Key ideas: Published in 1994. “Myth accepted as history. The accepted version of history is that the Federal Reserve was created to stabilize our economy. … Even the most naive student must sense a grave contradiction between this cherished view and the System’s actual performance. Since its inception, it has presided over the crashes of 1921 and 1929; the Great Depression of ‘29 to ’39; recessions in ’53, ’57, ’69, ’75, and ’81; a stock market ’Black Monday’ in ’87; and a 1000% inflation which has destroyed 90% of the dollar’s purchasing power. Let us be more specific on that last point. By 1990, an annual income of $10,000 was required to buy what took only $1,000 in 1914. That incredible loss in value was quietly transferred to the federal government in the form of hidden taxation, and the Federal Reserve System was the mechanism by which it was accomplished.” (Griffin)
Banks could create loans in excess of their actual deposits, as we shall see, but there was a limit to that process. And that limit was ultimately determined by the supply of gold they held.
Consequently, between 1900 and 1910, seventy per cent of the funding for American corporate growth was generated internally, making industry increasingly independent of the banks. Even the federal government was becoming thrifty. It had a growing stockpile of gold, was systematically redeeming the Greenbacks—which had been issued during the Civil War—and was rapidly reducing the national debt.
Here was another trend that had to be halted. What the bankers wanted—and what many businessmen wanted also—was to intervene in the free market and tip the balance of interest rates downward, to favor debt over thrift. To accomplish this, the money supply simply had to be disconnected from gold and made more plentiful or, as they described it, more elastic.
Here, then, were the main challenges that faced that tiny but powerful group assembled on Jekyll Island:
The most important task before them, therefore, can be stated as objective number five:
Most of Warburg’s writing and lecturing on this topic was eyewash for the public. To cover the fact that a central bank is merely a cartel which has been legalized, its proponents had to lay down a thick smoke screen of technical jargon focusing always on how it would supposedly benefit commerce, the public, and the nation; how it would lower interest rates, provide funding for needed industrial projects, and prevent panics in the economy. There was not the slightest glimmer that, underneath it all, was a master plan which was designed from top to bottom to serve private interests at the expense of the public.
The accepted version of history is that the Federal Reserve was created to stabilize our economy. One of the most widely-used textbooks on this subject says: “It sprang from the panic of 1907, with its alarming epidemic of bank failures: the country was fed up once and for all with the anarchy of unstable private banking.”
Even the most naive student must sense a grave contradiction between this cherished view and the System’s actual performance. Since its inception, it has presided over the crashes of 1921 and 1929; the Great Depression of ’29 to ’39; recessions in ’53, ’57, ’69, ’75, and ’81; a stock market “Black Monday” in ’87; and a 1000% inflation which has destroyed 90% of the dollar’s purchasing power.
Let us be more specific on that last point. By 1990, an annual income of $10,000 was required to buy what took only $1,000 in 1914*. That incredible loss in value was quietly transferred to the federal government in the form of hidden taxation, and the Federal Reserve System was the mechanism by which it was accomplished.
(* When one considers that the income tax had just been introduced in 1913 and that such low figures were completely exempt, an income at that time of $1,000 actually was the equivalent of earning $15,400 now, before paying 35% taxes. When the amount now taken by state and local governments is added to the total bite, the figure is close to $20,000.)
The FDIC is usually described as an insurance fund, but that is deceptive advertising at its worst. One of the primary conditions of insurance is that it must avoid what underwriters call “moral hazard.” That is a situation in which the policyholder has little incentive to avoid or prevent that which is being insured against. When moral hazard is present, it is normal for people to become careless, and the likelihood increases that what is being insured against will actually happen.
An example would be a government Program forcing everyone to pay an equal amount into a fund to protect them from the expense of parking fines. One hesitates even to mention this absurd proposition lest some enterprising politician should decide to put it on the ballot. Therefore, let us hasten to point out that, if such a numb-skull plan were adopted, two things would happen:
The FDIC operates exactly in this fashion. Depositors are told their insured accounts are protected in the event their bank should become insolvent. To pay for this protection, each bank is assessed a specified percentage of its total deposits. That percentage is the same for all banks regardless of their previous record or how risky their loans. Under such conditions, it does not pay to be cautious.
The banks making reckless loans earn a higher rate of interest than those making conservative loans. They also are far more likely to collect from the fund, yet they pay not one cent more. Conservative banks arc penalized and gradually become motivated to make more risky loans to keep up with their competitors and to get their “fair share” of the fund’s protection.
Moral hazard, therefore, is built right into the system. As with protection against parking tickets, the FDIC increases the likelihood that what is being insured against will actually happen. It is not a solution to the problem, it is part of the problem. …
The FDIC “protection” is not insurance in any sense of the word. It is merely part of a political scheme to bail out the most influential members of the banking cartel when they get into financial difficulty.
The FDIC never will have enough money to cover its potential liability for the entire banking system. If that amount were in existence, it could be held by the banks themselves, and an insurance fund would not even be necessary. Instead, the FDIC operates on the same assumption as the banks: that only a small percentage will ever need money at the same time. So the amount held in reserve is never more than a few percentage points of the total liability.
Typically, the FDIC holds about $1.20 for every $100 or covered deposits. At the time of this writing, however, that figure had slipped to only 70 cents and was still dropping. That Weans that the financial exposure is about 99.3% larger than the safety net which is supposed to catch it. The failure of just one or two large banks in the system could completely wipe out the entire fund.
And it gets even worse. Although the ledger may show that so many millions or billions are in the fund, that also is but creative bookkeeping. By law, the money collected from bank assessments must be invested in Treasury bonds, which means it is loaned to the government and spent immediately by Congress. In the final stage of this process, therefore, the FDIC itself runs out of money and turns, first to the Treasury, then to Congress for help….
Let’s see what “full faith and credit of the federal government” actually means. Congress, already deeply in debt, has no money either. It doesn’t dare openly raise taxes for the shortfall, so it applies for an additional loan by offering still more Treasury bonds for sale. The public picks up a portion of these I.O.U.s, and the Federal Reserve buys the rest. If there is a monetary crisis at hand and the size of the loan is great, the Fed will pick up the entire issue.
But the Fed has no money either. So it responds by creating out of nothing an amount of brand new money equal to the I.O.U.s and, through the magic of central banking, the FDIC is finally funded. This new money gushes into the banks where it is used to pay off the depositors. From there it floods through the economy diluting the value of all money and causing prices to rise. The old paycheck doesn’t buy as much any more, so we learn to get along with a little bit less. But, see? The bank’s doors are open again, and all the depositors are happy—until they return to their cars and discover the missing hub caps!
That is what is meant by “the full faith and credit of the federal government.”
Prior to this conference, currencies were exchanged in terms of their gold value, and the arrangement was called the “goldexchange standard.” This is not the same as a “gold-standard” in which a currency is backed by gold. It was merely that the exchange ratios of the various currencies—most of which were not backed by gold—were determined by how much gold they could buy in the open market. Their values, therefore, were set by supply and demand.
Politicians and bankers hated the arrangement, because it was beyond their ability to manipulate. In the past, it had served as a remarkably efficient mechanism but it was a strict disciplinarian. As John Kenneth Galbraith observed:
The Bretton Woods arrangements sought to recapture the advantages of the gold standard—currencies that were exchangeable at stable and predictable rates into gold and thus at stable and predictable rates into each other. And this it sought to accomplish while minimizing the pain imposed by the gold standard on countries that were buying too much, selling too little and thus losing gold.
The method by which this was to be accomplished was exactly the method devised on Jekyll Island to allow American banks to create money out of nothing without paying the penalty of having their currencies devalued by other banks. It was the establishment of a world central bank which would create a common fiat money for all nations and then require them to inflate together at the same rate….
The theoreticians who drafted this plan were the well-known Fabian Socialist from England, John Maynard Keynes, and the Assistant Secretary of the U.S. Treasury, Harry Dexter White. (Keynes often is portrayed as having been merely a liberal. But, for his lifelong volvement with Fabians and their work, see Rose Martin, Fabian Freeway; High Road to Socialism in the U.S.A. (Boston: Western Islands, 1966).)
The Fabians were an elite group of intellectuals who formed a semi-secret society for the purpose of bringing socialism to the world. Whereas Communists wanted to establish socialism quickly through violence and revolution, the Fabians preferred to do it slowly through propaganda and legislation.
The word socialism was not to be used. Instead, they would speak of benefits for the people such as welfare, medical care, higher wages, and better working conditions.
In this way, they planned to accomplish their objective without bloodshed and even without serious opposition. They scorned the Communists, not because they disliked their goals, but because they disagreed with their methods.
To emphasize the importance of gradualism, they adopted the turtle as the symbol of their movement. The three most prominent leaders in the early days were Sidney and Beatrice Webb and George Bernard Shaw. A stained-glass window in the Beatrice Webb House in Surrey, England is especially enlightening. Across the top appears the last line from Omar Khayyam:
Dear love, couldst thou and I with fate conspire
To grasp this sorry scheme of things entire,
Would we not shatter it to bits, and then
Remould it nearer to the heart’s desire!
Beneath the line Remould it nearer to the heart’s desire, the mural depicts Shaw and Webb striking the earth with hammers. Across the bottom, the masses kneel in worship of a stack of books advocating the theories of socialism.
Thumbing his nose at the docile masses is H.G. Wells who, after quitting the Fabians, denounced them as “the new machiavellians.” The most revealing component, however, is the Fabian crest which appears Between Shaw and Webb. It is a wolf in sheep’s clothing.
Harry Dexter White was America’s chief technical expert and the dominant force at the conference. He eventually became the first Executive Director for the United States at the IMF. An interesting footnote to this story is that White was simultaneously a member of the Council on Foreign Relations (CFR) and a member of a Communist espionage ring in Washington while he served as Assistant Secretary of the Treasury.
And even more interesting is that the White House was informed of that fact when President Truman appointed him to his post. The FBI had transmitted to the White House detailed proof of White’s activities on at least two separate occasions. Serving as the technical secretary at the Bretton Woods conference was Virginius Frank Coe, a member of the same espionage ring to which White belonged. Coe later became the first Secretary of the IMF.
