Well, first of all, just so you know, I have this whole spiel written out and I'm only going to touch on a few of the points in it, but if you feel so moved by my presentation and you find yourself weeping at the end that it's over,
I have the whole thing available online. I've made a special page that'd be easy to remember on my website. So it's tomwoods.com slash paper. That's where you can find it. So easy.
Now I have had over the years intellectual opponents of various stripes and some of them have driven me crazy and others have forced me to re-examine my views and refine or even change them all together.
And I have had opponents I have considered to be very honorable people. The philosopher Ed Faeser, for example, I think is an extremely smart guy.
I'm a smart guy. He constantly makes me think. When I discuss things with him, I even sometimes think maybe I'm wrong. He is very persuasive and a gentleman.
I haven't felt that way when dealing with the Greenbackers, however. So if it sounds like I'm just being gratuitously mean, I'm really going to try not to, even though if you could see the things that they said about me, good grief.
Greenbackers, neo-Greenbackers, neo-Greenbackers, neo-Greenbackers,
and more closely to what's being said, because these folks want to end the Fed because it's
not inflationary enough, because the Fed is supposedly a private institution, so the Fed's
problem evidently is that it's not socialistic enough for the greenbackers, and moreover
that the Fed has this terrible problem, the whole banking system under the Fed creates
problems that can't be solved.
So for example, more debt is created than can be repaid.
That when money is created, it enters the system
in the form of debt.
But at the same time, the amount of money
that would be necessary to pay the interest on all that debt
is not created.
And so people are playing a game of musical chairs,
where not everybody, by definition,
mathematically it's impossible.
Not everybody will be able to repay all the loans that
have been contracted.
And so the Greenbackers are folks who say what we need, therefore, is to get rid of the Fed, have the money issued directly by the government, and have the money be debt-free.
Now, what do I mean by debt-free and debt-based money?
I'll just explain this very quickly.
When you read the Greenbackers, they're always using the phrase money as debt.
And what they mean is that in this system that we have right now, which to me is not
a, obviously a free market system, I could list half a dozen to a dozen ways that it's
not a free market system, it's a cartel arrangement under a government-privileged central bank,
but they refer to this as the private banking system that we have.
Money is created by the commercial banks, not in the form of them literally printing
up dollars and handing them to you when you take out a loan.
They create the money digitally and they hand you your checking account little book and
they say, here, we've just lent you $1,000.
Here's your little passbook and it's got 1,000 written in it.
And so they create money that way.
But notice they lend me, so in other words, when they create money, they create in the
form of a loan.
They lend me $1,000.
That's how the money is created in the form of a loan.
But when I have to repay that money, you'll notice all they've created is the $1,000.
They haven't created the $100 I'll have to pay if the interest rate is 10%.
So I'm borrowing $1,000, but I have to repay $1,100.
Where am I going to get the extra $100?
That's their question.
That's one of their questions.
There are many reasons the Greenbackers are, I believe, wrong.
I'm only dealing with a couple in the piece that I did and that I'm talking about today.
And this is one of the problems with the Greenbackers, is that their problem is not really a problem
and doesn't need to be solved, but I'm going to solve it anyway just to make them happy.
And what they say is that you cannot answer their argument by saying, well, look, to earn
the $100 to pay the interest on the loan, just work extra.
Well, no, because the money that you would be earning by working extra itself entered
the economy as a loan, and so, in effect, ultimately has to be repaid.
So in other words, all the money is being created as loans, but the money for the interest
is not created.
So some of those loans can be repaid but others will have to go into default and the argument
is this is just the way the private bankers want it so they can then come in and confiscate
our property and eventually they're going to wind up with all the money.
The bankers will wind up with all the money.
Now you may say this sounds like a preposterous series of views but they are everywhere on
the internet.
They're absolutely everywhere and they are all over the end the Fed movement.
So I thought, I think a lot of people are just saying well they're silly, I don't want
I'm going to leave aside the lack of scholarly rigor in their work, but this is a major problem.
The other day, somebody sent me a video made by greenbackers, and it's called All Wars
are Bankers' Wars.
You've got to watch this video, the person said.
I thought, well, it sounds a little bit over the top, but I'll watch it.
In the first three minutes, there were two quotations used.
Both of them were fakes.
One of them was a fake quotation by Ben Franklin.
Another was a fake quotation by Rothschild.
And I thought, why would I continue?
Three minutes, there are two fake quotations.
There are only quotations in the whole thing for the first three minutes.
And they're both fake.
And these quotations, all you have to do is go to Google.
You find the only sources of these quotations are other greenbackers.
There's no primary source ever.
