This article by Jason Riddle originally appeared in the Freeman on 11/09/2100.
_As I was watching the recent GOP debate in Las Vegas, I couldn’t help but think of the millions of people that enter the casinos expecting to beat the odds. Some do. However, most do not. There is a reason why gambling is a multibillion dollar industry. Big profits are made as relatively small amounts are lost by the masses trying to beat the system. Of course gambling may be regarded as entertainment, but the relevant feature of gambling for present purposes is that it is a zero-sum game. One person’s winnings are necessarily another’s losses. Wealth is transferred, and the house always wins so long as enough people play the game.

Similarly, politics operates as a zero-sum game. Economist Robert Murphy points out that our current political system is actually a negative-sum game, but even if we could eliminate all bureaucratic waste, we cannot escape the simple truth that when an individual wins political favor, he or she only benefits at the less obvious expense of someone else. There is no such thing as a magical public fund from which political gifts spontaneously generate. No matter how noble the intention or the cause, the benevolent politician is not Santa Claus. All goods distributed by government must first be created or produced by somebody. Whatever is given must first be taken. This is true for corporate subsidies and bank bailouts, just as it is true for transfer payments made to the very poorest members of society.

People by and large accept such a system because they believe they will be able to draw more in political advantage than they lose by way of political plunder. This mentality keeps the population playing the game, and like the casino, if enough people play the game, it is the political class and the politically connected that always win....
The United States has the largest gold reserves of any nation in the world by a significant margin. The U.S. is reported to hold about 8,133.5 metric tonnes of gold. Germany is a distant second with 3,401.0 metric tonnes of the yellow metal. Italy has 2,451.8 metric tonnes in reserve. Could nations tap into their gold reserves to ameliorate their sovereign debt woes? Let’s take a look at the numbers.

Presently, the Italian government’s annual deficit is nearly 4% of national output. In order cover this year’s budget shortfall at current spending levels, Italy would have to raise $72 billion. One way to do this might be to sell $72 billion of gold.

Unfortunately, Italy’s total gold holdings are only worth about $81 billion at today’s prices. That doesn’t get the Italian government very far considering Italy’s current debt has grown to almost $2.2 trillion after years of fiscal irresponsibility. Furthermore, Italy is going to have to come up with $151.55 billion in financing from September to the end of this year just to avoid default, according to Goldman Sachs. It seems the Italian welfare state is insolvent, having spent far more than they have or will be able to generate. The facts do not bode well for the world’s eleventh largest economy looking at a mountain of debt that is over 120% of national output.

The situation in the United States is not much brighter. The U.S. has 3.3 times the amount of gold as Italy, but nearly 6.6 times the amount of government debt. Sure, the U.S. has the largest gold reserves in the world, but the total amount of gold held by the United States is only worth about $270 billion at today’s prices. In other words, all of the gold held in Fort Knox and at the various U.S. mints would be enough to cover about one half the cost of Obama’s newest proposed spending bill.

In fact, at today’s prices, the value of all the gold ever mined in the history of the world comes to a grand total of $5.2 trillion. That is just enough to fund the U.S. Federal government for a little over a year at current spending levels.

The fact that government debt far outpaces the amount of gold reserves may be another signal that gold is undervalued relative to fiat currencies. This could actually turn out to be a golden opportunity to reduce sovereign debt. Perhaps, instead of dumping all of their gold at once to pay down debt, nations like the U.S. or Italy could actually take advantage of their large gold stocks and the public’s new appetite for gold by minting new coins of various weights and then selling them at a premium. The proceeds from the sale of new coins could be used to retire existing debt. As the new coins circulate, the public will be more accepting of gold. Increased demand will give countries like U.S and Italy a larger future income stream from selling their bullion.

Some economists have argued that over-extended governments should sell their assets on the open market to pay down the massive debts they have incurred. I certainly agree. This would reduce government debt and return valuable resources taking from the private sector. Gold reserves should be included in such an auction.

It is unlikely governments will sell bullion to pay debt. It is more unlikely governments will reduce spending in any meaningful way so long as it is easier for the politicians to print colorful paper tickets or make electronic entries to inflate the money supply. The chief problem is that governments do not have nearly enough real resources, actual or projected, to cover the cost of their exorbitant spending.  

History tells us that this age-old political game usually ends with destruction of the currency. It is unlikely the dollar or the euro will fare differently this time around as long as governments are controlling the money.

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"Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later it must become apparent that this economic situation is built on sand." - Ludwig von Mises, 1931

"To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about." F.A. Hayek, 1931

As we stand ready for the Fed to announce QE infinity, I can hear voices from history warning against this failed policy.

