A Couple of Fallacies


Column by Paul Hein.

Exclusive to STR

Forgive me for repeating myself, for I have written about these matters before. However, my readership in those days, decades ago, varied between one and two, and today it must be at least ten times as large, and, as the economy crumbles, these ideas seem worth repeating.
First let’s consider the truly absurd statement: “There’s no such thing as a free lunch.” If that were true, our economy would be thriving, instead of withering. Here’s proof: suppose you have lunch in a fine restaurant, and the bill is $35. You “pay” for your meal by writing a check. Has your lunch cost you anything? You’ve simply written numbers on a scrap of paper: a negligible—if any--expense.
The restaurateur, in turn, endorses your check over to the busboy. Have you paid for your meal yet?
The busboy uses your check to buy some CDs. The record store owner then endorses it over to his dry cleaner, to pay his cleaning bill. Have you paid for lunch yet? You can see where this is going, I’m sure.
“But wait,” you say. “Eventually someone will take that check to the bank, and THEN you will have paid for your lunch, when $35 is deducted from your account.” Ah, so true! But you are a smart fellow. The next time you eat in that restaurant, you don’t “pay” by check; instead, you give the owner a note. Of course, it is not a genuine note, for it does not indicate exactly what is to be paid by whom to whom, when or where. But it does bear the remarkable legend: “this note is legal tender.” That means that, although fraudulent, it can be passed without the legal consequences usually attendant upon the passing of a bad note. In turn, this means that whoever receives the note can then “spend” it. There’s no need ever to take it to the bank, as the bank will give you nothing for it. It’s “money,” at least in the eyes of the public. With it you can not only get a free lunch, but breakfast and dinner as well. In fact, you can buy the restaurant, or anything else that catches your fancy. The catch is that you can only do this if you’re authorized to create and circulate such “notes.” That rules out most of us, for although we can generate promissory notes, we can’t dub them “legal tender,” or have them regarded as “money.” And we have to pay them with something other than more of our notes.
Well, I didn’t promise that the system would be fair, only that a free lunch is definitely possible!
Another fallacy is similar to the first. It is this: the national debt should be paid, and the banks expect that, someday, somehow, the government will repay its loans. This belief isn’t as explicit as the one about the free lunch, but the experience of most people is that debt must be paid, or very unpleasant consequences will follow. So why shouldn’t that apply to government debt?
Consider: the bank lends the government $10 billion. The interest is going to be about $500 million yearly. The bank got the $10 billion the same way it got a free lunch: by promising to pay, with its promise accepted as the payment itself! In other words, the $10 billion loan cost the bank no more than it had to pay for lunch: nothing. (In the eyes of the general public, this loan is ordinary, proper, and utterly legal, whereas even the ever-somnolent man in the street would have smelled a rat if the bank had simply directly created $500 million in profit for itself, year after year.) If the government repaid the loan, that yearly interest of $500 million would cease. Terrible! In return for having merely entered a number in an account, the bank can collect the services and goods of others to the extent of half a billion dollars yearly! Why would the bank want that loan to be repaid? Not only would the bank lose the half billion in interest yearly, the money supply would be reduced by the $10 billion principal, for as money is created as a loan, it is annihilated when repaid.
And why would the government want to repay it, when it is chronically short of funds? It is in neither party’s best interest to repay the loan.
Why is this destroying the world’s economy? Because the creation of money as a loan means that, since interest is charged, more money must be repaid than was created. But no problem!! Money is created with the stroke of a pen! Debt can be repaid by further borrowing. If the burden of debt becomes too great, and businesses close their doors or go bankrupt, Uncle Sam can continue to borrow, with his borrowing a “stimulus” to the economy. It is a “stimulus” like cocaine, or strychnine.
The economy will die from this toxic “stimulus,” but until it does, the rewards are simply too great to resist. Years ago, I attempted to calculate what the interest was on the national debt. I estimated it was about $1 billion DAILY--weekends excepted. My figures may be off: maybe it’s only half a billion today. Maybe, though, it’s more.
But as long as people are willing to provide lunch for those “notes,” the injustice will continue, and the lunch--and everything else--will be free to the creators of “legal” tender.  

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Paul Hein's picture
Columns on STR: 150


Samarami's picture

Good article, Paul, and food for much thought (pun intended).

My oft-repeated silver dollar story tells a deeper tale, and offers a glimpse of the nature of the fraudulent bubble created by notes backed by nothing. My old Morgan silver dollar, worn moderately, can be exchanged for around 35 federal reserve notes today. In other words, the US "dollar" (FRN) has been devalued by parasites called "government" to the extent it can purchase only about 1/35 of what the "dollar" was promised to purchase: one ounce of silver.

