with American Money 6
The Balance-of-Trade Deficit 6
Competing Currencies 8
I. THE CAUSES OF ECONOMIC

DISINTEGRATION . 11
1. The Money Monopoly:
The Federal Reserve System . . . . . . . . . 12
Federal Reserve Independence 12
Instability and Unemployment 13
In the Service of Government Financing 16
The Central Bank of the World . . . . . . . . . . .. 18
A Vanguard of Socialism . . . . . . . . . . . . . . .. 20
2. Compulsory Money: Legal Tender Laws .. 22
Government Power over Money 23
Misleading Definitions . . . . . . . . . . . . . . . .. 24
No Inflation Without Legal Tender . . . . . . . . .. 26
Legal Tender in the United States 28
II. FALSE SOLUTIONS: MANAGED MONEY. 31

3. The Monetarists 33
False Solutions Build on Force . . . . . . . . .. 35
Futile Search for Absolute Stability 37
Fiat Expansion Causes Economic Instability .. 38
Making Matters Worse . . . . . . . . . . . . . .. 39
4. The Supply-Siders . . . . . . . . . . . .. 41
Price Rules for Gold . . . . . . . . . . . . . . .. 42
Robert Mundell 44
vi Conren~
Arthur Laffer 47
Jude Wanniski 49
Congressman Jack Kemp 51
5. Advocates of Social Credit . . . . . . .. 54
III. TERMINATING THE MONEY MONOPOLY. 61
6. The Gold Standard. . . . . . . . . . . .. 64
Mutilation and Destruction 64
Natural Qualities of Gold 66
An International Standard . . . . . . . . . . . .. 67
Creation of Freedom 68
7. Beyond the Gold Standard . . . . . . .. 71
Proposed Legislation . . . . . . . . . . . . . . .. 74
8. Free Money . . . . . . . . . . . . . . . .. 77
INDEX 85
FOREWORD
Despite the economic recovery in recent years, many Americans
remain pessimistic about the future, and with good reason. They
have been through the boom-and-bust cycle before, and their
attitude seems to be: if good times are here now, just wait awhile.
The economic history of the United States since 1913 has been
one of boom and bust, boom and bust. Many Americans think it
is unlikely that things have changed much now.
There is a more profound reason for pessimism than the per-
petual recurrence of the business cycle. Some Americans have
noticed that the cycles of boom and bust seem to be getting more
severe. What were regarded as busts just 15 years ago are now
regarded as booms, because the busts are now so much worse by
comparison. The Reagan administration takes the credit for reduc-
ing the rate of price inflation to 4 1/2 percent per year, from 11
percent in 1980 and 1981. But in 1971, an inflation rate of 4 1/2
percent per year prompted President Nixon to impose wage and
price controls to stop the intolerable inflation. What was con-
demned as intolerable in 1971-a 4 1/2 percent inflation rate-is
praised as a magnificent achievement in 1985. Why? Because the
intervening years saw price inflation at 11 percent per year, some-
thing never before seen in our history.
The same is true with regard to interest rates. It is now a
tremendous accomplishment to have the prime rate-the interest
rate at which the most credit-worthy borrowers can obtain funds-
at 9.5 percent, but ten years ago the prime rate was 5 percent,
and a 9.5 percent prime rate was regarded as the deathknell of
capitalism and free enterprise. Why are we so joyful when the
prime has fallen to 9.5 percent? Because in the intervening years,
the prime rate had reached 21 V2 percent.
One can make the same point with unemployment. A severe
unemployment rate 15 years ago was 6 percent, and a "normal"
unemployment rate was 4 percent. Now the government would
be delighted to see our unemployment rate reduced to 6 percent-
that would be a tremendous achievement. After all, unemployment
recently reached 9.7 percent. Each turn of the cycle has brought
and accustomed us to worse and worse economic conditions, and
viii Foreword
many think the days of 3 percent and 4 percent interest rates are
gone forever. They not only see the cycles, but also recognize
that the cycles are becoming more and more severe. And they
see no solution to our economic problems.
Other Americans recognize the problems, understand that they
are worsening-not improving, and think they know the solution.
According to a few, th'e problem is that we have a private central
bank and instead need a government central bank. According to
others, the U.S. Treasury, not the Federal Reserve, should print
our money; such money would be "debt free" and "interest free."
Still others think that gold has to be used in some fashion, perhaps
as a reserve for paper money or as a commodity whose price
must be kept stable by the Federal Reserve. And a very influential
group believes that the government should increase the supply of
(paper) money and credit at a constant rate to promote economic
growth with no inflation.
None of these groups is interested in financial freedom. All of
them wish to use the government to impose their own opinions
about the monetary system on the whole country. To the extent
that they realize that a major source of our economic problems
is the money and banking system, they are entirely correct. But
they are mistaken in prescribing more of the same poison-gov-
ernment action and regulation-as the antidote for the poison of
government action and regulation that is causing our economic
problems.
In this book, Professor Hans Sennholz argues that the solution
to our economic difficulties is not more government, but less;
not less freedom, but more. "Sound money and banking are not
impossible," he writes, "they are just illegal." What is needed is
a program to repeal the laws that have created our present system
of monopoly money and a banking cartel. Inflation is possible,
he points out, only because legal tender laws force everyone to
accept the government's paper currency at face value. Were Amer-
icans given a choice, were they free to choose the type of money
they would like to use, they would choose a money that has
enduring value, not one that has dropped over 50 percent in the
last 15 years as the Federal Reserve note has. But this solution
appears simplistic to some. "Who will run our banking system?
Foreword IX
Who will print our money?" they might ask. Until one realizes
that these questions are similar to asking, "Who will grow our
food? Who will run our shoe factories?" he will favor government
involvement in banking and money. Government doesn't grow
our food or make our shoes, and we are the best-fed and best-
clothed nation in world history. Those societies in which govern-
ment does grow th~ food and make the shoes are uniformly hungry
and poorly clothed. Americans have understood that freedom and
competition can produce the best shoes and clothes; they now
must extend that realization to money and banking.
Such a free-enterprise money system is entirely consistent with
the Constitution, which reserves the rights to extend credit, issue
notes, and mint coins to the American people under the Ninth
and Tenth Amendments. Congress is given the power to mint
coins, not to print paper money, and that power of the mint is
not an exclusive or monopoly power. Competition in currency
was the intention of the founding fathers.
Money and Freedom presents the case for extending competition
to money and banking. To pessimists of all varieties, it offers
hope for the future; however, if we maintain an allegiance to
government money and government banks, and turn our back on
monetary freedom, there is no way out of the present economic
difficulties. Government has caused the problem; only free men
can solve it.
U.S. Senator (Idaho)

PREFACE
In the early weeks of 1973, when the Watergate controversy

was swelling into a momentous government scandal, when the
U.S. dollar was devalued another ten percent against nearly all
the world's major currencies and President Nixon announced yet
another phase in his price and wage control program, this writer
penned a short essay on Inflation or Gold Standard. It sought to
look beyond the tumultous present to the future, looking ahead
the next 10, 20 and 30 years.
More than ten years have passed since then, affording an oppor-
tunity to compare the 1973 prognosis with actual conditions and
events. The projections of federal deficit spending, the stock of
money and the purchasing power of the U.S. dollar were on the
mark. The projections for 1993 and 2003 may underestimate the
actual course of events, which reveals an ominous trend of finan-
cial and economic disintegration. It points at the destruction of
the U. S. dollar and a new currency some time during the 1990s.
The essay sought to give support and direction to the budding
gold movement. It mapped the road to sound money and outlined
three intermediate objectives: (1) individual freedom to own gold,
(2) individual freedom to use gold in all economic exchanges,
(3) individual freedom to mint coins. Bound and determined, the
movement attained all three objectives in the course of a few
years. The right to gold ownership was restored on January 1,
1975; the right to write gold contracts and clauses was returned
on October 28, 1977; and the right to mint coins was interpreted
to mean minting gold medallions, which was implied in the right
of gold ownership. Unfortunately, American financial institutions
remained enmeshed in a myriad of government regulations and
controls designed to safeguard the monopolistic position of gov-
ernment money.
No road is too long for the movement that advances deliberately
and patiently. In the knowledge that right makes might, the gold
movement of yesteryear has become a "freedom movement" striv-
ing to extend basic rights to man's associations and institutions.
It opposes any and all attempts of politicians and government
xii Preface
officials to assume control over man's financial affairs and estab-

lish political monopolies. In particular, it is deeply committed to
the abolition of central banking and legal-tender coercion that
breed inflation and many other evils. This essay means to sustain
the movement by throwing some light on the false roads, wide
and popluar as they may be, and endeavors to illuminate the
narrow path to monetary freedom.
I am indebted to many friends and associates. In particular, I
would like to express my gratitute to Messrs. Edward Durell and
Raymond S. Sleeper of the Leadership Foundation who convinced
me that the essay be written today rather than tomorrow. To Dr.
John Robbins of the Leadership Foundation chiefly belongs the
credit for the radical rearrangement of the subject matter. What
set out to be just another edition of Inflation or Gold Standard
became a new creation, Money and Freedom. It was helped along
by the invaluable assistance of college librarian, Diane H. Grundy-
McKillop. My gratitute is due to my son and his wife, Robert
and Lyn, who, as the publishers, are laboring diligently in the
vineyard of freedom. My greatest debt is to my wife and partner
of life.
Hans F. Sennholz
Grove City, PA
September, 1985
INTRODUCTION:
LIVING ON BORROWED TIME
Dark clouds have gathered over the world's financial system.

Some $500 billion of bad international debts are hanging over
American and European banks. Mexico owes $98 billion and
cannot even meet interest payments. Argentina owes more than
$40 billion and hovers on the brink of bankruptcy. Brazil is in
difficulties with $103 billion. The Iron Curtain countries are in
the red more than $60 billion. Third-world countries are up to
their ears in debts of more than $200 billion.
In the dream world of public finance, all these countries suffer
merely from "temporary illiquidity" that will soon be corrected;
however, the problem is not a temporary shortage of cash. Seen
in the cold light of reality, most of these loans will never be
repaid. The money has been squandered by socialistic regimes
oppressing their people and repressing economic life. When
Mexico was poor and underdeveloped, it could honor its debt.
When it struck oil, it went broke in an orgy of political folly.
When chaos descended on economic life, the government took
over the banks and imposed strangling controls. What else can it
perpetrate?
The debt will never be repaid because the willful destruction
of the Mexican peso by the Mexican government has multiplied
the burden of debt to the borrower. Most foreign debt is dollar
denominated and repayable in dollars, but the peso has fallen
from four U.S. cents to less than one U.S. cent in the international
money markets. Mexican debtors now must pay four times the
original number of pesos to service and repay' their dollar debt.
Few debtors anywhere would be able and willing to make such
sacrifices for the benefit of American bankers.
It would be naIve to believe that the debtor countries will go
bankrupt in the proper sense of the word. Only individuals and
small businesses are permitted to fail. Large corporations, great
banks, and important countries cannot founder because the U.S.
government, acting through its money monopoly, the Federal Re-
serve System, will come to their rescue. Their failure would
2 Introduction
precipitate countless other failures in a chain reaction that, in a

flash, would spread across national borders. The bankruptcy of
Mexico would trigger the failure of numerous American banks,
which, in tum, would touch off failures of countless bank de-
positors.
The big banks in New York, Chicago, Los Angeles and other
money centers, which made the bad loans, are the pillars of the
American financial system. If they should fall, all economic life
could sink into depression and despair; therefore, the Federal
Reserve rushed to the rescue of Mexico with billions of dollars,
so that it could pay the interest falling due to American banks.
The loans are made good, the banks remain open, and the crisis
is averted.
In times of tense international crises, interest rates must be
expected to soar to crisis levels. After all, the demand for funds
is exceptionally great, and the supply is extraordinarily small
because of the looming dangers. Yet, interest rates have fallen
throughout the worst financial crisis in recent history, which calls
for an immediate explanation. The money that is rushing to the
rescue of Mexico and other defaulting countries is new money,
fresh from the Federal Reserve and its printing presses. The inter-
national rescue action is international inflation on an unpre-
cedented scale.
To meet future crises and emergencies, the International Monet-
ary Fund established a bail-out fund of $25 billion. Of course,
this money, too, was newly created, but how long can it be
expected to last, with some $500 billion in shaky loans? If Mexico
can be rescued so easily, why should the other debtor countries
not be rescued as promptly? One good bailout deserves another,
and one burst of inflation brings forth another.
The international financial order is coming undone. Ever larger
dressings of new U.S. dollars are needed to hold it together for
a while. There is much more inflation to come.
The world is in urgent need of dependable money that facilitates
international trade and commerce. Throughout the centuries, gold
and silver served as the universal money uniting the world in
peaceful cooperation and division of labor. During the nineteenth
Living on Borrowed Time 3
century, the people of most Western countries were united on a

gold standard, settling their payments in gold and making all
monetary substitutes, such as bank notes and demand deposits,
payable in gold.
With the rise of power politics in its various shapes and colors,
governments gradually assumed control over the people's money.
The gold coin standard gave way to the gold bullion standard,
which in turn yielded to the gold exchange standard, which in
time became the gold dollar standard. In 1971, when the U.S.
government defaulted in its international gold payment obliga-
tions, it paved the way for an international fiat standard. The
governments of the world now are marching to the tune of a fiat
dollar standard that is managed by the Federal Reserve System.
A World Money Standard

There can be no greater financial responsibility than the manage-
ment of the world monetary standard. Every day assumes a fearful
responsibility when we realize that the economic fate of the free
world rests on the Federal Reserve. Unfortunately, the Fed is a
political institution, born of politics and raised in conflict and
strife. The dollar standard itself is the outgrowth of an ideology
that places the Federal Reserve in charge of the people's money.
It is the handiwork of government and its apparatus of politics.
To expect much of such a creation is to invite bitter disappoint-
ment.
The world dollar standard has created temptations that no gov-
ernment can be expected to resist. The world demand for a reserve
currency constitutes an extraordinary demand that tends to support
and strengthen its purchasing power. It affords the country of
issue a rare opportunity to inflate its currency and export its
inflation, without immediately suffering the dire consequences
of currency debasement.
In particular, it presents an opportunity to the administration
in power to indulge in massive deficit spending, designed to
bolster its popularity with the electorate, while its inflation is
exported to all corners of the world. The country that provides
the world reserve asset can, for a while, live comfortably beyond
4 Introduction
its means, enjoy massive imports from abroad while it exports

its newly created money in payment for imports. In short, it can
raise its levels of living at the expense of the rest of the world.
The world dollar standard obviously embodies a fatal flaw that
will sweep it away in the end. It allocates income and wealth to
some countries and inflicts painful losses on others. After all, the
allocation of additional quantities of money by monetary au-
thorities always benefits the early recipients at the expense of all
others. Early holders have more money to spend, can command
more goods at old prices, and can consume more than others.
Latecomers are forced to restrict their consumption because they
lack the money to compete with the early holders. They are
shortchanged, unless they receive a "fair" proportion of the addi-
tional money created by the monetary authority.
On the national scene, the inevitable conflict between be-
neficiaries and victims of the money allocation is simply stifled
by the police powers of government; however, the conflict is
audible, at least in free societies, in ardent political debates about
economic programs and policies. On the international scene, no
police power is capable of hushing the allocation conflict; it is
bound to erupt with full force as soon as it is perceived by the
victims.
Whatever the money allotment may be, serious conflict must
arise about any scheme of dollar distribution by the Federal Re-
serve System. The less-developed countries may favor distribution
based on population; the industrially advanced countries may
prefer distribution according to productivity. All would join in
opposition if the U.S. government and the American people were
made the primary beneficiaries of the system.
During the 1970s, many foreign governments managed to get
a substantial share of the new money. Certainly the U.S. govern-
ment was always an early recipient, followed by the beneficiaries
of federal spending, but many foreign governments, ever eager
to secure grants and loans, also benefitted from the situation. The
dollar standard invited massive credit expansion in both the U.S.
and the Eurodollar market, and made foreign governments in less
developed countries its primary beneficiaries. Foreign central bank

reserves, consisting mostly of dollars, expanded from $92 billion
to more than $800 billion in 1981. The Eurodollar market recycled
the flood of dollars from the United States to the Organization
of Petroleum Exporting Countries (OPEC), and from there to
commercial banks in Europe and the United States, and to debtors
allover the globe; it grew from some $100 billion in 1970 to
nearly $2 trillion in 1984. The debt of non-OPEC developing
countries alone, consisting of commercial bank loans, multina-
tional organization loans and government loans, soared from $75
billion in 1971 to an estimated $520 billion in 1982. The exposure
of commercial banks to these countries, consisting of outstanding
loans minus deposits, rose from practically none to more than
$200 billion worth in 1984.
Gold and the Growth of International Debt
The Federal Reserve System spearheaded and orchestrated the
expansion of international lending. Set free at last from the fetters
of the gold standard, it created dollar reserves at dazzling rates.
By 1978, dollar crises were seizing the international money mar-
kets and prices were soaring at double-digit rates. Most commer-
cial banks welcomed the abundance of credit, which meant more
bank loans and higher returns to them. As it is more profitable
and convenient to place a few big loans with a few borrowers
than to make many small loans to numerous borrowers, the big
banks showered their favors on foreign governments all over the
world. New York City banks preferred to lend to the governments
of Poland, Mexico, Argentina, Brazil, Venezuela, Turkey, Zaire,
etc. Eager to make friends and buy allies, the U.S. government
encouraged and guided the banks every step of the way.
During the 1970s, the world dollar standard gave comfort and
aid to those ideological and political forces that advocate the
economic command system and favor redistribution of income
and wealth. Unfortunately, neither the command system nor the
transfer system is capable of achieving the desired objectives. To
come to their rescue with loans and grants is to subsidize poor
policies, maintain corrupt governments in power, and sustain the
very system that is breeding the poverty.
6 Introduction
u.s. grants and loans permitted corrupt governments to indulge

in popular transfer programs consuming income and wealth at
startling rates. American capital raised the levels of living in
debtor countries and boosted the popularity of governments in
power. It bailed out administrations that implemented destructive
policies, and rewarded them with grants and loans in direct pro-
portion to the evil they inflicted on the people. The Mexican
government under Lopez Portillo ruined the peso, drove millions
of poor Mexicans across the border and, in the end, confiscated
the banks and their deposits, including some $4 billion of Amer-
ican money. This horrid record of willful destruction was set while
more than $80 billion of U.S. loan funds were propping up the
Portillo regime.
Building Socialism with American Money

Throughout the world, U.S. funds were building socialism.
American dollars provided by the U.S. government or commercial
banks strengthened the position and authority of socialistic govern-
ments. American dollars financed the takeover of agriculture and
industry by foreign governments; American dollars supported gov-
ernment enterprises that were hampering private enterprise. While
American money built or rebuilt roads, railroads, public utilities
and other government enterprises, socialism claimed the credit.
With every new government project, people were led to believe:
socialism is working, our glorious leaders are pointing the way.
Despite massive foreign aid, the Third World now languishes
in depression and crisis. Having wasted billions of dollars on
grandiose schemes to glorify government and make socialism
work, dozens of governments are in default or are pleading for
debt rescheduling. The shock of default is signalling an end to
the wealth-transfer process from creditors to debtors, from
capitalistic countries to socialistic and communistic countries. It
is also signalling a new approach to money allocation under the
dollar standard.
The Balance-of-Trade Deficit
Since the Mexican default and the payment rescheduling of
loans to more than 50 countries, the new money created by the
Federal Reserve has been made to benefit primarily the U.S.