Read more about Hayek's insights from a recent article by Jeff Tucker on Hayek's Ghost Haunts the World
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.”    – Benjamin Franklin, 1775

The holiday season is upon us. Over the next month, millions will be traveling to share this special time of year with friends and relatives. Many of us will elect to make the journey via airplane. For those who are accustomed to traveling, we have come to expect the various inconveniences of the airport – waiting in slow-moving security lines, removing shoes, packing liquids and gels in a quart-size bag, etc.

But recently, a host of new “inconveniences” introduced by TSA have been causing quite a stir in the news. Some travelers have become upset with being forced to give up your 4th Amendment rights, being subjected to controversial naked body scanners, and being groped by (always professional) TSA agents.

A retired special education teacher was left humiliated, crying, and covered with his own urine after a TSA officer carelessly (after being warned of the gentleman’s medical condition) broke the seal of his urostomy bag during an enhanced pat-down.

Another man was thrown out of San Diego International Airport and threatened with a lawsuit and a $10,000 fine after he told a TSA agent, "You touch my junk and I'm going to have you arrested."

Once passengers have been selected for the enhanced searches, they cannot opt out of both the scan and the pat-down. Even if someone in a security line becomes frustrated and decides not to fly, if they then try to evade the measures, they could face an $11,000 fine.

The enhanced TSA screening procedures carry with them health concerns and privacy concerns, but defenders of the government policy insist these measures are necessary for our own safety.

“Nobody likes having their Fourth Amendment [rights] violated going through a security line, but the truth of the matter is we are going to have to do it.” - Mo Mcgowan – Former Director of TSA Security Operations

The government’s only legitimate purpose is to protect our rights. How these bureaucrats justify efforts to protect our rights by violating our rights is beyond me.

But do more invasive TSA security measures even translate to more actual security?

I concede that TSA is really good at matching your boarding pass (you print at home and can easily alter) to your ID (you can easily obtain a realistic looking fake). And TSA is pretty good at monitoring that your liquids fit in a quart-size bag (until I go through security every time with a 1 fl oz bottle of eye drops in my pocket just to test them – they fail every time).

But the success record of TSA really breaks down when it comes to identifying and stopping real threats. A recent TSA report shows screeners at Los Angeles International Airport missed about 75% of simulated explosives and bomb parts that TSA testers hid under their clothes or in carry-on bags.

In my personal experience, TSA has let me through with a butter knife I had left in my computer bag for my morning bagel. A friend made it through TSA security and onto the plane with a full can of pepper spray he had accidently left in his baby stroller. Bag screeners routinely fail to detect guns, knives, and other weapons. It is safe to say that TSA is not doing its job to make us safe at all.

In its nine years of existence, TSA has not once caught a terrorist during a preflight screening.

But surely the new TSA’s enhanced screening procedures make us safer?

Well, maybe not. In addition to the health concerns and privacy concerns, there is significant evidence to suggest the new machines don’t even work all that well.

The traditional magnetometers used today can detect high-density objects such as guns and knives, but according to a report from the Government Accountability Office, the naked body scanners fared poorly against “…low-density materials such as thin plastics, gels and liquids. Care to guess what Abdulmutallab's bomb was made of?”

Additionally, as Bruce Schneier, internationally renowned security technologist noted during a test, "The scanner caught a subject's cell phone and Swiss Army knife -- and the microphone he was wearing -- but missed all the components to make a bomb that he hid on his body... Full-body scanners: they're not just a dumb idea, they don't actually work."

But if there are health concerns, privacy concerns, and the new scanning technology doesn’t even work…Why did we spend $300 million of stimulus money to buy the naked body scanners? And why are we spending $340 million each year, including hiring an additional 5,000 TSA employees to operate the new machines?

One possible explanation could be that the executives of the companies that produce the naked body scanners are mostly former Homeland Security officials. Michael Chertoff, former head of the TSA, is now selling the scanning equipment to the TSA.

Another related explanation is that the enhanced screening procedures (and the TSA itself) are a classic example of Security Theater intended to provide the feeling of improved security while doing little or nothing to actually improve it. Security Theater usual involves a very visible pretense of security and control. It can be something negligible (such as forbidding the passage of a 6 oz bottle of water though security but allowing a box of frozen vegetables). Or, Security Theater can involve a much greater suggested or actual threat to personal liberty (such as guards with machine guns or TSA agents with rubber gloves and pictures of you in your birthday suit).

Security Theater also needs new gimmicks and updated procedures so the public believes the authorities actually have the situation under control. I am confident the new naked body scanners will be a failure just like the recently scrapped multimillion dollar “air puff” bomb detection system the TSA implemented in U.S. airports. The “air puff” bomb detectors turned out to be both inaccurate and unreliable.