Thus, completely hidden from public view, there was a complex drama taking place in which the intellectual guiding lights at the Bretton Woods conference were Fabian Socialists and Communists. Although they were in disagreement over method, they were in perfect harmony on goal: international socialism.
But the Fabian turtle was crawling inexorably toward its destination. In 1970, the IMF created a new monetary unit called the SDR, or Special Drawing Right. The media optimistically described it as “paper gold,” but it was pure bookkeeping wizardry with no relationship to gold or anything else of tangible value. SDRs are based on “credits” which are provided by the member nations. These credits are not money. They are merely promises that the governments will get the money by taxing their own citizens should the need arise. The IMF considers these to be “assets” which then become the “reserves” from which loans are made to other governments. As we shall see in chapter ten, this is almost identical to the bookkeeping sleight-of-hand that is used to create money out of nothing at the Federal Reserve System.
Dennis Turner cuts through the garbage:
SDRs are turned into loans to Third-World nations by the creation of checking accounts in the commercial or central banks of the member nations in the name of the debtor governments. These bank accounts are created out of thin air. The IMF creates dollars, francs, pounds, or other hard currencies and gives them to a Third-World dictator, with inflation resulting in the country where the currency originated…. Inflation is caused in the industrialized nations while wealth is transferred from the general public to the debtor country. And the debtor doesn’t repay.
In the 1980s, the world was saddened by photographs of starving children in Ethiopia, but what the West did not realize was that this was a planned famine. It was modelled after Stalin’s starvation program in the Ukraine in the 1930s and Mao’s starvation of the peasants in the ’40s.
Its purpose was to starve the population into total submission to the government, for it is the government which decides who will eat and who will not. Yet, right up to the time Mengistu was overthrown, the World Bank continued to send him hundreds of millions of dollars, with much of it going specifically to the Ministry of Agriculture, the very agency in charge of the resettlement program.
In the late 1970s the same story unfolded in Communist Vietnam…..
Laos has jailed thousands of political prisoners; Syria has massacred 20,000 members of its opposition; Indonesia has uprooted several million people from their homelands in Java; the Sandinistas in Nicaragua murdered their opposition and terrorized the nation into submission; Poland, while a puppet state of the Soviet Union, brutally suppressed its trade-union movement; China massacred its dissident students and imprisoned its religious leaders; and the former Soviets slaughtered civilians in Afghanistan while conducting a relentless espionage war against the entire free world. Yet, these regimes have been the recipient of literally billions of dollars from the World Bank.
How can the Bank’s managers continue in conscience to fund such genocidal regimes? Part of the answer is that they are not permitted to have a conscience. David Dunn, head of the Bank’s Ethiopia Desk explained: “Political distinctions are not something our charter allows us to take into account.”
The greater part of the answer, however, is that all socialist regimes have the potential for genocide, and the Bank is committed to socialism. The brutalities of these countries are all in a days work for serious socialists who view them as merely unfortunate necessities for the building of their utopia.
Lenin said you cannot make an omelet without cracking a few eggs. George Bernard Shaw, one of the early leaders of the Fabian Socialist movement, expressed it this way:
Under Socialism, you would not be allowed to be poor. You would be forcibly fed, clothed, lodged, taught, and employed whether you liked it or not. If it were discovered that you had not character and industry enough to be worth all this trouble, you might possibly be executed in a kindly manner; but whilst you were permitted to live, you would have to live well.
The top echelon at the World Bank are brothers under the skin to the socialist dictators with whom they do daily business. Under the right circumstances, they could easily switch roles. What we have seen is merely a preview of what can be expected for the entire world if the envisioned New World Order becomes operational.
The IMF/World Bank is the protege of the Federal Reserve. It would not exist without the flow of American dollars and the benevolence of American leadership. The Fed has become an accomplice in the support of totalitarian regimes throughout the world. As stated at the beginning of this study, that is one of the reasons it should be abolished: It is an instrument of totalitarianism.
Let us return now to the game called bailout. Everything in the previous chapter has been merely background information to understand the game as it is played in the international arena. Here, finally, are the rules:
Commercial banks in the industrialized nations, backed by their respective central banks, create money out of nothing and lend it to the governments of underdeveloped nations. They know that these are risky loans, so they charge an interest rate that is high enough to compensate. It is more than what they expect to receive in the long run.
When the underdeveloped nations cannot pay the interest on their loans, the IMF and World Bank enter the game as both players and referees. Using additional money created out of nothing by the central banks of their member nations, they advance “development” loans to the governments which now have enough to pay the interest on the original loans with enough left over for their own political purposes.
The recipient country quickly exhausts the new supply of money, and the play returns to point number two. This time, however, the new loans are guaranteed by the World Bank and the central banks of the industrialized nations. Now that the risk of default is removed, the commercial banks agree to reduce the interest to the point anticipated at the beginning. The debtor governments resume payments.
The final play is — well, in this version of the game there appears to be no final play, because the plan is to keep the game going forever. To make that possible, certain things must happen that are very final, indeed. They include the conversion of the IMF into a world central bank as Keynes had planned, which then issues an international fiat money. Once that “Bank of Issue” is in place, the IMF can collect unlimited resources from the citizens of the world through the hidden tax called inflation. The money stream then can be sustained indefinitely—with or without the approval of the separate nations—because they will no longer have money of their own.
One of the early American advocates of socialism on a global scale—including the draining of wealth away from the “rich” United States—was John F. Kennedy. He undoubtedly learned the concept while attending the Fabian London School of Economics in 1935-36 just prior to his father’s appointment as Ambassador to England.
When JFK became President, his political views continued to carry the imprint of that training. In September of 1963, he addressed the finance ministers and central-bank governors from 102 nations at the annual meeting of the IMF/World Bank. He explained the concept of world socialism in glowing terms:
Twenty years ago, when the architects of these institutions met to design an international banking structure, the economic life of the world was polarized in overwhelming, and even alarming, measure on the United States…. Sixty per cent of the gold reserves of the world were here in the United States…. There was a need for redistribution of the financial resources of the world…. And there was an equal need to organize a flow of capital to the impoverished countries of the world. All this has come about. It did not come about by chance but by conscious and deliberate and responsible planning.
It is introduced solely for the purpose of providing an understanding of the word as it is used within these pages. This, then, shall be our working definition:
Money is anything which is accepted as a medium of exchange and it may be classified into the following forms:
Understanding the difference between these forms of money is practically all we need to know to fully comprehend the Federal Reserve System and to come to a judgment regarding its value to our economy and to our nation.
In the natural evolution of every society, there always have been one or two items which became more commonly used in barter than all others. This was because they had certain characgteristics which made them useful or attractive to almost everyone. Eventually, they were traded, not for themselves, but because they represented a storehouse of value which could be exchanged at a later time for something else. At that point, they ceased being barter and became true money. They were, according to our working definition, a medium of exchange. And, since that medium was a commodity of intrinsic value, it may be described as commodity money.
Among primitive people, the most usual item to become commodity money was some form of food, either produce or livestock. Lingering testimony to this fact is our word pecuniary, which means pertaining to money. It is derived from the word pecunia, which is the Latin word for cow.
Eventually, when man learned how to refine crude ores and to craft them into tools or weapons, the metals themselves became of value. This was the dawning of the Bronze Age in which iron, copper, tin, and bronze were traded between craftsmen and merchants along trade routes and at major sea ports.
The value of metal ingots was originally determined by weight. Then, as it became customary for the merchants who cast them to stamp the uniform weights on the top, they eventually were valued simply by counting their number. Although they were too large to carry in a pouch, they were still small enough to be transported easily and, in this form, they became, in effect, primitive but functional coins.
The primary reason metals became widely used as commodity money is that they meet all of the requirements for convenient trading. In addition to being of intrinsic value for uses other than money, they are not perishable, which is more than one can say for cows; by melting and reforming they can be divided into smaller units and conveniently used for purchases of minor items, which is not possible with diamonds, for example; and, because they are not in great abundance, small quantities carry high value, which means they are more portable than such items as timber, for example.
Perhaps the most important monetary attribute of metals, however, is their ability to be precisely measured. It is important to keep in mind that, in its fundamental form and function, money is both a storehouse and a measure of value.
It is the reference by which all other things in the economy can be compared. It is essential, therefore, that the monetary unit itself be both measurgable and constant. The ability to precisely assay metals in both purity and weight makes them ideally suited for this function….
There is one metal, of course, that has been selected by centuries of trial and error above all others. Even today, in a world where money can no longer be defined, the common man instincgtively knows that gold will do just fine until something better comes along….
Furthermore, it is a commodity in great demand for purposes other than money. It is sought for both industry and ornament, thus assuring its intrinsic value under all conditions. And, of course, its purity and weight can be precisely measured.
For example, in 1913, the year the Federal Reserve was enacted into law, the average annual wage in America was $633. The exchange value of gold that year was $20.67. That means that the average worker earned the equivalent of 30.6 ounces of gold per year.
In 1990, the average annual wage had risen to $20,468. That is a whopping increase of 3,233 per cent, an average rise of 42 per cent each year for 77 years. But the exchange value of gold in 1990 had also risen. It was at $386.90 per ounce. The average worker, therefore, was earning the equivalent of 52.9 ounces of gold per year. That is an increase of only 73 per cent, a rise of less than 1 per cent per year over that same period.
It is obvious that the dramatic increase in the size of the paycheck was meaningless to the average American. The reality has been a small but steady increase in purchasing power (about 1 per cent per year) that has resulted from the gradual improvement in technology. This and only this has improved the standard of living and brought down real prices—as revealed by the relative value of gold.
In areas where personal service is the primary factor and where technology is less important, the stability of gold as a measure of value is even more striking. At the Savoy Hotel in London, one gold sovereign will still buy dinner for three, exactly as it did in 1913. And, in ancient Rome, the cost of a finely made toga, belt, and pair of sandals was one ounce of gold. That is almost exactly the same cost today, two-thousand years later, for a hand-crafted suit, belt, and a pair of dress shoes. There are no central banks or other human institutions which could even come close to providing that kind of price stability. And, yet, it is totally automatic under a gold standard.
