In preparing for teaching a course at Auburn University, which I plan to do in January,
the title is going to be Creation of the American Republic. I've been doing a good bit of reading
on the period of American history leading up to the creation of the Constitution and
into the debates for the ratification of the Constitution. And in doing that, I've also
I also looked at a lot of the correspondence of the founders and their ideas concerning the Constitution.
In this study, I had an opportunity to read what is probably some of the correspondence,
but probably the most brilliant correspondence in American history.
This occurred between ex-presidents, John Adams and Thomas Jefferson, near the end of their respective lives.
And as you know, they both died on the same day, July the 4th in the same year.
I thought I doubt very seriously any future generation is going to read any brilliant
correspondence between ex-presidents George W. Bush and Obama.
One of the important lines in the correspondence between Adams and Jefferson was a statement
by Adams to the effect that the American Revolution did not begin with the war in 1775, but it
It began in the, quote, hearts and minds of the American people many years before the
war, end quote.
I've been trying to trace the ideas that led to the American Revolution and the Constitution
and tracing those ideas back.
One path led directly to the publication of 144 essays beginning all the way back in 1720.
They were called Cato's Letters.
They were written by two men, John Trenchard and Thomas Gordon.
These essays found a very large and receptive audience immediately in England, but over the
years and up until the American Revolution, these letters still remained popular and influential
to the American colonists.
The event which triggered these essays was called the South Sea Bubble, which was a huge
and the British financial crisis in England in 1720, similar to the economic crisis we are now in and will experience for a few more years at least.
Even though these essays related to strictly a British problem, the colonists found them very important for the ideas of independence and the ideas of limiting government power in the Constitution.
Most of British history, constitutional history, has been an attempt to restrain the power of the King while making Parliament almost all-powerful.
But the American Revolution was a very different revolt, and it was a revolt against government generally.
And the Cato letters, which attacked government generally, were very helpful in forming the basis for the Revolution and our Constitution.
Now take a quick look at the financial crisis called the South Sea Bubble.
It reveals that part of the major cause was the creation of a central bank called the
Bank of England in 1694.
One of the main purposes of creating the bank was to allow the British Empire to fight wars,
primarily with France, almost constantly, and to keep expanding the empire without having
In brief, it was a way to have government spending without taxation through inflation.
By 1711, the British government had fought so many wars under the King William and Queen
Anne that the government was almost bankrupt.
So the South Sea Company was created as a monopoly, mainly as a way to help pay off
government debt.
Other key monopolies, of course, were the Bank of England, but the East India Company.
In the case of the South Sea Company, big bribes were paid to members of parliament
and key administrators in the King's government in order to create a government monopoly which
was given mainly three things, the right to slave trade in Africa, exclusive rights to
buying or selling of certain commodities, and trade, exclusive trade with Spain.
But it was a Ponzi scheme which allowed people to transfer government bonds to the South
and the North Sea Company in exchange for stock. The stock price kept doubling and tripling in value year after year so that the original people who had the stock and sold it became extremely wealthy.
Government debt was being paid off with depreciated money. Finally the bubble burst when the war broke out with Spain in 1720 and the whole scheme was laid bare to the public to see the bribery and the corruption throughout the government and the false economics that were involved.
A similar incident occurred in France with John Law.
As you know from reading the book entitled Crisis and Leviathan by Bob Higgs, all governments
use each crisis to ratchet up government power.
And of course that happened in Britain with the South Sea bubble crash because part of
the solution proposed was to increase the power of the Bank of England, which also was
one of the major causes of the problem in the first place.
However, the point I want to make for the purpose of today's speech is that this economic crisis, much like the crisis we are in today and will have in the future,
created a tremendous opportunity to reach a very large and receptive audience who were very much tuned in and interested in how this crisis came about and how it should be solved.
And that's why the Cato letters became so important as the people were desperate to know how this terrible thing had happened.
I'm afraid our present crisis however will eventually evolve to the point that maybe
the South Sea bubble will seem small by comparison.
I think our crisis primarily will be a worldwide crisis because of the exclusive use of paper
currency with no gold backing by all of the countries, and all of the major countries
now have similar central banks to ours as a Federal Reserve system.
Furthermore, the world has adopted the Keynesian ideas to address the debt crisis, which is
is simply to print more money as a stimulus.
As you know from Austrian economics,
this will not solve the problem,
and it will merely make it worse.
The situation we end reminds me of a statement
made by the poet Robert Frost.
He was asked what he thought about free verse,
which is poetry which doesn't rhyme or have a regular rhythm.
His answer was, it's like playing tennis without a net.
Without a net, you don't know whether the shots
There's no way to measure whether the shot was good or bad without the net. You have no way of measuring value without sound currency or backed by gold.
So the world economy is now playing tennis without a net.
Let's look at the Federal Reserve problem in these troubled times.
There have been various periods throughout American history where central banks or the
Federal Reserve system has been a big issue with both politicians and the public generally.
We now have Congressman Ron Paul to thank for making the Federal Reserve a public and
political issue again.
The public is beginning to take a real interest in what the organization is and how it operates
and whether or not it should be audited or destroyed.