All in all the TSA is a costly failure. With TSA we have increasing invasiveness, decreasing airline customer satisfaction, increasing costs, and decreasing actual security. These are all simply the manifested symptoms of a more fundamental problem. It is that problem I would now like to address.

The Root of the TSA Problem

Soon after the terrorist attacks of September 11, 2001, both Republicans and Democrats in Congress urged the creation of a new government agency which they claimed to be absolutely essential to maintaining national security, as well as, ensuring the safety of airplane passengers. The Senate voted 100 – 0 to form the Transportation Security Administration (TSA) to “…protect the nation's transportation systems to ensure freedom of movement for people and commerce.”

Apparently the government’s previous attempts at providing security were insufficient. In addition to the FBI, CIA, NSA, Customs, Air Marshals, and Police….Congress decided we needed to create a new protection agency that costs billions of dollars and employs over 50,000 new government bureaucrats. The political mentality regarding airport security might have been summarized best by Senator Tom Daschle when he infamously said, “You can’t professionalize if you don’t federalize!”

Senator Daschle, aware or not, cut right to the core of the issue. I am probably correct to assume the Senator, like most all politicians, truly believes that a society cannot exist “professionally” without a centralized authority directing our every step in all areas of life. However, I’ll limit the scope of the current analysis to the TSA and its protection function. 

Implicit in Senator Daschle’s statement is the assumption that central control by the federal government is required to efficiently and effectively provide the service of “protection” to the people. It is all too readily assumed (by most people) that the free market, though great for satisfying the wants and needs of consumers in other areas, is somehow inept when it comes to providing solutions in the realm of safety and defense. This is a grave misconception. For the same reasons that socialism fails to effectively solve any economic problem, socialized airport security also fails to deliver effective security.

Government Security vs. Free Market Security

It grows tiresome having to defend the merits of the free market, especially to those who claim it is “utopian”. It is far more utopian to take the position that government can efficiently and effectively satisfy the needs and wants of consumers better than the market in any area – including safety, protection, and defense. It is utter nonsense. However, the TSA debacle is another perfect example of government failure, so I will use this opportunity to explain the nature of the problem with which we are dealing.

Achieving a 100% safe environment is not possible. Whether or not we are talking about government security or privatized security, we have to balance a desired level of security with satisfying other wants and needs – such as being allowed to leave the house. Luckily, the question is not an all or nothing: “Do we want 100% security or do we want no security at all?” Rather, the real question is: “How do we maximize the benefits of providing desired airport security at an acceptable level of incurred cost.” In other words, what tradeoffs are we willing to accept?

This is where it starts to get interesting. If the fundamental question is “what tradeoffs are we willing to accept”, the next logical question is “who decides what tradeoffs are acceptable?”

Some people may prefer to pay less money or wait in shorter lines in exchange for increased risk. Other people may prefer to undergo a full body cavity search if it means an increased level of safety or pay more money if it means reduced risk. People balance cost, risk, and safety everyday with decisions they make regarding everything from what kind of car they drive to what kind of food they eat. People have different preferences. But is it the government's role to decide what our preferences should be? Besides, can the government better satisfy consumer preferences than the market?  

An article in the Freeman suggests we, “Free the airlines from the federal government’s stranglehold on security. Let each company determine what works best for its routes, customers, and specific risks. Does anyone seriously believe that politicians and bureaucrats know more about securing planes than pilots and executives who’ve spent their lives in the industry?”

Life is about solving problems and the free market has demonstrated time and time again that it is the best known system for creating solutions to the problems that confront human beings. It does not claim to generate perfect results, but it is the only political and economic system that allows for continual progress and promotes incremental increases in the degree of human flourishing. One of the wonderful conditions of human life is the freedom to choose how we live. Individually, we get to experience the rewards and responsibilities that come along with our choices.

Many people are conditioned to believe that government can provide what is best for the people, but it never does. It never has. Not only is this truly utopian fantasy of social engineering in direct conflict with sound economics, it is in direct conflict with the empirical evidence of all human history. I challenge you to think of a single instance where government encroachment into the marketplace has satisfied the wants and needs of the people more than the individual people would produce if left unhampered to engage in voluntary exchange. The situation becomes especially utopian when the socialist proponents think that central planners, armed with good intentions, know best what the wants and needs of the people should be.

In a free market, customers and airlines vote with their money to determine what kind of security procedures work best to meet their needs. This tends to produce results that satisfy the needs of the people. In a government run system, the customer has no vote. This tends to produce results that satisfy the needs of the government.