The amazing stability of gold as a measure of value is simply the result of human nature reacting to the forces of supply and demand. The process, therefore, may be stated as a natural law of human behavior:
LESSON: When gold (or silver) is used as money and when the forces of supply and demand are not thwarted by government intervention, the amount of new metal added to the money supply will always be closely proportional to the expanding services and goods which can be purchased witli it Long-term stability of prices is the dependable result of these forces. This process is automatic and impartial. Any attempt by politicians to intervene will destroy the benefit for all. Therefore,
LAW: Long-term price stability is possible only when the money supply is based upon the gold (or silver) supply without government interference.
As governments became more brazen in their debasement of the currency, even to the extent of diluting the gold or silver content, the population adapted quite well by simply “discountging” the new coins. That is to say, they accepted them at a realistic value, which was lower than what the government had intended. This was, as always, reflected in a general rise in prices quoted in terms of those coins. Real prices, in terms of labor or other goods or even of gold itself remained unchanged.
Governments do not like to be thwarted in their plans to exploit their subjects. So a way had to be found to force people to accept these slugs as real money. This led to the first legal-tender laws. By royal decree, the “coin of the realm,” was declared legal for the settlement of all debts. Anyone who refused it at face value was subject to fine, imprisonment, or, in some cases, even death. The result was that the good coins disappeared from circulation and went into private hoards…. In economics, that is called Gresham’s Law: “Bad money drives out good.”
The final move in this game of legal plunder was for the government to fix prices so that, even if everyone is using only junk as money, they can no longer compensate for the continually expanding supply of it. Now the people were caught. They had no escape except to become criminals, which most of them, incidengtally, chose to do.
In more modern times, rulers of nations have become more sophisticated in the methods by which they debase the currency. Instead of clipping coins, it is done through the banking system. The consequences of that process were summarized in 1966 by Alan Greenspan who, a few years later, would became Chairman of the Board of Governors of the Federal Reserve. Greenspan wrote:
The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit….
The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes….
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold…. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the “hidden” confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights.
Unfortunately, when Greenspan was appointed as Chairman of the Federal Reserve System, he became silent on the issue of gold. Once he was seated at the control panel which holds the levers of power, he served the statists well as they continued to confiscate the people’s wealth through the hidden tax of inflation. Even the wisest of men can be corrupted by power and wealth.
This is not a textbook on the history of money, so we cannot afford the luxury of lingering among the fascinating details. For our purposes, it is sufficient to recognize that human behavior in these matters is predictable and, because of that predictability, it is possible to formulate another principle that is so universal that it too, may be considered a natural law. Drawing from the vast experience of this early period, it can be stated as follows:
LESSON: Whenever government sets out to manipulate the money supply, regardless of the intelligence or good intentions of those who attempt to direct the process, the result is inflation, economic chaos, and political upheaval. By contrast, whenever government is limited in its monetary power to only the maintenance of honest weights and measures of precious metals, the result is price stability, economic prosperity, and political tranquility. Therefore,
LAW: For a nation to enjoy economic prosperity and political tranquility, the monetary power of its politicians must be limited solely to the maintenance of honest weights and measures of precious metals.
The American Heritage Dictionary defines fiat money as “paper money decreed legal tender, not backed by gold or silver.” The two characteristics of fiat money, therefore, are (1) it does not represent anything of intrinsic value and (2) it is decreed legal tender.
Legal tender simply means that there is a law requiring everyone to accept the currency in commerce. The two always go together because, since the money really is worthless, it soon would be rejected by the public in favor of a more reliable medium of exchange, such as gold or silver coin….
The first notable use of this practice was recorded by Marco Polo during his travels to China in the thirteenth century. The famous explorer gives us this account:
The Emperor’s mint then is in this same City of Cambaluc, and the way it is wrought is such that you might say he hath the Secret of Alchemy in perfection, and you would be right!…
What they take is a certain fine white bast or skin which lies between the wood of the tree and the thick outer bark, and this they make into something resembling sheets of paper, but black. When these sheets have been prepared they are cut up into pieces of different sizes. The smallest of these sizes is worth a half tornesel…. There is also a kind worth one Bezant of gold, and others of three Bezants, and so up to ten.
All these pieces of paper are issued with as much solemnity and authority as if they were of pure gold or silver; and on every piece, a variety of officials, whose duty it is, have to write their names and to put their seals. And when all is prepared duly, the chief officer deputed by the Kaan smears the Seal entrusted to him with vermilion and impresses it on the paper, so that the form of the Seal remains stamped upon it in red; the money is then authentic. Any one forging it would be punished with death. And the Kaan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasures in the world.
With these pieces of paper, made as I have described, he causes all payments on his own account to be made, and he makes them to pass current universally over all his Kingdoms…. And nobody, however important he may think himself, dares to refuse them on pain of death And indeed everybody takes them readily.
One is tempted to marvel at the Kaan’s audacious power and the subservience of his subjects who endured such an outrage; but our smugness rapidly vanishes when we consider the similarity to our own Federal Reserve Notes. They are adorned with signatures and seals; counterfeiters are severely punished; the government pays its expenses with them; the population is forced to accept them; they—and the “invisible” checkbook money into which they can be converted—are made in such vast quantity that it must equal in amount all the treasures of the world. And yet they cost nothing to make. In truth, our present monetary system is an almost exact replica of that which supported the warlords of seven centuries ago.
Benjamin Franklin was an ardent proponent of fiat money during those years and used his great influence to sell the idea to the public. We can get some idea of the ferment of the times by noting that, in 1736, writing in his Pennsylvania Gazette, Franklin apologized for its irregular publication, and explained that the printer was “with the Press, labouring for the publick Good, to make Money more plentiful.” The printing of money was appargently a major, time-consuming operation.
In 1737, Massachusetts devalued its fiat currency by 66%, offering one dollar of new currency for three of the old. The promise was made that, after five years, the new money would be fully redeemed in silver or gold. The promise was not kept.
By the late 1750s, Connecticut had price inflated by 800%. The Carolinas had inflated 900%. Massachusetts 1000%. Rhode Island 2300% Naturally, these inflations all had to come to an end and, when they did, they turned into equally massive deflations and depressions.
Fiat money is the means by which governments obtain instant purchasing power without taxation. But where does that purchasging power come from? Since fiat money has nothing of tangible value to offset it, government’s fiat purchasing power can be obtained only by subtracting it from somewhere else. It is, in fact, “collected” from us all through a decline in our purchasing power. It is, therefore, exactly the same as a tax, but one that is hidden from view, silent in operation, and little understood by the taxpayer.
In 1786, Thomas Jefferson provided a clear explanation of this process when he wrote:
Every one, through whose hands a bill passed, lost on that bill what it lost in value during the time it was in his hands. This was a real tax on him; and in this way the people of the United States actually contributed those… millions of dollars during the war, and by a mode of taxation the most oppressive of all because the most unequal of all.
Let us pause at this point and observe another of those lessons derived from centuries of experience. That lesson is so clear and so universal and so widely seen throughout history that it may be stated as a natural law of human behavior:
LESSON: Fiat money is paper money without precious-metal backing and which people are required by law to accept. It allows politicians to increase spending without raising taxes. Fiat money is the cause of inflation, and the amount which people lose in purchasing power is exactly the amount which was taken from them and transferred to their government by this process. Inflation, therefore, is a hidden tax. This tax is the most unfair of all because it falls most heavily on those who are least able to pay: the small wage earner and those on fixed incomes. It also punishes the thrifty by eroding the value of their savings. This creates resentment among the people, leading always to political unrest and national disunity. Therefore,
LAW: A nation that resorts to the use of fiat money has doomed itself to economic hardship and political disunity.
Let us step back for a moment and analyze. In the beginning, banks served as warehouses for the safe keeping of their customers’ coins. When they issued paper receipts for those coins, they converted commodity money into receipt money. This was a great convenience, but it did not alter the money supply. People had a choice of using either coin or paper but they could not use both. If they used coin, the receipt was never issued. If they used the receipt, the coin remained in the vault and did not circulate.
When the banks abandoned this practice and began to issue receipts to borrowers, they became magicians. Some have said they created money out of nothing, but that is not quite true. What they did was even more amazing. They created money out of debt.
Obviously, it is easier for people to go into debt than to mine gold. Consequently, money no longer was limited by the natural forces of supply and demand. From that point in history forward, it was to be limited only by the degree to which bankers have been able to push down the gold-reserve fraction of their deposits.
From this perspective, we can now look back on fractional money and recognize that it really is a transitional form between receipt money and fiat money. It has some of the characteristics of both. As the fraction becomes smaller, the less it resembles receipt money and the more closely it comes to fiat money. When the fraction finally reaches zero, then it has made the complete transition and becomes pure fiat. Furthermore, there is no example in history where men, once they had accepted the concept of fractional money, didn’t reduce the fraction lower and lower until, eventually, it became zero.
No bank can stay in business for very long with a zero reserve. The only way to make people accept such a worthless currency is by government force. That’s what legal-tender laws are all about.
The transition from fractional-reserve money to fiat money, therefore, requires the participation of government through a mechanism which is called a central bank.
And so, once again, we come to one of those natural laws that emerge from centuries of human experience. It can be stated as follows:
LESSON: Fractional money is paper money which is backed by precious metals up to only a portion of the face amount. It is a hybrid, being part receipt money and part fiat money. Generally, the public is unaware of this fact and believes that fractional money can be redeemed in full at any time. When the truth is discovered, as periodically happens, there are runs on the bank, and only the first few depositors in line can be paid. Since fractional money earns just as much interest for the bankers as does gold or silver, the temptation is great for them to create as much of it as possible. As this happens, the fraction which represents the reserve becomes smaller and smaller until, eventually, it is reduced to zero. Therefore,
LAW: Fractional money will always degenerate into fiat money. It is but fiat money in transition.
In the 1940s, there was a comic strip character called Mandrake the Magician. His specialty was creating things out of nothing and, when appropriate, to make them disappear back into that same void. It is fitting, therefore, that the process to be described in this section should be named in his honor.
