You know, people make fun of Austrian economists because we support the gold standard.
They simply can't understand why we cling to this relic of history.
They view it as we're going backwards in history to a less advanced state of affairs
that is something that is primitive and unscientific.
And they ask us, how can we control this gold standard?
After all, isn't the gold standard unstable? We answer yes, the gold standard is unstable in the same sense that all markets are unstable,
which is one reason why we support the gold standard, because it automatically makes all of the necessary adjustments to the changes that occur in the real world.
World. We also point out that gold is more stable than paper money and that the gyrations
in the gold market are the reflection of an unstable dollar, not any inherent instability
in the gold market. We also go on to point out that the gold standard helps prevent government
from starting useless spending programs, creating expensive bureaucracy, running budget deficits,
waging unnecessary wars, etc. It can even help smooth out, possibly eliminate, the business cycle.
Economic science and history, we claim, all point to the advantages of a market-based money
and the disadvantages of a government-controlled system.
And at this point, our critics are convinced. They are convinced that we are all crackpots.
That we have lost touch with reality and that we are the ones with a screw loose.
And at this point we haven't even mentioned that a true gold standard makes the financing of imperialism nearly impossible.
And we haven't even hinted at the idea that Operation Iraqi Liberation is just the latest operation of US imperialism.
Even our supply side or friends think we're crazy for advocating a gold and silver coin standard
that is completely market-driven. They like gold too, but they wish the central bank to target the price of gold at, say, $500 an ounce. Some magically round number.
The problem with their suggestion is not gold, but the market control of money. It is really just a variation on all the other so-called systems.
It would not stabilize as government central banks could still manipulate the money supply and interest rates.
Lags between policy changes and their ultimate impact on the gold market could create wide swings in the economy and cause chaos in credit markets.
It also does not eliminate fractional reserve banking so that changes in the gold market would be amplified several times in both directions.
We would still face the problems of inflation and business cycles.
Ultimately, we would still face the twin problems of the system simply going into default or
the potential that governments would simply renege on their promises.
The historical trail of broken promises, suspension of convertibility and changing targets is
too long and crowded to take their system seriously.
As Murray Rothbard has shown, it was precisely this gold exchange system that was the economic
was the basic basis of American imperialism in the late 19th century. It was mainstream American economists who put forward the theory of capitalistic imperialism that helped justify the government's overseas adventures to open up foreign markets for American business.
They argued that America had too much capital and that it was vital for the survival of advanced capitalism to forcibly open markets to American investment and goods, with economist Charles Kanay writing that, quote,
America must be prepared to use force if necessary, end quote.
America must not be held back by the abstract theories and the extreme conclusions of our founding fathers,
and that, quote, only the firm hand of responsible governing races can give progress to the tropical and underdeveloped countries, end quote.
If America, a country born in the crucible of revolution against British imperialism, would now be transformed into an imperial empire itself.
Kinnead called for a rewriting of the U.S. Constitution in order to better centralize power and for the maintenance of a large standing army and navy to pacify both the domestic population and our foreign subjects.
Murray Rothbard noted, quote, the leap into political imperialism by the US in the 1890s was accompanied by economic imperialism and one of the keys to economic imperialism was monetary imperialism.
In brief, the developed western countries by this time were on a gold exchange standard while most of the third world nations were on a silver coin standard.
What the new imperialists set out to do was to pressure or coerce third world countries to adopt not a genuine gold coin standard, but a newly conceived gold exchange or dollar standard, unquote.
The idea here was that foreign central banks would hold their reserves in dollars deposited in New York banks so that when our banks inflated, gold would not flow out of the country, as would be the case on a genuine gold standard.
Hence, the U.S. used political, economic and military pressure to persuade our new possessions and other underdeveloped countries to join the dollar system.
By the time of the panic of 1907, which was, of course, the justification for the Federal Reserve, the gold standard had been firmly shackled and had lost all of the qualities that made it the foundation of capitalism, free trade and prosperity.