Proponents of government intervention want to remove the locus of decision making from the individual and place it in the hands of the all-knowing bureaucrat. They want to force a one- size-fits-all system on a population that has very different preferences. If a bureaucrat can tell you how much security you must accept and pay for, there is no reason they should also not be allowed to dictate what kind of food you eat, what kind of books you read, or what type of religious service you attend. Are adults capable of making their own decisions or do we need a nanny-state holding our hand and looking over our shoulder?

At this point, I’m sure some people are thinking that issues of safety and protection are fundamentally different than food and books. Perhaps in many regards they are, but not when it comes to the fundamental economic laws of human action. In August, AmericanlyYours published a great article on market solutions for the provision of police and fire services. I urge you to read it. The articles addresses the standard arguments used to justify government provision of protection services and outlines how these services might be better provided in the free market. Similar principles apply to the provision of airport security.

When government fails in its duties, it expands its reach. Our government didn’t prevent 9/11, yet they want to expand their oversight powers and expect us to follow them blindly. The security failure that resulted in the 9/11 attacks was a result of ineffective federal regulations. Security screeners (though private contractors) were operating in accordance with the Federal Aviation Administration’s (FAA) guidance which permitted box cutters aboard planes. These small knives were not in violation of government rules and neither were unlocked cockpit doors.  According to Becky Akers, “Had each airline set its own policies, had it relied on serious security rather than the charade that satisfies political pretenses, 3,000 people might be alive today."

TSA is the perfect example of government program that doesn’t have to answer to customers. If the naked body scanners and full-body groping really were good ideas, we would probably see these practices implemented at schools, shopping malls, and sporting events. (Don’t get any ideas government. I’m not saying it is a good idea.)

The government has control over the present good of force and doesn’t have any long term incentive to satisfy consumer preference. What we get is another government agency that costs the nation billions of dollars in real expense (plus the expense of unforeseen solutions that might have evolved in the unhampered market).

The TSA is no different than any other government program. What we are told is that the government is graciously stepping in to save us from another failure of the free market. In reality, some other government regulation caused the problem in the first place, and what we get as a fix is another unaccountable government agency mired in bureaucracy, inefficiency, and waste. The TSA undermines the protection of the nation's transportation systems while it encroaches on people’s basic freedoms. It should be abolished and the airport security should be 100% privatized for the moral and economic reasons stated above.

But then again, would it be possible to feel safe without Security Theater? The show must go on! 

Happy Thanksgiving!

Be advised - You may experience significant delays at the airport if you are traveling on Wednesday, 11/24/2010. It is “National Opt-Out” Day. People are trying to organize a massive protest of the new TSA procedures by electing to “opt-out” of the scanner and submit to the full-body pat down in hopes of crippling TSA resources on one of the busiest travel days of the year.

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So constantly have the ideas currency and government been associated—so universal has been the control exercised by lawgivers over monetary systems—and so completely have men come to regard this control as a matter of course, that scarcely any one seems to inquire what would result were it abolished. Perhaps in no case is the necessity of state-superintendence so generally assumed; and in no case will the denial of that necessity cause so much surprise. Yet must the denial be made.”

                          - Herbert Spencer, Social Statistics

Most everyone associates the word “dollar” as referring to a Federal Reserve Note (i.e. the green piece of paper featuring the portrait of a past president). Let's briefly explore why this association of terms is not only incorrect - it is a dangerous mistake.

A pound refers to sixteen ounces of weight. A foot refers to twelve inches of length. These are standards of measure. Similarly, the word "dollar" refers to a specific coin of a specific mass; one containing 371.25 grains of pure silver. A dollar is not merely worth some ever changing quantity of silver or gold – a dollar is defined as a specific amount of silver in the same way a foot is defined as twelve inches!

Today, the definition of “dollar” is frequently confused.This is largely based on the observable fact that one ounce of silver is exchanged on the market for approximately eighteen Federal Reserve Notes. Mistakenly, we tend to think that one ounce of silver is worth about eighteen dollars. Dollars do not refer to the same thing as Federal Reserve Notes. To make this point clear, we must first understand the history of the dollar as a unit of monetary exchange in the US and how the inaccurate terms and definitions have been smuggled into our vocabulary.

Origin of the Dollar in the US

During the late 18th century in America, the word dollar simply referred to the 371.25 grains of pure silver of the Spanish milled dollar coins. Our founding fathers did not arbitrarily decide to fix the exchange rate of our first dollars to silver. Rather, “dollar” was the term for a universally understood standard of measure.