government and the American people. As the first recipients of
new money, they have more funds than the rest of the world.
They can indulge in massive deficit spending and withdraw more
goods from the world market than they did before. Foreigners
restricting their consumption must earn their share of the new
money through exports to the United States. While Americans
are enjoying huge balance-of-payment deficits, other countries,
especially industrial countries in Europe and Asia, are suffering
from chronic balance-of-payment surpluses. The imbalance sig-
nals the flow of dollar-standard money from the world monetary
authority, the Federal Reserve System, to all comers of the world.
That is the real meaning of the trade deficit.
Millions of Americans now are reaping the allocation gains of
the world dollar standard. They are enjoying not only vast selec-
tions of foreign goods at bargain prices, but also the investment
of surplus funds earned by foreigners. Foreign producers are earn-
ing dollar funds by shipping their goods to this country and invest-
ing the funds in anything striking their fancy, from U.S. Treasury
bills to Texas ranches. After all, the action is here, the world
money is printed here.
As consumers, most Americans are benefitting from the dollar
standard; as producers and workers, many, unfortunately, are made
to feel some painful effects. They are victimized by the cost and
price structures of the system that prices them out of the market.
Many Americans are unemployed because they fail to compete
with foreign producers rushing their goods to American markets
to earn U.S. dollars. No matter what other causes may contribute
to their plight, the paper dollar standard is an important factor in
our industrial depression and economic disintegration.
The greatest losses by far are suffered by the inhabitants of the
"surplus" countries that faithfully continue, year after year, to
ship the goods and receive the dollars. They are sitting on huge
piles of depreciating dollars. In recent years, they have managed
to invest them advantageously in U.S. markets, but no situation
remains advantageous forever; American investments, too, may
fail and inflict losses.
8 Introduction
Massive foreign investments in the United States raise the ques-

tion of American ability to pay; this creates no problems as long
as foreigners are willing to accept more dollars, but what are we
to do if they insist upon interest and capital repayment in the
form of goods and services? What are they to do with dollar
claims that are depreciating continually? The victims are under
pressure to cut their losses and salvage what they can. The temp-
tation to dump the dollars is getting stronger with every day of
dollar depreciation. This is why this decade may see the end of
the world dollar standard. Too many people have suffered grievous
losses as a result of the dollar standard.
There are no world banking authorities that can prevent the
conflict, nor can we expect the International Monetary Fund's
system of Special Drawing Rights (SDRs), based on a collection
of paper currencies and the monetary powers of several govern-
ments, to prevent the inevitable. In fact, such a composite currency
would aggravate the world situation. A deep distrust of monetary
authorities is spreading throughout the world. People are learning
to distrust sweeping political promises that government will exert
more discipline in its fiscal affairs in the future. That's why they
are demanding real money, untouched by government and its
agents.
Competing Currencies
Many economists favor an early separation of government and
money. They advocate a "parallel standard" that would allow the
free use of both government money (without legal tender quality)
and gold, silver, or any other commodity. They work diligently
to free all financial institutions from their present restrictions on
the use of gold or silver in contracts, as media of payment, as
financial assets, reserves, investments, etc. Obviously, they op-
pose any government fixing of exchange rates between fiat money
and the precious metals, and any legal limitation of fiat money
issue. They are longing to write contracts in gold and to conduct
international trade and commerce with foreign partners who are
free to enter gold contracts and sign gold clauses.
The essential element of this reform is freedom. U.S. currency

must be freed from government monopoly. The Federal Reserve
System must be abolished, and no one in government must be
permitted to exert influence on money matters. If government
suffers a budgetary deficit, it must raise the needed funds in the
loan market, in competition with other borrowers.
Freedom of our currency is the fundamental issue; it is the
keystone of a free society.
I
THE CAUSES OF ECONOMIC DISINTEGRATION
To inquire into the causes of specific monetary policies is to

search for the monetary theories that guide the policy makers.
Ideas control the world, and monetary ideas shape monetary
policies. Several distinct economic and monetary doctrines have
combined their forces to give our age its inflationary characteris-
tics. Some of these doctrines are as popular as they are fallacious.
The notions that politicians must issue and manage money because
the people are unfit to manage their own, that economic prosperity
and expansion depend on the issue of more money, that gold and
silver are in short supply, that economic depressions are caused
by shortages of money, that inflation springs from individual greed
and the desire for higher incomes and prices, that politicians and
officials are valiant inflation fighters, and that the U. S. dollar has
won its battle over gold are just a few of the widely accepted,
yet entirely erroneous, notions that guide monetary policy.
Even some champions of private property and individual free-
dom want the government to manage money. They are convinced
that money cannot be left to the "vagaries" of the market order,
but must be controlled by government. Money must be supplied
and regulated by government or its central bank. That money
should be free is almost inconceivable to us in the twentieth
century. We depend on government to mint coins, issue notes,
define "legal tender," establish central banks, conduct monetary
policy, and then manipulate the price level. In short, we wholly
rely on government control over money. Unfortunately, our trust
in a money monopoly invites monetary destruction and economic
disintegration. Money is inflated, depreciated, and ultimately de-
stroyed whenever politicians and officials hold monopolistic
power over it.
Chapter 1
The Money Monopoly: The Federal Reserve System
Nearly everyone believes that a modern economy needs a central
bank. A central bank, people argue, must "maintain stability of
the price level," must "provide a growing economy with an elastic
currency and credit system," and must "maintain the rate of invest-
ment at a level that assures full employment." A central bank
monopoly is said to be needed because it affords discretionary
regulatory powers, without which an economy cannot be directed
toward the common good.
The Federal Reserve System, in its present manifestation, is
the product of such an ideology. The seven governors who manage
the System are vocal spokesmen for central bank power and
privilege. They may disagree with members of the Congress and
the administration about the person or persons who are to exercise
authority and wield the power, but no one in government ever
questions the rationale of monopolistic power over money and
banking. It is most unwise to raise any question about the money
monopoly.
Federal Reserve Independence
The Fed's commander in chief is the President of the United
States; no one in the System can resist his wishes and suggestions.
He has the power to direct its policies; he appoints the seven
governors and designates the chairman and vice-chairman. It is
obvious that this power of appointment affords the President the
power to direct the course of monetary policies. If the President
embraces "easy-money" notions, he can be expected to appoint
only advocates of "easy money." He may also call on Congress
to pass new monetary legislation. On more than one hundred
occasions, Congress actually has amended the original Federal
Reserve Act, often upon recommendation of the President.
Moreover, the President's spokesmen in Congress may "question"
the governors in public hearings, censure their policies, or even
cast doubt on their motives until they recognize the error of their
ways. This is why the Federal Reserve never has been, nor possibly
could have been, independent of the government that created it.
The Money Monopoly: The Federal Reserve System 13
On all crucial issues the System had to accede to the wishes of

the President.
Surely, the Federal Reserve Board continues to enjoy some
remnants of formal independence. Once a governor is appointed,
he is free to cast his vote within the limits of Federal Reserve
legislation and political consideration, but even this "indepen-
dence" is under severe attack by reform forces in Congress. Recent
reform proposals would require the President to make public rec-
ommendations for the governors to follow in the execution of
monetary policy. Other proposals call for legislative guidelines
that would circumscribe the actions of the System. Of course,
the Board of Governors, like any other agency of government,
vigorously opposes such shifting of power from itself to other
arms of government. It is most eager to maintain and even enlarge
its functions.
To many Federal Reserve observers, the chairman of the Board
of Governors, who presides over the System, is the financial czar
of American money and banking, the Caesar of the monetary
world. In a certain sense, this may be true. Any individual who
wields control over the American money and credit monopoly,
and in that capacity manages the world monetary order, undoubt-
edly is the most powerful man on earth, but it is erroneous to
conclude that the chairman of the Board of Governors is that
person. Actually, his powers are purely derivative and are strictly
limited by his persuasive abilities, like those of an advisor to the
President. In the final analysis, all executive powers rest with the
President of the United States and all legislative powers with the
U.S. Congress. The Federal Reserve System is no exception to
the rule.
Instability and Unemployment
At its beginning, the Federal Reserve System was intended
merely to safeguard economic stability. According to the preamble
to the Federal Reserve Act, it was "to furnish an elastic currency,
to afford means of rediscounting commercial paper, and to estab-
lish a more effective supervision of banking in the United States."
More than seventy years have passed since the Act was voted
into law on December 23, 1913. While many human institutions
14 The Causes of Economic Disintegration
have grown old and faded away in seventy years, the Federal
Reserve System has grown into a vigorous and destructive instru-
ment of power. It came into existence as an institution that was
to accommodate the needs of business, as a passive reserve bank
that was to provide a flexible currency by issuing bank notes
backed by commercial notes, drafts, and bills of exchange arising
out of actual commercial transactions.
When the first two decades of the System became decades of
unprecedented instability, when booms and busts alternated while
the System faithfully accommodated the requirements of business ,
the Federal Reserve began to take the lead and actively create the
money it wanted business to have. The market order is inherently
unstable, the governors declared; it is in need of guidance and
assistance through monetary planning and other governmental
measures. The market order reveals inflationary and deflationary
movements; it breeds stagnation and unemployment. The Federal
Reserve System, which set out as a cooperative undertaking by
the banks of the country to pool their reserves, thus developed
into an institution that finds grievous fault with individual enter-
prise and the market order.
The Federal Reserve has made full employment one of its
primary objectives. In Federal Reserve terminology, the System
is "to help counteract inflationary and deflationary movements,
and to share in creating conditions favorable to sustain high em-
ployment, stable values, growth of the country, and a rising level
of consumption."* It takes its mandate from the Employment Act
of 1946, which instructs all government agencies to pursue full
employment as a primary government objective.
Ever active in the pursuit of government programs and policies,
the System inflates or deflates, lowers or raises interest rates,
always exercising discretionary power. There is no code of rules
for it to follow, no regulator that forces the System to act in a
predetermined way. At all times, it is expected to assist the U.S.
Treasury and act as its fiscal agent and lender of last resort.
* Board of Governors, The Federal Reserve System, Purposes and Functions,

Washington, D.C., 1954, p. 1.
Wielding three "instruments of control"-discounts, open mar-

ket operations, and regulation of bank reserves-the System pre-
sides and exerts control over American money and banking. It
holds the power over economic booms and recessions; the power
to change the content of every deferred payment and to increase
or decrease the real value of every bond, wage and profit; and
the power to affect employment or unemployment. In fact, the
Federal Reserve System is the most important tool in the armory
of the political command system.
During the seventy years of its existence, the tool has grown
from an institution that was intended to serve banks in times of
crises to a central banking system that serves the federal govern-
ment in the realization of its economic and social objectives. The
growth of Federal Reserve powers reflects the growth of political
power in the United States.
To avoid booms and busts, stagnation and unemployment, the
Federal Reserve System would actually have to refrain from using
its vast monetary powers. It would have to refrain from initiating
the boom to avoid the bust. It could not use its statutory authori-
zation to engage in open-market purchases, to lower member
banks' reserve requirements and to expand its discounts and ad-
vances. Each one of these measures creates additional reserves,
on the basis of which the member banks embark on credit expan-
sion of their own; credit expansion imparts uncertainty and insta-
bility.
Booms and depressions do not lie in the nature of the market
system; they are imposed by governments and central banks ex-
panding or contracting the stock of money and credit. Business
cycles first made their appearance with the coming of the central
banking and deposit system. They plagued England during the
latter part of the eighteenth century, and then spread, always in
conjunction with the development of central banking and frac-
tional deposit banking, to Western Europe, North America, and
Central, Southern and Eastern Europe. At the close of the
nineteenth century, trade and commerce throughout the world
were familiar with bank credit expansion and trade cycles.
In the mainstream ideology of our time, full employment and
rising levels of consumption require occasional bursts of credit
expansion, which are said to be "contracyclical" in nature. Accord-

ing to the Employment Act of 1946, "it is the continuing policy
and responsibility of the Federal Government to use all practicable
means consistent with its needs and obligations and other essential
considerations of national policy ... to promote maximum employ-
ment, production, and purchasing power." When economic activ-
ity declines or begins to show signs of decline, the Federal Reserve
is expected to expand credit and thereby prevent the decline. If
economic activity nevertheless continues to falter, the Federal
Reserve may be called upon to facilitate contracyclical expendi-
tures by government. It may have to create the money for vast
schemes of government spending on public works, doles, and
other projects.
In every case the full-employment recipe calls for monetary
expansion which, according to all principles of economics, is the
root cause of instability. It is a disruptive and inflationary element
in the private property order; it actively nourishes the transfer
ideology and promotes the political command system.
In the Service of Government Financing
The Federal Reserve System was barely two years old when it
underwent rapid changes in appearance, character, condition, and
function. In 1917, it was drafted for the purpose of financing
government expenditures for World War I, and it has served it
faithfully ever since. It was forced to provide huge amounts of
money smoothly and painlessly, to spare government from taxing
the people more onerously or from borrowing the desired funds
at higher interest rates. The monetary expansion, of course, led
to an ominous depreciation of the U.S. dollar.
The Federal Reserve's new-found function brought forth
applause and gratitude from politicians and officials. Unfortu-
nately, there were no critics who described the Fed as a powerful
engine of inflation working full speed for the government. No
one pointed out that the Fed's basic objective was broadened
significantly, and that the System was embarking upon the road
to monetary destruction.
Nearly every government program requires massive expendi-
tures that place a heavy financial burden on the public treasury.
Government, at first, may merely seek to "redistribute" income

and wealth. It may tax Peter to pay Paul, but this very convenient
and popular method of redistribution is soon exhausted when it
causes stagnation and unemployment. After all, capital, like labor,
ceases to function properly when government seizes most of the
return.
The ease with which the Federal Reserve System finances huge
Treasury deficits has created illusions of grandeur. The American
people have grown accustomed to vast Treasury deficits, and to
Federal Reserve manipulations of money and credit to cover the
deficits. For all practical purposes, the System is the agency
through which the federal government has assumed complete
control over money, and through which it clearly dominates the
credit markets.
Most economists are greatly alarmed about the level of federal
spending made possible by the System. Relating spending to
saving, they deduce frightening consequences from an excess of
spending over saving. Federal debt tripled during the 1970s and
hit $1 trillion in 1981. In 1986, it will exceed the $2 trillion mark.
With federal deficits running at more than $200 billion a year,
the continuous operation of government depends on finding ever
more buyers in the United States and abroad for that growing
mountain of debt.
Unfortunately, economic income and wealth do not flow from
a mountain of debt; they spring from savings and investments.
As a person's material wealth, commonly called net worth, rises
when income exceeds spending, and declines when spending
exceeds income, so does national wealth vary with income and
outgo. What is true for one individual is true for 23 million or
230 million individuals.
It is self-evident that an excess of national spending over saving
tends to impoverish society, just as the excess of individual spend-
ing over saving tends to drain an individual. Economists call it
"consumption of capital" or, in contemporary terminology, "de-
capitalization of industry." It is observable in inefficient tools and
equipment, antiquated shops and factories, and other worn out
facilities. Soaring interest rates point at depleted and exhausted
capital markets. The loss of productive c~pital obviously necessi-
tates a reduction in labor income. Wage rates may decline in real
terms. Workers may have to grant "give-backs," laboring longer
hours for less pay and fewer fringe benefits.
The American people are not accustomed to deteriorating
economic conditions. Although they themselves may favor the
political transfer system as indicated by the elections, they may
not appreciate its effects. With ever-increasing fervor, they may
search for political recipes and prescriptions that promise more
spending with more prosperity. Politics becomes ever more impor-
tant, more acrimonious and divisive.
In reaction to the visible deterioration of the economic well-
being of so many people, the administration in power can be
expected to resort to desperate measures. In particular, it may call
upon the Federal Reserve to substitute new money for the
economic substance consumed, paper money for real savings,
and paper credit for productive capital. Such substitutions consti-
tute rampant inflation which, in the end, breeds hyperinflation.
Although we know the economic effects of such a disaster, it is
difficult to foresee its social and political effects.
The Central Bank of the World
In position, power, and function, the Federal Reserve System
differs materially from all other central banks. When the U.S.
dollar emerged as the primary international currency serving trade
and commerce the world over, the Federal Reserve emerged as
the central bank of the world. It already had acquired a leading
position under the Bretton Woods system that had made the U.S.
dollar the international reserve money, payable in gold at a price
of $35 per ounce. When, in August 1971, President Nixon re-
pudiated the Bretton Woods agreement, the world continued to
use the U.S. dollar without its redeemability. After all, the world's
merchants and bankers had grown accustomed to it. The dollar
afforded access to the markets of the most productive country in
the world, and its record of relative stability was one of the best
in recent monetary history, despite its devaluations in 1934 and
1971. Above all, the official repudiation of gold created a void
which no other fiat currency could possibly fill. It left the Federal
Reserve dollar in the most prominent position for becoming the
world medium of exchange and reserve asset.
The world desperately needs a common money that facilitates

foreign trade and international transactions. For hundreds of years,
gold served as the universal money uniting the world in peaceful
cooperation and trade. Today, the U.S. dollar is called upon to
assume the functions of gold, but in contrast to the gold standard,
which was independent of anyone government, the dollar standard
depends completely upon the wisdom and discretion of the Federal
Reserve System. That is, the world monetary standard now rests
solely on the political forces that shape the monetary policies of
a single country-the United States.
The U.S. dollar serves as the international monetary reserve
currency and the leading exchange currency in international trade.
It is the counting unit of all other currencies, and the unit of
account for most commercial transactions and nearly all capital
dealings in the world. Oil contracts are denominated in U.S.
dollars. In countries with chronic inflation, it may even serve as
an illegal substitute for the national currencies. Far from waning
after the Bretton Woods system died, the U.S. dollar-thanks to
the needs of world trade and commerce-is more important than
before.
The international demand for dollars has given them extraordi-
nary strength among world currencies, although they continue to
depreciate in purchasing power. The central banks of OPEC coun-
tries, Western Europe and Japan are holding the bulk of their
currency reserves in claims to U.S. dollars, primarily in U.S.
Treasury securities. Purchasing Treasury bills, notes and bonds,
they are financing substantial portions of federal budget deficits,
which otherwise would have to be financed by the Federal Re-
serve. Were it not for these foreign loans, the stock of Federal
Reserve money would probably be much larger and the rate of
inflation much higher.
The global monetary order, hinging on the U.S. dollar and
manipulated by the Federal Reserve System, makes the world
economy an extension of the U.S. economy. When the Federal
Reserve expands its credit to stimulate economic activity or just
to finance the federal deficit, the effects resound allover the
world. When it acts to tighten credit for any reason, the money
markets of the world reverberate immediately. Within minutes,
Federal Reserve actions are felt in London, Paris, Frankfort,