… In truth, money is not created until the instant it is borrowed. It is the act of borrowing which causes it to spring into existence. And, incidentally, it is the act of paying off the debt that causes it to vanish.
There is no short phrase that perfectly describes that process. So, until one is invented along the way, we shall continue using the phrase “create money out of nothing” and occasionally add “for the purpose of lending” where necessary to further clarify the meaning.
So, let us now leave the historical figures of the past and jump into their “future,” in other words, into our present, and see just how far this money/debt-creation process has been carried—and how it works.
The first fact that needs to be considered is that our money today has no gold or silver behind it whatsoever. The fraction is not 54% nor 15%. It is 0%. It has travelled the path of all previous fractional money in history and already has degenerated into pure fiat money….
The second fact that needs to be clearly understood is that, in spite of the technical jargon and seemingly complicated procedures, the actual mechanism by which the Federal Reserve creates money is quite simple. They do it exactly the same way the goldsmiths of old did except, of course, the goldsmiths were limited by the need to hold some precious metal in reserve, whereas the Fed has no such restriction.
It is difficult for Americans to come to grips with the fact that their total money supply is backed by nothing but debt, and it is even more mind boggling to visualize that, if everyone paid back all that was borrowed, there would be no money left in existence. That’s right, there would be not one penny in circulation—all coins and all paper currency would be returned to bank vaults—and there would be not one dollar in any one’s checking account. In short, all money would disappear. …
The Federal Reserve itself is amazingly frank about this process. A booklet published by the Federal Reserve Bank of New York tells us: “Currency cannot be redeemed, or exchanged, for Treasury gold or any other asset used as backing. The question of just what assets ‘back’ Federal Reserve notes has little but bookkeeping significance.”
Elsewhere in the same publication we are told: “Banks are creating money based on a borrower’s promise to pay (the IOU)… Banks create money by ‘monetizing’ the private debts of businesses and individuals.”
In a booklet entitled Modern Money Mechanics, the Federal Reserve Bank of Chicago says:
In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper. Deposits are merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face amount.
What, then, makes these instruments—checks, paper money, and coins—acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and real goods and services whenever they choose to do so. This partly is a matter of law; currency has been designated “legal tender” by the government—that is, it must be accepted.
In the fine print of a footnote in a bulletin of the Federal Reserve Bank of St. Louis, we find this surprisingly id explanation:
Modern monetary systems have a fiat base—literally money by decree—with depository institutions, acting as fiduciaries, creating obligations against themselves with the fiat base acting in part as reserves. The decree appears on the currency notes: “This note is legal tender for all debts, public and private.” While no individual could refuse to accept such money for debt repayment, exchange contracts could easily be composed to thwart its use in everyday commerce. However, a forceful explanation as to why money is accepted is that the federal government requires it as payment for tax liabilities. Anticipation of the need to clear this debt creates a demand for the pure fiat dollar.
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Robert Hemphill was the Credit Manager of the Federal Reserve Bank in Atlanta. In the foreword to a book by Irving Fisher, entitled 100% Money, Hemphill said this:
If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible—but there it is.
With the knowledge that money in America is based on debt, it should not come as a surprise to learn that the Federal Reserve System is not the least interested in seeing a reduction in debt in this country, regardless of public utterances to the contrary. Here is the bottom line from the System’s own publications. The Federal Reserve Bank of Philadelphia says: “A large and growing number of analysts, on the other hand, now regard the national debt as something useful, if not an actual blessing…. [They believe] the national debt need not be reduced at all.”
The answer is nothing, provided the debt is based on an honest transaction. There is plenty wrong with it if it is based upon fraud.
An honest transaction is one in which a borrower pays an agreed upon sum in return for the temporary use of a lender’s asset. That asset could be anything of tangible value. If it were an automobile, for example, then the borrower would pay “rent.” If it is money, then the rent is called “interest.” Either way, the concept is the same.
When we go to a lender—either a bank or a private party—and receive a loan of money, we are willing to pay interest on the loan in recognition of the fact that the money we are borrowing is an asset which we want to use. It seems only fair to pay a rental fee for that asset to the person who owns it. It is not easy to acquire an automobile, and it is not easy to acquire money—real money, that is. If the money we are borrowing was earned by someone’s labor and talent, they are fully entitled to receive interest on it. But what are we to think of money that is created by the mere stroke of a pen or the click of a computer key? Why should anyone collect a rental fee on that?
When banks place credits into your checking account, they are merely pretending to lend you money. In reality, they have nothing to lend. Even the money that non-indebted depositors have placed with them was originally created out of nothing in response to someone else’s loan. So what entitles the banks to collect rent on nothing?…
We are talking here, not about what is legal, but what is moral. As Thomas Jefferson observed at the time of his protracted battle against central banking in the United States, “No one has a natural right to the trade of money lender, but he who has money to lend.”
Let us, therefore, look at debt and interest in this light. Thomas Edison summed up the immorality of the system when he said:
People who will not turn a shovel full of dirt on the project nor contribute a pound of materials will collect more money…than will the people who will supply all the materials and do all the work.
Is that an exaggeration? Let us consider the purchase of a $100,000 home in which $30,000 represents the cost of the land, architect’s fee, sales commissions, building permits, and that sort of thing and $70,000 is the cost of labor and building materials. If the home buyer puts up $30,000 as a down payment, then $70,000 must be borrowed. If the loan is issued at 11% over a 30-year period, the amount of interest paid will be $167,806. That means the amount paid to those who loan the money is about 2 1/2 times greater than paid to those who provide all the labor and all the materials.
It is true that this figure represents the time-value of that money over thirty years and easily could be justified on the basis that a lender deserves to be compensated for surrendering the use of his capital for half a lifetime. But that assumes the lender actually had something to surrender, that he had earned the capital, saved it, and then loaned it for construction of someone else’s house. What are we to think, however, about a lender who did nothing to earn the money, had not saved it, and, in fact, simply created it out of thin air? What is the time-value of nothing?
As we have already shown, every dollar that exists today, either in the form of currency, checkbook money, or even credit card money—in other words, our entire money supply—exists only because it was borrowed by someone; perhaps not you, but someone. That means all the American dollars in the entire world are earning daily and compounded interest for the banks which created them. …
And what did the banks do to earn this perpetually flowing river of wealth? Did they lend out their own capital obtained through the investment of stockholders? Did they lend out the hard-earned savings of their depositors? No, neither of these were their major source of income. They simply waved the magic wand called fiat money.
One of the most perplexing questions associated with this process is “Where does the money come from to pay the interest?” If you borrow $10,000 from a bank at 9%, you owe $10,900. But the bank only manufactures $10,000 for the loan. It would seem, therefore, that there is no way that you—and all others with similar loans— can possibly pay off your indebtedness. The amount of money put into circulation just isn’t enough to cover the total debt, including interest. This has led some to the conclusion that it is necessary for you to borrow the $900 for the interest, and that, in turn, leads to still more interest. The assumption is that, the more we borrow, the more we have to borrow, and that debt based on fiat money is a neverending spiral leading inexorably to more and more debt.
This is a partial truth. It is true that there is not enough money created to include the interest, but it is a fallacy that the only way to pay it back is to borrow still more. The assumption fails to take into account the exchange value of labor. Let us assume that you pay back your $10,000 loan at the rate of approximately $900 per month and that about $80 of that represents interest. You realize you arc hard pressed to make your payments so you decide to take on a part-time job
The bank, on the other hand, is now making $80 profit each month on your loan. Since this amount is classified as “interest,” it is not extinguished as is the larger portion which is a return of the loan itself. So this remains as spendable money in the account of the bank. The decision then is made to have the bank’s floors waxed once a week. You respond to the ad in the paper and are hired at $80 per month to do the job.
The result is that you earn the money to pay the interest on your loan, and—this is the point—the money you receive is the same money which you previously had paid. As long as you perform labor for the bank each month, the same dollars go into the bank as interest, then out the revolving door as your wages, and then back into the bank as loan repayment.
It is not necessary that you work directly for the bank. No matter where you earn the money, its origin was a bank and its ultimate destination is a bank. The loop through which it travels can be large or small, but the fact remains all interest is paid eventually by human effort. And the significance of that fact is even more startling than the assumption that not enough money is created to pay back the interest.
It is that the total of this human effort ultimately is for the benefit of those who create fiat money. It is a form of modern serfdom in which the great mass of society works as indentured servants to a ruling class of financial nobility.
The entire function of this machine is to convert debt into money. It’s just that simple.
First, the Fed takes all the government bonds which the public does not buy and writes a check to Congress in exchange for them. (It acquires other debt obligations as well, but government bonds comprise most of its inventory.) There is no money to back up this check. These fiat dollars are created on the spot for that purpose. By calling those bonds “reserves,” the Fed then uses them as the base for creating 9 additional dollars for every dollar created for the bonds themselves.
The money created for the bonds is spent by the government, whereas the money created on top of those bonds is the source of all the bank loans made to the nation’s businesses and individuals. The result of this process is the same as creating money on a printing press, but the illusion is based on an accounting trick rather than a printing trick.
The bottom line is that Congress and the banking cartel have entered into a partnership in which the cartel has the privilege of collecting interest on money which it creates out of nothing, a perpetual override on every American dollar that exists in the world.
Congress, on the other hand, has access to unlimited funding without having to tell the voters their taxes are being raised through the process of inflation. If you understand this paragraph, you understand the Federal Reserve System.
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We must not forget, however, that one of the reasons the Fed was created in the first place was to make it possible for Congress to spend without the public knowing it was being taxed. Americans have shown an amazing indifference to this fleecing, explained undoubtedly by their lack of understanding of how the Mandrake Mechanism works. Consequently, at the present time, this cozy con- tract between the banking cartel and the politicians is in little danger of being altered. As a practical matter, therefore, even though the Fed may also create fiat money in exchange for commercial debt and for bonds of foreign governments, its major concern likely will be to continue supplying Congress.