The Coinage Act of 1792, establishing a Mint and regulating the coins of the United States, used this already universally accepted definition to officially designate a dollar (as referring to a measure of 371 4/16th grains of pure silver) as the monetary unit of the US:
  • Section 9: “DOLLARS – each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.”
Signed into law by President George Washington, the Coinage Act of 1792 established the dollar as the monetary unit of the United States of America.

The Rise of the Gold Standard

Gold and silver came to be accepted as money throughout the world by a process of free exchange on the market. In fact, Carl Menger and Ludwig von Mises have shown that not only does money originate in the market, it is impossible for it to have originated any other way. No government or king “created” money (but once money arises on the market, rulers have historically been quick to find means to expropriate it).

While the Coinage Act of 1792 defined one dollar as 371.25 grains of pure silver (.7734 troy ounce), the act also established a fixed exchange rate of fifteen units of silver for one unit of gold. The exchange ratio between gold and silver had historically tended to be around 15:1. However, as Larry Reed explains in an article about the events leading up to the Silver Panic in 1893, the “....government decided it would "help out" the market by interfering to "simplify" matters. The result was another of the many well-intentioned blunders imposed on a populace by force of law."

Just like any other artificial price control, the pegging of gold to silver created a market imbalance that would prove to have significant economic consequences (1).

Gresham’s Law states that bad money tends to drive out good money when the government artificially fixes the exchange ratio between two monies ("bad money" referring to artificially overvalued money and "good money" referring to money which is artificially undervalued).

This is exactly what we observed with the artificial price fixing of gold and silver in the US. The market value of gold relative to dollars (dollars referring to a set quantity of silver) fluctuated even though the artificial exchange rate was fixed. Silver flowed into the mint and the quantity of gold in circulation decreased.

Instead of allowing gold values to be determined through a market of free exchange and repealing the artificial 15 to 1 ratio, Congress decided to remedy the imbalance by adjusting the fixed exchange ratio to 16 to 1. The Coinage Act of 1834 revised the ratio of gold to dollars, making the artificial ratio of dollars to gold an official $20.67/oz where it would remain for several decades. Only this time gold was overvalued and silver was undervalued. As Larry Reed noted, “Gold flowed into the mint, silver disappeared, and the country found itself on a de facto gold standard.” As we will see, this paved the way for the government to officially place the country on the gold standard at the end of the 19th century.

Although the artificial price controls instituted by the Coinage Acts of 1792 and 1834 created market imbalance between gold and dollars, the competition of foreign gold and silver monies in the US market proved to be an effective system for facilitating exchange and storing wealth. During this time it was quite common to find foreign coins of gold and silver being used as money in the US. Since the amount of precious metal contained in foreign coins was commonly known, monetary conversions were quite simple. Foreign coins from Europe circulated freely in America, and as Murray Rothbard notes, “...there is, indeed, no economic reason why they should not do so.”

The competition of gold and silver monies facilitated the growth of an increasingly productive, industrialized economy. America enjoyed a period of unprecedented growth in production after the War of 1812. The purchasing power of the dollar doubled in 35 years (1815-1850).

Free competition of stable money facilitates economic prosperity, but it also makes government manipulation of the money supply very difficult. “Perturbed at this slap to its sovereignty...”, explains Murray Rothbard in The Mystery of Banking, Congress passed the Coinage Act of 1857 outlawing the use of foreign coins in the US.

By outlawing the use of competing foreign monies in the market, Congress removed the first crucial obstacle that was preventing the State from taking monopolistic control of the nation's money supply. To eliminate the second obstacle, the domestic competition of bimetallism, Congress passed the Coinage Act of 1873 and later the Gold Standard Act of 1900 to demonetize silver and set gold as the official basis of US currency.
  • Section 1 of the Gold Standard Act of 1900: “Be it enacted . ., That the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States...”
Conveniently, the Coinage Acts of 1857 and 1873 also corresponded with the panics of 1857 and 1873 (no good crisis should be wasted).Don't be surprised when the government uses the coming monetary crisis as an excuse to further centralize the control of money. They will.
From 'Good as Gold' to Increasingly Worthless IOUs

“Whoever controls the volume of money in our country is absolute master of all industry and commerce... and when you realize that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation or depression originate.” - James A. Garfield

he year 1913 saw a tremendous leap toward our current system of government-granted special privilege, creating giant political/corporate machines that benefit the few at the expense of the many.

The Federal Reserve Act of 1913, also called the Glass-Owen Bill, unconstitutionally delegated to the Federal Reserve, a private banking cartel, the power to “coin Money and regulate the Value thereof.” Despite what most Americans think, the Federal Reserve is NOT part of the US Government.

