"There is no maxim in my opinion which is more liable to be misapplied, and which therefore needs elucidation than the current one that the interest of the majority is the political standard of right and wrong...." ~ James Madison
Crop Seeding in America
Exclusive to STR
September 25, 2008
Everything possible is done to prevent the fraud of the monetary system from being exposed to the masses who suffer from it. ~ Rep. Ron Paul, TX, before the U.S. House of Representatives, February 15, 2006
The gold standard did not collapse. Governments abolished it in order to pave the way for inflation. ~ Ludwig von Mises, The Theory of Money and Credit, 1953
The quotes from Paul and Mises are political heresy, yet they hint at why government crises have long dominated the headlines. Why doesn't the public understand this? Libertarians often observe that government doesn't work, but clearly, it does some things right or those statements would be conventional knowledge. Put another way, why is the idea of sound money so foreign to most people? Why do they trust the state's inflatable notes and the inflationist in charge of them, then wonder why the economy blows up? Given its record, why do they trust the state at all?
Year in and year out, government schools produce students who either (a) could care less about monetary issues, or (b) have state-approved ideas of them. Government crop management weeds out potential trouble-makers.
What is inflation?
In the mid-Sixties, I was aware of none of this. But having read about gold in Atlas Shrugged, I decided to find out something about inflation and wrote to the Treasury Department to request a brochure that purported to lay it out in terms anyone could understand. In reply, they sent me a Peanuts comic book.
Though I didn't know it at the time, using cartoon stars to promote government viewpoints was nothing new. In 1942, Treasury had commissioned Walt Disney to produce a film called The New Spirit in which Donald Duck's radio tells him it is 'your privilege, not just your duty, but your privilege to help your government by paying your tax and paying it promptly.' The following year the government revoked that 'privilege' and imposed withholding, a temporary measure to see the country through The Good War that killed an estimated 73 million people, over half of whom were non-combatants.
Like Donald Duck a generation earlier, the Peanuts gang attempted to charm people into the state's bed. Inflation, you see, was a rise in prices, and if we want robust economic growth and low unemployment, some inflation is necessary. It was only bad if it got out of hand. But we needn't worry because here in the USA we were privileged to have an agency called the Federal Reserve ready to pounce on inflation if it got too high or too low.
Charlie Brown and company were singing the same tune as my 1968 Alchian & Allen economics textbook, which states flatly that 'Inflation is a rise in the general level of prices.' [p. 649] World War II was the Good War, withholding was temporary, moderate inflation is a good thing, even if, at 3 percent, the dollar loses half its value in 14 years. God's in his heaven, all's right with the world.
Hazlitt and Mises
A little later I descended into the catacombs of dissent and discovered authors no one ever talked about, such as Henry Hazlitt and Ludwig von Mises. In particular, I found this astonishing claim on page one of Hazlitt's What You Should Know About Inflation:
. . . the plain truth is our political leaders have brought on inflation by their own money and fiscal policies. They are promising to fight with their right hand the conditions brought on with their left.
Inflation, always and everywhere, is primarily caused by an increase in the supply of money and credit. In fact, inflation is the increase in the supply of money and credit.
Hazlitt was saying our leaders were in the business of manufacturing money. Later on he said the cure for inflation was to stop inflating. 'It is as simple as that.' Zero inflation, as measured by the money supply, not prices, was the ideal condition.
Given what I knew about government, here was an explanation that made sense, and I mentioned it in a conversation I had with an engineer friend. 'The government is in complete control of inflation,' I said, 'because it controls the money supply. It creates inflation by printing money.'
He looked askance. 'The government prints money? That doesn't sound right. As much as I distrust government, I can't believe they'd try something like that. Not as a policy, at least.'
This was during the late 1960s, the guns and butter years of the Johnson administration, when Vietnam and the Great Society were bleeding people literally and financially, when few books challenged the status quo on money and banking. No authoritative voice condemned the government for inflating the money supply to pay for the slaughter overseas and the handouts at home. Inflation was a topic of discussion only because goods and services started to cost more, and blame for that, of course, was placed on business and labor, not government. When seen only as a rise in prices, inflation not only shields the guilty, it places them in the role of the people's champion.
Even Mises, in his classic The Theory of Money and Credit, avoided using the term 'inflation' and talked instead about inflationism:
Inflationism is that monetary policy that seeks to increase the quantity of money.
Further on, he said it would be 'highly dangerous' to use the word 'inflation' in a theoretical book such as his because the precise definition of the term is far different than 'its meaning in everyday discussions of currency policy.' [p. 240]
That brought my inquiries to a temporary close. I engaged myself with other interests and forgot Hazlitt, Mises, and the countless Keynesians of the world. Let the professional economists fight it out. I had a decent day job and a programmer's subroutine library I was marketing, not to mention twin daughters I was helping to raise. Besides, Greenspan became Fed chairman in 1987, and who better to serve in that post than a man who cherishes free markets and the gold standard?
Then sometime in the 1990s, I read Murray Rothbard's What Has Government Done to Our Money?
Rothbard filled in the gaps. He discussed how money emerged from barter economies, how banks came into being and began loaning out its depositors' money without their knowledge; how government, always hungry for revenue, came to the aid of the banks whenever their depositors lined up demanding their money, allowing bankers to suspend specie payment, sometimes for years, while letting the banks remain in business. He talked about how the government imposed a central bank on the economy to safeguard the bankers' racket of fractional reserve banking, which most of the world accepts as normal and uncontroversial, and how the central bank, as the monopolist in control of the money supply, could 'buy' government securities in the manner of a child playing make-believe, with money created out of thin air, and that the government could use this money to do whatever furthered its interests. Inflation, he said, was legal counterfeiting.