The implications of this fact are mind boggling. Since our money supply, at present at least, is tied to the national debt, to pay off that debt would cause money to disappear. Even to seriously reduce it would cripple the economy*. Therefore, as long as the Federal Reserve exists, America will be, must be, in debt.
The purchase of bonds from other governments is accelerating in the present political climate of internationalism. Our own money supply increasingly is based upon their debt as well as ours, and they, too, will not be allowed to pay it off even if they are able.
Why, then, does the federal government bother with taxes at all? Why not just operate on monetized debt? The answer is twofold.
First, if it did, people would begin to wonder about the source of the money, and that might cause them to wake up to the reality that inflation is a tax. Thus, open taxes at some level serve to perpetuate public ignorance which is essential to the success of the scheme.
The second reason is that taxes, particularly progressive taxes, are weapons by which elitist social planners can wage war on the middle class.
The January 1946 issue oi American Affairs carried an article written by Beardsley Ruml who, at that time, was Chairman of the Federal Reserve Bank of New York. Ruml had devised the system of automatic withholding during World War II, so he was well qualified to speak on the nature and purpose of the federal income tax. His theme was spelled out in the title of his article: “Taxes for Revenue Are Obsolete.”
In an introduction to the article, the magazine’s editor summarized Ruml’s views as follows:
His thesis is that, given control of a central banking system and an inconvertible currency [a currency not backed by gold], a sovereign national government is finally free of money worries and needs no longer levy taxes for the purpose of providing itself with revenue. All taxation, therefore, should be regarded from the point of view of social and economic consequences.
Ruml explained that, since the Federal Reserve now can create out of nothing all the money the government could ever want, there remain only two reasons to have taxes at all. The first of these is to combat a rise in the general level of prices. His argument was that, when people have money in their pockets, they will spend it for goods and services, and this will bid up the prices. The solution, he says, is to take the money away from them through taxation and let the government spend it instead. This, too, will bid up prices, but Ruml chose not to go into that. He explained his theory this way:
The dollars the government spends become purchasing power in the hands of the people who have received them. The dollars the government takes by taxes cannot be spent by the people, and therefore, these dollars can no longer be used to acquire the things which are available for sale. Taxation is, therefore, an instrument of the first importance in the administration of any fiscal and monetary policy.
When we look at the monetary chaos around us today—the evaporating value of the dollar and the collapsing financial institutions—we are compelled to ask: How did we get into this fix?…
To find out how we got to where we are, it will be necessary to know where we started, and a good place to begin that inquiry is with the Constitution of the United States. Article I, Sections 8 and 10 say:
Congress shall have the power —
To borrow money … to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;… [and] to provide for the punishment of counterfeiting….
No state shall … coin money; emit bills of credit; [or] make anything but gold and silver coin a tender in payment of debts.
The delegates were precise in their use of these words. Congress was given the power to “coin money,” not to print it. Thomas M. Cooley’s Principles of Constitutional Law explains that ’to coin money is to stamp pieces of metal for use as a medium of exchange in commerce according to fixed standards of value.”
What was prohibited was to “emit bills of credit” which, according to the speeches and writings of those who drafted the document, meant the printing of paper IOUs which were intended to be circulated as money—in other words, the printing of fiat money not backed by gold or silver.
At first, it would seem that nothing could be more clear. Yet, these two simple clauses have become the basis for literally thousands of pages of conflicting interpretation. The crux of the problem is that, while the Constitution clearly prohibits the states from issuing fiat money, it does not specifically prevent the federal government from doing so. That was truly an unfortunate oversight on the part of the document’s framers, but they probably never dreamed in their wildest nightmares that their descendants “could be so stupid” as to not understand their intent. …
As one reads through the debates on the floor of the convention, one is struck by the passion that these delegates held on the subject of money. Every one of them could remember from his personal experience the utter chaos in the colonies caused by the issuance of fiat money. They spoke out against it in no uncertain terms, and they were adamant that it should never be tolerated again in America—at either the state or federal level.
Thomas Paine, although not a delegate to the Convention, had written the previous year that he was strongly opposed to fiat money, which he called counterfeiting by the state, and he especially abhorred legal tender laws which force people to accept the counterfeit. He said: “The punishment of a member [of a legislature] who should move for such a law ought to be death.”
An interesting thought.
If any further evidence is needed that the Founding Fathers intended to prohibit the federal government from issuing “bills of credit,” consider this. The first draft of the Constitution was copied in large measure from the original Articles of Confederation. When it was taken up for consideration by the delegates, therefore, it contained the old provision that had caused so much chaos. It stated:
The legislature of the United States shall have the power to borrow money and emit bills of credit.
But, after a lively discussion on the matter, the offending provision was voted to be removed from the Constitution by an overwhelming margin….
The Tenth Amendment states: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” The power to issue bills of credit is definitely not delegated to the United States, and it is specifically prohibited to the States.
Therefore, if any power to issue fiat money legally exists at all, it is reserved for the people. In other words, individuals and private institutions, such as banks, have the right to issue lOUs and hope that the public will use them as money, but government, at any level, is clearly prohibited by the Constitution from doing so.
Incidentally, the Constitution has never been amended on this point, nor has the provision that only silver and gold can be used as lawful money. It would be interesting if each reader of this book would send copies to his or her elected representatives in Washington, or at least a photocopy of this section. Every member of Congress has sworn to uphold the Constitution, and you might attach a short note asking them when they intend to begin.
The Coinage Act of 1792 accordingly set the relative value of gold-to-silver at fifteen-to-one. It then authorized the federal government to mint gold coins called Eagles, and it specified that their value was ten dollars. In other words, the gold coins would be equal in value to ten silver coins. Ten silver coins, each of 371.25 grains of fine silver, would contain a total of 3,712.5 grains. The content of the Eagle, therefore, was one-fifteenth that amount, or 247.5 grains of fine gold.
Contrary to popular misconception, Congress did not create a “gold dollar.” (It didn’t do that until fifty-seven years later in The Coinage Act of 1849.) In fact it reaffirmed that “the money of account of the United States shall be expressed in dollars or units” and again defined those units as coins containing 371.25 grains of pure silver. What Congress did do was authorize the minting of a gold coin and arbitrarily fix the value of the gold in that coin at fifteen times the value of the dollar. And it also stated that all silver and gold coins produced in the federal mint were to be legal tender in accordance with their value, based on weight and purity, relative to the standard of the silver dollar.
Oh yes, another thing. It set the death penalty for anyone who debases the nation’s coinage; a law which, if enforced today, would wipe out the House of Representatives, the Senate, the managerial level of the Treasury Department, and the Presidency as well.
Perhaps the most important provision of this Act, however, was the establishment of what is called free coinage. Under free coinage, any citizen may take raw silver or gold to the mint and, for a nominal fee, have it converted into coins for personal use. The government merely performs a technical function of creating the coin and stamping it with its insignia to certify the correct weight and purity. The state’s role in this is exactly the same as inspecting the scales in a grocery store or the meter on a gasoline pump. It is merely fulfilling the Constitutional requirement to set standards and verify the accuracy of weights and measures.
Free coinage was to become an important part of the American success story, and it lasted until the Gold Reserve Act of 1934 which, not only terminated it, but even made it illegal for citizens to possess gold.
… it is important to recall the greatness of our monetary system as it once was. Elgin Groseclose explains:
The principle of free coinage has proved its practical worth as a deterrent to debasement and depreciation. Where coinage is on private account there is no profit to the state in tampering with the standard, and there is no opportunity for such practice by the individual.
The circulation of coins of similar appearance and denomination but of uncertain standard, the arbitrary and unpredictable modifications in the standard by autocratic government, the temptations to profit which were constantly dangled before despotic rulers—these were evils which had perplexed and harassed society and hindered the natural growth of economy since the days when coined money first appeared. By a stroke they were swept away.
At the same time, the institution of free coinage, by giving stability and character to one of the chief instruments of organized economy, made possible a more vigorous and healthy commercial life and gave prestige and increased substance to the government adopting it.
In the vocabulary of the common man, to borrow is to accept a loan of something that already exists. He is confused, therefore, when the banker issues money out of nothing and then says he is lending it. He appears to be lending but, in reality, he is creating.
Jefferson pointed out that the Constitution did not grant to Congress the power to create a bank or anything similar. That means such power is reserved to the states or to the people. In a rebuttal to Hamilton’s proposal, he said: “To take a single step beyond the boundaries thus specially drawn around the powers of Congress, is to take possession of a boundless field of power, no longer susceptible of any definition.” Furthermore, he said, even if the Constitution had granted such power, it would be an extremely unwise thing to do, because allowing banks to create money could only lead to national ruin.
Hamilton, on the other hand, argued that debt was a good thing, if kept within reason, and that the nation needed more money in circulation to keep up with expanding commerce. Only the Bank, he said, would be able to provide that. Furthermore, while it is true the Constitution did not specifically grant the power to create such a bank, it was, nevertheless, an implied power, because it was needed to accomplish other functions which were granted in the Constitution.
That was the end run.
Nothing could be more polarized than the opposing ideas of these two men:
JEFFERSON: “A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army.” “We must not let our rulers load us with perpetual debt.”
HAMILTON: “No society could succeed which did not united the interest and credit of rich individuals with those of the state.” “A national debt, if it is not excessive, will be to us a national blessing.”
The relative unimportance of slavery as a cause for war was made clear by Lincoln himself during his campaign for the Presidency in 1860, and he repeated that message in his first inaugural address:
Apprehension seems to exist among the people of the Southern States that by the accession of a Republican administration their property and their peace and personal security are to be endangered…. I have no purpose, directly or indirectly, to interfere with the institution of slavery in the states where it now exists. I believe I have no lawful right to do so, and I have no inclination to do so.
Even after the outbreak of war in 1861, Lincoln confirmed his previous stand. He declared:
My paramount object in this struggle is to save the Union, and it is not either to save or destroy slavery. If I could save the Union without freeing any slave, I would do it; and if I could save it by freeing all the slaves, I would do it; and if I could do it by freeing some and leaving others alone, I would also do that.