Tokyo, and Hong Kong. No one designed the world dollar stan-
dard, no government created it, and no international agreement
legalized it; it is the outgrowth of economic notions and doctrines
that make government the guardian of the people's money and a
central bank its manager.
A Vanguard of Socialism
The Federal Reserve System is even more than the world central
bank. Since its modest beginning, it frequently has acted as the
champion and vanguard of the political command system. Many
of the amendments to the Federal Reserve Act, giving the System
ever greater power for monetary expansion, were enacted upon
the recommendations of the governors. In its annual reports, the
Board frequently included a section recommending legislation for
enactment by Congress. Only during the early years of the
Roosevelt New Deal was the federal government at times more
demanding in its legislation than was the Board in its recommen-
dations, but even then, the federal government did not act without
the Board's advice.
Today, the System is holding practically unlimited power of
expansion, yet the Board is clamoring for more. It is pleading
and insisting that it be granted permanent power to control the
uses to which its credit may be put. In other words, it would like
to manage the credit markets to channel the benefits of inflation
and credit expansion towards its most favored debtor, the federal
government.
The Federal Reserve is a financial information center. It distri-
butes mountains of books, booklets and papers through many
channels of communication and education. Most of its publica-
tions are available without charge. More than one million copies
of its basic text on The Federal Reserve System, Purposes and
Functions* have been distributed since it first appeared in 1939.
At least one copy has been placed in the hands of every economist,
banker, and student of money and banking.
* Board of Governors, The Federal Reserve System, Purposes and Functions

(Washington, D.C.: United States Government Printing Office, 1939).
As can be expected, all the System's publications are attempts

at apology and justification for its monetary policies. In periods
of disastrous expansion, which are so numerous in the history of
the System, the publications "explain" the governors' reasons for
inflationary policies. In periods of contraction and depression,
they lay the blame on speculators, foreigners, or other bystanders.
Such misinformation has made the System an influential and
potent defender of political power.
The Federal Reserve Act was probably the most tragic blunder
ever committed by Congress. The day it was passed, old America
died and a new era began. A new institution was born that was
to cause, or greatly contribute to, the unprecedented economic
instability in the decades to come. It fostered the formation and
growth of pressure groups clamoring for government protection
and compensation; obviously, individual enterprise was unreliable
and old-fashioned, rendered obsolete by the command system.
There cannot be any doubt that the Federal Reserve helped to
usher in the era of regulation and control.
To a serious student of money and banking, the lesson from
seventy years of Federal Reserve manipulation can be no other
than this: the Federal Reserve System not only is a vital tool of
political control over our lives, but also an implacable foe of the
enterprise system and an influential avant-garde of the command
system. This is why the champions of individual freedom will
not rest until it has been abolished summarily.
Chapter 2
Compulsory Money: Legal Tender Laws
Evil acts are often linked one to another. The evil of inflation
is linked to indigence and destitution, which are linked to social
conflict and political strife. Inflation is an effect of politics, and
in turn affects politics as an antagonist of order.
Politicians alone are accountable for inflation because only
government, which is political authority, conducts monetary pol-
icy and orchestrates the credit markets. It may do so directly
through legislation or regulation, or by means of a central bank
that directs the monetary affairs. In the United States, inflation
is a contrivance of the federal government, acting through the
Federal Reserve System.
To be accountable for inflation does not imply that government
is the origin and source of money. Government may seize money,
monopolize it, depreciate it and destroy it, but not create it.
Money always springs from man's need of a saleable good that
can be readily traded for others. Man values and chooses one
good over another, including the most marketable of all goods,
money. His own interests lead him, without any prior contract,
without government compulsion, and even without regard for the
public well-being, to exchange his service or product for the most
marketable commodity, which is money. Money springs from
man's propensity to specialize and exchange his goods and ser-
vices.
The value of the economic good used as money is subject to
the same considerations as other goods. Individuals give it value
because it is useful; it permits them, in the near or distant future,
to acquire other goods. They value it because it has purchasing
power, and it has purchasing power because people give it value.
This is circuitous reasoning, unless we realize the proper order
of the value process. The exchange value of money is a function
of people's subjective valuations; these are influenced by their
recollection of past purchasing power which, in the end, can be
traced back to the use-value of the monetary good. Without knowl-
edge of the origin of its exchange value, but with full recollection
of yesterday's purchasing power, people give money value accord-
Compulsory Money: Legal Tender Laws 23
ing to their value scales. They may increase their cash holdings
if the cash is more valuable than the economic goods offered in
exchange, or they may reduce their cash holdings if the goods
available in exchange are more valuable. Individual value changes
affect the changes in purchasing power.
Government Power Over Money

Some people are satisfied with relatively small holdings, while
others prefer to hold more cash. They all would like to hold a
store of money with exchange power. Obviously, they would not
want to hold anything that is expected to lose its power. They
would quickly tum to another good and make it their money-if
they were free.
Unfortunately, they are not. Government monopolizes money;
government passes and enforces legal tender laws that deny the
freedom of choice. It forces people to accept legal tender money
if they want to be paid at all. Workers must accept it or forfeit
their wages; merchants must accept it in exchange for merchandise
or forfeit the purchase price.
The risk of forfeiture, which is the risk of expropriation by
jurisdiction, forces them all to accept legal tender currency. It
explains why some national currencies continue to function, after
a fashion, although their governments are inflating them, year
after year, at hundreds and even thousands of a percent.
The power to inflate rests on the monopoly power over money.
An early step in this direction was the government monopoly of
the mint. To secure possession of the precious metals used as
coins, the sovereigns prohibited all private issues and established
their own monopoly. Minting became a special prerogative of the
sovereign power. Coins either carried the sovereigns' pictures or
were stamped with their favorite emblems. Above all, their mints
could charge any price for the coins they manufactured, or they
could reduce the precious metal content of the coins, thus obtain-
ing princely revenues through coin debasement. Once this preroga-
tive of sovereignty was safely established, the right to clip, de-
grade, or debase the coinage was no longer questioned. It became
a "crown right" that was one of the chief sources of revenue.
Government achieved full control over paper money with the

passage of legal tender laws, which dictate to people what their
legal money can be. Such laws are obviously meaningless and
superfluous wherever the ordinary law of contract is respected.
Where government wants to issue inferior coins or paper notes,
it must use coercion in the form of legal tender legislation. It
then can replace honest money with dishonest money, gold coins
with fiat notes, and silver coins with money tokens; falsify the
exchange ratios between both forms; and discharge its debt with
fiat notes or make payment with tokens. In fact, once legal tender
laws are enacted and enforced, debt repudiation through monetary
depreciation becomes a common practice of government finance.
The courts afford no protection; they are utterly paralyzed in
their defense and administration of justice once they accept legal
tender laws. A debt of one million gold marks can be legally
discharged with one million paper marks that buy less than one
U.S. penny, and a government debt of fifty billion 1940-dollars
can be paid or refunded with a 1985-dollar issue that is worth
less than one tenth of the original value. With the blessings of
the courts, millions of creditors can now be deprived of their
rightful claims, and their property legally expropriated.
Legal tender legislation is one of the great evils of our time,
the necessary basis of inflation and monetary destruction. It gnaws
at the moral and economic foundations of economic society,
largely because it is misunderstood and ignored. Mainstream
economists are unaware of its problems and, therefore, do not
discuss it.
Misleading Definitions
According to most dictionaries, legal tender is any kind of
money which by law must be accepted when offered in payment
of a debt expressed in the country's money unit. Such a legal
definition shows no understanding of the moral implications and
economic consequences of the principle of legal tender. A more
meaningful definition that would reveal its ominous implications
would read: "Legal tender is the legal obligation to accept Federal
Reserve notes at their nominal value, no matter how much their
purchasing power has fallen or is expected to fall," or "legal
tender is the legal obligation, enforced by courts and police, of

every creditor to accept Federal Reserve notes of uncertain and
usually depreciating value."
The inscription, "This note is legal tender for all debts, public
and private," which appears on all Federal Reserve notes, should
read: "This note, regardless ofits value, may be forced on anyone
in settlement ofall debts, public and private. "Legal tender power
is for the central bank what the power to tax is for the Internal
Revenue Service. It embodies the power to force acceptance of
its money, to impose fictitious value, and to seize property in
exchange for depreciated money.
Legal tender coercion may take several forms:
1. Government may force its citizens to accept its notes at face
value. It may repay or refund its dollar debt of a given value
and purchasing power with dollars that are worth less. The
courts always cooperate; they judge it proper and fair that the
u.S. government, together with all other debtors, retire its
1955 debt with 1985 dollars that are worth only one fifth of
the original purchasing power.
2. Government may establish an issue monopoly by outlawing
competition in any form. The monopoly of government money,
which drives out alternative currencies and prohibits alternative
units of accounts, forces acceptance on anyone who partici-
pates in monetary exchanges. The issue monopoly is coercive
in character and amounts to legal tender force.
3. Legal tender conceivably may be limited to the issuer only,
which is the only honest and honorable tender force. This form
corresponds to the general obligation to pay one's debt in full
and to abstain from cheating and defrauding others. If it were
made applicable, the U.S. government would have to accept
payment in Federal Reserve notes at par, but could not force
their acceptance on anyone else. To discharge its old debt, the
U.S. government would have to compensate its creditors for
losses suffered.
4. Legal tender quality may be given to gold and silver only,
which gives rise to a commodity standard. When given to
gold, legal tender quality brings forth a legal tender gold
standard; when given to silver, a silver standard. Legal tender

quality given to both metals at a fixed rate of exchange is
bimetallism; depending on the exchange ratio, this brings forth
either the gold standard or silver standard. When given to
both, without a fixed rate of exchange, legal tender quality
gives rise to a parallel standard in which both metals function
as money.
To confer legal tender force on gold or silver is anomalous,
superfluous, and potentially harmful. No honest money needs
legal tender to be accepted in settlement of debt. Gold does not
need to be made legal tender, nor does a currency with 100 percent
gold reserve. Without the help of politicians and judges, gold
would prevail over bad money. To make gold legal tender is to
set a bad example, no matter how honorable the intention may
be. It elevates the political apparatus to the status of regulator of
economic affairs, and paves the way for legislation that creates
forced currency and grants privileges of exclusiveness. Under
conditions of changing metal value, making gold legal tender
may even give rise to evils similar to those created with govern-
ment money.
No Inflation Without Legal Tender
To declare paper money legal tender may be one of the greatest
evils government may inflict upon its subjects. It confers terrible
financial power on government-far greater, indeed, than the
power to tax. It affects economic production and distribution,
influences the formation of prices, and makes all private property
easily accessible to government. Legal tender laws permit govern-
ment to take income and wealth without the people's consent,
usually even without their knowledge. In the end, it is bound to
destroy the private-property economy.
Legal tender power permits government to finance vast budget-
ary deficits, to incur any expenditure, finance any program and
project, and pay for wars and revolutions. The money monopoly,
together with legal tender power, permits government to multiply
its money virtually without limits, while the people may not even
realize that government is engaged in multiplying it. It permits
government to direct the people's frustration and anger toward
.......
-..",,---...
businesses who dare to discount the money and charge higher

prices. Legal tender legislation outlaws the price mechanism for
currencies, the equivalent of breaking the thermometer that meas-
ures the fever.
There can be no inflation without legal tender legislation. If
the people were free to use alternate moneys and accept depreciat-
ing paper only at its market rate, they would discount the paper
in terms of the other moneys. Since Israel suffers from 1000
percent inflation per year, Israeli vendors would offer their goods
at more stable dollar prices, while they would discount Israeli
shekels and demand ever higher shekel prices. Since there is no
other money permitted, they have no choice but to show prices
only in depreciating shekel units. In popular terminology, this is
called "inflation."
Only legal tender money can raise all prices. It permits govern-
ment to force people to accept its monopoly money, to flood the
market with it, and to raise all prices. The more money government
issues, the higher prices tend to go. In a system of monetary
freedom, in which government would be one of several currency
issuers, the government might overissue its notes, but could not
raise all prices. Goods prices would remain virtually unchanged
in terms of the other currencies; however, government money
would soon be discounted and, in the end, be refused. In short
order, a government that printed too much money would soon
find itself out of the note-issuing business.
There are natural limits to the volume of monopoly money.
Monopolistic legal-tender currencies conceivably could be issued
in such large quantities that the human mind could no longer
calculate simple prices. When a newspaper costs millions, billions
and trillions of monopoly money units, its end comes in sight.
When the social division of labor grinds to a halt for lack of
honest money, legal tender legislation may give way to freedom
of choice. Finally, the "law of cost," which stipulates that, ulti-
. mately, the value of paper money will be no greater than the cost
of printing it, may call a halt to the monopoly money issue. The
limit is near, indeed, when, as in the German hyperinflation in
November 1923, the printing costs amounted to no less than 48
percent of the value of the newly printed notes.
In societies accustomed to civil obedience and submission to

government authority, legal tender issues may run their full course
of economic destruction; similarly, the death penalty and other
inhuman penalties for legal-tender violations may widen the scope
of monopoly-money issue. In societies with traditions of indi-
vidual freedom and self-reliance, the scope of destruction may
be much narrower. Many people are quick to escape and descend
to the underground economy and use commodity money, in de-
fiance of legal tender laws.
Legal Tender in the United States

The legal tender evil has come to the United States in periods
of, and in the name of, national emergencies. Between 1775 and
1779 the Continental Congress issued some $241 million of cur-
rency to finance the Revolution. It did not itself declare the bills
legal tender, but urged the states to give them legal tender standing.
The states complied without demurring.
Depreciation of the Continental paper dollar set in as early as
1776. To derive any purchasing power from its issuance, the
Congress printed Continental dollars faster and faster. Its first
issue amounted to a mere $2 million of bills of credit; in 1779,
government printing presses turned out $140 million. By 1780
the specie value of the Continental dollar had fallen to three cents,
and was still declining. Congress resolved to print no more money,
and to finance its expenditures by other means, only when the
cost of printing notes was almost higher than their value. By that
time, the people refused to accept any more Continental dollars,
which in the end forced the states to repeal their legal tender laws.
During the Civil War, the Lincoln administration issued some
$450 million of Treasury notes and granted them the quality of
legal tender. A series of legal cases reached the Supreme Court
between 1868 and 1870. The Court promptly ruled that legal
tender provisions were unconstitutional. While more cases were
pending, Congress raised the membership of the Supreme Court
from seven to nine; President Grant, making the appointments,
selected only those justices known to favor the constitutionality
of legal tender, thereby creating a preestablished majority for legal
tender. It was a foregone conclusion thereafter that the Court

would uphold legal tender legislation.
In 1933, the federal government expropriated the people's gold
coins and bestowed legal tender force on all Federal Reserve notes
and U.S. Treasury currency. In every case brought before the
Supreme Court, the justices confirmed the monetary powers
claimed by government.
On June 5, 1933, a Joint Congressional Resolution voided gold
clauses in all contracts, public and private. In 1935, the Supreme
Court acclaimed and approved the Resolution. In the words of
Chief Justice Hughes, "Parties cannot remove their transactions
from the reach of dominant constitutional power by making con-
tracts about them."* With a stroke of the pen, the Court permitted
every debtor to defraud his creditors, and granted government the
privilege of robbing its creditors under the pretext of paying
them-all in the name of the Constitution.
Born in the passion and violence of national emergencies,legal
tender compulsion now at last was to be anchored in the Constitu-
tion-by orders of five Supreme Court justices. Another day may
come when five other justices will read the Constitution and arrive
at a different conclusion.
* Henry Mark Holzer, Government's Money Monopoly (New York: Books

in Focus, 1981), p. 185.
II
FALSE SOLUTIONS: MANAGED MONEY

Economic policies are the product of economic ideas. This is
true also in the sphere of monetary policy and the organization
of the monetary system. The founders of the Federal Reserve
System set out to reorganize the monetary order because they
were convinced that the old order was deplorably deficient and
in need of legislative revision. They were motivated by the age-old
thought that the monetary order had to be tailored to the monetary
needs of business.
In particular, they believed that commodity bills financing the
actual sale of commodities were an ideal instrument for currency
adjustment. They were convinced that the people's gold reserves
had to be concentrated in a central bank and employed on central
command like the army reserves in a decisive battle. Thus, they
hoped, the American currency system would acquire the desired
elasticity and stability so vividly described by many monetary
writers.
After seventy years of money management, it is evident that
the new system is more deficient than any other in history. It has
given rise to unprecedented instability, and reduced the purchasing
power of the U.S. dollar to a few pennies of its former value. It
has bred inflation, which enriches some people and impoverishes
others, thereby generating social conflict and strife. It is an afflic-
tion that is neither accidental nor the outcome of individual failure
or malice. It is the end product of certain economic ideas that
guided our legislators who designed the system, and of our mone-
tary authorities who manage it.
Most Americans readily accept the current system because they
accept the very notions and doctrines that gave it birth. They may
not always agree with all its aspects and manifestations, nor
willingly accept all its evil consequences; they may want to reform
it through legislative additions or deletions, or simply impose
guidelines that would make it function more efficiently and satis-
factorily; however, they are convinced that they themselves, if
they were the money czars, would manage it more efficiently and
beneficently than all other czars.
32 False Solutions: Managed Money
To give "scientific" justification to their lofty claims, a host of

contemporary economists have developed intricate theories, com-
monly known as the "new economics." Basically, they all ascribe
to government the magic power of creating real wealth out of
nothing, of raising the "national income" through the efforts of
the central bank and its printing presses. They are unanimous in
their condemnation of the gold standard, which to them means
domination by "external forces" and denial of national indepen-
dence in economic policies. Of course, the "independence" they
so jealously uphold is tantamount to government control over
money matters. They want "fiat money"; i.e., government money
without restraint by a commodity such as gold.
John Maynard Keynes, the prophet of the "new economics,"
summarily rejected the gold standard for causing stagnation and
unemployment. In his own words, "It is interesting to notice that
the characteristic which has been traditionally supposed to render
gold especially suitable for use as the standard of value, namely,
its inelasticity of supply, turns out to be precisely the characteristic
which is at the bottom of the trouble."
Keynes advocated a fiat standard with flexible exchange rates.
According to the "Keynes Plan," the standard was to be coordi-
nated by an international monetary authority. As head of the
British delegation to the Bretton Woods conference in 1944, he
was instrumental in the formation of the International Monetary
Fund and the International Bank for Reconstruction and Develop-
ment. His magnum opus, The General Theory of Employment,
Interest and Money, * was to become the starting point for modem
macroeconomic theory and policy. It ushered in a "theoretical
revolution" that was followed by a policy revolution, as govern-
ments the world over launched their full-employment programs.
Most critics of the Keynesian order readily accept its ideological
foundation. They may disagree with the Keynesian structure, but
they all agree with the master that they must guide the people
and manage their money.
* John Maynard Keynes, The General Theory of Employment, Interest and