For the sake of brevity, below is a list of a few major turning points as the US economy went from using a sound money system to a fiat currency  system backed by irredeemable IOUs:
  • Prior to 1934, the Federal Reserve Notes carried the inscription "Redeemable in gold on demand at the United States Treasury, or in gold or lawful money at any Federal Reserve Bank.”
  • In 1934 , citizens could no longer redeem dollars for gold. Furthermore, the dollar was redefined as 1/35 oz of gold redeemable only by foreign central banks.
  • Until 1950, Federal Reserve Notes carried the obligation: "The United States of America will pay to the bearer on demand [some number of] dollars.”
  • Starting in 1963, the words "will pay to the bearer on demand" no longer appeared on Federal Reserve Notes; each merely stated its denomination. Dollar bills were no longer redeemable for dollars.
  • The Smithsonian Agreement (1971) repealed the Gold Exchange Standard and fixed foreign currency exchange rates without any gold backing.
  • After 1973, the gold standard is completely abandoned in favor of inflationary fiat currency and floating exchange rates.
Under the Federal Reserve System of fiat currency, the absolute quantity of wealth expropriation and redistribution that has occurred (wealth taken from the citizens of our nation by the government and the politically connected) is unmatched in the history of the world.

Give me control of a nation's money and I care not who makes its laws." - Mayer Amschel Bauer Rothschild (2)

Additional Food for Thought:  In the Economics and Ethics of Private Property, Hans-Hermann Hoppe outlines the four steps governments have historically used to monopolize the money supply in order to expropriate wealth from their citizens:
  1. Minting of money (silver and gold) must be monopolized by the state (√ - Coinage Acts)
  2. The use of money substitutes (other than silver and gold) must be systematically encouraged and backed up by the enactment of legal tender laws (√ - Coinage Acts)
  3. Gold must be nationalized, and the State must require all banks deposit their gold at the central bank and conduct business exclusively with money substitutes instead of gold (√ - Federal Reserve Act and Executive Order in 1934).
  4. The State must cut the last tie to money (gold) by reneging on its contractual obligations and declaring its notes irredeemable (√ - 1963, 1971, and 1973).
The Root of Money is Good, Coercive Control of the Money Supply is the Root of Evil

"There are a thousand hacking at the branches of evil to one who is striking the root." - Henry David Thoreau

John Maynard Keynes, an open supporter of Socialism, astutely noted in his book titled the The Economic Consequences of the Peace “...that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Under the disguise of an institution created to “...furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes”, the Federal Reserve has destroyed over 95% of the purchasing power of the dollar bill since its inception in 1913. It has created cyclical boom and bust business cycles by artificially expanding the money supply (like the current financial crisis).

The dollar is the subject of the greatest counterfeiting scheme in the history of the world. Naturally the process of counterfeiting creates victims. As Hans-Hermann Hoppe points out in the Economics and Ethics of Private Property, to be successful on such a scale, the counterfeiting power must be accompanied by social redistributive measures that generate the support necessary to overcome any resistance. The Federal Reserve is the engine that allows the government to play Santa Claus to certain privileged groups at the expense of everyone else.
The physical counterfeiting of dollars has cost the people of the United States 95% of their wealth in less than one hundred years (not to mention the unseen advances that could have been made).

What is all too often forgotten or over looked is that wealth has to be created and produced by someone before it can be looted and plundered by force. It is for this reason that “....the words 'to make money' hold the essence of human morality.”

Our current system of government-granted special privilege to exploit promotes a counterfeit morality that explicitly confuses the unearned with the earned. It replaces the moral virtues of integrity, honesty, productiveness, and justice with cries of entitlement to an ends without relation to a means; a misguided and false battle pitting poor against rich. The correct moral battle is not the seemingly virtuous defense of poor versus is, as it has been throughout human history, a battle of the exploited versus the exploiter.
  • “He who controls the money supply of a nation controls the nation” - James A. Garfield
It is only through an understanding of the history and meaning the dollar can we begin to fight the State sanctioned exploiters and counterfeiters. The coercive monopolization of the money supply, accentuated by the Federal Reserve System, is the root of the exploitative power of the ruling class. It is for this reason that understanding the story of the dollar is essential.

An economy that does not have free choice of money is neither a free market nor a free society. For the same reasons the State should not control the type of shoes you buy, where you get your hair cut, or what kind of food you eat – the State, in a society that consistently respects human rights, should not control the money used in transactions of voluntary exchange. Any and all monetary intervention by the State is incompatible with human rights and should be eliminated.

  • “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” - Henry Ford
Perhaps it is time for that revolution. Perhaps it is time for the American people to learn the history of the dollar and understand the banking and monetary system. Perhaps it is time we learn that the Federal Reserve System and the government's redistributive social programs are enriching the richest of the rich while destroying the middle class and locking the poor into a state of dependent poverty.