The difference has been illusory "wealth" (inflation = quantitative easing) to pay for wars and deep pockets. But that's only part of the story: precious metals have been purposely deflated through value manipulation on commodity exchange markets -- or, more accurately, fiat dollars have been manipulated to reflect a higher than actual value to metals.

That will change abruptly, I fear, when (not "if") gangsters at the helm of key places such as China and/or Russia decide to call in US debt. They have the power to reduce the value of the FRN to approximately zero, and I presume gangsters here would then trot out a new "currency" (which is rumored to be ready to circulate at a moment's notice).

Gary North has a better prospectus on the situation. You can read his most recent essay here.


Suverans2's picture

U.S. DEBT CLOCK real time.

"Full faith and credit", which is what the U.S. dollar is "backed by", means, “every person in the state has an obligation of make any sacrifice necessary for the good of the state”. To clarify that, “every person who is a voluntary member [citizen/subject] of the state has an obligation of make any sacrifice necessary for the good of the state”. If one is a “stranger to the covenant” he is a “stranger...to [its] transaction[s]” and is therefor not “liable for the debt”.

Strangers' are 'Those who are in no way parties to the covenant or transaction, nor bound by it, are said to be strangers to the covenant or transaction. See also Stranger.” Okay, well will.

A “Stranger” is “one who in no event resulting from the existing state of affairs can become liable for the debt, and whose property is not charged with the payment thereof and cannot be sold therefor”. (Source: Black's Law Dictionary, Sixth Edition, page 1421)

Suverans2, Stranger to the Covenant

Samarami's picture

Well, Suv, I think I'm still on the white man's books as "...Illegal Tax Protestor..." and nowadays also a "...Tax Resister..." I'm no doubt a member of the "no fly club" (doubt if the goons would let me board commercial and they're getting much more egregious in dictating who can ride, let alone pilot, private craft).

I'm without doubt on at least one "terrorist watch list" due to posts here and all over the web rejecting "...love-of-country..."; and the drug narcs and snitches and even the "vice" clowns have their eye peeled for me (I presume), since I'm a big promoter of "black" markets -- the only truly free market in town.

So "Stranger to the Covenant" for a suspicious old fart like me would almost amount to a compliment, don't you think?


Suverans2's picture

G'day Sam,

"A tax protester is someone who refuses to pay a tax on constitutional or legal grounds, typically because he or she believes that the tax laws are unconstitutional or otherwise invalid. Tax protesters are different from tax resisters, who refuse to pay taxes as a protest against the government or its policies, not out of a belief that the tax law itself is invalid."

However, subsection (a) of section 3707 of the 1998 Act now prohibits "officers and employees of the Internal Revenue Service" from designating a taxpayer as an “illegal tax protester” or using any similar designation for a taxpayer.

As you may already know, only a "taxpayer", (which is defined in the 1990 Black's Law Dictionary as, "One who is subject to a tax on income, regardless of whether he or she pays the tax",) can lawfully be on the white man's books as a "...Tax Protestor..." or a "...Tax Resister..." If you are not "subject to a tax on income" then you can't be either one of those, obviously.

Samarami's picture


    "...then you can't be either one of those, obviously."

Nobody asks what I is. To the white man, I is what HE sez I is. When he sez it -- and when he changes his mind, I ain't what he said I was 'cause he sez I wasn't after his mind has been changed (to wit: "tax protestor" is now "tax resister" -- a legal point for euphemistics only). So what I was, I ain't; and what I wasn't, I is.

The white man ver, ver smart. He is, he is.

And that's the legality of the demented beings organized into what I (and a number of natives to this part of the world) affectionately refer to as "the-white-man". If "legalities" had any meaning to them (and that would include Professor Charles Black -- see Murray Rothbards notations in Anatomy of the State) there could be no "income tax".


Suverans2's picture

G'day Sam,

Well, then, I guess you is what "the-white-man" says you is; you is a dues payin' member of the Country Club. End of story.

Samarami's picture

The older I get the harder it is for me to make my point clear. No -- I am not a dues payer ('tho I've had some hefty extractions without my consent).

White man he play by no rules. What he sez he means he thinks he means. If he wants to label me this, that or something else, that is not within my control. To badger him with "the law" is a pissin' into the wind. I tilt at no windmills.

Has nothin' to do with me, what he call me. Whets my skill at dancing through the trees is all.


Suverans2's picture

"...the chief task of the rulers is always to secure the active or resigned acceptance of the majority of the citizens." ~ Excerpted from Anatomy of the State by Murray Rothbard

They, no doubt, have it.

But, as for me and my house...