Money (New York: Harcourt, Brace & Company, 1936).
Chapter 3
The Monetarists
The most vocal critics of the Keynesian order are the monetarists
whose home base is the University of Chicago, and its senior,
Milton Friedman. The members of the school, who are called
"monetarists" because of their emphasis on monetary factors, are
strong advocates of the enterprise economy, but in contrast to a
few critics who deplore the very nature of political interference
and control, they stress the need for government to establish
guideposts and guidelines for the private sector. They would like
to provide a framework within which the free market is permitted
to function. Their basic program of economic reform probably
was summarized best by Henry C. Simons (1899-1946), the
founder of the school, in his 1934 essay, A Positive Program for
Laissez Faire:
To provide an effective framework, Simons argued, government
must eliminate all forms of monopolistic market power; in par-
ticular, it must break up oligopolistic corporations and apply
the antitrust laws to labor unions. A federal incorporation law
may be used to limit corporate size.
Government must seek and promote equity and fairness through
income tax reform.
Government must limit waste by restricting advertising and other
wasteful practices.
And finally, government must establish". . . more and adequate
'rules of the game' with respect to money, through
1. Abolition of private deposit banking on the basis of fractional
reserves
2. Establishment of a completely homogeneous, national circu-
lating medium, and
3. Creation of a system under which a federal monetary author-
ity has a direct and inescapable responsibility for controlling
(not with broad discretionary powers, but under simple, de-
finite rules laid down in legislation) the quantity (or, through

quantity, the value) of effective money."*
Milton Friedman is the best-known contemporary advocate of
the Simons philosophy and the most vocal critic of the Keynesian
doctrine. He directs his strongest criticism against the use of fiscal
policy to stabilize the economy; instead, he would use monetary
policy of the Simons type.
Professor Friedman argues that it is well-nigh impossible to
counteract and offset the economic swings of the private sector
with government spending and tax changes. We cannot dependably
forecast the movements of the business cycle; even if we could,
"there is likely to be a lag between the need for action and
government recognition of the need for action and the taking of
action; and a still further lag between the action and its effects."t
The net result, according to Friedman, may actually be worse
than the situation which the action was supposed to correct; gov-
ernment will always be late in its corrective action and, therefore,
may tum the correction into further error.
To monetarists, monetary policy has far more potent effects
than fiscal policy. To support their position, they point to the
quantity theory of money, according to which the total quantity
of money determines the general level of prices. They do not
propose to make use of this knowledge by conducting active
monetary policy. They want neither easy money to stimulate activ-
ity and achieve full employment, nor tight money to fight inflation.
They favor neutral money that facilitates long-term economic
growth. Professor Friedman favors a steady increase in the stock
of money at a fixed annual rate, as a means of achieving economic
growth and full employment.
To prove the point that instability in the monetary order is the
primary cause of economic depressions, Professor Friedman, to-
gether with Anna Schwartz, studied the monetary history of the
* Henry C. Simons, "A Positive Program for Laissez Faire", Economic Policy
for a Free Society (University of Chicago Press, 1948), p. 57.
t Essays in Positive Economics (Chicago: University of Chicago Press, 1953),

p. 315.
The Monetarists 35
United States. * According to their findings, lack of monetary

accommodations always generated depressions. Policy bungling
by the Federal Reserve System first helped to bring on the Great
Depression in 1930, and then prolonged it. If only the monetary
system had been more stable, the economic system would have
been stable as well.
Professor Friedman is convinced that, under present conditions,
a major depression in the United States is almost inconceivable.
Establishment of the Federal Deposit Insurance Corporation
(FDIC) has made bank failures "almost a thing of the past." The
phenomenal growth in government debt has made government
liabilities an important part of bank assets, which afford greater
stability to the stock of money and credit. Finally, Professor Fried-
man cites the "dethroning of gold," which "reduced the sensitivity
of the stock of money to changes in external conditions."
Economic activity has become more stable because of the "de-
throning of gold"!
For ultimate stability, Mr. Friedman favors a fiat standard with
a given percentage rate of monetary growth. Distrusting politicians
and bureaucrats, he would make his plan an article of the U.S.
Constitution. If he could enact it, the Twenty-eighth Amendment
to the Constitution of the United States would read as follows:
"Congress shall have the power to authorize non-interest bearing
obligations of the government in the form of currency or book
entries, provided that the total dollar amount outstanding increases
by no more than five percent per year and no less than three
percent. "
False Solutions Build on Force

Monetarist conclusions are drawn and solutions are offered in
the sphere of macroeconomics, in which the total money supply
and a given velocity determine the price level. Monetarists call
on government to take measures to stabilize the price level, and
* M. Friedman and A. Schwartz, A Monetary History of the United States

(1867-1960) (National Bureau of Economic Research: Princeton University
Press, 1963).
thereby cure the business cycle. In this respect, they are akin to
the Keynesians who, too, seek knowledge from macroeconomic
calculations, and pursue stabilization through government manipu-
lation. However, while the Keynesians recommend compensatory
fiscal policies, the monetarists realize the futility of continuous
fine tuning, and, therefore, seek long-term stabilization through
a steady three to five percent expansion of the money stock.
Obviously, such an expansion of the stock of money not only
presumes the existence and employment of a monetary authority
to expand the stock, but also relies on legal tender for forcing its
acceptance at par. Without the use of force, the new issue would
go to an immediate discount or even be refused. Moreover, the
issue, no matter how large or small, would suffice to generate
some malinvestments and maladjustments that later would neces-
sitate readjustments, that is, recessions.
It is odd that monetarists, who are such staunch defenders of
the market order, should call on politicians and bureaucrats to
provide the most important economic good-money. Granted,
monetarists do not trust them with discretionary powers, which
leads Friedman to write a detailed prescription, a Constitutional
Amendment; however, the Constitution is a supreme force, backed
by courts and police. The amendment is a political formula to be
adopted by political authorities and, when enacted, a constitutional
prohibition of monetary freedom.
Issue of government money in the form of "non-interest bearing
obligations" would not alter the nature of currency expansion; it
merely would change its technique. The stock of these obligations
is supposed to grow, year after year, without any obligation to
repay, which changes their nature from being "obligations" to
being mere government paper. The Friedman proposal would
merely simplify the technique of money issue; instead of the
Federal Reserve creating and lending its funds to the U.S. Treasury,
earning an interest thereon and then returning the interest to the
Treasury as "miscellaneous receipts," Friedman would have the
Treasury issue non-interest bearing U.S. notes. This would save
the U.S. Treasury the interest it is now paying, and eliminate the
"miscellaneous receipts" the Treasury is now receiving.
The Monetarists 37
Futile Search for Absolute Stability

In its frantic search for stability, the Friedman amendment,
unfortunately, proceeds on the old road to nowhere. There is no
absolute monetary stability, never has been, and never can be.
Economic life is a process of perpetual change. People continually
choose between alternatives, attaching ever-changing values to
economic goods; therefore, the exchange ratios of their goods are
forever adjusting. Since nothing is fixed, nothing can be meas-
ured. Economists searching for absolute stability and measure-
ment are searching in vain, and they become disruptive and poten-
tially harmful to the economic well-being of society when they
call upon government to apply its force to achieve the unattainable.
Money is no yardstick of prices. It is subject to man's valuations
and actions in the same way that all other economic goods are.
Its subjective, as well as objective, exchange values continually
fluctuate and, in tum, affect the exchange ratios of other goods
at different times and to different extents. There is no true stability
of money, whether it is fiat or commodity money. There is no
fixed point or relationship in economic exchange. * Yet, despite
this inherent instability of economic value and purchasing power,
man is forever searching for a dependable medium of exchange.
The precious metals have served him well throughout the ages.
Because of their natural qualities and their relative scarcity, both
gold and silver were dependable media of exchange. They were
marketable goods that gradually gained universal acceptance and
employment in exchanges. They even could be used to serve as
tools of economic calculation, since their quantities changed very
slowly over time. This kept changes in their purchasing power at
rates that could be disregarded in busine~s accounting and book-
keeping. In this sense, we may speak of an accounting stability
that permits acting man to compare the countless objects of his
economic concern.
Throughout the long history of money, a clamor for stability
always arose when governments engaged in coin debasements
and paper money inflation. Certainly the Romans yearned for
* Ludwig von Mises, Human Action (Chicago: Henry Regnery Company,
Third Revised Edition, 1963), p. 219.
monetary stability when their emperors resorted to every conceiv-

able device of monetary depreciation. Medieval man longed for
stability when his prince defrauded him by ,clipping, reducing or
debasing the coins. And throughout the seventeenth and eighteenth
centuries, the early Americans sought monetary stability when
the colonial governments issued legal tender "bills of credit."
They were dreaming of monetary stability during the Revolution
when the Continental Congress issued vast quantities of Continen-
tal dollars until they became utterly worthless.
Hopes for monetary stability spring from a yearning for govern-
ment to abstain from monetary depreciation. This is the only
permissible meaning of our search for stability, which is as old
as inflation itself. In our century, the search again has gained in
intensity and urgency, as governments the world over are depre-
ciating their currencies at dazzling rates.
Flat Expansion Causes Economic Instability
Contrary to monetarist doctrine, an expansion of the money
stock of three to five percent would suffice to generate the business
cycle. Economic booms and busts occur in every case of fiat
expansion, whether the expansion is one percent or hundreds of
a percent. The magnitude of expansion does not negate its effects;
it merely determines the severity of the maladjustment and neces-
sary readjustment.
Even if most prices should decline while monetary authorities
expand credit at a modest rate, the injection of fiat funds falsifies
interest rates and thereby causes erroneous investment decisions.
If the expansion should be directed at certain industries only,
instead of being distributed widely over the loan market, the
maladjustments would grow even worse in the industries thus
favored. The inevitable recession that followed would be more
painful yet.
Monetarists are quick to proclaim that business recessions in
general, and the Great Depression in particular, are the result of
monetary contraction. Mistaking symptoms for causes, they pre-
scribe policies that would treat the symptoms; however, the pre-
scription, which is reinflation, tends to aggravate the maladjust-
ments and delay the necessary readjustment.
The Monetarists 39
The Friedman amendment, unfortunately, would cause the same

economic and social conflicts as the present fiat system. It would
create income and wealth with the stroke of a pen, and then
distribute the booty to a long line of eager beneficiaries. The
amendment would fix the quantity of issue, but the mode of its
distribution, which confers favors and assigns losses, would be
left to the discretion of the monetary authorities. It would enmesh
them in ugly political battles about "credit redistribution," which
soon would spill over to the halls ofCongress , just as it does today.
The monetarists actually have no business cycle theory, merely
a prescription for government to "hold it steady." From Irving
Fisher to Milton Friedman the antidote for depressions has always
been the same: reinflation. The central banker who permits credit
contraction is the culprit of it all. If there is a recession, he must
issue more money, and if there is inflation, that is, rising price
levels, he must slow the increase in the supply of money, but
increase it nevertheless.
Professor Friedman himself seems to be aware of his lack of
business cycle theory when he admits "little confidence in our
knowledge of the transmission mechanism." He has no "engineer-
ing blueprint," but merely an "impressionistic representation" that
monetary changes are "the key to major movements in money
income." His "gap hypothesis," therefore, is designed to fill the
gap of theory and allow for the time it takes for all adjustments
to be corrected. He seeks to time the recession without explaining
it.
Making Matters Worse
It is difficult to share Professor Friedman's great faith in the
stabilizing power of the FDIC. In the final analysis, this power
is nothing but the Federal Reserve's power to create new money.
Surely, in a depression with massive credit contraction, FDIC
reserves would be grossly inadequate to meet the demands of
banks in difficulties-unless the money monopoly came to the
rescue with legal tender power. Such a rescue, which would be
tantamount to massive inflation, might "stabilize" the situation
momentarily, but it would further depreciate the dollar, mislead
business and, in the end, make matters worse.
The increasing importance of government obligations as bank

assets gives great confidence to monetarists; however, it creates
anxiety because government obligations merely are receipts for
money spent and savings consumed. Every budgetary deficit that
creates more government obligations consumes productive capital
and thereby hampers economic production. The growing impor-
tance of government obligations in bank portfolios actually signals
government consumption of economic substance and wealth. To
commercial banks, it means the loss of real property securing the
loans, and the addition of yet more government promises to tax,
print and pay. A banking system built primarily on government
IOUs is in a precarious condition.
What Professor Friedman calls the "dethroning" of gold was,
in truth, the default of central banks to make good on their legal
and contractual obligations. Following the example set by the
United States on August 15, 1971, central banks all defaulted in
their duty to redeem their currencies in gold. The default, unfor-
tunately, did not bring stability and prosperity; it opened the gates
for world-wide inflation. It made the U.S. dollar the world cur-
rency, elevated the Federal Reserve System to the world central
bank, and inundated the world with U. S. dollars and Eurodollars.
The default in gold payments made international economic
relations more vulnerable than ever before. It permitted the Federal
Reserve System to initiate and orchestrate a worldwide expansion,
with all its evil effects. Dozens of sovereign countries chose to
default in their payment obligations, and many others may follow.
The monetarist doctrine of the built-in stabilizers is akin to the
Keynesian recipe. Both are powerful forces for economic disrup-
tion.
Chapter 4
The Supply-Siders
In politics, the days we pass with new hopes and happy pros-
pects are more numerous by far than those coming to fruition.
With every new political election, hope offers an easy cure for
our social and economic ailments. Yet our hopes prove mostly to
be delusions that, in the end, leave us nothing but hope.
When Ronald Reagan moved into the White House, he brought
with him a new breed of counselors, the supply-siders. They had
a new vision of economic growth and prosperity for all, a new
perception of a brighter future through tax reductions and return
to a gold standard. It brought them great popularity, less so for
the originality of their thinking than for the sympathy they showed
for the prejudices of our time.
But no matter what we may think of their achievements and
prospects for future success, supply-siders deserve our earnest
consideration. They have brought new life to the stale atmosphere
of economic discussion. After nearly fifty years of Keynesian
orthodoxy, which built its tenets on the supremacy of demand
and the importance of consumption, the supply-siders have redis-
covered the importance of production. After many decades of
multiplier and accelerator talk, after rampant inflation and
economic stagnation, the debate at last has shifted to saving,
investing and forming capital.
Most supply-siders are not trained economists. Guided by no-
tions of popular economics, they readily accept the Keynesian
framework. They are journalists, columnists and politicians wax-
ing eloquent about aggregate supply and demand, and reflecting
on actual and potential gross national product (GNP). Their frame
of mind is holistic and collectivistic-just like that of their Keynes-
ian counterparts; however, supply-siders are ever ready to use the
mighty apparatus of government, which was created for redistribu-
tive ends, to promote their own GNP objectives. In particular,
they promise a bigger economic pie and bigger slices for all.
In their debates with monetarists and fiscalists, supply-siders
rarely argue their case on grounds of economic theory and political
morality. Their promises always have political appeal; they give
hope of higher productivity and greater efficiency that assure

rising incomes and revenues for workers, investors, businessmen
and beneficiaries of government handouts, from welfare to Med-
icare. They do not question the need for more social benefits
through redistribution, but may resist such demands on grounds
of "lack of funds. " To the millions of beneficiaries of the transfer
system, this argument never rings true; it implies a promise of
greater redistribution in the future when more funds become avail-
able.
Supply-siders derive their popularity with the public and the
press from their promises of tax cuts for all. Unfortunately, they
obscure the fact that the real burden of government is not the
weight of taxation, but the dead weight of government spending.
Taxation is merely one of several methods of public finance. Tax
reductions without spending reductions merely shift the burden
of government from taxpayers to other victims.
It is conceivable, indeed, that a tax reduction for people with
lower incomes shifts the burden of government to the loan market,
where government crowds out business and consumes more cap-
ital. Budget deficits, thus financed, cause interest rates to rise,
investments to decline, and economic conditions to deteriorate.
A tax reduction benefitting corporations may be granted one year
and rescinded the next; yet even if business taxes are reduced
while government expenditures rise and deficits soar, government
merely shifts its exactions to the loan market, depriving business
of needed capital.
In every case, the tax reduction is a sham that may deceive
the voters, but does not grant relief to business. Only a reduction
in expenditures will reduce the burden of government, but that's
a discussion which supply-siders diligently seek to avoid.
Price Rules for Gold
Supply-siders who were recruited from the ranks of Keynesians
and monetarists share the Keynesian-monetarist concern about
instability and stagnation, but a few also remember the golden
days of the gold standard: low interest rates, stable money,
economic stability and high rates of economic growth. They are
convinced that a gold standard, together with lower business
The Supply-Siders 43
taxation, would recapture some of those characteristics and usher

in a new era.
The gold standard they envision would be managed by the
Federal Reserve System, especially its Open Market Committee.
These friends of gold would love to manage the System; they
would not change it, and surely would not abolish it. In fact,
they do not even address the crucial problem of government control
over money, the money monopoly and legal tender force, nor do
they question the legality and advisability of the monetization of
federal debt. They do not challenge federal spending and deficits,
alleging that deficits do not matter. It is no surprise, then, that
the U.S. government is suffering the largest deficits in history.
The school of supply-siders who favor a gold standard is led
by eminent writers and politicians, such as Robert Mundell, Arthur
Laffer, Jude Wanniski, and Congressman Jack Kemp. They all
want the Federal Reserve to follow a "price rule," that is, to
stabilize the value of the dollar by holding the price of gold at a
certain point or within a certain range.
The Federal Reserve is to engage in open-market operations or
adjust the discount rate to maintain the price of gold at a certain
point or within a certain range. With a price rule of $300 to $400
an ounce, if the price approached $400, the Fed would contract
its total volume of credit to exert downward pressures on the price
of gold; when the price fell to $300, the Fed would expand credit
and send the price of gold back up again. By stabilizing the gold
price through credit expansion or contraction, all other prices
would be stabilized in the end.
The supply-side scheme of price rules for gold is a derivation
of Irving Fisher's scheme for stabilizing the purchasing power of
money by way of a "commodity standard." However, while Pro-
fessor Fisher (1867-1947) wished to retain redemption in gold,
although no longer at a fixed weight of gold, most supply-siders
have no such immediate intention. They would merely observe
the price of gold, and then manage Federal Reserve credit in
reaction to price changes.
In a sense, the gold price rule is akin also to the Keynesian
formula of full employment and economic growth through contra-
cyclical credit manipulation; however, Keynesian managers ex-