In the case of the dollar, ignorance is not not bliss. Ignorance is the essence of our self-destruction.

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Additional Suggested Reading:

What Has Government Done to Our Money – Murray Rothbard

In his essay A Constitutional Dollar, Michael Rozeff explains how the term dollar bills “...obscures the actual and tangible meaning of "dollar" as a specific weight of silver.” Rozeff goes on to explain that this is more than merely a theft of terms:

The dollar sign, "$," ...means 1 silver dollar of the official weight of 0.7734375 troy ounces of pure silver...the government has illegally and unconstitutionally removed silver as currency and replaced it with the Federal Reserve notes that we know as dollar bills.”

  1. “Unfortunately, governments invariably tried to force a fixed exchange rate between the two metals, a price control that always leads to unwelcome and even disastrous results”– Murray Rothbard, The Mystery of Banking, p. 9

  2. In 2005, Rothschild was ranked 7th on the Forbes magazine list of "The Twenty Most Influential Businessmen Of All Time"

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"It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a 'dismal science.' But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance." - Murray Rothbard

Understanding basic economics is one of the essential pillars in spreading a consistent message of liberty and battling the misinformation peddled by the mainstream media and politicians. has updated the Fundamental Economic Concepts page.  There is a lot of information here. Feel free to browse the page or download a listing of the concepts in its entirety from the Archives. Over the next two weeks or so we are going to be featuring a new concept each day here on the blog.  This pace may be easier for some to digest. Either way, the information is out there. Enjoy!  

Fundamental Economic Concepts include:
  • Scarcity and Subjective Individual Value
  • Production, Time Preference, and the Cost of Foregone Alternatives
  • Incentives and Margin - Two Keys to Understanding Human Decision Making
  • Consumer Goods, Capital Goods, and Savings
  • Property *Newly Added
  • The Market *Newly Added
  • Division of Labor and the Benefits of Exchange - Specialization and Knowledge Sharing *Newly Added
  • Prices *Newly Added
  • Money *Updated
  • Interest
  • Capital and the Structure of Production * Updated
  • Recessions and Depressions: What Causes the Business Cycle of Booms and Busts?

QUESTION: Are there any other fundamental economic concepts you think we should cover?

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For those that regard Franklin D. Roosevelt and the New Deal as the nation's savior during the Great Depression, the fact that Obama is employing many of the same strategies and "solutions" used by FDR may be a signal of comfort during the unrest of financial crisis. However, those that study history have good reason to be less than optimistic.

No doubt FDR inherited a broken economy. By the time FDR took office in March of 1933, nearly 3 in 10 workers were unemployed. Similar to Obama, FDR was faced with the challenge of dealing with a battered economy, damaged by past administrations. The Federal Reserve's expansion of cheap credit under the Coolidge administration (1923-1929) created an artificial boom leading to an inevitable market correction. Hoover, who – in reality - was nowhere near the free-market idealist portrayed by US 'history' books, turned a recession into a depression with unprecedented interventionist policy.

When prices fell in 1929, Hoover artificially propped up wages causing massive unemployment. He destroyed prospects of international trade by enacting protective tariffs. He ran “deficits with record spending on public works, the first federal welfare program, and the first large-scale federal farm program. The results were budget deficits and 25 percent unemployment”.

Hoover turned a recession into a depression. But, FDR took the depression and made it GREAT. The result was a decade and a half of economic misery leaving a wake of entitlement programs that have lead our nation down the path of bankruptcy.

 President Roosevelt became Hoover on steroids”.

The only things the New Deal succeeded in doing – prolonging economic recovery and growing the power of government. Somebody please tell me, why do we continue to teach our children that the New Deal ended the Great Depression?

According to economist Robert Murphy, the unemployment rate was still 19% in 1938 and and it didn't drop below 10% until 1941. Other nations such as Canada recovered much faster than the US and didn't experience nearly the same level of economic pain.

In 1939, according to then US Treasury Secretary, Henry Morgenthau, Jr., on FDR's New Deal policies:

  • "We have tried spending money. We are spending more than we have ever spent before and it does not work... I say after eight years of this Administration we have just as much unemployment as when we started. … And an enormous debt to boot."
The parallels between Obama and FDR outlined by Burton W. Folsom Jr. in Comparing the Great Depression to the Great Recession are startling. There is no doubt Obama inherited a mess caused by ruinous interventionist policy from previous administrations. The Bush administration must be recognized as the antithesis of free-market; a few examples include artificial expansions of the money supply, massive stimulus programs, radical increases in public debt, and politically motivated bailouts. As far as the economy is concerned, Obama is Bush on steroids.