And they're always quoting the founding fathers talking about money and banking.
Now, there's some great sound money statements by the founding fathers.
But my piece of advice to the greenbackers when they're
trying to use these old-timey, very prescient sounding quotations
about the wickedness of banks is that if a statement about money and banking
from Centuries Ago, sounds like it could have been written yesterday.
It probably was.
All right, so let's just go through this.
First of all, is this claim that there's not enough money created
to pay back the interest, only enough to pay back the principal?
Well, let's consider the different monetary regimes
we could live under.
Let's suppose that we had a free market in money.
Don't automatically assume there's government involvement.
Suppose we had a genuine free market in money.
Now, how that would work is a separate question.
Let's just imagine the government is not involved at all, that money is created on the market.
Well, we know that originally that is how money was created.
So this isn't some fantasy scenario I'm contriving.
We know this from the regression theorem, that money has to emerge as a commodity with a pre-existing use value.
All right, well, that's how money comes onto the market under free conditions.
Well, notice this money is not debt-based.
The money that the market produces is a commodity with a pre-existing use value.
It is not a debt.
It is not the way a bank today creates money by creating a checking account balance for
you in its computer and handing you the book.
That is entering the economy in the form of a loan.
But when gold enters the economy through gold mining, when a gold miner takes his gold to
the mint to be minted into coins, there's no debt being created here.
And the money just gets spent into the economy.
has nothing to do with debt whatsoever.
So the free market's money is debt-free money.
This is what the greenbackers claim to want.
There is no loan associated with the process of I'm a gold miner, I mine some gold, I take
the gold to be minted and I spend those coins into the economy.
Debt does not enter that process in any way.
So there's no question of not enough money being created to pay back both the principal
and the interest.
There is no principal and interest.
This is debt-free money.
How come the Greenbackers don't want this?
I suggest it's because what they really want is paper money,
more than they want debt-free money.
They want paper money.
When I show them that free market hard money is debt-free money,
they're not interested.
No, how about that?
Now, Bob Murphy was trying to calm me down by saying,
well, maybe they just haven't thought it through enough.
Maybe they don't realize the free market could create...
Bob, you're so naive, Bob.
Come on.
These are just inflationists, incorrigibly.
All right?
Let's consider the classical gold standard
Where you had a fractional reserve system, where not all the paper money was backed by gold.
All right, well then you have some of the money substitutes that have the gold backing.
They are not debt-based.
They're just tradable instantly for gold, which is not any form of a debt.
It's just gold.
It's just a thing.
There's no debt involved.
So that portion of the paper money that is backing the gold is not debt-based and that's
That's where your interest payments can come from.
But what if you have a fiat system like we have now?
I mean, doesn't it seem like they have a strong case here?
Doesn't it seem like, indeed, there is all this money that's created into the economy.
It's all created in the form of loans and yet not enough money is created to pay off
the interest.
Doesn't it seem like here, clearly, they must have something?
But let's remember when we study Mises and then we study Rothbard's elaborations, we
We notice that there is a pattern in how fiat money comes into existence into the economy.
It doesn't just emerge spontaneously. It can't, for reasons that Rothbard and others have
noted. It can't come about spontaneously. It has to come about in this basic way, that
first the market yields you a commodity money. Then over time, for various reasons, people
begin to use money substitutes that are immediately convertible into the money proper. And then
And with the passage of time, people become acclimated to spending the money substitutes
instead of the money proper.
And then governments wind up taking the money proper, the backing, the gold away, and all
you're left with is just the paper.
And it continues to circulate because people now have an array of prices in terms of that
money, and they can use it, and they use it out of habit.
But what gave it the initial push was the fact that it began as a commodity money.
Now, this is a pattern that Rothbard explains and even identifies in American history, of course, in what has government done to our money.
Well, when the gold was confiscated from the American public in 1933, and people were given paper in exchange, this paper was not given to them in the form of a loan.
It was just a one-for-one exchange of an amount of gold for an amount of paper.
So this portion of the money supply is not debt-based. It was, here's some gold, and we're going to take it, and we're going to give you this paper.
We're not lending you the paper. We're giving you this money. This is not debt-based.
So this portion of the money supply forever becomes a pool from which interest payments can be drawn.
Secondly, under the gold standard as it existed in the United States,
the banks issued both kinds of money substitutes in the Misesian typology, money certificates and fiduciary media.
Money certificates would be paper money that are convertible into the money proper.
Fiduciary media would be physically indistinguishable from the money certificates, but are not backed by the money proper.
Well, only the fiduciary media represents debt-based money.
The rest of it represents something actual that has nothing to do with, no connection to debt whatsoever.