pand and contract always with an eye on several indexes, espe-
cially those of employment and economic growth. The task of
supply-siders is much simpler; they merely need to watch the
price of gold.
The monetarists may notice a kinship to supply-siders despite
their heated debates. Both build their structures on the foundation
of a money monopoly and legal tender force; both would try to
stabilize economic life through currency adjustments. Monetarists
seek stability by means of a steady rate of currency issue; supply-
siders prefer a price rule that calls for prompt adjustments in the
stock of money. Both seek price stability.
Supply-siders seem to be alone in their great naIvete about the
Federal Reserve System's ability to hold the price of gold at any
level. In 1934, after just ten years of Federal Reserve manipula-
tion, the dollar was devalued from 1/2 0 .67 of an ounce of gold to
Ij,s, which raised the price of gold from $20.67 an ounce to
$35.00. The dollar has suffered two formal devaluations and
countless "floating" devaluations since then, raising the price of
gold from $35 per ounce to more than $300 today.
The System failed not for lack of good intentions or individual
ability, but as a result of the rising popularity of inflation and its
inebriating effects. A society that prefers fiat money over commod-
ity money, that creates a money monopoly with legal tender power,
that permits government to engage in deficit spending and that
expects it to inflate the currency and create credit for the sake of
employment and growth cannot stabilize anything, least of all the
price of gold. It is naIve to believe that, under conditions of
trillion dollar deficits during just one Presidential term of office,
the System could hold the price of gold for more than a fleeting
moment.
Robert Mundell
To its many advocates, supply-side economics simply is class-
ical economic theory, updated to deal with modem central banking
and progressive income taxation. Credit for its development usu-
ally is given to the Canadian economist, Robert Mundell, now
at Columbia University, New York. His protege, Arthur Laffer,

later adorned supply-side theory with his celebrated Laffer curve.
Both earned fame by pointing out the confusion among Keynesians
and monetarists and their inability to explain the economic turbu-
lence of the 1970s, and by correctly predicting world-wide infla-
tion and economic stagnation after the collapse of the Bretton
Woods system in 1971.
Professor Mundell takes issue with the influential monetary
economists of our time-Keynes and Friedman-for their con-
struction of closed-economy models and proposals. Both disregard
the international interdependence of countries, and ignore the
world monetary order based on gold. Both neglect the fact, Mun-
dell charges, that gold continues to represent the principal mone-
tary reserve of the world. Building on inconvertible paper stan-
dards, Keynesians favor an adjustable exchange-rate peg, and
Friedman a floating exchange-rate system. Mundell would like
to return to an international monetary structure similar to the
Bretton Woods system of the 1950s and 1960s, but "without the
dead-weight difficulties of underdevalued gold."
In form and design, the Mundell proposal is a Keynesian con-
coction with supply-side ingredients. The proposal is devoid of
the beggar-thy-neighbor features of both the Keynesian and
monetarist structures and, instead, seeks international cooperation
and coordination; it is ever mindful of the important role gold
has played in the past and must play again in the future; and it
is anxious to reduce business taxation to spur economic growth.
Keynes and Friedman entreat national governments to adopt and
enforce their proposals; Professor Mundell urges all allied govern-
ments to organize, cooperate and coordinate their efforts on behalf
of his proposal, which calls for more order and discipline. The
U.S. government, in consultation with its allies, must stabilize
the dollar price of gold in the range of $300 to $650; the West
German government must fix the Deutsche Mark to the U.S.
dollar in the range of DM1.80 to DM2.20; and others must fix
their exchange rates to the dollar, using the balance of payments
as a guide to appropriate monetary policy.
For the new gold standard to function efficiently, U.S. monetary
authorities must allow the money base to increase or decrease
with gold purchases and sales. Governments must coordinate

interest rates "to prevent excessive disparities from developing
between money market centers, and gales of hot money [from]
disrupting confidence and purchasing parity relationships of ex-
change rates and price levels." Governments must embark upon
"multilateral surveillance of the balances-of-payments problems
and exchange-rate policies" and engage in "multilateral discussion
of anti-inflation policies and unemployment-stagnation prob-
lems." Governments must provide for "programmed adjustment
of dollar-gold portfolios of major reserve holders to encourage
more expansive or restrictive monetary policies." To mitigate the
business fluctuation, governments must employ "general budget-
ary policies and, if necessary, incomes policjes ... with tax cuts
and extra government expenditures to stimulate aggregate demand
and reduce unemployment during recessions, and with budgetary
surpluses to restrain aggregate spending in periods of inflationary
boom." These first steps toward a managed gold standard, Profes-
sor Mundell assures us, would improve national economic man-
agement on a scale not experienced since Bretton Woods. *
Robert Mundell's faith in political wisdom and official astute-
ness is shared by few other economists; most are fully aware that
government, acting alone or in cooperation with others, is exercise
of power, no matter in what form, and application of naked force.
It uses power, great or small, in all circumstances. Every point
of the Mundell proposal calls for politicians to enlarge and govern-
ment officials to enforce the power of government. Agents of
government are to provide the money, stabilize it, fix exchange
rates, adjust gold portfolios, stimulate aggregate demand, and, if
necessary, apply income policies, that is, set prices and wages.
The proposal envisions an international command system, coordi-
nated and disciplined, the likes of which has never been seen in
the free world.
Gold miners and their associates may welcome the Mundell
proposal to issue a gold coinage (various fractions of an ounce)
but they should not overlook the stated condition: the stabilized
gold parity, which may never be met. The Mundellian monetary
order would be as unpredictable and unstable as the unadulterated
* Robert Mundell, The Wall Street Journal, September 30, (1981), p. 7.
Keynesian order. It is even more political than the ordinary Keynes-

ian order, which makes for more intervention and disruption.
The Mundellian monetary order would facilitate fiduciary credit
expansion by commercial banks and other financial institutions,
would tempt government to use the system for its own ends, and
would have government officials set and coordinate interest rates.
Once the business cycle had been launched, it would call upon
government to manipulate aggregate demand, which would dis-
rupt all markets and render economic activity even more unstable.
Finally, whatever had not yet been unstabilized would be
thoroughly disrupted by the imposition of police controls over
prices and wages. With all such new factors of instability, it may
be wise not to expect also "the stabilized gold parity" and promised
issue of gold coins.
The Mundellian monetary order would be a festering source
of social and political conflict. It would divide society into two
antagonistic social classes: the regulators and the regulated, those
who issue orders and those who must obey them. In international
affairs, it would reaffirm the supremacy of U.S. officials in all
matters of world finance, and confirm the servile role of all others.
Professor Mundell seems to sense the great potential for interna-
tional strife, which leads him to call for "an imaginative solution
involving a world central bank ... with assets of about $1 trillion."
Unfortunately, he does not advise us whether the trillion is to be
printed before or after the gold-price stabilization; surely, as a
supply-sider, he would not want American taxpayers to shoulder
this amount.
Arthur Laffer
Professor Arthur B. Laffer's proposal for the reinstatement of
dollar convertibility is much less taxing, but more persuasive.
He does not seek to lead the world, but merely to urge the United
States to return to a pre-1933 standard. His Reinstatement of the
Dollar: The Blueprint* describes how to effect the return with
little disruption in financial and real markets. It provides for a
* Arthur B. Laffer, Reinstatement of the Dollar: The Blueprint (Rolling Hill

Estates, Calif: A. B. Laffer Associates, February 29, 1980).
transition period that permits gold, not the economy, to make the
initial adjustment inherent in a return to a gold-based monetary
system. It also allows for "safety valves" that would minimize
the chances of major altercations in the gold market.
To return to gold convertibility, Laffer would prescribe a three-
month preparatory period, during which the Federal Reserve Sys-
tem and the U.S. Treasury would remain completely inactive, so
as not to disrupt the financial markets. At the end of this period,
on the day of reform, the Federal Reserve would establish parity
by making the average transaction price of gold in the London
market the official value of the dollar and price of gold. Thereafter,
it would stand ready to sell gold at a price 0.7 percent higher
than the official price, and to purchase gold at a price 0.7 percent
lower than the official price. Over time, the Federal Reserve
would attempt to establish a gold reserve equal to 40 percent of
its liabilities.
Federal Reserve monetary policy would hinge on this "target
reserve quantity." Within a 25 percent band of this quantity, the
monetary authority would have full discretion to pursue monetary
policy, to conduct open market operations, to discount eligible
paper, and even to intervene in the exchange market; however, if
actual reserves should fall below or rise above the reserve band,
the authority's policy discretion would be removed. The "outer
points" would trigger a mandate for appropriate policy responses
to restore equilibrium. If all the gold reserve protection measures
should fail, all gold dollar conversion provisions would cease.
The standard would be temporarily suspended, and the price of
gold would be set free for a three-month adjustment period.
There is knowledge and wisdom in the Laffer blueprint for
dollar convertibility. He knows the past and, therefore, easily
gleans a warning for the future. He hopes to profit by and gain
experience from past errors. Mindful of the Federal Reserve Act,
a revolutionary piece of legislation in American banking history,
Laffer sets out to build a new order on the old foundation. Unfor-
tunately, he fails to reexamine this foundation to determine
whether it was resting on the great principles and precepts of a
free society.
He who has enough energy to build a new structure should go
further and try to lay a new foundation. Arthur Laffer is reconciled
to the old characteristics of the Federal Reserve System: its control
over money and banking, its legal privileges that made it a money
monopoly with legal tender power, and its enlistment in the service
of government financing. He accepts these offensive features
without question. This apparently also leads him to submit to the
ideological forces that, in time, have weakened, eroded and ulti-
mately destroyed the gold standard. His blueprint simply ignores
the forces of destruction and redesigns the fallen structure. Surely,
Professor Laffer could do more good by meeting and facing the
forces than by ignoring them.
Jude Wanniski
The movement to lower taxes and return to gold received great
impetus from the writings of Jude Wanniski, a former editor of
the Wall Street Journal and founder of Polyconomics. His widely
acclaimed book, The Way the World Works, * which Professor
Arthur Laffer praised as "the best book on economics ever writ-
ten," achieved an overnight influence on contemporary economic
and social thought. It is a popular reader in the suites of corporate
executives as well as in the offices of Congress.
Mr. Wanniski's monetary heroes are Alexander Hamilton and
Nicholas Biddle. Alexander Hamilton, in 1790, recommended to
Congress the creation of a "national" bank that would serve both
as a large-scale commercial bank and as a financial organ of the
federal government. Nicolas Biddle, as president of the second
Bank of the United States, taught us how to run a central bank:
"Stop printing dollars when people show up with dollars demand-
ing gold." The economy always had precisely the right amount
of money.
The whole idea of a gold standard, which has not changed
since Nicolas Biddle pointed the way, is to supply the proper
quantity of money required for transaction purposes, Mr. Wanniski
informs us. Surplus currency is taken to the bank and presented
for redemption in gold; when individuals ask for money in ex-
* Jude Wanniski, The Way the World Works (New York: Simon and Schuster,
1978).
change for gold, the administrators are expected to create it.

How plain and simple, yet so mysterious. Generations of
economists failed to see the simple truth: the administrators of
the national stock of money need merely to determine the money
requirements, which can be ascertained easily by observing the
people. When they redeem some of their money, they signal a
surplus; when they buy currency for gold, they indicate a shortage.
Obedience to this simple rule is guaranteed to maintain financial
and economic stability, prevent painful disruptions, avoid contrac-
tions and depressions, and facilitate steady economic growth!
Actually, there is no given need of money for transaction pur-
poses or any other end. A given quantity of money can render
all the services money is expected to render. Some 175 years ago
David Ricardo eloquently refuted the need argument: "If the quan-
tity of gold or silver in the world employed as money were
exceedingly small, or abundantly great ... the variation in their
quantity would have produced no other effect than to make the
commodities for which they were exchanged comparatively dear
or cheap. The smaller quantity of money would perform the func-
tions of a circulating medium as well as the larger."*
Individual demand for money in any form always depends on
the valuations, preferences, and choices of the individuals who
are holding it. They are bidding for money, or are offering it, in
accordance with their value judgments. People do react to chang-
ing conditions, and they themselves change. When they observe
changes in government that may signal easy money and credit
expansion, they may reduce their cash holdings; when they expect
economic decline and depression, they may increase them.
Individuals may react in different ways. People with undaunted
faith in government management of money may keep greater
money reserves than people who have lost all faith in political
money. Individual action and reaction to money cannot be meas-
ured or calculated, which explodes the notion of a money demand
in a popular sense.
* Piero Sraffa, ed. "The High Price of Bullion," Works, Vol. III, (Cambridge:
Cambridge University Press, 1951), p. 73.
It is spurious to liken the demand for money to the public

demand for a community swimming pool, the water level of
which is kept constant by attentive managers operating the supply
valves; yet even if there were a national money pool, it could not
be converted to anything but paper. Today's newspapers (April 8,
1985) report that "currency in circulation," which means U.S.
dollars in cash holdings, amounts to $179.556 billion, and the
Treasury gold stock to $11.093 billion. If people behaved like
molecules of water in a pool, they could be managed by gold
administrators, but it is highly unlikely that millions of people
could be regulated by a gold valve. For any reason, or no reason
at all, they may rush to the gold redemption agency and withdraw
$11.093 billion as fast as the administrators can hand it out. Mr.
Wanniski's gold standard may last a few hours.
The Federal Reserve report on the money stock reveals M 1 at
$569.3 billion, M2 at $2.42 trillion, and M3 at $3.04 trillion.
Surely, the owners of these forms of money must not be ignored;
they, too, deserve the right to redeem their funds in gold. To
forestall their rush into gold, the administrators may want to raise
the price of gold from $42.22 an ounce, at which the U.S. Treasury
is calculating it today, to $422.20 or even $4,222 an ounce.
However, even such a ninety or ninety-nine percent reduction in
the gold value of the dollar would not remotely meet the potential
demand for gold by people who, for a great variety of reasons,
may run from government money.
Mr. Wanniski prefers not to touch on the issues of individual
choices and actions; he is preoccupied with holistic notions of
national demand for and supply of monopolistic money issued
and managed by wise politicians and administrators. Nor does he
care to search for any explanation of depression and unemploy-
ment other than taxation. He writes eloquently and convincingly
about the ruinous effects of confiscatory tax, but he startles his
readers with his abiding faith in political money.
Congressman Jack Kemp
Congressman Jack Kemp is one of the most prominent and
articulate politicians who favor economic revitalization through
tax cuts, reductions in the size and dominance of government,
and return to honest money, the gold standard. His book An

American Renaissance: A Strategy for the 1980's* is a powerful
indictment of excessive taxation and rampant inflation. Govern-
ment would be more efficient and responsible, Kemp asserts, if
it would create incentives rather than destroy them through taxa-
tion and regulation. He even would reduce excessive federal
spending on the safety net of social programs, which does not
entail removal of the net that protects the poor and weak; he
would reduce the number of people who need it by providing
more opportunities through real growth.
Mr. Kemp's concern about inflation leads him to the gold stan-
dard. Stabilization and reform must be international, he asserts,
because "the United States cannot go it alone." The United States,
together with all its trading partners, must convene a worldwide
conference and reconstruct a stable international monetary order.
"A new international monetary agreement must improve upon the
weakness which led to the breakup of the Bretton Woods system."
In the monetary order, ala Kemp, the monetary standard serves
as an "error signal" for the proper management of the people's
money, "with the people of the country at the switch."t When
government creates more money than the people need for trade
and commerce, they will want to exchange it for gold. When
government produces too little, they will want to buy dollars for
gold. By fixing money to gold, Mr. Kemp insists, "the dollar
value of all other commodities is more or less fixed.":f:
Unfortunately, the Kemp reform plan goes astray where all
supply-siders miss out. It would make government the creator
and guardian of money, grant it monopolistic privilege, and give
it legal tender power. It calls on government to manage money
according to a gold price rule established by government. Surely,
faith and confidence impart a wondrous inspiration to their posses-
sor; but we can no longer share his faith in a government that
has broken our confidence innumerable times.
* Jack Kemp, An American Renaissance: A Strategy for the 1980's (New
York: Harper & Row, 1979).
t Ibid.,p. 100.
t Ibid., p. 114.
A man prone to depend on others to go along is mostly waiting

for others to take the lead. If it is true, as Congressman Kemp
asserts, that "the United States cannot go it alone" and must wait
for others, assembled in worldwide conference, the American
people may be condemned to wait from here to eternity. There is
transcendent power in leadership; the United States can reform
others by leading the way. It can offer a shining example to the
world by setting its people free in all matters of money and credit;
toward that end, no international conference would be needed.
Unfortunately, Mr. Kemp does not search for monetary freedom;
he would like to build on the Bretton Woods system, which was
the product of a 1944 conference of forty-four wartime govern-
ments assembled at Bretton Woods, New Hampshire, and of a
1971 reconstruction by an international conference at the Smithso-
nian Institute, Washington, DC. The Bretton Woods system was
born of government longing for more money, and died from gov-
ernment indulging in rampant creation of money. President Nixon
merely gave it the coup de grace when he suspended gold payment.
Chapter 5
Advocates of Social Credit
In a setting of ominous foreboding, it cannot be surprising that
numerous writers are pressing for reformation of the monetary
system. Under the name and pretense of reformation, they advance
their proposals which, it often turns out, make matters worse.
Reformation, in the world of reality, turns into deformation; while
one defect is mended, two defects may be made. The reform
proposals range from a return to sound money and the unadulter-
ated gold standard, as it existed at times during the nineteenth
century, to proposals for a world central bank that creates world
money and doles it out to member governments.
One of the popular reform movements springs from the
economics of neopopulism and builds on the foundation of the
populist movement that flourished before the tum of the century.
Its nineteenth-century spokesmen demanded principally the free
and unlimited coinage of silver and the government ownership
and operation of all railroad, telegraph, and telephone facilities.
Contemporary neopopulism, particularly its monetary comple-
ment called the "social credit movement," is enormously popular
among conservatives. Dozens of right-wing groups are promoting
new versions of old causes: free and unlimited issue of paper
money, and government ownership of all money and banking
facilities. They all echo the old populist hatred of the "International
Banking Conspiracy" (which frequently turns into the "Interna-
tional Jewish Banking Conspiracy").
Many right-wing groups are enamored of social credit ideas;
they promote and publish books and pamphlets written by authors
like Wickliffe B. Vennard, H.S. Kenan, Congressman McFadden,
Whitney Slocum, Major Douglas, Frederick Soddy, R. McNair
Wilson, A. N. Field, Gertrude Coogan, and above all, Father
Charles Coughlin. Several conservative politicians are known to
favor social credit neopopulism. A few advocates of social credit
try to make their teaching the only true "Christian" one. *
* Gary North, An Introduction to Christian Economics, (Nutley, N.J.: The