It may come as a surprise to learn that, by strict definition, Abraham Lincoln was a white supremacist. In his fourth debate with Senator Stephen Douglas, he addressed the subject bluntly:
I am not nor ever have been in favor of bringing about in any way the social and political equality of the white and black races—that I am not nor ever have been in favor of making voters or jurors of Negroes, nor of qualifying them to hold office, nor to intermarry with white people; and I will say in addition to this that there is a physical difference between the white and black races which I believe will forever forbid the two races living together on terms of social and political equality. And inasmuch as they cannot so live, while they do remain together there must be the position of superior and inferior, and I as much as any other man am in favor of having the superior position assigned to the white race. (Don E. Fehrenbacher, ed., Abraham Lincoln: Speeches and Writings, 1859-1865)
This is not to say that Lincoln was indifferent to the institution of slavery, for he felt strongly that it was a violation of personal and national morality, but he also knew that slavery was gradually being swept away all over the world—with the possible exception of Africa itself—and he believed that it would soon disappear in America simply by allowing the natural forces of enlightenment to work their way through the political system. He feared—and rightly so—that to demand immediate and total reform, not only would destroy the Union, it would lead to massive bloodshed and more human suffering than was endured even under slavery itself….
The South, being predominantly an agricultural region, had to import practically all of its manufactured goods from the Northern states or from Europe, both of which reciprocated by providing a market for the South’s cotton. However, many of the textiles and manufactured items were considerably cheaper from Europe, even after the cost of shipping had been added. The Southern states, therefore, often found it to their advantage to purchase these European goods rather than those made in the North. This put considerable competitive pressure on the American manufacturers to lower their prices and operate more efficiently.
The Republicans were not satisfied with that arrangement. They decided to use the power of the federal government to tip the scales of competition in their favor. Claiming that this was in the “national interest,” they levied stiff import duties on almost every item coming from Europe that was also manufactured in the North. Not surprisingly, there was no duty applied to cotton which, presumedly, was not a commodity in the national interest. One result was that European countries countered by stopping the purchase of U.S. cotton, which badly hurt the Southern economy. The other result was that manufacturers in the North were able to charge higher prices without fear of competition, and the South was forced to pay more for practically all of its necessities. It was a classic case of legalized plunder in which the law was used to enrich one group of citizens at the expense of another. …
Meanwhile, there were powerful forces in Europe that wanted to see America embroiled in civil war. If she could be split into two hostile countries, there would be less obstacle to European expansion on the North American continent. France was eager to capture Mexico and graft it onto a new empire which would include many of the Southern states as well. England, on the other hand, had military forces poised along the Canadian border ready for action. Political agitators, funded and organized from Europe, were active on both sides of the Mason-Dixon line. The issue of slavery was but a ploy. America had become the target in a ruthless game of world economics and politics. …
To get people to fight, it was decided to convert the war into an anti-slavery crusade. The Emancipation Proclamation was primarily a move on the part of Lincoln to fan the dying embers of support for the “Rich-man’s war and the poor-man’s fight,” as it was commonly called in the North. Furthermore, it was not an amendment to the Constitution nor even an act of Congress. It was issued, totally without constitutional authority, as the solitary order of Lincoln himself, acting as Commander-in-Chief of the armed forces.
Preservation of the Union was not enough to fire men’s enthusiasm for war. Only the higher issue of freedom could do that. To make the cause of freedom synonymous with the cause of the North, there was no alternative but to officially declare against slavery. After having emphasized over and over again that slavery was not the reason for war, Lincoln later explained why he changed his course and issued the Proclamation:
Things had gone from bad to worse until I felt we had reached the end of our rope on the plan we were pursuing; that we had about played our last card, and must change our tactics or lose the game. I now determined upon the adoption of the emancipation policy.
The rhetoric of the Proclamation was superb, but the concept left a great deal to be desired. Bruce Catton, writing in the American Heritage Pictorial History of the Civil War explains:
Technically, the proclamation was almost absurd. It proclaimed freedom for all slaves in precisely those areas where the United States could not make its authority effective, and allowed slavery to continue in slave states which remained under Federal control…. But in the end it changed the whole character of the war and, more than any other single thing, doomed the Confederacy to defeat.
…
Converting the war into an antislavery crusade was a brilliant move on Lincoln’s part, and it resulted in a surge of voluntary recruits into the Union army. But this did not last. Northerners may have disapproved of slavery in the South but, once the bloodletting began in earnest, their willingness to die for that conviction began to wane. At the beginning of the war, enlistments were for only three months and, when that period was over, many of the soldiers declined to renew. Lincoln faced the embarrassing reality that he soon would have no army to carry on the crusade.
THistorically, men are willing to take up arms to defend their families, their homes, and their country when threatened by a hostile foe. But he only way to get them to fight in a war in which they have no perceived personal interest is either to pay them large bonuses and bounties or to force them to do so by conscription. It is not surprising, therefore, that both methods were employed to keep the Union army in the field.
Furthermore, although the Constitution specifies that only Congress can declare war and raise an army, Lincoln did so entirely on his own authority.
The Northern states were given an opportunity to fill a specified quota with volunteers before conscription began. To meet these quotas and to avid the draft, every state, township, and county developed an elaborate bounty system. By 1864, there were many areas where a man could receive more than $1,000— equivalent to over $50,000 today—just for joining the army. A person of wealth could avoid the draft simply by paying a commutation fee or by hiring someone else to serve in his place.
In the South, the government was even more bold in its approach to conscription. Despite its cherished views on states’ rights, the Confederacy immediately gathered into Richmond many of the powers and prerogatives of a centralized, national government. In 1862 it passed a conscription law which placed exclusive control over every male citizen between the ages of eighteen and thirty-five into the hands of the Confederate President.
When conscription was initiated by Lincoln in 1863, people in the North were outraged. In New York’s Madison Square, thousands of protesters marched in torch parades and attended anti-Lincoln rallies. Historian James Horan describes the mood: “When caricatures of the President were lifted above the speaker’s stand, hisses rose to fill the night with the noise of a million angry bees.”…
In New York City, when the first names of the draft were published in the papers on July 12, mobs stormed the draft offices and set fire to buildings. The riots continued for four days and were suppressed only when the federal Army of the Potomac was ordered to fire into the crowds. Over a thousand civilians were killed or wounded.
After the passage of many years, it is easy to forget that Lincoln had an insurrection on his hands in the North as well as in the South. The shooting of a thousand civilians by soldiers of their own government is a tragedy of mammoth proportions and it tells much about the desperate state of the Union at that time. To control that insurrection, Lincoln ignored the Constitution once again by suspending the right of habeas corpus, which made it possible for the government to imprison its critics without formal charges and without trial.
Thus, under the banner of opposing slavery, American citizens in the North, not only were killed on the streets of their own cities, they were put into military combat against their will and thrown into prison without due process of law. In other words, free men were enslaved so that slaves could be made free. Even if the pretended crusade had been genuine, it was a bad exchange.
There was no income tax at the time. The federal government was weak and couln’t effectively enfore conscription. In his, The Revolutoin of 1913, Frank Chodorov writes:
Thus, Lincoln’s attempt at military conscription was unsuccessful because he did not have an army to ferret out reluctant draftees; when World War I rolled around, that lack had been overcome, thanks to the Sixteenth Amendment, and now encroachment is so effective that even peacetime conscription presents no difficulty; the person of every American may be impounded.
On the positive side, there is no question of Lincoln’s patriotism. His concern was in preserving the Union, not the Constitution, and his refusal to let the European powers split America into a cluster of warring nation-states was certainly wise. Lincoln believed that he had to violate part of the Constitution in order to save the whole. But that is dangerous reasoning. It can be used in almost any national crisis as the excuse for the expansion of totalitarian power.
There is no reason to believe that the only way to save the Union was to scrap the Constitution. In fact, if the Constitution had been meticulously observed from the very beginning, the Southern minority could never have been legally plundered by the Northern majority and there likely would have been, no movement for secession in the first place. And, even if there had been, a strict reading of the Constitution at that point could have led the way to an honorable and peaceful settlement of differences. The result would have been, not only the preservation of the Union without war, but Americans would be enjoying far less government intervention in their daily lives today.
The story is told of a New England farmer with a small pond in his pasture. Each summer, a group of wild ducks would frequent that pond but, try as he would, the farmer could never catch one. No matter how early in the morning he approached, or how carefully he constructed a blind, or what kind of duck call he tried, somehow those crafty birds sensed the danger and managed to be out of range. Of course, when fall arrived, the ducks headed South, and the farmer’s craving for a duck dinner only intensified.
Then he got an idea. Early in the spring, he started scattering corn along the edge of the pond. The ducks liked the corn and, since it was always there, they soon gave up dipping and foraging for food of their own. After a while, they became used to the farmer and began to trust him. They could see he was their benefactor and they now walked close to him with no sense of fear. Life was so easy, they forgot how to fly. But that was unimportant, because they were now so fat they couldn’t have gotten off the water even if they had tried.
Fall came, and the ducks stayed. Winter came, and the pond froze. The farmer built a shelter to keep them warm. The ducks were happy because they didn’t have to fly. And the farmer was especially happy because, each week all winter long, he had a delicious duck dinner.
That is the story of America’s Great Depression of the 1930s.
When the Federal Reserve Act was submitted to Congress, many of its most important features were written in vague language. Some details were omitted entirely. That was a tactical move to avoid debate over fine points and to allow flexibility for future interpretation. The goal was to get the bill passed and perfect it later. Since then, the Act has been amended 195 times, expanding the power and scope of the System to the point where, today, it would be almost unrecognizable to the Congressmen and Senators who voted for it.
In 1913, public distaste for concentration of financial power in the hands of a few Wall Street banks helped to fuel the fire for passage of the Federal Reserve Act. To make it appear that the new System would put an end to the New York “money trust,” as it was called, the public was told that the Federal Reserve would not represent any one group or one region. Instead, it would have its power diffused over twelve regional Federal Reserve Banks, and none would be able to dominate. …
It will be recalled from Chapters Twelve and Twenty that it was this interlock during World War I that was responsible for the confiscation from American taxpayers of billions of dollars which were given to the central banks of England and France. Much of that money found its way to the associates of J.P. Morgan as interest payments on war bonds and as fees for supplying muni- tions and other war materials.
