Blind Men's Bluff: FED-Defending, Gold-Hating
by Gary North: French
Higher education in the United States was transformed by Rockefeller
money, beginning in 1902: the General
Education Board. The GEB made grants to colleges only if they
hired Ph.D-holding graduates of a handful of universities, which
alone granted the Ph.D. This way, the universities could indirectly
take over the rest of the colleges, which were mostly church-related.
The strategy worked.
academic empire included the University of Chicago, which he founded.
From the turn of the 20th century, the University of Chicago's department
of economics repudiated the use of gold in monetary affairs.
earned his Nobel Prize for a book researched mainly by his co-author,
Anna J. Schwartz: A
Monetary History of the United States (1963). Born in 1915,
she still works full time. In the Wikipedia entry for her, we read:
Jacobson Schwartz (born November 11, 1915) is an economist at the
National Bureau of Economic Research in New York City, and according
to Paul Krugman "one of the world's greatest monetary scholars".
She is best known for her collaboration with Milton Friedman on
A Monetary History of the United States, 1867 1960
which laid a large portion of the blame for the Great Depression
at the door of the Federal Reserve. She is a past president of the
Western Economic Association (1988).
The book is
known in academic circles and policy-making circles only for its
thesis regarding the Federal Reserve System, 1930-33. It says that
the FED had not inflated enough, 1930-33. The book is never quoted
by the media on any other topic, although it is a fat book. That
is the only academic thing that Friedman ever wrote that was adopted
by his Keynesian peers. Why? Because he came out on their side.
economics profession is united on only one topic: the superiority
of central banking to the gold standard.
There has never
been a college textbook in economics that called the FED a government-created
cartel that exists for the sake of the largest banks. This outlook
shapes the thinking of the students who get certified to teach.
They are literally unable intellectually to apply the economic theory
in the chapter on cartels to the Federal Reserve System, despite
the fact that the theory in the cartel chapter fits seamlessly onto
the facts of the FED. Support of central banking is basic to the
entire curriculum in modern economics.
So, the graduates
have a blind spot: central banking. This means they have another
blind spot: a gold coin standard. It means that they have literally
never examined the theory of a monetary standard that is based solely
on the enforcement of voluntary exchange, including contracts. They
are literally incapable of imagining a free market for money.
The methodological tools which they apply with mathematical precision
a fake precision to every other area of life, including
marriage, they are intellectually incapable of applying to money.
the Federal Reserve's Board of Governors (government) and its 12
regional banks (privately owned) have spent tens of millions of
dollars (created out of nothing) handing research jobs to academic
economists. The FED has literally bought off the profession.
This story was concealed for years by the FED and its bought-off
defenders, but it
has recently surfaced.
was first adopted by the Rockefellers. John D. Rockefeller, Jr.
hired Raymond Fosdick to run the Rockefeller Foundation. After he
took over the running of the foundation, Fosdick continued to pay
public relations pioneer Ivy Lee to help reduce criticism of the
Rockefeller oil empire. Lee had been on the Rockefellers' payroll
ever since 1914. One of Lee's suggestions was to pay academics a
lot of money to write pro-Rockefeller books. This worked so well
that Fosdick began spending millions to buy off academia. There
is a book on this: Donald Fisher, Fundamental
Development of the Social Sciences: Rockefeller Philanthropy and
the United States Social Science Research Council. It was
published by the University of Michigan Press in 1993.
OF THE BASHERS
With this as
background, I examine a Yahoo
article on ending the FED. The article appeared only because
of Ron Paul's campaign to end the FED. Paul has single-handedly
made this a topic of public discussion. No one else has ever achieved
"End the Fed" movement appears to have a lot going for it these
days. Its adherents now include both conservatives and supporters
of the Occupy movement. Perhaps its most prominent proponent, Rep.
Ron Paul, has garnered respectable poll numbers in the 2012 Republican
presidential race and blasts the Federal Reserve at every opportunity.
Plus, the succinct slogan fits well on protest signs.