And then, of course, the adoption of the Federal Reserve Central Bank, the breaking of the last linkages of gold and the further dollarization of the world banking system that has occurred since
has only enhanced the economic arm of US imperialism. Nowadays, the US Treasury can issue bonds
in astronomical amounts only to be absorbed seemingly harmlessly into the Fed and other
central banks around the world. For its part, the Fed pays for the bonds with a simple electronic
bookkeeping entry in its accounts and no one is the wiser.
I taught money and banking here at Auburn
and a couple of other places.
And I would tirelessly try to explain
the details of Fed policy, the regulations of the banking
system, the money expansion process.
And when I first started teaching this course,
inevitably students would come into my office,
usually around as finals approached.
So they would have gotten the whole story by then.
And they would say, you know, this just doesn't make any sense.
Or I'm just not getting this.
Or Dr. Thornton, I must be missing something here.
And of course, then I would explain
that in order to really understand all of this,
you have to think of it as a scam, something really.
You have to think of it as something that's criminal and that normally what is going on here would be against the law, but in this case the government is allowing itself to break the law.
And then I would remind them of all the different categories of who benefits from inflation and who's hurt from inflation.
And I remind them, you know, all the beneficiaries, they're all with the government or the government-related.
and you know I only wish I had like a photo scrapbook of their faces that I could pass around to you today because they were, you know, in many cases it must have been the biggest shock of their lives.
They were just completely dumbfounded that the government had created the system essentially to rip everybody off.
Only a real market based monetary system eliminates the possibilities of inflation and business cycle
and this system also prevents governments from embarking on the path of imperialism.
Here, money would consist of gold and silver coins.
Money would be defined by the market as a certain weight of a certain metal of a certain level of purity.
The supply of money could only be increased with new mining production or diversions from other uses of the metal via the market mechanism.
Banking would be based on 100% reserve requirements on all demand deposits. All demand deposits and bank notes would be redeemable on demand and all defaulters would be forced into immediate liquidation.
Bank runs would check the behavior of errant banks and bank panics would be eliminated. Saving would be matched up with investment in a stable and harmonious way and business cycles, properly understood, would cease to exist.
Most importantly, market-based money in the form of a gold standard would force governments back towards the classical liberal society and prevent its antithesis, imperialism.
It is the central banking and fiat money system that finances imperialism.
As Mises stressed, quote, the meaning of the idea of sound money was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments.
Ideologically, it belongs in the same class with political constitutions and bills of rights.
The idea of government paper money is appealing to those of limited intellect and to those who believe in the power and glory of the state.
The government can simply print money for all the problems of society to pay for anything that is required by the state.
If a stingy legislature fails to pass the necessary taxes, executives and bureaucrats can spend borrowed money effectively laundered by their central bankers.
What they fail to recognize are both the economic problems of inflation and that unshackled politicians spend for their own interests, including unnecessary wars and other imperial adventures.
In fact, while Austrians emphasize the importance of sound money and the problems of inflation, we hold this last impact of sound money in the highest regard, because blocking imperialism and despotism is essential for the survival of liberalism.
And this is, of course, Adam Smith would say the same thing, Edmund Burke and so on.
However, I would like to quote Joseph Schumpeter here at length on this point, both for his wide-ranging authority on the subject and because he is considered one of the least doctrinaire in terms of policy among Austrian economists.
In fact, some Austrians would call him a socialist. So let me quote him at length here.
quote, at present, and he's writing in the early 1950s, we are taught to look upon such a policy as the automatic gold standard as wholly erroneous, as a sort of fetishism that is impervious to rational argument.
That's us. We are taught to discount all rational and all purely economic arguments that may actually be adduced in its favor.
But quite irrespective of these, there is one point about the gold standard that would redeem it from the charge of foolishness even in the absence of any purely economic advantage.
An automatic gold currency is part and parcel of a laissez-faire and free trade economy.
It links every nation's money rates and price levels with the money rates and price levels of all other nations that are on gold.