Craig Press, 1973) pp. 124-161.
Advocates of Social Credit 55
Wickliffe B. Vennard of Houston, Texas, is an effective spokes-

man of the movement. He holds forth on basic principles of
Constitutional government, and promotes a monetary reform that
is taken from the armory of radical inflationism. Its realization
could have no effect other than the complete destruction of the
American money and credit system.
The preliminary objective of Vennard's proposal, presented as
a "joint resolution" to the legislatures of the states, is the nationali-
zation of the Federal Reserve System. He would like the federal
government formally and legally to own the System, but in spite
of all the fuss and fury about ownership, the objective is rather
empty and meaningless. In essence and substance, the Federal
Reserve System is already the nationalized monetary arm of the
federal government. It is true, the Federal Reserve Act of 1913
assigned the System's "stock" to the member banks, but this
"stock" grants no right of ownership or policy control; the seven
members of the governing body, the Board of Governors, are
appointed by the U.S. President and approved by the Senate.
From the beginning of the System, in 1914, to this very day, they
have conducted money and credit policies in accordance with the
wishes of Congress and, especially, the chief executive, the U.S.
President.
Even if we were to consent to formal incorporation of the
Federal Reserve money and credit system in the U.S. Treasury,
on grounds that such formality would provide little change in
substance, we must object strenuously to the rampant inflation
the Vennardian system would inflict on us. Advocates of social
credit would abolish interest payments on the national debt. Again
and again they emphasize that their monetary system would have
saved taxpayers hundreds of billions of dollars in interest, and
now would save them more than $130 billion every year.
It is obvious that advocates of social credit are unaware of the
first principles of money and interest. To cancel interest payments
on any debt, government or private, is to destroy its value and
the savings of its owners. The federal debt of some $1.738 trillion
(April 3, 1985) is owned by millions of people who invested their
savings in Treasury bills, notes and bonds; they deposited their
money in commercial banks, and savings and loan associations,

bought insurance from insurance companies, opened accounts
with dealers and brokers, nonprofit institutions and pension funds,
which in tum lent the funds to the U.S. government. To cancel
interest payment on this debt is to destroy its value, bankrupt
most of its owners, and deny any future credit to the bad debtor-
the U.S. Government. It would produce an instant depression,
the likes of which no one can imagine.
Owners of credit instruments that do not earn a return may
want to liquidate their claims. The owners of $1. 7 trillion in
federal obligations may demand immediate repayment, which
advocates of social credit are likely to meet with new cash fresh
from federal printing presses. In fact, in a pamphlet prepared by
Wickliffe B. Vennard and distributed by the Constitution Party,
we are told about the benefits of an "interest-free currency." Ac-
cording to Vennard, "Had interest-free currency been used, as
advocated by President Jackson, and constitutionally used by
President Lincoln, instead of borrowing at interest, the u.S. Treas-
ury would have $41 billion cash on hand with no debt."
It is hard to imagine how anyone can so blithely ignore the
effects of rampant inflation. Do advocates of social credit really
believe that the U.S. government deficits of the last seventy years,
of World Wars I and II, the Korean and Vietnam wars, and the
transfer society from Kennedy to Reagan, should have been cov-
ered with an equal amount of brand new cash from the U.S.
Treasury printing presses? The freshman student of economics
learns that the most important factors in the valuation of any
economic good are its utility and scarcity. To print another $1.7
trillion of Treasury notes or Federal Reserve notes and force the
people to accept them would surely reduce their value. Is it pos-
sible that advocates of social credit are unaware of this most basic
principle of economics?
Whenever the federal government spends more than it takes
in, it has no alternative other than to raise its levies or to borrow
the desired funds from those who have saved them. When govern-
ment borrows the funds, it must pay for their use, for people will
not lend their savings to the government, or any other commercial
borrower, unless they receive interest in return.
When government increases its tax exactions in order to cover

a deficit, it deprives taxpayers of the real goods and services; the
same is true when it resorts to currency expansion, i.e. inflation,
which is a tax on all money holders. It reduces the income and
wealth of all owners of money and claims to money, while it
enhances the purchasing power of the money issuer, the federal
government. It is a deceitful and cruel tax, as it silently reduces
the purchasing power of millions of fixed-income receivers, pen-
sioners, widows, and other savers who own money or claims to
money. It breeds economic and political radicalism among its
millions of victims, and destroys the moral fiber of society. In
the end, rampant inflation impoverishes everyone as it weakens
the social division of labor and consumes business capital.
It can hardly be surprising that the social credit doctrines, so
hostile to private property and individual investments, are also
imbued with anti-Semitism. According to Vennard, among all the
world movements aiming for world control, "Zionism is the daddy
of them all, and it has absolute control over these other move-
ments, whether or not the movements realize it."* He also states,
"Our enemy was and is within-the international Zionists who
steered our ships of state from Wall Street by means of money
control." Such are the doctrines of radical statism, simpleminded,
and yet so noxious. Individual liberty has another sound.
Public-spirited advocates of social credit, imbued with love of

freedom and the values of Western civilization, should reassess
their economic beliefs if they find themselves in total agreement
with a resolute foe of their values: an agent of the Soviet Union.
They should be aghast to hear themselves echo communist dogma
and the Party line; unless the agent has changed, they themselves
have embraced the communist dogma. Many advocates of social
credit are articulate in their defense of American values and institu-
tions, yet it can be shown beyond any reasonable doubt that some
of their pronouncements sound like readings from a Soviet
textbook. It can be demonstrated, in particular, that Marxian doc-
* Wickliffe B. Vennard, The Federal Reserve Hoax, 7th ed. (Boston: Meador
Publishing Co., 1959), p. 119.
trines of money and banking have invaded American thinking,

and swayed social credit thought.
In The Fundamentals of Marxist Political Economy, * by
L. Leontyev and published in Moscow, American banking is de-
scribed in familiar language:
A few of the biggest banks advanced to the fore, as in
industry. These banks accumulated huge money resources. In
each of the principal capitalist countries three, four or five big
banks came to dominate the entire banking system. The other
banks were fully subordinated by these giants. The huge capital
accumulated in the banks was invested in industry. This is how
banks became co-owners of industrial enterprises and gained
a say in their affairs.
Giant banks became closely interlinked with monopoly as-
sociations in industry. As a rule, the same tycoons head big
banks and industrial monopolies. Banking and industrial capital
merge and form finance capital. That is why imperialism is
also called the epoch of finance capital.
In each capitalist country the key positions of the entire
economic life are concentrated in the hands of a few of the
richest industrial monopolists and bankers. They dispose of
tremendous capital and lord it in the biggest industrial corpora-
tions and banks. The huge profits created by the labour of
millions of workers flow into their bottomless safes. And he
who rules economic life, rules the entire country. The destinies
of any capitalist country are decided by a few of the biggest
financial and industrial monopolists, the omnipotent financial
oligarchy.
When Marxist authors describe the fortunes of American indus-
trialists, they can hardly be distinguished from contemporary
American writers. The Leontyev description of the Rockefeller
and Morgan wealth reads like a chapter in many American college
textbooks:
* L. Leontyev, The Fundamentals of Marxist Political Economy (Moscow,

U.S.S.R., 1965).
The Rockefellers are old kings. They own oil fields in the
United States, Venezuela, Iran and Eastern Arabian countries.
They are lords, and masters in various mining corporations,
banks, railways, insurance companies and very many other
enterprises. The control of the Rockefellers extends to enter-
prises with a total value exceeding $60,000 million.
The powerful house of Morgan is a rival of the Rockefellers.
These are the steel kings. The possessions of the Morgans
extend to banks and insurance companies, railways, public
utilities and many other enterprises. The wealth controlled by
the house of Morgan exceeds $65,000 million.
The Rockefellers and the Morgans are the biggest financial
groups in the United States. Together with six other large finan-
cial groups they control banking, industrial, insurance, railway
and other establishments valued at more than $218,000 million.
This is more than one fourth of the resources of all the corpo-
rations in the United States. *
In his Imperialism, the Highest Stage of Capitalism, V. I. Lenin,
the Russian revolutionist and first premier of U.S.S.R. , described
capitalist banking:
Finance capital, concentrated in a few hands and exercising
a virtual monopoly, exacts enormous and ever-increasing profits
from the floating of companies, issue of stock, state loans,
etc., strengthens the domination of the financial oligarchy and
levies tribute upon the whole of society for the benefit of
monopolists. t
In his 1917 essay, The Proletariat and the Party on the Road to
October, Lenin promised the prompt nationalization of all banks
in case of communist takeover. "We did not propose nor could
anybody have proposed, anything but the immediate establishment
of control over the trusts, the banks, trade, the parasites, and over
foodstuffs. ":j:
* Leontyev, op. cit, p. 78.

t V. I. Lenin, Selected Works (New York: International Publishers, 1960),
Vol. V, p. 47.
:t: Ibid., Vol. VI, p. 142.
And finally, Karl Marx, the ideological father of them all,

recommended a central bank in Point Five of his Communist
Manifesto, first published in 1848. The Communist State was to
be realized through government measures that achieve "centraliza-
tion of credit in the hands of the Federal Government, by means
of a central bank with government capital and an exclusive
monopoly. "
It is indicative of the incredible confusion among many Amer-
icans, and especially advocates of social credit, that they echo
the Marxian and Leninist lines while professing to defend Amer-
ican values. They denounce the large fortunes of our eminent
industrialists, blithely ignoring that these fortunes consist of pro-
ductive capital employed in the service of millions of consumers
and managed far more efficiently by their owners than by politi-
cians and bureaucrats. They attack our bankers and stockbrokers,
totally unaware of the paramount importance of free capital mar-
kets that channel the peoples' savings to the most productive uses,
rather than to politicians and bureaucrats. They clamor for centrali-
zation of currency and credit in the hands of a government-owned
central bank, although such centralization constitutes the cor-
nerstone of a command system.
III
TERMINATING THE MONEY MONOPOLY
To facilitate trade and social cooperation, societies need a reli-

able and honest medium of exchange. This is why, from the
beginning of time, they have searched for such a medium among
a great variety of economic goods, from cattle and com to powder
and shot. When gold and silver proved to be most marketable,
they sought to standardize coins for purposes of convenience and
order. Unfortunately, the quest for order brought forth the political
lord who, in urgent need of revenue, seized the power over the
mint and made it an important source of revenue.
The history of Western society is a long register of the struggle
between the individual longing to be free and the political lord
insisting on sovereignty and order. The struggle over money must
be seen as an integral part of this fateful confrontation. Where
people seek liberty, self-determination and self-government, they
seek to rega~n their freedom of money or, at least, to force govern-
ment to be honest in monetary matters. They may lead government
to adopt an unadulterated gold or silver standard.
The classical economists gave the world a new perspective on
economic life and ushered in an age of individual freedom and
enterprise. They succeeded in imparting honesty to money matters
but, unfortunately, failed to remove government entirely from the
people's money. In retrospect, the classical economists proved to
be naIve in their trust of politicians. They looked upon the costs
of a metallic currency-the gold coin standard-as a waste, which
the gold bullion standard was said to reduce. They blithely as-
sumed that no government of a civilized nation would exploit
such a standard for inflationary objectives.
David Ricardo, perhaps the most influential English economist
of the nineteenth century, placed his trust in the hands of commis-
sioners who "not removable from their official situation but by a
vote of one or both Houses of Parliament," would issue paper
62 Terminating the Money Monopoly
money. "Five commissioners shall be appointed, in whom the

full power of issuing all the paper money of the country shall be
exclusively vested."*
Many contemporary economists still echo this particular train
of thought. While we may understand the naivete of classical
economists, who had never experienced hyperinflations and de-
valuations in England, modem economists cannot be exculpated
so easily. They should be aware of the warning by William Graham
Sumner, the great Yale economist of the pre-Federal Reserve era:
Scheme after scheme has been proposed and tried for realizing
the gain which it was believed that cheap money could produce
for the public; that is, for those who buy and use currency.
This gain has been pursued as the alchemists pursued the
philosopher's stone, by trial and failure. Whether there be any
such gain or not, our attempts to win it have all failed, and
they have cost us, in each generation, more than a purely specie
currency would have cost, if each generation had had to buy
it anew. . . . The revulsions to which the system was subject
overwhelmed us in every decade. The notions on which the
system was based are proved to have been delusions, disastrous
to everybody concerned, including those who tried to profit by
them.t
To return to sound money is to return to free money, free from
any infringements by politicians and bureaucrats. Monetary free-
dom, like all other economic freedoms, clears the way for energy,
intellect and virtue. However, it is an unfortunate fact that most
Americans are no longer seeking freedom; they are surrendering
their inalienable rights to politicians and government officials
who promise comfort and security.
It may be a maxim of economics that government, which is
the political apparatus of coercion, cannot improve economic
conditions by hampering productive efforts. Political control
weakens individual self-reliance and energy, causes want and
* David Ricardo, "Plan for the Establishment of a National Bank," Works,
Vol. IV., ed. Piero Sraffa (Cambridge University Press, 1951), p. 285.
t William Graham Sumner, "History of Banking in the U.S. ," The Journal
of Commerce and Commercial Bul1etin, 1896, p. 472.
Terminating the Money Monopoly 63
poverty and, in the end, breeds tyranny and oppression. In matters

of money and banking, political control leads to government
creation of monopolistic rights-in particular, to a central bank
with legal tender powers and monopolistic privileges. It gives
rise to a money and banking monopoly resting on legislation,
jurisdiction and police enforcement. Obviously, such a monopoly
differs fundamentally and diametrically from the phantom of
monopoly depicted by Marxist writers. The former rests on brute
police power; the latter springs from the fertile imagination of
Marxist writers who know little about the private property order.
Chapter 6
The Gold Standard
The gold standard, in its broadest sense, is a monetary system
that uses gold as the primary medium of exchange. It was the
monetary standard of the Western world throughout the ages, from
Philip II of Macedonia in the fourth century B.C. to the United
States of the twentieth century. It was paramount in the Byzantine
and Arab empires, and in the great commercial republics of Italy
during the thirteenth century and thereafter.
In a narrower sense, the gold standard is a legal-tender system
in which government makes a fixed weight of gold the standard
money unit. Under this standard, the U.S. dollar was a piece of
gold of a certain weight and fineness, with free coinage, free
melting and free movement of gold. It was a gold coin standard
that put gold coins in the cash holdings of the people, along with
bank notes, checkbook money, and fractional coins. They all were
money substitutes, payable on demand in gold coins.
The virtues of the classical gold standard were twofold:
1) It limited the power of government to inflate the stock of
money and thus depreciate monetary purchasing power. The
supply of gold remained unrelated to the needs of govern-
ment and the presumed needs of business. It depended in-
stead on the costs of mining, refining and processing, which
effectively limited the quantity of newly mined gold coming
to the market.
2) The classical gold standard united the world in one monetary
system, facilitating world-wide division of labor and growth
of the world economy. With national currencies representing
fixed quantities of gold, it gave certainty and stability to
exchange rates. It created international capital markets, and
encouraged the exportation of European capital to all comers
of the world, bringing economic life to many backward
areas.
Mutilation and Destruction
Deterioration of the gold standard set in when, early in this
century, governments began to restrict the actual use of gold, and
The Gold Standard 65
hoard it in their treasuries or central banks. They gradually estab-

lished the gold bullion standard, which introduced the people to
paper money. Gold coins were withdrawn from cash holdings and
replaced by national currency that was no longer redeemable in
gold coins, but only in large, expensive gold bars. The gold
bullion standard, in effect, prevented redemption by most people,
limiting it to a few specialists in international trade and finance.
During the early decades of this century, many countries had
standards of this type.
The gold standard system was weakened further by the advent
of the gold exchange standard. Some governments preferred to
hold their country's gold reserves in foreign claims to gold rather
than in actual gold. They were buying and selling foreign curren-
cies that continued to be redeemable in gold coin or gold bullion
at rates reflecting the legal parity. A few central banks thus accumu-
lated the world's monetary gold and became the reserve banks of
the world.
After World War II, the Bank of England and the U.S. Federal
Reserve System controlled most of the world's monetary reserves.
More than sixty nations were ,I holding their reserves in pound
sterling claims to gold, forming the sterling area. Some twenty
nations, mainly in Latin America, belonged to the dollar area;
however, the Bank of England was holding most of its reserves
in dollar claims to gold. This made the Federal Reserve System
the ultimate reserve bank of the world, and the gold exchange
standard a de facto dollar exchange standard.
During the 1950s and 1960s, several monetary crises and runs
from the British pound triggered world-wide demands for dollar
redemption. These demands greatly depleted the American stock
of gold, and created precarious payment situations. During the
crisis of March 1968, most governments joined the British govern-
ment in blunting the gold exchange standard even further. They
introduced the "two-tier system" that called for gold payment
among governments and central banks and summary denial of all
private claims for redemption in gold. At the same time, President
Johnson persuaded the Congress to remove the requirement that
one fourth of U.S. currency be backed by gold.
The final repudiation was performed by President Nixon on

August 15, 1971, when he suspended all U.S. gold payments.
Notwithstanding the international agreement on the resumption
of gold payments reached at the Smithsonian Institute a few weeks
later, which he called "the most important monetary agreement
in the history of the world," the U.S. government chose to re-
pudiate all gold claims. Thus ended the gold exchange standard
and began the world dollar standard.
The demise of the gold standard in its most insipid and feeble
form ushered in the age of irredeemable legal-tender paper money,
which is a product of politics under the guiding influence of
public opinion. It is synonymous with the age of inflation and
monetary depreciation. Every national currency is falling nearly
continually; all have been devalued officially, and several replaced
with new issues that are depreciating again. The paper standard
is self-destructive.
Natural Qualities of Gold

The gold standard will return as soon as people realize that
honesty is the best policy. As hope of ill gain is the beginning of
the fiat standard, so is honesty the mother of the gold standard.
The gold standard is as old as civilization. Throughout the ages,
the gold standard emerged again and again because man needed
a dependable medium of exchange. Gold provided such a medium.
It was the most marketable good that gradually gained universal
employment-and thus became money. Its natural qualities, i.e.,
its use for the manufacture of ornaments and jewelry, its easy
divisability, great durability, storability and transportability, made
this precious metal well suited to serve as money.
Gold is more marketable than any other economic good. As
economizers, we like to carry a reserve in the form of gold-coins,
nuggets, bullion, gold ornaments and plate-because it is readily
saleable and acceptable in trade. It can be exchanged easily on
the markets for other goods, and can be hoarded for exchange at
a later date. It can be readily sold in small quantities or larger
sums without much difference in price, to individuals of all races
and nationalities. Every individual is a potential buyer, although
he may not need the gold. It may be added to the store of personal
wealth, and passed from generation to generation as an object of

family wealth. There is no other economic good as marketable
as gold.
Gold is an abundant commodity, accumulated for more than
two millenia, unessential for consumption and, therefore, avail-
able to serve as money. Existing supplies of gold, in the form of
coins, jewelry, decoration and plated coating, are greater by far
than annual production or consumption; this makes annual addi-
tions of gold through new mining rather unimportant. This charac-
teristic of gold, in which it differs from all other metals, removes
the risk of sudden changes in quantity that would affect its value.
Governments throughout the ages have sought to amass gold
in their treasuries because it meant wealth and power. Yet its use
as a medium of exchange has caused it to be diffused with the
passage of time. In contrast, platinum, palladium and other pre-
cious metals are industrial metals in the possession of dealers and
producers, which limits their marketability and deters their use
as money. Even silver cannot compete effectively with gold be-
cause its current production, relative to its visible supplies, is
large, exposing its value to sudden changes in quantity. No other
metal has such large stockpiles and small current production as
gold. No other commodity enjoys as much universal acceptability
and marketability as gold. It is naIve to believe that irredeemable
paper based on the debt of legal-tender governments could ever
acquire the universal marketability and take the place of gold.
No one had to make the gold standard work as an international
system; it evolved without intergovernmental treaties and institu-
tions. When the trading countries had adopted gold as their cur-
rency, the world had an international money. True, the coins bore
different names and had different weights; this hardly mattered
as long as they consisted of gold and could be exchanged freely.
An ounce of gold is an ounce of gold, whether it consists of
guineas, sovereigns or eagles.
An International Standard
The gold standard was a world standard, facilitating interna-
tional trade and investment. It encouraged countries to specialize
in the production of those goods in which they enjoyed the greatest
advantage, thus raising labor productivity and levels of living.