FDR used the mentality of “take a method and try it: If it fails, admit it frankly and try another. But above all, try something” to push through government programs and force the creation of industry cartels during the Great Depression. Obama uses this same strategy today to grow the government to satisfy his own agenda.

If our government is in the business of just trying something, I say we try eliminating the engine that causes these avoidable depressions in the first place – the Federal Reserve. I propose that we admit that government intervention always fails. The asset bubble that resulted in a crash in 1929 was caused by the Federal Reserve. The asset bubble that resulted in a crash in 2007-2009 was caused by the Federal Reserve.

I say the government should step aside and let the free market repair the economic damage created by government meddling in the first place.

As economist Murray Rothbard noted;

  • If Coolidge made 1929 inevitable, it was President Hoover who prolonged and deepened the depression, transforming it from a typically sharp but swiftly-disappearing depression into a lingering and near-fatal malady... Roosevelt only advanced, to a greater degree, what Hoover had pioneered...The Coolidge crisis had become the unprecedentedly prolonged Hoover-Roosevelt depression.”

The current administration, taking a play-call directly from the failed policy of FDR, is on track to ensure we make the Great Recession a long, extended period of economic misery. I'm just not sure America can afford to play this game again.

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Many of the articles on are rooted in Austrian economic theory. For anyone interested in learning the basics of Austrian theory (as well as gaining an understanding of what differentiates Austrian economics from the mainstream approach), published an article titled A Primer on Austrian Economics by Jonathan Catalan this past Friday. Jonathan is a very clear writer. This is a great article covering the basics of Austrian theory as well as a brief history of the Austrian school. I'm taking a class right now on the Theory of the Business Cycle and promise that understanding the Austrian theory of the causes of the cyclical economic booms and busts ending in recession is very relevant to understanding the financial crisis today. 

"With an ongoing financial crisis and an impending greater crash, there is no better time to become aware of the consequences of interventionism." - Jonathan Catalan

I think you will enjoy Johnathan Catalan's article: A Primer on Austrian Economics.

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Click here to read my description of the Boom/Bust Business Cycle.

Click here to read my essay Austrian Economics Booms in Popularity, Busts Mainstream Myths.

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As much as the folks on tv tell you that no one could have seen the financial crisis unfolding like it has, the fact is that economic phenomena is not a mystery. Economist from the Austrian school, among others, have been warning about the inevitable results interventionist monetary policy for years. Unfortunately, as is usually the case, factual information is omitted, misrepresented, and/or buried by the games of politicians.

I have written about the Politics of Economics and why it is the special interests of Washington that always get the spotlight and not the folks teaching the lessons of sound economic theory.

Here is a great video contrasting the approach of the Keynesians and the Austrians. Observe how Ben Bernanke and the other Keynesians disintegrate principles and confound mindless 'facts'. Contrast the Keynesian predictions against the warnings from Peter Schiff and other economists schooled in Austrian theory.

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Question of the day:


In my last post, An American Memorial Day in Charlotte, I explained the reason America is the wealthiest nation in the history of the world. Our standard of living catapulted to the levels we enjoy today because our political and economic system respected individual human rights. Entrepreneurs felt confident they could save and invest without risk of wealth confiscation. As I explained in the last post, real savings makes capital investment possible. Capital investment allows us to be more productive, allows us to produce more of the things people value. All of the goods we enjoy must first be produced.

The production structure of an economy is not a simple lump-sum aggregation of homogeneous pieces. Think of it more like a coral reef that is built out over time: millions of interconnected pieces consisting of individual plans.

Increasing capital investment, made possible by real savings, actually accelerates the rate at which our economy can produce goods and services that satisfy people's needs and wants. America became prosperous because we invested in capital and we produced.

Currently, we are doing great damage to the production structure of America's economy. The Federal Reserve is sending a faulty signal to investors, savers, producers, and consumers. We are over-investing our scarce resources and we are over-investing in the wrong areas. This malinvestment is being done at the expense of savings. We are not stimulating growth or laying the framework for real recovery. Don't believe these stories for a second. We are destroying the foundation of the American economy.

The only reason we are able to sustain our high standard of living today is because we are eating into the saved capital from generations past. This is not stimulus. This is a sedative; numbing Americans to the inevitable day of reckoning.

Please see my explanation of the Business Cycle to see why the destruction of the production structure of an economy is particularly harmful. The theory of the business cycle explains what causes cyclical boom and bust periods ending in recession/depression. Take a few minutes to read through the explanation of the Business Cycle. This is very relevant to what is happening in our economy today.

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