As luck would have it, the new Federal Reserve System coincided with the outbreak of World War I in Europe, and it is generally agreed that it was only the new system that permitted the U.S. to enter the war and to finance both its own war effort and massive loans to the allies; roughly, the Fed doubled the money supply of the U.S. during the war and prices doubled in consequence. For those who believe that U.S. entry into World War I was one of the most disastrous events for the U.S. and for Europe in the twentieth century, the facilitating of U.S. entry into the war is scarcely a major point in favor of the Federal Reserve. 
Rothbard's Wall Street, Banks, and American Foreign Policy covers this episode much further, explaining how 'World War I came as a godsend' for the financially-troubled Morgan empire and how the Morgan-dominated Fed played a crucial role by creating the money needed to keep the slaughter going and the profits rolling.
The era of Greenspan
Well, that was then, but we had Greenspan running the Fed now, and wasn't he trying to manage the monetary system as if we were still on the gold standard? In the years since his insightful defense of gold, Greenspan had fallen in love with political power. Commenting on Greenspan's nomination as Fed chairman, Rothbard noted that
Greenspan's real qualification is that he can be trusted never to rock the establishment's boat. He has long positioned himself in the very middle of the economic spectrum. . . [H]e wants moderate deficits and tax increases, and will loudly worry about inflation as he pours on increases in the money supply.
What did Greenspan actually do during his tenure? By the close of 2001, he had increased the money supply by $4.5 trillion as measured by the late M3, more than twice the amount of all other Fed chairmen combined (according to Bonner and Wiggin). In late 2002, Nobel laureate Milton Friedman praised Greenspan for having 'the best record of any Fed chairman in history.' Friedman, the alleged champion of free markets, blamed the Great Depression on the Fed for not printing enough money and for not forbidding bank runs. No one ever complained of insufficient 'accommodation' under Greenspan's watch, and it's no surprise that a man who saw inflationism as a necessary element of a modern economy had such praise for Greenspan's printing press.
Innocent blunder or great hoax?
In a speech on December 19, 2002, Greenspan admitted the CPI had gone ballistic in the half-century following Roosevelt's gold confiscation order, but in recent decades central bankers had shown they could 'contain the forces of inflation' by maintaining more 'prudent' monetary policies. If we should wonder about all those trillions flying off the presses during the 1990s, it was justified by the 'New Economy,' in which globalization and information technology would create permanent gains in productivity much like electricity had done during the early decades of the 20th Century. For almost a decade, the technology-dominated NASDAQ index offered living proof of this proposition, soaring from 500 in April 1991 to 5,132 in March 2000. Most importantly, the New Economy, with its innovative inventory and productivity management, had seemingly eliminated the boom'bust cycle, the demon that had haunted capitalism [p. 188] since the advent of the Industrial Revolution. For the first time ever, the good times were here to stay.
Given the train wrecks piling up on the financial landscape and the current massive bailout proposal, it's clear that once again many people have been seduced by the Fed's fairy dust. In December 1996, Greenspan worried his party guests were behaving with irrational exuberance, but people imbibing cheap credit have never been paragons of restraint. Greenspan's wanton inflationism funded today's mess. No inflation, no crisis ' it's as simple as that.
Re-seeding the crop
But this is a minority viewpoint. Few people in the MSM see this crisis as the outcome of Fed inflationism. Why?
Sixty years ago, Garet Garrett wrote:
There is a long history of monetary experience. It tells us that government is at heart a counterfeiter and therefore cannot be trusted to control money, and that this is true of both autocratic and popular government. The record has been cumulative since the invention of money. Nevertheless it is not believed. [my emphasis]
It's as if 'monetary delusions are, by some strange law of folly, recurring and incurable,' he says. When sound money was in use, its supply was limited ' by nature and economic law, not by government planners. For that reason, the state abolished it and stuck us with a money they can create at will. The state's money removes the idea of limited means, and since it's controlled by the state, it removes the idea of limiting the state. Given the federal influence on education, media, and just about everything, should we be surprised no one is on center stage calling the government a counterfeiter?
But exposing the fraud, as Garrett said, results in disbelief. People can handle corruption. The fiat money'central banking system we're under is an insidious form of enslavement. That sounds too much like a government conspiracy, which the public has been taught to marginalize if not outright reject.
Then there are those who see the damage counterfeiting causes but claim the reason is the Fed's sin of being privately-owned, discounting the government's role in appointing the FOMC voting majority and other aspects of the system. They call for moving the printing presses to some pristine government agency responsible to elected officials, as if we would be better off if the Fed were run like the SEC , FDA, or FEMA.
Perhaps the severity of this crisis, as government 'solutions' become more nakedly larcenous, will move people to search out the causes of the mess for themselves. If so, they might start listening to Ron Paul. From there, they might turn to the extensive literature of the Mises Institute or the many commentaries on Strike The Root and other libertarian websites.
Yes, it's somewhat fantastic to imagine the public not acquiescing in whatever government does to them, but the Paulson proposal could act as a kind of shock therapy. Now is the time for people to be asking: How can we establish a system of sound money and free banking? The guys running the show certainly won't ask it for them. People in the 1930s didn't have the Internet, and that is what today's public must begin with if they want straight answers.