Paul has been
so effective that the FED hired a public relations specialist in
2009. It had never done this before. The lady was famous in Washington
as the lobbyist who ran
Enron's Washington office until the firm went bust in 2002.
She was also an adviser to all three of Clinton's Treasury Secretaries.
the institution at the helm of U.S. monetary policy since 1913 seems
unrealistic, though, and opponents consider it a crazy idea, even
dangerous. However, proponents keep up the call, using an array
of arguments from economic theory to promoting liberty.
call no other academically defended idea "crazy." They literally
cannot imagine as sane the suggestion that the world could not run
and run better without the government-licensed, privately
owned monopoly of central banking.
view one takes, ending the Fed is a goal much more easily stated
than accomplished. But if Fed bashers got their wish, here are a
few snapshots of how the country might change. . . .
pejorative term, "Fed bashers." It is true, of course. We are indeed
Fed bashers. But the term is not used with respect to academically
certified critics of any other government-created cartel.
New Monetary Standard
of ending the Fed argue for a return to the gold standard, which
President Nixon ended in 1971, due in part to growing inflation,
which was itself due to the costs of the Vietnam War. In addition,
Nixon was concerned that Fort Knox contained only one third of
the gold needed to back the dollars in foreign hands at that time.
Under this system, the dollar's value would once again be tied
to the price of gold. Another option is to tie the U.S. dollar's
value to a basket of commodities.
standard in 1971 was a hybrid created by governments at the 1922
Genoa conference. It was their way to avoid returning to the
pre-World War I gold coin standard, which put tight limits on government
deficits funded by bank credit. After World War II, this system
subsidized the USA's expansion of fiat money. It broke down in 1971
because the Federal Reserve had inflated ever since 1933, when the
right of Americans to own gold was made illegal. The article mentions
Ft. Knox, when the bulk of the country's gold is held in the vault
of the Federal Reserve Bank of New York, a privately owned firm.
Again, the FED's supporters refuse to discuss the facts.
to Constant Inflation (for better or worse)
dollar's value to a commodity could very well moderate inflation.
If the country moved to a strict gold standard, for example, the
money supply would be bound to the supply of gold, so printing
more dollars would require acquiring more bullion to back them,
a big disincentive. This notion, of course, pleases proponents
of controlled government spending. Though there might be short-term
bouts of inflation and deflation, in the long run, prices could
easily remain stable.
This is correct.
For 250 years, this has been the #1 defense of the gold standard.
Also, for 250 years, the inflationists have rejected it, as we see
are, of course, caveats. For example, massive borrowing could spark
This is nonsense.
It ought to be obvious nonsense, but gold standard bashers cannot
think straight. Massive borrowing cannot "spark inflation," because
borrowing cannot spark inflation without fractional reserve banking.
When borrower A borrows money from lender B, no money is created.
The use of an existing supply of money changes by voluntary agreement.
Demand rises for the items borrower A buys. Demand falls for the
items lender B would otherwise have bought. Simple. But it's not
simple for gold standard bashers to grasp.
the country would also be forced to periodically deal with the relatively
unfamiliar territory of deflation.
is nonsense, for the same reason that the previous argument is nonsense.
The supply of money does not change. If prices fall, it is because
production rises. You know: "More goods chasing the same amount
of money." Isn't the idea of slowly falling prices the whole idea
of economic growth? If scarcity is a curse and it is
then increased output reduces scarcity. If scarcity is defined as
"greater demand than supply at zero price" and it is
then falling prices point to reduced scarcity. Yet gold standard
bashers regard this as a problem of the gold coin standard.
to the gold standard in particular could make these problems worse.
"The gold market can have very large movements within a day," says
Randall Kroszner, an economics professor at the Booth School of
Business at the University of Chicago and a former governor of the
Federal Reserve System. He adds that during recent times of economic
uncertainty, this added volatility would likely not have been helpful.
The gold market today establishes the price of gold in terms of
fiat money systems run by central banks. So, the price of gold as
denominated in fiat money varies. Why? Mainly because the value
of currencies fluctuates wildly because of investors' doubts concerning
the policies of central banks and commercial banks.
the rest of the article
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
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