Seventy per cent of the cost of World War I was paid by inflation rather than taxes, a process that was orchestrated by the Federal Reserve System. This was considered by the Fed’s supporters as its first real test, and it passed with flying colors. American inflation during that period was only slightly less than in England, which had been more deeply committed to war and for a longer period of time. That is not surprising inasmuch as a large portion of Europe’s war costs had been transferred to the American taxpayers.
After the war was over, the transfusion of American dollars continued as part of a plan to pull England out of depression. The methods chosen for that transfer were artificially low interest rates and a deliberate inflation of the American money supply. That was calculated to weaken the value of the dollar relative to the English pound and cause gold reserves to move from America to England….
Before Alan Greenspan was appointed as Chairman of the Federal Reserve by President Reagan in 1987, he had served on the Board of the J.P. Morgan Company. Before that, however, he had been an outspoken champion of the gold standard and a critic of the System’s subservience to the banking cartel. In 1966 he wrote:
When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us…. The “Fed” succeeded: it stopped the gold loss, but it nearly destroyed the economies of the world in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market—triggering a fantastic speculative boom…. As a result, the American economy collapsed.
After his appointment to the Fed, Greenspan became silent on these issues and did nothing to anger the Creature he now served.
It quickly became apparent that setting reserve ratios was an inefficient tool. The latitude of control was too small, and the amount of public attention too great. The second method, influencing the interest rate on commercial loans, was more useful. Here i,s how that works:
Under a fractional-reserve banking system, a bank can create new money merely by issuing a loan. The amount of new money it creates is limited by the reserve ratio or “fraction” it is required to maintain to cover its cash-flow needs. If the reserve ratio is 10%, then each $10 it lends includes $9 that never existed before. A commercial bank, therefore, can create a sizable amount of money merely by making loans. But, once the bank is “loaned up,” that is to say, once the bank has already loaned $9 for every $1 it holds in reserve, it must stop and wait for some of the old loans to be paid back before it can issue new ones. The only way to expand that process is to make the reserves larger. That can be accomplished in one of three ways: (1) use some of the bank’s profits, (2) sell additional stock to investors, or (3) borrow money from the Fed.
The third option is the most popular and is called going to the “discount window.” When banks go to the Fed’s discount window to obtain a loan, they are expected to put up collateral. This can be almost any debt contract held by the bank, including government bonds, but it commonly consists of commercial loans. The Fed then grants credit to the bank in an amount equal to those contracts. In essence, this allows the bank to convert its old loans into new “reserves.” Every dollar of those new reserves then can be used as the basis for lending nine more dollars in checkbook money!
The process does not stop there. Once the new loans are made, they, too, can be used as collateral at the Fed for still more reserves. The music goes ’round and ’round, with each new level of debt becoming “reserves” for yet a higher level of loans, until it finally plays itself out at about twenty-eight times. That process is commonly called “discounting commercial paper.” It was one of the means by which the Fed was able to flood the nation with new money prior to the Great Dam Rupture of 1929.
Here is another of those “natural laws” of economics that needs to be added to our list:
LESSON: It is human nature for man to place personal priorities ahead of all others. Even the best of men cannot long resist the temptation to benefit at the expense of their neighbors if the occasion is placed squarely before them. This is especially true when the means by which they benefit is obscure and not likely to be perceived as such. There may be exceptional men from time to time who can resist that temptation, but their numbers are small. The general rule will prevail in the long run.
A managed economy presents men with precisely that kind of opportunity. The power to create and extinguish the nation’s money supply provides unlimited potential for personal gain. Throughout history the granting of that power has been justified as being necessary to protect the public, but the results have always been the opposite. It has been used against the public and for the personal gain of those who control. Therefore,
LAW: When men are entrusted with the power to control the money supply, they will eventually use that power to confiscate the wealth of their neighbors.
The biggest doomsday mechanism of all, however, is the Federal Reserve System. It will be recalled that every cent of our money supply—including coins, currency, and checkbook money—came into being for the purpose of being loaned to someone. These dollars will disappear when those loans are paid back. They exist only so long as the debt behind them exists.
Underneath the pyramid of money, supporting the entire structure, are the so-called reserves which represent the Fed’s monetization of debt. If we tried to pay off the national debt, those reserves would also start to disappear, and our money supply would be undermined. The Federal Reserve would have to scramble into the money markets of the world and replace U.S. securities with bonds from corporations and other countries. Technically, that can be done, but the transition could be devastating. Under the Federal Reserve System, therefore, Congress would be fearful to eliminate the national debt even if it wanted to.
The Club of Rome is a group of global planners who annually release end-of-world scenarios based on predictions of overpopulation and famine. Their membership is international, but the American roster includes such well-known CFR members as Jimmy Carter, Harlan Cleveland, Claiburne Pell, and Sol Linowitz.
Their solution to overpopulation? A world government to control birth rates and, if necessary, apply euthanasia. That is a gentle word for the deliberate killing of the old, the weak, and of course the uncooperative.
Following the same reasoning advanced at Iron Mountain, the Club of Rome has concluded that fear of environmental disaster could be used as a substitute enemy for the purpose of unifying the masses behind their program. In their 1991 book entitled The First Global Revolution, we find this:
In searching for a new enemy to unite us, we came up with the idea that pollution, the threat of global warming, water shortages, famine and the like would fit the bill…. All these dangers are caused by human intervention…. The real enemy, then, is humanity itself.
Socialist theoreticians have always been fascinated by the question of controlling population growth. It excites their imagination because it is the ultimate bureaucratic plan. If the real enemy is humanity itself, as the Club of Rome says, then humanity itself must become the target. Fabian Socialist Bertrand Russell1 expressed it thus:
I do not pretend that birth control is the only way in which population can be kept from increasing…. War, as I remarked a moment ago, has hitherto been disappointing in this respect, but perhaps bacteriological war may prove more effective. If a Black Death could be spread throughout the world once in every generation, survivors could procreate freely without making the world too full….
A scientific world society cannot be stable unless there is world government…. It will be necessary to find ways of preventing an increase in world population. If this is to be done otherwise than by wars, pestilences and famines, it will demand a powerful international authority. This authority should deal out the world’s food to the various nations in proportion to their population at the time of the establishments of the authority. If any nation subsequently increased its population, it should not on that account receive any more food. The motive for not increasing population would therefore be very compelling.
Very compelling, indeed. These quiet-spoken socialists are not kidding around. For example, one of the most visible “environmentalists” and advocate of population control is Jacques Cousteau. Interviewed by the United Nations UNESCO Courier in November of 1991, Cousteau spelled it out. Speaking of death by cancer, he said:
Should we eliminate suffering diseases? This idea is beautiful, but perhaps not a benefit for the long term. We should not allow our dread of diseases to endanger the future of our species. This is a terrible thing to say. In order to stabilize world population, we must eliminate 350,000 people per day. It is a horrible thing to say, but it’s just as bad not to say it.
We can now understand how Mikhail Gorbachev, formerly the leader of one of the most repressive governments the world has known, became head of a new organization called the International Green Cross, which supposedly is dedicated to environmental ssues. Gorbachev has never denounced socialism, only the label of a particular brand of socialism called Communism. His real interest is not ecology but world government with himself assured a major position in the socialist power structure. In a public appearance in Fulton, Missouri, he praised the Club of Rome, of which he is a member, for its position on population control. Then he said:
One of the worst of the new dangers is ecological…. Today, global climatic shifts; the greenhouse effect; the “ozone hole”; acid ram; contamination of the atmosphere, soil and water by industrial and household waste; the destruction of the forests; etc. all threaten the stability of the planet.
Gorbachev proclaimed that global government was the answer to these threats and that the use of government force was essential. He said:
“I believe that the new world order will not be fully realized unless the United Nations and its Security Council create structures … authorized to impose sanctions and make use of other measures of compulsion.”
Here is an arch criminal who fought his way up through the ranks of the Soviet Communist Party, became the protege of Yuri Andropov, head of the dreaded KGB, was a member of the USSR’s ruling Politburo throughout the Soviet invasion of Afghanistan, and who was selected by the Politburo in 1985 as the supreme leader of world Communism. All of this was during one of the Soviet’s most dismal periods of human-rights violations and subversive activities against the free world. Furthermore, he ruled over a nation with one of the worst possible records of environmental destruction. At no time while he was in power did he ever say or do anything to show concern over planet Earth.
All that is now forgotten. Gorbachev has been transformed by the CFR-dominated media into an ecology warrior. He is calling for world government and telling us that such a government will use environmental issues as justification for sanctions and other “measures of compulsion.” We cannot say that we were not warned.
In the year 1816, Thomas Jefferson wrote a letter to Sam Kercheval in which he said:
We must make our election between economy and liberty, or profusion and servitude. If we run into such debts as that we must be taxed in our meat and in our drink, in our necessities and our comforts, in our labors and our amusements,… our people … must come to labor sixteen hours in the twenty-four, give our earnings of fifteen of these to the government,… have no time to think, no means of calling our mis-managers to account; but be glad to obtain sustenance by hiring ourselves out to rivet their chains on the necks of our fellow-sufferers…. And this is the tendency of all human governments … till the bulk of society is reduced to be mere automatons of misery…. And the forehorse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression.
In the year 1831, a young Frenchman, named Alexis de Tocqueville, toured the United States to prepare an official report to his government on the American prison system. His real interest, however, was the social and political environment in the New World. He found much to admire in America but he also observed what he thought were the seeds of its destruction. Upon his return to France the following year, he began work on a four-volume analysis of the strengths and weaknesses he found.
His perceptivity was remarkable, and his work, entitled Democracy in America, has remained as one of the world’s classic works in political science. This is the part that our computer recognized:
The Americans hold that in every state the supreme power ought to emanate from the people; but when once that power is constituted, they can conceive, as it were, no limits to it, and they are ready to admit that it has the right to do whatever it pleases…. The idea of rights inherent in certain individuals is rapidly disappearing from the minds of men; the idea of the omnipotence and sole authority of society at large rises to fill its place….