Looking back at the general history in central banking, it appears to me it actually started
with the Dutch Republic, which was then copied in England with the Bank of England in 1694.
It was the Bank of England which served as the model for Alexander Hamilton to propose
the first Washington administration to have a central bank.
The Attorney General and also the Secretary of State, Thomas Jefferson, both opposed Hamilton's
plan.
Hamilton argued that there was no power granted in the Constitution to create the bank, but
Hamilton used what's called the Necessary and Proper Clause and the doctrine of implied
powers under the Commerce Clause to support the idea that the bank was constitutional.
President Washington accepted Hamilton's ideas and the bank was created.
The bank's charter eventually expired but was renewed by President Madison as a way
to help pay off the government debt caused by the War of 1812.
Again, the bank became a major political issue with voters during the administration of Andrew Jackson, who called it the monster.
He ended central banking as an institution, letting the charter die, but it was recreated in 1913 as a part of the political movement called the Progressive Movement.
In my study of the Constitution recently, I've come to the conclusion that it was primarily this Progressive Movement which started at the beginning of the 20th century.
is the main intellectual and political movement which has helped destroy the effectiveness of the U.S. Constitution.
The Progressive reached the pinnacle of their success in 1913 with the passage of one law and two constitutional amendments.
The law was the Federal Reserve Act.
Next was the 16th Amendment allowing income tax on the rich only.
And finally the 17th Amendment which changed the method of electing U.S. Senators.
The original theory of the Senate created by our founders was that the Senate was to be selected by the state legislatures to represent the states as a check and balance on the power of the national government.
The general idea of the progressive movement was to equate democracy with liberty, whereas the founders were extremely suspicious of democracy.
Their primary interest was liberty through the limitation of government and it was not to promote democracy as an end in itself.
You can see the change of ideas in one of the first progressive presidents, Woodrow Wilson,
who took America into World War I with the slogan, quote, to make the world safe for democracy instead of make the world safe for liberty.
Both our entry into World War I and his slogan would have been absurd to our founders.
It was a creation of the Federal Reserve and income tax, which allowed America to enter World War I, which eventually resulted in massive spending, massive debt that eventually led to the Roaring Twenties and finally to the bursting of the bubble in 1929.
Fed head Bernanke tells us that we got, who got his PhD in economics and learned the cause of the 1929 depression and he says the cause of the depression was that the Federal Reserve put on the brakes too hard.
He ignores completely the creation of the bubble, the massive spending during World War I, the roaring twenties that caused the bubble to exist in the first place.
He thinks he could provide instead a stimulus or more money in order to keep the bubble from bursting.
Bernanke's solution reminds me of an example of a driver coming down a curvy mountain road at 100 miles an hour.
The passenger senses that the driver is losing control and he tells him to put on the brakes.
The driver puts on the brakes and the car crashes.
A reconstruction expert supplies the logic of Bernanke in studying the crash and comes up with the opinion and conclusion
That the cause of the wreck was putting on the brakes, while ignoring completely the initial cause of the excessive speed on a curving mountain road, which created the problem in the first place.
The solution this expert would recommend, if he follows the logic of Bernanke, is that speeding up would get you better traction and down to the bottom of the hill quicker.
This would help the driver solve the whole problem.
Austrian economics and the ideas of Mises and Murray Rothbard provide the clearest answers to explaining the Great Depression in 1929 and how to solve it, and injecting new money as stimulus is not the answer.
Now, let's look at gold in troubled times. In American history, we can look back to the American Revolution, where all the colonies, along with the central government, were printing paper money without gold backing, which resulted in a huge inflation.
The national currency was called the Continental Currency, which gave us the slogan, quote,
not worth the Continental.
Most of the founders hated paper money and addressed this issue in the Constitution by
stating that only Congress could coin money.
No power was granted to issue bills of credit.
That's the words that were used to describe paper money that was not backed by gold.
On the other hand, the Constitution strictly prohibited the states from conning money or
issuing bills of credit.
So the clear intent of the Constitution was that you would have only gold-backed money,
gold money or hard currency or backed paper money with hard currency.
But unfortunately the Supreme Court didn't interpret it that way.
As we see in the war between the states, both the North and South were printing up paper
money to pay for the war with no specie or gold backing.
The next great political public issue about gold was the election in 1896, when William
Jennings Bryan captured the nomination of the Democrat Party, kicking out Grover Cleveland,
the Grover Cleveland people, who believed in the gold standard, and they were called
The Gold Democrats of Grover Cleveland formed a third party named the National Democrats
to try to oppose Brown and uphold the gold standard.
The gold standard was such an issue that the Republicans under McKinley made the gold standard
one of their major issues in their platform and in the campaign.
The Democrats were completely divided, and many thought that the National Democrats had
no chance, and therefore many of the gold Democrats switched to the McKinley Gold Standard
Republicans.
It was this destruction of the Jeffersonian Democrats who were the last champions of classical
liberalism that led to the progressive movement.
The populists of bronze were defeated, and the progressive movement gave us Teddy Roosevelt
for the Republicans and Woodrow Wilson for the Democrats.