Moreover, it permitted and encouraged exportation of capital from
the industrial countries to backward areas, from London and Paris
to New York and Buenos Aires. In search of profitable employment
opportunities on all continents, European capital built commerce
and industry, and thereby improved the living conditions of people
around the globe.
Countries on a gold standard suffered no balance-of-payments
problems, no shortages of money, no currency crises. Exchange
rates of bank notes, bills of exchange and acceptance, moved
between two definite points: the gold import and export points,
which were determined by the costs of transport and gold delivery.
When the use of gold was less expensive than foreign exchange,
debtors preferred to ship gold rather than drafts and acceptances
to settle a foreign debt. Gold would enter a country when foreign
debtors would prefer to ship gold to buying exchange. They would
prefer to ship gold if their own currency was inflated and depre-
ciated, or if gold itself were coming to the market from new
mining.
The gold production that followed the discovery of gold in
California (1849) was probably the greatest the world had wit-
nessed heretofore, which caused the United States to suffer large
exports of gold. During the 1850s and 1860s, large quantities of
California gold entered the markets, and even larger quantities
of greenbacks took the place of gold. The reasons for the outflow
of gold were well understood: the growing quantities of money
in individual cash holdings.
Under the gold standard, commercial banks and central banks
kept their currencies at par with gold and foreign exchange through
unconditional redemption. At the parity rate, they bought any
amount of gold against domestic banknotes and deposit currency.
They sold without discrimination at the parity rate. The gold
standard thus provided trusted national currencies that were mere
money substitutes for the world medium: gold.
Creation of Freedom
Monetary freedom can be expected to give rise to the gold
standard and private gold coinage. From colonial times until the
middle of the nineteenth century, Americans used gold coins struck

by private mints. The Chalmers Shilling, issued by a goldsmith
of Annapolis, Md., in 1783, was freely used by the founding
fathers. The ten-dollar pieces coined in 1830 and later by the mint
of Templeton Reid of Georgia, containing gold valued at $10.06,
widely circulated throughout the South. Another mint in Ruther-
fordton, North Carolina, issued some $2.2 million of gold coins.
In fact, an 1851 U.S. Mint report speaks of twenty-seven different
kinds of gold coins issued by fifteen private mints. This number
even increased thereafter, when numerous private mints in Califor-
nia issued fine gold coins bearing the names of the manufacturer.
Business transactions were conducted in these coins, which also
served to redeem money substitutes, such as bank notes and
deposits. Redemption on demand kept them at par with gold.
In freedom, the gold standard is a gold coin standard that is
utterly independent of government. It is true, it cannot achieve
the unattainable ideal of an absolutely stable currency. There is
no such thing as stability and unchangeability of purchasing power,
but the gold standard protects the monetary system from the
influence of governments, as the quantity of gold is utterly inde-
pendent of the wishes and manipulations of government officials
and politicians, parties and pressure groups. There are no "rules
of the game," no arbitrary rules which people must learn to ob-
serve. It is a social institution that is controlled by inexorable
economic law.
The issuers of money substitutes, whether private or public,
keep their currencies at par with gold through unconditional re-
demption. A note-issuing bank buys any amount of gold against
its currency or deposits at the parity rate, and sells indiscriminately
and on demand any amount of gold against its notes or deposits.
It thereby renders no national service, nor "defends" nor "protects"
its currency. It merely fulfills the contract it made when it issued
the money substitutes.
Under the gold coin standard, inflationary policies are not ren-
dered impossible, but made difficult. Redemption demands and
the threat of drains of their gold reserves would restrain the issuers
of money substitutes from inflationary expansion. Any such expan-

sion would alarm the owners of substitutes and cause them to
demand redemption in gold coin, which would spell ruin to the
issuer.
Chapter 7
Beyond The Gold Standard
The age of inflation is rooted in illusion, which promises em-
ployment and growth, income and wealth with just another spin
of the printing press. It will draw to a close when we return to
explanations that are true, rather than pleasing. That day will
come as soon as the American people grow weary of booms and
busts, depreciations and devaluations. At that time, they will
listen to the story of gold-and be utterly confused by the great
number of standard varieties and proposals.
Most reform recommendations are vague in their objectives.
The vagueness lends appeal and strength to the gold movement,
which concentrates its attention on the failings of the present
monetary order, rather than on concrete features of a gold standard.
A few proposals are very clear in their objectives and the measures
to be taken, but whether vague or clear, nearly all proposals call
on the federal government to conduct a reform and enact a new
monetary order based on gold.
Most reform advocates would like to restore the gold standard
as it existed at a given moment in history. Some would return to
the gold coin standard of the pre-Federal Reserve era, when the
gold dollar was the basic currency unit and the Treasury gold
reserve the pillar of the currency system. Some would lead us to
the standard of the 1920s, under which the new Federal Reserve
System sought to manage and neutralize the gold coming from
abroad by issuing gold certificates instead of reserve notes. Some
would restore the standard of the 1930s, when the Federal Reserve
Board received much control over member bank credit and cen-
tralized authority and responsibility within the System. Some
would be content with returning to the Bretton Woods system,
which made the U.S. dollar the kingpin of national currencies
and placed it on a foundation of gold.
A few economists are eager to break new ground and move on
to a new monetary order based on gold. They, in tum, hold to a
great variety of opinions on the proper relationship between the
quantity of money and the quantity of gold. At one extreme, some
favor a standard of one hundred percent with a rigid one-to-one
relationship. At the other extreme, some envision a small fractional

gold reserve and a flexible relationship managed by monetary
authorities.
Some favor the gold standard to avoid monetary management;
others want it as a guidepost for managers. Some favor the use
of gold coins; others would be content with redeemability in gold
bullion. Some would impose reserve requirements on banks;
others would subject them to no special conditions. Some would
limit or even prohibit the issue of money by government; others
would impose no special limitation on government. However,
they all agree that the issuer must be honest, that he must honor
his commitment to pay a certain quantity of gold. He must not
"devalue" his obligation; the gold content of his money must be
inviolate.
One of the most sagacious monetary thinkers is Nobel Laureate
F. A. Hayek. Coming a long way from his earlier acquiescence
in legal tender and ready acceptance of central banking, he now
proposes a "denationalization" of money. In the classic tradition
of Adam Smith, he argues that government monopoly of money
is destabilizing economic life and breeding inflation. It is permit-
ting government to inflate its own expenditures and generate busi-
ness cycles. Trying to take money out of politics, Hayek searches
for the solution in the self-interest of monetary associations that
would suffer economic repercussion if they failed to supply satis-
factory media of exchange. It is a revolutionary proposal that
would replace government control of money with freedom of
choice, and the central bank with competing private issuers in
the market.
Hayek finds grievous fault with the gold standard, and yet
manages to defend it. "Though gold is an anchor," he argues,
"and any anchor is better than a money left to the discretion of
government-it is a very wobbly anchor. It certainly could not
bear the strain if the majority of countries tried to run their own
gold standards. There just is not enough gold about." Further
below, he speaks for the gold standard under certain conditions.
"I still believe that, so long as the management of money is in
the hands of government, the gold standard with all its imperfec-
Beyond the Gold Standard 73
tions is the only tolerable safe system. But we certainly can do

better than that, though not through government."*
What Hayek has in mind is a standard kept constant, but not
fixed, by competing private issuers who, from the outset, would
announce the collection of commodity prices in terms of which
they would keep their moneys constant. In international money
markets, a few note-issuing banks "might continue to try and
refine the precise composition of the standard 'basket' of com-
modities whose price they tried to keep constant in their cur-
rency. "t Professor Hayek obviously is building his "concurrent"
currency system on his "commodity reserve currency" of earlier
years.
Joe Cobb and James U. Blanchard III, who are the moving
forces of the U.S. Choice in Currency Commission, build their
case on the desirability of competition in money and banking.
Competition in financial services and deregulation of banking,
they argue, are moving forward rapidly, but we must now proceed
to the next phase: a competitive environment for the Federal
Reserve System. We need competition in currency.
The Currency Commission envisions the competition to come
from a second currency, the "Gold Eagle," which was the recom-
mendation of the U.S. Gold Commission to Congress. It induced
the friends of gold in both houses of Congress to introduce The
American Gold Eagle Coin Act (H.R. 1663 and S. 42), calling
for a new gold coinage to compete with the Krugerrand in the
domestic market. There would be no fixed price between Federal
Reserve notes and Gold Eagle coins, no official exchange rate.
The U.S. Treasury would, at all times, offer the one-ounce coins
for sale at a free market price.
One-ounce gold coins obviously would be too expensive for
use in most retail trade transactions, but they may serve as alternate
currency units in mortgages, long-term bonds, certificates of de-
posit, and other instruments of domestic and international finance.
With further deregulation of American banking, they could be
* F. A. Hayek, Denationalization of Money, (London: The Institute of
Economic Affairs), 1978, p. 126.
t Ibid., p. 72.
useful for a competitive deposit system that avoids the uncertain-

ties of policy and the instability of Federal Reserve money.
Proposed Legislation
Where there are thought leaders who offer new ideas and exp-
lanations, men of action soon appear and implement changes in
policy. American thought leaders congregate in or around informal
organizations such as the Foundation 'for Economic Education,
the Leadership Foundation, the Cato Institute, the Foundation for
Rational Economics and Education, the Council for Monetary
Reform, the Mises Institute, the Institute for Humane Studies,
the Pacific Institute, the Committee for Monetary Research and
Education, Citizens for a Sound Economy, the Freeman Institute,
the Choice in Currency Commission, and several investment news-
letters informing and guiding their readers. The men of action
are eminent politicians on the national scene who, in the halls of
the U.S. Congress, are acting on enduring principles.
In 1981, Congressman Ron Paul introduced a bill (H.R. 391)
that would revolutionize the monetary order by authorizing free
banking and repealing the legal tender laws. It would simultane-
ously restore individual freedom in monetary affairs, salvage rem-
nants of the old order, and mandate the direction of the new order.
It would establish a new goldgram currency, and require one
hundred percent reserves, not only for bank notes but also for
bank deposits. To save the U.S. dollar, it would provide for'a
fixed conversion rate between the dollar and the gold currency,
and assure its redemption at this ratio. The bill proposing the
Monetary Freedom Act was cosponsored by Congressmen Thomas
Hartnett, Jim Jeffries, Philip Crane, Daniel Crane, George Han-
sen, and Mark Siljander.
A reform bill introduced in both the House and Senate, H.R.
3789 and S. 1704, was called the Free Market Coinage Act.
Sponsored by Senators Symms, McClure, Helms and Goldwater,
and Congressmen Daniel Crane and Ron Paul, it would establish
freedom of choice in currency for individuals. All legal tender
statutes in conflict with the law would be repealed, and financial
services denominated in units of gold would be deregulated. It
would create a government coinage consisting of a five-gram
Beyond the Gold Standard 75
Adam Smith gold coin, a ten-gram Jefferson gold coin, a Lincoln

coin of one-troy-ounce gross weight, and a Kennedy coin of
one-troy-ounce net weight. The U.S. Treasury would redeem, on
demand, Federal Reserve notes and deposits in gold coins at the
market price.
Senator Steve Symms of Idaho introduced an ingenuous propos-
al (S. 1849) that calls for the issue of gold bonds. Denominated
in one, five and ten kilograms of gold, the principal and interest
of these bonds would be paid, at the option of the holder, in
bullion-weight coin or in dollars. The rate of interest would be
two percent and the maturity fifty years. Bonds and coupons
would be highly liquid and negotiable, which would permit them
to form the basis for a new gold standard with gold-denominated
currency.
The Symms proposal, as well as all other reform proposals,
reveal the best intention for sound money and restoration of a
gold standard, but many good purposes and intentions lie buried
in the archives of the U.S. Congress. Nearly all the proposals
call for reform laws, restoration laws, or other government coop-
eration in the return to sound money. They decry the mismanage-
ment of money by government and, therefore, press for new rules
of management based on gold. However, rules of management,
no matter who drafts them, are not sufficient to produce good
results unless the monetary order itself is safely lodged on a solid
foundation.
A few proposals are seeking to rebuild the foundation. F. A.
Hayek, Ron Paul and others, questioning the very rationale of
central banking and legal tender, would rebuild the monetary
order on the foundation of freedom of transaction in any kind of
money. They are enjoying encouragement and support by influen-
tial writers such as Howard J. Ruff, Gary North, Jerome Smith,
Mark Skousen, John Pugsley, Lewis Lehrman and James
McKeever. To all of them, freedom is a necessity that enables
the monetary order to be what it ought to be.
One recent proposal, introduced into the U.S. Congress by
Representative Jerry Lewis and Senator Robert Dole, would pro-
vide for the minting of one-ounce gold and silver bullion coins
from the large stockpiles of gold and silver held by the U.S.
government. This bill, H.R. 1123 and S. 636, would create a

new form of money to compete with Federal Reserve notes and
dollars. These gold and silver coins would not be legal tender in
the usual sense; however, they could be used to discharge debts
contracted for payment in gold and silver. No one would be forced
to accept the gold and silver coins, but they would be a legally
recognized form of money useable as an alternative to government
paper money. Unfortunately, the bill would make the U.S. Treasury
the sole issuer of the coins. Nevertheless, it would be a step down
the road to monetary freedom.
Chapter 8
Free Money
Currencies are sound, not as they are managed, but as they are
free. This essay urges reconstruction of the monetary order on
the foundation of freedom. It differs from all other reform propos-
als in both the simplicity and audacity of its objective: only
freedom. It neither petitions government to grant a reform act or
issue gold bonds, nor proposes to render currency constant with
a basket of commodities. It merely calls for individual freedom
as an inalienable right. Monetary freedom, in its present political
and economic setting, would give rise to a parallel standard that
freely admits both the old and the new: Federal Reserve notes
and deposits, U.S. Treasury moneys, and whatever free people
are prone to try; however, this writer is confident that, in freedom,
gold will emerge again as the most marketable economic good
and the most popular and dependable monetary standard.
Restoration of sound money may be a long and arduous task,
as it was lost in a gradual erosion of monetary freedom. We may
have to retrieve it slowly and painstakingly. We seek no reform
law, no restoration law, no conversion or parity, no government
cooperation: merely freedom. The road is short and direct, and
yet, depending on the resistance offered by ignorance and pre-
judice, by political greed and lust for power, it may take us many
years to traverse. For the weary traveler, it has several intermediary
steps that provide convenient targets for supreme effort. The legal
underbrush that has grown up over the years-legal tender laws,
tax discrimination against gold and silver coins, banking regula-
tions preventing the opening of accounts denominated in ounces
of gold, and so forth-must be cleared away so that Americans
are once again free to use sound money.
The primary objective must always be the abolition of the
money monopoly and legal-tender coercion. Man possessed, prior
to the formation of any state, the right to provide for his own
sustenance. He has an inalienable right to his life and to sustain
it through his own effort and ability. Every restraint of this right,
whether practiced by a monarch or a popular assembly, is a degree
of tyranny.
Political money with legal-tender power, which is currency

issued by politicians or bureaucrats and forced on people at face
value, is an ominous restraint of human rights. Currency sheltered
from competition by criminal law threatening fines and imprison-
ment is an alienation of politics. It causes inflation and depres-
sions, and breeds social and political strife. Money is the most
important economic good, the basic tool for man's division of
labor and peaceful exchanges; in the hands of politicians and
endowed with monopolistic privileges, money becomes dishonest
and despotic, violates contracts, sanctions legal fraud, and takes
property without compensation. Political money raises taxes with-
out legislation.
Government may never voluntarily surrender its monopolistic
money powers. Politicians and bureaucrats can be expected to
defend them with all the instruments of coercion at their disposal,
from fines and imprisonment to capital punishment. The only
time monopolistic money powers may be violated with some
degree of immunity is in times of hyperinflation, when the evils
are clearly visible to everyone, even to a federal judge or legislator.
When the last measure of conceivable coercion has failed, and
the last penny of money income and wealth has been taken from
lenders and given to debtors, the political monopoly game may
be suspended for the moment. Politicians and reformers may then
press for a new currency, a new monopoly issue-so that the
game may be played all over again.
We must call a halt to the monopoly game. We need a free
money movement that opposes the game by any conceivable peace-
ful means, through information, education, legislation, litigation,
and demonstration. Newspapers and journals must try to enlighten
the public on this important subject; they must show how the
money system impoverishes most people .and benefits politicians,
government officials, and entitlement cronies.
Legal tender coercion permits debtors, of whom the largest is
the U.S. government, to pay their creditors with minidollars.
Lenders, holders of savings bonds, for example, are cheated out
of most of their income and wealth. They owe it to themselves
and future generations to press their charges of fraud, to seek
compensation for losses suffered, and to advocate the abolition
Free Money 79
of the money monopoly. Although their chances of success, at

first, may be negligible, they would impart valuable information
and knowledge which, in the end, may enlighten even judges and
legislators. Legal tender victims, such as owners of savings bonds
and life insurance, who are paid off in minidollars, must be
imbued with the same fervor of resistance that the numerous
advocates of social credit have, pressing their futile pleas for
interest-free "constitutional money."
The free-money resistance movement may want to forge an
alliance with the tax resistance movement, which scored remark-
able success in recent years. The popular opposition to onerous
taxation of income and real property should lend support to the
call for "no taxation through inflation" or "no exaction through
legal tender." While tax rebels may refuse to make payment to
the taxing authorities, the legal tender rebels would have to refuse
payment offered in legal tender minidollars and would have to
press for full-value settlement of debt. Legal tender legislation is
political aggression against honesty and social peace. It is mone-
tary dictatorship no matter where it is practiced. He who resists
the legal tender monopoly is defending honesty, decency and
peace.
The leaders of religion, ethics and morality should join the free
money movement. Listening to the loud voices of politicians and
legislators or counting votes does not provide answers to questions
of morality. Legal tender legislation that deprives lenders of their
rightful claims is immoral; a majority vote cannot make it right.
In a society seekingjustice, the individual who distrusts political
money is free to refuse it, unless he has a contractual obligation
to accept it. If no one can force bad money on anyone, it cannot
do any harm. If individuals have the choice to refuse bad money
or accept it at its market value stated in gold weight units, bad
money will only harm the issuer. The owner of a U.S. Treasury
bond falling due, or a life insurance policy that is payable, or a
mortgage loan that is outstanding, would refuse payment in
minidollars or accept them at a discount reflecting their loss of
purchasing power.
Without the legal tender force, the issuer of bad money could
issue his money only at a discount or, if the public has lost all
confidence in his integrity, would be unable to issue any, but he