It is extremely sensitive to government expenditure and even to attitudes or policies that do not involve expenditures directly, for example, to foreign policy, to certain policies of taxation, and in general, to precisely all those policies that violate the principles of economic liberalism.
This is the reason why gold is so unpopular now and also why it was so popular in the bourgeois era.
It imposes restriction upon governments or bureaucracies that are much more powerful than parliamentary action.
It is the badge and the guarantee of bourgeois freedom, a freedom not simply of the bourgeois interest, but of freedom in the bourgeois sense.
From this standpoint, Schumpeter says, a man may quite rationally fight for the gold standard, even if they were fully convinced of the validity of all that has ever been argued against the gold standard on economic grounds.
And from the standpoint of statism and government planning, a man may not less rationally condemn it, even if he was fully convinced of all that has ever been argued for it on economic grounds.
So basically saying, even if fiat money was based on sound economic grounds, we should still want a gold standard to protect our freedom.
Imperialism is an inherently expensive, non-productive, and unprofitable venture. It enriches only a very small minority of people, but impoverishes the rest of society.
If we could identify our impoverishment with imperialism, we would rise up and overthrow
our rulers, but central banks and fiat money blind us to our source of poverty.
Government bonds are simply issued to pay for imperial adventures and then laundered
by the central banks.
Government obtains our resources and our labor, and the average person has little or no idea
that they have been swindled. Imperialism therefore cannot be justified with the idea that it helps the domestic population because only a teeny minority benefit.
The beneficiaries include government contractors, ego-crazed politicians, and mercantilist business enterprises. In the case of Operation Iraqi Liberation, it's obviously the oil interest in others.
The idea that imperialism can be justified because it helps our subjected people is ridiculous in the height of self-delusion.
Subjects can only put up with foreign rule or will only put up with foreign rule and interference in the face of their significant military disadvantages.
All societies have their pluses and minuses, and to think that your society is all pluses while theirs is all minuses is the height of self-conceit,
especially when you are imposing your will at the point of a bayonet.
Imposing certain aspects of your system such as law, religion, money, politics, etc. on a different society is a recipe for disaster.
First, it doesn't work. Second, it causes unintended consequences within the new mixed system.
And third, it ignites in opposition to your society's values and institutions across the board.
and ignites reactionary movements against you such as religious fundamentalism and terrorism.
We can now see the results of British and American imperialism in the Middle East that are in full bloom.
Such problems can only be avoided by following the ideas of the Austrian economists.
Economists. Central banks make imperialism possible by financing, makes possible the financing of imperialist adventures in such a way as to cloak the true cost of imperialism and war.
Professor Salerno has shown in his article that's contained in the Cost of War book, the article War and the Money Machine Concealing the Cost of War Beneath the Veil of Inflation,
How and Why the State Uses Inflation to Pay for War, an article that I can very much recommend to you.
The Fed can hide the cost of war, but ultimately it does not reduce the cost of war.
It increases it by encouraging more war, destruction and imperialism, and also by adding the cost of the monetary manipulation itself.
The average citizen can only think that they have been slapped in the face by the invisible hand or run over by the invisible truck.
As Operation Iraqi Liberation confirms, the U.S. government has no plans to end its imperial rampage.
Page. Operation Iraqi Liberation had bipartisan support, and all the recent
talk in Washington about withdrawals, timetables, and new strategies is just an
election season salve to make sure the anti-war movement does not fester out of
its control. It also confirms that imperialism is the enemy of freedom and
the champion of death, destruction, and deception. And finally, it confirms that
The Fed is the willing sponsor and financier of imperialism and will continue to do so.
The only way to stop this destructive juggernaut is to unmask imperialism as the enemy of freedom,
peace and prosperity.
The people must understand it is inherently bad for us and the dirty secret that it is
only the powerful few who benefit from imperialism and that the Fed is used to dupe the masses
into supporting imperialism. The Fed must be stopped. Gold coins must return as our
monetary standard and the ideas of the Austrian economists must prevail. This evil ideology
of death and destruction that is imperialism must itself be destroyed by the force of good
ideas. Thank you.