Both parties then began to adopt the ideas of progressivism seeking democracy as an end
in itself rather than liberty being the goal.
And democracy was only one of the methods of achieving liberty.
By the way, there's an excellent book on this subject by Randy Holcomb entitled From Liberty
to Democracy, the Transformation of the American Government.
At various times in American history, the Democrat Party has endorsed the ideas of classical
liberalism and limited constitutional government and supported the gold standard.
Today I have both the Democrat and Republican parties subscribed to the progressive movement
and both oppose the backing of paper money with any species, gold or silver.
It is interesting to note to me that when the Democrat party split in 1860 and again
in 1896, great tragedies resulted.
Early in 1933, the gold again became a major issue with the election of Franklin Roosevelt.
He closed the banks and Congress passed the Emergency Banking Act on March 9, 1933.
You can get an excellent short version of the great gold robbery in a new book entitled
Who Killed the Constitution written by Thomas Woods and Kevin Gutzman.
Gold was taken away from the American people and many thought it was only a temporary measure
and will be restored to them later. However, gold remained illegal to own for American
citizens until 1974. The New Deal U.S. Supreme Court failed to support the constitutional
requirement for gold-backed currency and refused to enforce gold contracts, gold clauses in
contracts. The next development with gold occurred in 1944 at the end of World War II
at a conference held in Bretton Woods, New Hampshire. The conference was attended by
by Lord Keynes himself, and he advocated creating a new world currency called the Bancor. England
had gone virtually bankrupt as a result of spending and debt created during World Wars
I and II, and their currency could no longer serve as the World Reserve currency. Keynes'
idea of the Bancor was proposed but not adopted. It's my feeling that pretty soon the Bancor
or something by that name is going to be proposed again as an international world currency to serve as a reserve currency rather than the American dollar.
And it's also, I think, the movement is towards an international Federal Reserve that will issue that paper money.
And I think that's the great danger that we face in this crisis.
The conference finally decided, and all the major countries signed on to the idea that since America owned about 75% of the gold in the world, the American dollar would be backed by gold.
But this was only for the purpose of allowing foreign central banks to transfer their dollars back and get gold.
This allowed the American dollar to become the new reserve currency of the world, which it remains today.
How it's on a very shaky ground and slippery slope since there is now no gold backing to
the American dollar. President Nixon closed the gold window and ended the Bretton Woods
agreement in 1971 as America had been spending money like a drunken sailor ever since. We're
now the largest debtor in the world history. One half of our 12 to 13 trillion dollar national
debt is attributed to war spending. I was a delegate to the National Republican Convention
in 1972. Prior to the convention in August 1971, President Nixon closed the gold window,
put on wage and price controls, and announced he was a Keynesian. At the convention, I informed
the chairman of our delegation from Alabama I could not support Nixon for re-nomination.
He was startled and especially mystified when I told him the main reason was the closing
of the gold window. He stated that Nixon had no choice because if he did not close the
I informed him Nixon had an alternative. He could stop the excessive spending. How, he said. I said first by stopping the unconstitutional land war in Southeast Asia and to close about 200 to 300 military bases in foreign countries and stop being the world policeman and meddling in everybody else's private business. You may not be surprised, but I didn't convince him that I was right.
They clearly understood my position. Ron Paul and I have talked about the fact that it was this event of Nixon's actions in 1971 that caused Ron to give up his medical practice and to run for Congress to try to educate the American people on Austrian economics.
It's that point when I decided to give up on politics and try to develop some way to inform the American people generally about true economics with the Austrian system.
and that's what led me to be involved with the Mises Institute.
It's been a long and tough struggle for Ron Paul in Congress all of these years,
but finally the American people are beginning to listen to him.
In conclusion, I think I'm very fortunate to have been closely connected to the Mises Institute since the day it was born.
I'm extremely proud of what Lew Rockwell and the Institute have accomplished
and I fully support the great ideas that they are communicating worldwide every day.
I asked my son-in-law to be here, and my daughter now is here today,
but I wanted my son-in-law to see exactly what the Mises Institute does,
because I'm very concerned about the future of America,
the future for my children and grandchildren.
I am concerned about the ideas of many people in political, academic and the media that
are leading this country in the wrong direction, away from what our founders established and
what they have established is in great jeopardy today, the free market and our liberty.
I am afraid the best of America may not be around when our grandchildren are adults.
However, the Mises Institute has the ability and the means to communicate great ideas that
can make a difference and change the way people think.
As Jeffrey Tucker said, ideas have consequences.
Remember that the Cato letters were only 144 essays written in 1720 in England, but they
played a great role in bringing about the American Revolution and our Constitution as
as well as influencing the Bill of Rights in order to make a change like John Adams
talked about in the hearts and minds of the people before they take action.
We need to let those ideas permeate throughout the population and especially to the young
people so that they have the courage and the commitment to take the action that will help
change the way America is now going.
Thank you all for supporting the Institute and thank you for the part you've already
made a difference in bringing about the success of the Mises Institute and I hope you will
continue to support the Mises Institute in the future.
Thank you very much.