always would be liable to accept his own money at the stated
value. In short, he may be able to issue money at a discount, but
must accept payment at face value. It is doubtful that, under such
conditions, the issuer of money would care to print another cent.
Even a government dedicated to easy money and credit expansion
might hesitate to issue any more.
In a monetary order without legal tender and a money monopoly,
there could be no inflation. Printing and issuing new money would
not raise the prices of goods and services, but would merely lower
the exchange rate of the issue in terms of other competing moneys.
People would discount depreciating moneys, but would not gen-
erally raise prices. Good money would drive out bad money; this
would be the opposite effect that inflation has in the legal tender
system, in which bad money drives good money into hiding
(Gresham's Law).
Inflation is a symptom of the money monopoly; it comes to
an end only when the monopoly is dismantled. The monopoly
may swell and retreat-always in accordance with the aspirations
of the politicians in power. Its end result is destruction of the
national currency; this is followed by "currency reform" that brings
forth another monopoly issue, which in time will be inflated
again. The age of inflation is likely to endure as long as the money
monopoly is allowed to exist.
The road to honest money and peaceful social relations is
marked by a few mileposts. The first mile post points toward the
inalienable right of everyone to select his own money. Every
individual must be free to use whatever economic good is person-
ally acceptable. No one has the legal right to force one type of
money on another, no one has the right to demand payment in
any particular medium of exchange, unless he has a valid contrac-
tual right to such payment. There must be no legal tender coercion,
not even of gold or silver.
AlllegaJ tender laws must be repealed and all monopoly banking
privileges rescinded. Obviously this cannot be done at once, but
this must be our goal. Government regulation and manipulation
of money must cease; the credit and banking prohibitions, licens-
ing, and the penalties inflicted and favors bestowed must come
Free Money 81
to an end. The individual must be free again to use gold or any

other medium of exchange. The ordinary law of contract, rather
than public law and regulation, must again apply to economic
production.
There are several specific steps that must be taken to end the
money monopoly. Each of these actions is designed to remove
restraints on competition in money and banking and to facilitate
the development of sound money. A free money movement, con-
sisting of both coalitions of organizations and new organizations
of citizens for sound money, must strive to achieve the following
objectives:
1. Mint gold and silver coins denominated only by weight and
purity.
2. Repeal legal tender laws and permit specific performance
of payments.
3. Permit financial institutions to issue private notes, and per-
mit banks to accept deposits denominated in foreign curren-
cies and weights of gold and silver.
4. Permit free entry into banking.
5. Permit interstate banking.
6. End mandatory membership in the Federal Reserve, the
Federal Deposit Insurance Corporation (FDIC), and any
other agency or cartel.
7. Prevent tax discrimination against all forms of money.
Monetary freedom cannot repair the incalculable damage
wrought in the past; it cannot heal past wounds inflicted by the
money monopolists during more than seventy years of their reign.
Freedom cannot restore the people's savings and pensions depleted
by depreciated money, nor can it exact fair compensation from
the money monopolist. There can be no restitution, because the
monopolist has no wealth that can be distributed. Coercion must
not breed more coercion; evil must not be permitted to bring forth
more evil.
We may call this new system of monetary freedom the "parallel
standard." It would not in the least curtail honest government or
impede government finance. Stripped of its monopolistic powers,
the Federal Reserve System could continue its operations, and

the U.S. Treasury would receive taxes and make payments in
Federal Reserve money. All contracts stated in U.S. dollars would
have to be met in U.S. dollars, but contracts stated in ounces and
grains of gold, silver or any other unit would have to be met in
the money agreed upon in the contract.
Government money and contract money would be used side
by side, and their exchange ratio would continually fluctuate in
response to changing valuations. The market, unimpeded by
Gresham's law, would determine the ratio. If Federal Reserve
money should fall to a discount versus other moneys, the U.S.
government, as its legal parent, would have to accept it at face
value, but could not force it on hapless victims at face value.
Individual freedom in exchange transactions is impaired when
financial institutions must bow to a money monopoly. It is
weakened severely when banks may not enter into a gold contract,
receive deposits of gold, make loans in gold and hold claims to
gold, although the individual may have such rights. Most financial
institutions in the United States lack basic freedom in monetary
matters. They are examined by one or several of the federal
supervisory agencies, which exercise a considerable influence on
lending and investing policies. Through their insistence upon
"sound standards" for the "protection of depositors," as defined
by the supervisors, regulators encourage financial institutions to
submit to the money monopoly.
The American banking system today is as vulnerable as it was
during the 1920s and 1930s. The 1985 crises in Ohio and Maryland
are undeniable evidence of that vulnerability. Living faithfully by
the rules of present legislation and regulation, banks are caught
in the vise of inflation and regulation. They have suffered, and
continue to suffer, staggering losses in wealth and purchasing
power, which they pass on to their depositors.
They must be set free to compete in their services, to hold and
use gold, to enter gold contracts, to receive gold deposits and
make gold loans, just like individuals. Banks must be deregulated.
For gold received, they must be free to issue gold coins or gold
certificates. If, for any reason, government cannot be made to
set them free, it must be prevented from restraining new compe-
Free Money 83
tition that tends to arise from unexpected quarters. Gold will

come forth wherever government does not prevent it. Gold does
not need legal tender force; no honest money needs legal tender,
but it needs to be free from government regulation, taxation,
manipulation, intervention, and the threat of confiscation.
Sound money and free banking are not impossible; they are
merely illegal. This is why money must be deregulated. All finan-
cial institutions must be free again to issue their notes based on
ordinary contract. In a free society, individuals are free to establish
note-issuing banks and create private clearinghouses. In freedom,
the money and banking industry can create sound and honest
currencies, just as other free industries can provide efficient and
reliable products. Freedom of money and freedom of banking,
these are the principles that must guide our steps.
Index 85
A Communism, 6, 57, 59
Communist Manifesto, 60
Age of inflation, 71, 80
Competition, 9, 25, 73, 81, 82, 83
American Gold Eagle Coin Act, 73
Conspiracy, 54
Argentina, 1, 5
Constitution of the United States, 29,
35, 36-37, 39, 55
B
Constitution Party, 56
Balance ofpayments , 6, 7,45,46,68 Constitutional Amendment, 36, 37
Bank of the United States, 49 Continental dollar, 28, 38
Banks and Banking, 1, 2, 5, 13, 15, Contracts, 8, 19, 24, 69, 82
18, 21, 33, 40, 48, 54, 58, 59, Contracyclical policies, 16, 43-44
63,73,74,77,80-83 Coogan, Gertrude, 54
Biddle, Nicolas, 49 Coughlin, Charles, 54
Bill of credit, 38 Council for Monetary Reform, 74
Bimetallism, 26 Courts of law, 24
Blanchard, James U., 73 Crane, Daniel, 74
Brazil, 1, 5 Crane, Philip, 74
Bretton Woods system, 18, 19,32,45 Crisis, 2, 6, 15, 82
46, 52, 53, 71 Currency reform, 55, 77, 78, 79, 80,
Business cycle, 15,34,35,38,39, 72 81
Byzantine Empire, 64
D
c
Debt
California gold, 68 Federal government, 17
Capital international, 1, 4, 5, 6
consumption, 17, 18, 40, 42 repudiation, 6, 40, 66
formation, 41, 58, 64, 68 Deficit, 3, 7, 9, 19, 26, 40, 42
repayment, 8 Depression 2,6, 7,35, 38, 39,50,51,
Cato Institute 74 56, 78
Central bank, 5, 11, 12, 15, 20, 22, Devaluation, 44
25, 31, 40, 44, 60, 63, 65, 68, Developing countries, 1, 2, 4, 5, 6
72,75 Dole, Robert, 75
Chalmers Shilling, 69 Dollar
Choice in Currency Commission, 73, crisis, 40
74 float, 44, 45
Citizens for a Sound Economy, 74 standard, 3-8, 18, 19, 66
Civil War, 28 Douglas, Major, 54
Classical economists, 62
Cobb, Joe, 73 E
Command system, 5, 15, 16, 21, 46,
60 Economics, new, 32
Commercial banks, 5, 6, 40, 47, 49, Elasticity
68, 69, 81 credit, 31
Committee for Monetary Research currency, 31, 32
and Education, 74 Employment Act of 1946, 14, 16
86 Index
England, 15, 20, 62 G

Eurodollar market, 4, 5, 40
Exchange rates, 8, 32,45,46,64,68, Give-backs, 18
80,82 Gold
bullion standard, 3, 61, 65, 72
F classical standard, 64
coin standard, 3,46,47,61,64,65,
Federal Deposit Insurance Corpora- 67-72,76,77
tion, 35, 39, 81 "dethroning", 8, 9, 35, 40
Federal Reserve dollar standard, 3, 65
Act of 1913, 12, 13, exchange standard, 3, 65, 66
20, 21, 48, 55 movement, 71, 83
Board, 13, 20, 55, 71 parity, 18,44,46,47,48,65,68,69
booms, 14, 15, 21, 38 price rule, 43, 52
control, 3, 15, 17,44,48,49,65, 71 qualities, 37, 66, 67
credit expansion, 2, 3,4,7,14-20, standard, 5,19,25,26,32,42,43,
22,24,25,36,39,40,43,48, 45,
50, 53, 80 48-52, 54, 61, 64, 65, 68, 69,
deficit financing, 3, 7,9, 17, 19,43 71,72,75
depressions, 2, 35 Gold Eagle, 73
gold reserves, 31 Goldwater, B., 74
governors, 12, 13, 14, 20, 21 Government
independence, 12, 13 federal spending, 6, 16,42
loans, 2, 4, 5, 9, 14, 19 mint, 23, 81
money monopoly, 1, 12,22,25,39, Grant, Ulysses S., 28
43, 44, 73, 74 Gresham's Law, 80, 82
nationalization, 55
Gross National Product, 41
open-market committee, 43
ownership, 55
System, 3, 4, 5, 7, 9, 12, 16, 18, H
19, 20, 31, 48, 82 Hamilton, Alexander, 49
world bank, 40 Hansen, George, 74
Fiat standard, 8, 66 Hartnett, Thomas, 74
Field, A. N., 54 Hayek, EA., 72, 73, 75
Fisher, Irving, 39, 43 Helms, J., 74
Foreign aid, 6 Holzer, Mark, 29n
Foundation for Economic Education, Hong Kong, 20
Inc., 74
Hope, 38, 41, 42
Foundation for Rational Economics
Hughes, Charles Evans, 29
and Education, 74
Hyperinflation, 18, 27, 78
Frankfort, 20
Free Market Coinage Act, 74
I
Free Money movement, 71, 78,79,81
Freedom, 9, 21, 27,36,57,61,62,68, Inflation, 2, 3, 11, 16, 18-23,27,28,
69,72,74-77,81-83 31,34,37,39,41,45,46,52,
Freeman Institute, 74 55, 56, 57, 61, 66, 69, 70, 72,
Friedman, Milton, 33-37, 39, 45 78, 80, 82
Full employment, 14, 15, 43
Index 87
Institute for Humane Studies, 74 Lenin, V. I., 59, 60

Interest Leontyev, L., 58
abolition, 35, 36, 55, 56, 79 Lewis, Jerry, 75
rate, 2, 8, 14, 17, 42, 46, 56 Lincoln, Abraham, 28, 56, 75
International Bank for Reconstruction
and Development, 32 M
International Banking Conspiracy 54
Macroeconomics, 35
International Monetary Fund
Malinvestment, 36, 38
emergency fund, 2
fonnation, 8, 32 Marx, Karl, 60
Insurance companies, 56 Marxism, 57, 58, 63
Iran, 59 McClure, J. A., 74
Israel, 27 McFadden, Congressman, 54
Italy, 64 McKeever, James, 75
Medicare, 42
J Mexico, 1, 2, 5, 6
Mint, 23, 75, 81
Jackson, Andrew, 56 Mises, Ludwig von, 37n
Japan, 19 Mises Institute, 74
Jefferson, Thomas, 75 Money
Jeffries, Jim, 74 demand, 2, 3, 49-51
Johnson, Lyndon Baynes, 65 denationalization, 72
Joint Congressional Resolution, 55 fiat, 18,24,32,35,37,38,39,44
government, 11, 16
K managed, 3, 11
monopoly, 1, 11, 12,23,25,26,28,
Kemp, Jack, 43, 51-53 44,49,52,63,72,77,78,80,82
Kenan, H. S., 54 source, 22-23, 32
Kennedy, J. E, 56, 75 substitutes, 64
Keynes, John Maynard, 32, 45 stock, 15, 35, 36, 51, 64, 65
Keynesians, 33-36, 40-45, 47 value, 22
Monetarists, 33, 34, 35, 36, 38, 40,
41, 42, 44, 45
L Monetary Freedom Act, 74
Monopoly, 80
Labor income, 17, 18 Morgan, J. ~, 58, 59
Laffer, Arthur, 43, 45, 47-49 Mundell, Robert, 43-47
Leadership Foundation, 74
Legal tender N
definition, 11 Nationalization, 55, 59
force, 23-26, 28, 29, 43, 44, 49, Naivete, 44, 61, 62, 67
52, 63, 77, 78
Neo-populism, 54
gold, 64, 66, 67
legislation, 22, 24, 27,38,74, 77, New Deal, 20
79,81 Nixon, Richard M., 53, 66
Lehnnan, Lewis, 75 North, Gary, 75
88 Index
o Smithsonian Institute, 53, 66

Social credit, 54-58, 60, 79
Organization of Petroleum Exporting Socialism
Countries (OPEC), 5, 19
support, 6
Open-market operation, 15, 43, 48 vanguard, 20
Soddy, Frederick, 54
p
Special Drawing Rights, 8
Pacific Institute, 74 Stability, 13, 18, 37-40 42-47 50
52,64 '"
Palladium, 67
Stabilizers, 35, 39
Parallel standard, 8, 26, 77, 81
Sumner, William Graham, 62
Paris, 20, 68
Supply, 32, 39, 67
Paul, Ron, 74, 75
Supply-siders, 41-45,47, 52
Pension funds, 16, 56
Symms, S. D., 74, 75
Philip II of Macedonia, 64
Platinum, 67
T
Poland, 5
Polyconomics, 49 Taxation, 16, 25, 26 41 42 44 49
56-57, 79 " , , ,
Politics, 3, 4, 11, 15, 18, 21, 26, 33,
35,36,41,46,47,50,51,52,54, Tokyo, 20
57,61,62,63,66,74,78,79 Treasury obligations, 7, 19 29 36
Portillo, Lopez, 6 56, 77, 79 '"
55 of the United States ' 12 , 13 ,
President Turkey, 5
Two-tier system, 65
Productivity, 18,40,42,60,62,68,81
Pugsley, John A., 75 u
Public works, 6
Underground economy, 19, 28
R Unemployment, 7,14,15,32,46
U.S. Supreme Court, 28, 29
Reagan, Ronald, 41, 56 U.S.S.R., 57, 59
Religion, 79
Ricardo, David, 50, 61 v
Rockefeller, John D., 58, 59
Roosevelt, F. D., 20 Venezuela, 5, 59
Ruff, Howard J., 75 Vennard, Wickliffe B., 54-57
s w
Savings institutions, 56 Wages, 47
Schwartz, Anna, 34 Wa11 Street Journal, 49
Siljander, Mark, 74 Wanniski, Jude, 43, 49, 51
Silver, 2, 8, 26, 50, 61, 67, 75, 76, 77 Welfare, 6, 42
Simons, Henry C., 33, 34 Wilson, R. McNair, 54
Skousen, Mark, 75 World central bank, 18, 20, 47, 54
Slocum, Whitney, 54
Smith, Adam, 72, 75 z
Smith, Jerome F., 75 Zaire, 5
Zionism, 57
Money and Freedom is a remarkable study of money and some
fateful errors of popular monetary doctrines. It explodes the popu-
lar notion that money cannot be left to the functions of the market
order and therefore must be controlled by government. Professor
Sennholz argues forcefully and convincingly that such control,
which amounts to a money monopoly, causes monetary destruc-
tion. Money is inflated, depreciated, and ultimately destroyed
whenever politicians and officials hold monopolistic power over
it.
The American people would have been spared the evils of
inflation if many economists had not committed fateful blunders
in dealing with monetary issues. Money and Freedom critically
examines the blunders.
ORDER FORM
Additional copies of Money and Freedom can be ordered from:

The Coalition For Sound Money
The Leadership Foundation
7945 MacAuthur Boulevard, Suite 201
Cabin John, MD 20818
Quantity Price per Copy Shipping/Handling

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What are some of the causes of economic disintegration discussed in the book?

What are some of the causes of economic disintegration discussed in the book?

What are some of the false solutions to economic issues discussed in the book?

What are some of the false solutions to economic issues discussed in the book?

MONEY

Center for Futures Education, Inc.

MANUFACTURED IN THE UNITED STATES OF AMERICA

I. THE CAUSES OF ECONOMIC

II. FALSE SOLUTIONS: MANAGED MONEY. 31

U.S. Senator (Idaho)

In the early weeks of 1973, when the Watergate controversy

officials to assume control over man's financial affairs and estab-

Dark clouds have gathered over the world's financial system.

precipitate countless other failures in a chain reaction that, in a

century, the people of most Western countries were united on a

A World Money Standard

its means, enjoy massive imports from abroad while it exports

developed countries its primary beneficiaries. Foreign central bank

u.s. grants and loans permitted corrupt governments to indulge

Building Socialism with American Money

Federal Reserve has been made to benefit primarily the U.S.

Massive foreign investments in the United States raise the ques-

The essential element of this reform is freedom. U.S. currency

To inquire into the causes of specific monetary policies is to

On all crucial issues the System had to accede to the wishes of

* Board of Governors, The Federal Reserve System, Purposes and Functions,

Wielding three "instruments of control"-discounts, open mar-

expansion, which are said to be "contracyclical" in nature. Accord-

Government, at first, may merely seek to "redistribute" income

The world desperately needs a common money that facilitates

Federal Reserve actions are felt in London, Paris, Frankfort,

* Board of Governors, The Federal Reserve System, Purposes and Functions

As can be expected, all the System's publications are attempts

Government Power Over Money

Government achieved full control over paper money with the

tender is the legal obligation, enforced by courts and police, of

standard; when given to silver, a silver standard. Legal tender

businesses who dare to discount the money and charge higher

In societies accustomed to civil obedience and submission to

Legal Tender in the United States

tender. It was a foregone conclusion thereafter that the Court

* Henry Mark Holzer, Government's Money Monopoly (New York: Books

FALSE SOLUTIONS: MANAGED MONEY

To give "scientific" justification to their lofty claims, a host of

* John Maynard Keynes, The General Theory of Employment, Interest and

finite rules laid down in legislation) the quantity (or, through

t Essays in Positive Economics (Chicago: University of Chicago Press, 1953),

United States. * According to their findings, lack of monetary

False Solutions Build on Force

* M. Friedman and A. Schwartz, A Monetary History of the United States

Futile Search for Absolute Stability

monetary stability when their emperors resorted to every conceiv-

The Friedman amendment, unfortunately, would cause the same

The increasing importance of government obligations as bank

hope of higher productivity and greater efficiency that assure

taxation, would recapture some of those characteristics and usher

cyclical credit manipulation; however, Keynesian managers ex-

at Columbia University, New York. His protege, Arthur Laffer,

with gold purchases and sales. Governments must coordinate

Keynesian order. It is even more political than the ordinary Keynes-