The first thing that strikes the observation is an innumerable multitude of men, all equal and alike, incessantly endeavoring to procure the petty and paltry pleasures with which they glut their lives. Each of them, living apart, is a stranger to the fate of all the rest; his children and his private friends constitute to him the whole of mankind….
Above this race of men stands an immense and tutelary power, which takes upon itself alone to secure their gratifications and to watch over their fate. That power is absolute, minute, regular, provident, and mild. It would be like the authority of a parent if, like that authority, its object was to prepare men for manhood; but it seeks, on the contrary, to keep them in perpetual childhood: it is well content that the people should rejoice, provided they think of nothing but rejoicing….
After having thus successively taken each member of the community in its powerful grasp and fashioned him at will, the supreme power then extends its arm over the whole community. It covers the surface of society with a network of small, complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate, to rise above the crowd. The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd….
Our contemporaries are constantly excited by two conflicting passions: they want to be led, and they wish to remain free. As they cannot destroy either the one or the other of these contrary propensities, they strive to satisfy them both at once. They devise a sole, tutelary, and all-powerful form of government, but elected by the people. They combine the principle of centralization and that of popular sovereignty; this gives them a respite: they console themselves for being in tutelage by the reflection that they have chosen their own guardians. Every man allows himself to be put in leading-strings, because he sees that it is not a person or a class of persons, but the people at large who hold the end of his chain. By this system the people shake off their state of dependence just long enough to select their master and then relapse into it again.
The third printout is dated 1904 and is a report issued by the General Education Board, one of the first foundations established by John D. Rockefeller, Sr.. The purpose of the foundation was to use the power of money, not to raise the level of education in America, as was widely believed at the time, but to influence the direction of that education.
Specifically, it was to promote the ideology of collectivism and internationalism. The object was to use the classroom to teach attitudes that encourage people to be passive and submissive to their rulers.
The goal was—and is—to create citizens who are educated enough for productive work under supervision but not enough to question authority or seek to rise above their class.
True education was to be restricted to the sons and daughters of the elite. For the rest, it would be better to produce skilled workers with no particular aspirations other than to enjoy life. It was enough, as de Tocqueville phrased it, “that the people should rejoice, provided they think of nothing but rejoic- ing.
In the first publication of the General Education Board, Fred Gates explained the plan:
In our dreams we have limitless resources, and the people yield themselves with perfect docility to our molding hands. The present educational conventions fade from our minds, and unhampered by tradition, we work our own good upon a grateful and responsive rural folk.
We shall not try to make these people or any of their children into philosophers of mental learning or of science. We have not to raise from among them authors, editors, poets, or men of letters. We shall not search for embryo great artists, painters, musicians, nor lawyers, doctors, preachers, politicians, statesmen of whom we have ample supply.
The task we set before ourselves is very simple as well as a very beautiful one: To train these people as we find them to a perfectly ideal life just where they are…. in the homes, in the shop, and on the farm.
From this we see that Orwell’s work is far more than an entertaining novel. It is relevant to our present journey in time. Our would-be masters have studied him carefully. So should we. This is what he wrote:
These three superstates are permanently at war, and have been so for the past twenty-five years. War, however, is no longer the desperate, annihilating struggle that it was in the early decades of the twentieth century…. This is not to say that either the conduct of the war, or the prevailing attitude toward it, has become less bloodthirsty or more chivalrous. On the contrary, war hysteria is continuous and universal in all countries, and such acts as raping, looting, the slaughter of children, the reduction of whole populations to slavery, and reprisals against prisoners which extend even to boiling and’ burying alive, are looked upon as normal….
The primary aim of modem warfare … is to use up the products of the machine without raising the general standard of living. [The “machine” is society’s technical and industrial capacity to produce goods.] … From the moment when the machine first made its appearance it was clear to all thinking people that the need for human drudgery, and therefore to a great extent for human inequality, had disappeared. If the machine were used deliberately for that end, hunger, overwork, dirt, illiteracy, and disease could be eliminated within a few generations….
But it was also clear that an all-around increase in wealth threatened the destruction—indeed in some cases was the destruction—of a hierarchical society. In a world in which everyone worked short hours, had enough to eat, lived in a house with a bathroom and a refrigerator, and possessed a motorcar or even an airplane, the most obvious and perhaps the most important form of inequality would already have disappeared. If it once became general, wealth would confer no distinction…. Such a society could not long remain stable. For if leisure and security were enjoyed by all alike, the great mass of human beings who are normally stupefied by poverty would become literate and would learn to think for themselves; and when once they had done this, they would sooner or later realize that the privileged minority had no function, and they would sweep it away. In the long run, a hierarchical society was only possible on a basis of poverty and ignorance….
The essential act of war is destruction, not necessarily of human lives, but of the products of human labor. War is a way of shattering to pieces, or pouring into the stratosphere, or sinking into the depths of the sea, materials which might otherwise be used to make the masses too comfortable, and hence, in the long run, too intelligent….
In practice the needs of the population are always underestimated, with the result that there is a chronic shortage of half the necessities of life; but this is looked on as an advantage. It is deliberate policy to keep even the favored groups somewhere near the brink of hardship, because a general state of scarcity increases the importance of small privileges and thus magnifies the distinction between one group and another…. The social atmosphere is that of a besieged city, where the possession of a lump of horseflesh makes the difference between wealth and poverty. And at the same time the consequences of being at war, and therefore in danger, makes the handing over of all power to a small caste seem the natural, unavoidable condition of survival….
War, it will be seen, not only accomplishes the necessary destruction, but accomplishes it in a psychologically acceptable way. In principle it would be quite simple to waste the surplus labor of the world by building temples and pyramids, by digging holes and filling them up again, or even by producing vast quantities of goods and then setting fire to them. But this would provide only the economic and not the emotional basis for a hierarchical society….
War, it will be seen, is now a purely internal affair…. waged by each ruling group against its own subjects, and the object of the war is not to make or prevent conquests of territory, but to keep the structure of society intact.
Once again, it is clear that Orwell’s grim narrative was a primary model for The Report from Iron Mountain. The authors of that blueprint for our future spoke at length about the value of planned waste as a means of preventing the masses from improv- ing their standard of living. They wrote:
The production of weapons of mass destruction has always been associated with economic “waste.” The term is pejorative, since it implies a failure of function. But no human activity can properly be considered wasteful if it achieves its contextual objective….
In the case of military “waste,” there is indeed a larger social utility…. In advanced modern democratic societies, the war system … has served as the last great safeguard against the elimination of necessary social classes. As economic productivity increases to a level further and further above that of minimum subsistence, it becomes more and more difficult for a society to maintain distribution patterns insuring the existence of “hewers of wood and drawers of water.”…
The arbitrary nature of war expenditures and of other military activities make them ideally suited to control these essential class relationships…. The continuance of the war system must be assured, if for no other reason, among others, than to preserve whatever quality and degree of poverty a society requires as an incentive, as well as to maintain the stability of its internal organization of power. (Lewin, Report, pp. 34-35,40-41)
These documents from the real past and the imagined future can help us to better understand our present. The spectacle of wasteful government spending suddenly becomes logical. It is not stupidity that pays farmers to destroy their crops, or that purchases trillion-dollar weapons systems that are never deployed or in some cases not even completed, or that provides funding for studies of the sex life of the tse-tse fly, or that gives grants to pornographers posing as artists. The overriding object behind most of these boondoggles is to waste the resources of the nation. It is obvious by now that the decline in living standards in the Western world is associated with a widening gap between the haves and the have-nots. What is not so obvious, however, is that this is according to plan. To that end, massive waste in government spending is not an unfortunate by-product, it is the goal.
That brings us back to the question of finding an acceptable substitute for war. War is not only the ultimate waste, it is also the ultimate motivation for human action. As Orwell said, waste in the absence of war “would provide only the economic and not the emotional basis for a hierarchical society.” Will the environmental-pollution model be able to sufficiently motivate human action to be a substitute for war?….
The world planners will not abandon the use of war until the new model has been proven over many years. On that point, the Report from Iron Mountain was emphatic:
When asked how best to prepare for the advent of peace, we must first reply, as strongly as we can, that the war system cannot responsibly be allowed to disappear until
It is uncertain, at this time, whether peace will ever be possible. It is far more questionable … that it would be desirable even if it were demonstrably attainable.
- we know exactly what it is we plan to put in its place, and
- we are certain, beyond reasonable doubt, that these substitute institutions will serve their purposes in terms of the survival and stability of society….
…
What can we do to prepare financially? To avoid making this a lengthy dissertation, let’s use the outline form. Elaboration should not be necessary.
Get out of debt. A mortgage on one’s home is a logical exception, provided the price is right. Borrowing for one’s business is also an exception if based on a sound business plan. Speculative investments are not a good idea in these times unless they are made with money you can afford to lose.
Pick a sound bank. Maintain accounts at several institutions. Do not keep over $100,000 in any one bank. Remember that not all types of accounts are covered by FDIC. Some institutions now offer private insurance. Make sure you know to what extent you are at risk.
Diversify your investments among blue ribbon, over-the- counter, growth, income, large, small, mutuals, bonds, real estate, bullion coins, mining stock, and tangibles. Industries that do well in hard times are gambling, alcohol, and escapist entertainment. Study the fields and companies in which you invest. Personal knowledge is indispensable.
Avoid the most recent “best” performers. Their great track records are historical. They have no bearing on future performance. To the contrary, they may now be overpriced and poised for a fall. See how an investment fared over the long run—at least fifteen years—and particularly how it performed during periods of economic downturn.
When investing in coins, avoid those with high numismatic value—unless you are prepared to become an expert. As with other types of investments, seek advice but don’t depend on it. The same is true for diamonds, art pieces, and other collectibles. Stay with what you know. Otherwise, you will be vulnerable in shark-infested waters where even the most experienced traders can lose money.
Maintain a stash of cash, including some old silver coins. The currency should be enough to provide your family with necessities for about two months. The coins are for more severe and prolonged conditions. There is no “correct” quantity. It is a matter of personal judgment and financial ability.