Gold being mined and minted into coins has no, there's nothing involving debt or interest or principle in any of that process.
And so this portion of the money supply becomes a source from which interest payments can be drawn, even when the physical backing is taken away.
There was always from the start a portion of the money supply that was not connected to loans, not connected to debt, and from which interest payments can be drawn.
Now, finally, let's see, how much time have I got left, Joe?
Oh, good, then I am going to answer the, what about, wouldn't the banks get all the money?
Now, you say, why do I need to address this? This is a scholarly conference.
Because no one else is doing it.
And there are people out there, and I've been accused of, I'm part of the Rockefeller conspiracy,
because, and Mises, I've been told repeatedly, Mises was part of Rockefeller's conspiracy.
And I said, well, explain that to me. I mean, I really would like to hear how this turned out.
So Mises who inspires a movement against the central banks of the world that the elites labored tirelessly to erect is actually part of some kind of reverse psychology thing that he's doing like how could he be part of the bad guy conspiracy and I've even been told that he's part of a Jewish bad guy conspiracy to enslave European man to the bankers and I said okay so and he met with Rockefeller to work this conspiracy out and I said so the conversation I guess went something like this all right
Rockefeller, what I, Mises, will do is, I'm going to write a book called Theory and History
about the relationship between theory and history, then I'm going to write about the
epistemological problems of economics, and then I'll write the ultimate foundations of
economic science. Books that not one percent of the general public could even hope to be
able to understand, and this is how I'll enslave everybody. Seemed implausible to me. So in
In other words, it feeds into every conspiracy theory there is.
I don't mean to say there aren't any conspiracies, but there certainly isn't this one.
I mean, this is the most preposterous one of all.
But where does this argument come from?
The banks are going to wind up with all the money.
Well, basically, compound interest.
So the bank lends out $1,000, and then it gets back $1,100.
So then it lends out $1,100, and it gets back $1,210.
And then it lends that out, and it gets back whatever.
And it keeps on going.
And eventually, it's going to have everything.
That's what I've been told.
TomWoods.com. That was on my blog. So, a couple answers to this. Number one, let's suppose this were true. Are the bankers money fetishists? That is to say, if they did get all the money, the money doesn't do them any good unless they use it for something. Unless they really are going to roll around in it. Like, what good does it do them unless they exchange it for goods and services? So this is not something you have to worry about too much.
But the second thing is, of course, this leaves out the question of demand.
I mean, you could just as easily say, Apple Computer produces all these great products.
It produces the iPod, and we all love the iPod, and so we run out and we buy the iPod,
and then next year produces the iPad, and we buy the iPad, and that gives them more money
to create better products and to build robots, and then we buy those.
Before you know it, Apple will have all our money.
But, of course, we don't have an infinite demand for consumer electronics
any more than we have an infinite demand for credit.
And so how are the banks going to issue these additional loans only at lower interest rates over time?
And so credit intermediation cannot expand indefinitely, because first, in order to induce us to accept additional loans,
the banks have to lower interest rates, and then secondly, if more and more people want to get in on this racket,
because it's supposedly an infinitely profitable thing to just issue loans,
as more and more people get into this, where are they going to get the money to intermediate in the first place?
They're going to have to get it by offering higher interest rates to people who are buying, you know, who want CDs or savings accounts or whatever.
So they're going to have to offer higher interest rates to those people, lower interest rates to the borrowers, and then their profit gets squeezed.
And there's a natural limit that exists, as it exists in any market, as their profit gets squeezed, there's a limit to how much credit intermediation there can be.
And then, finally, I wind up by talking about how, in fact, you can have money on the free market
and that there is an optimal amount that will be created.
You can't just create and create and create. I mean, people hear money created on the free market.
If you talk about this on the radio, forget it.
People will say, well, I'll create my own money and just create as much as I want, and that'll be a lot of fun.
Well, no one's going to accept your, you know, Joe Salerno dollar or, you know, Tom Woods dollar.
But secondly, as the money is created, like as gold is mined and minted into coins, whatever,
the factors of production that go into the creation of the money get bid up as more and
more money creators get into that business.
So it becomes costlier to produce the money, and as more money is produced, the value of
the money declines.
So the costs go up, the values go down, again the profit gets squeezed, and the optimal
amount is created.
So the bottom line is, you don't need the government involved in money or banking at
at all, and all the problems that the Greenbackers think they've identified in banking and money
as it exists today, all of them, the imaginary ones and the real ones, can all be solved
simply by getting the state out of it.
So why don't they want to do that?
I leave that to you as an exercise for the student, and you can read the paper at tomwoods.com
dot com slash paper.