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Barron Young Smith is a financial
journalist whose piece What Would Happen If We Adopted the Gold Standard?
is appended below. He describes Ron Paul's campaign
to restore Constitutional money in the U.S. as being "populist". He adds insult to injury in saying that
"Ron Paul... is on a crusade to resurrect a great symbol of Wall Street-Washington
dominance over the individual".
I do not speak for Ron Paul or his campaign. I speak
as an observer. Congressman Paul is the only candidate who tells the
electorate as it is: the monetary and credit system of the U.S. that has
been imposed on the American people and the rest of the world stealthily and
unconstitutionally is in an advanced state of disintegration. The slur on his
character and campaign is intolerable. Ron Paul calls for a return to
Constitutional money by reintroducing full-bodied silver and gold coins into
circulation. Far from crusading to resurrect the unholy alliance between Wall
Street and Washington, he is the only candidate who exposes the conspiracy of
the two to debase the dollar to their own benefit while inflicting great
economic pain on the people in the process, the worst part of which is still
in store.
Smith disingenuously asserts that
"not only would the gold standard have disastrous effects on the U.S. economy;
it would undermine liberty, increase debt, and weaken the country." The
kettle calling the pot black! The fact is that liberty in the U.S. has been
undermined under the regime of the irredeemable dollar, not under the gold
dollar. It was under the irredeemable dollar that a runaway debt-tower has
been triggered making the United
States the largest debtor in the world. Under
the gold dollar it used to be the largest creditor in the world, while gold
acted as an effective filter eliminating bad debt. The economy of this
country, including its unparalleled manufacturing sector providing the
best-paid jobs in the world, was built under the aegis of the gold standard. It
was dismantled under the regime of irredeemable currency, replacing
industrial jobs by low-paying service jobs such as hamburger-flipping. The
de-industrialization of America,
one of the most shameful episodes in economic history, is not the outcome of
natural development. It is a direct consequence of the destructive nature of
the irredeemable dollar. When the dollar was cut from its gold moorings in
1971, America
started to run persistently increasing trade deficits. Friedmanites
were counseling patience: it takes time to reap the
"benefits" of the "floating" (read: sinking) dollar. Benefits
galore did indeed come -- in the form of ever larger trade deficits. The
lower value of the dollar did indeed help exports, notably, the export of
manufacturing jobs and the shutting down of productive facilities.
If "populism" means putting
the power of creating and extinguishing money directly into the hands of the
people as demanded by the U.S. Constitution, rather than into the hands of perjurious politicians and usurping civil servants then,
indeed, Ron Paul, and the U.S. Constitution, are populists. In fact, the U.S.
Constitution demands that the Mint be open to the free and unlimited coinage
of silver and gold. Free and unlimited coinage means that people who think
that there is not enough money in circulation should be able to do something
about it: they can take new gold and silver from the mines, or old gold and
silver from jewelry and plate, to the Mint and
exchange it for standard coins of the realm free of seigniorage
charges, with no limitation on quantity. Conversely, people who think that
that there is too much money in circulation should be able to do something
about that, too. Under the gold standard they can melt down their coins or
export them without penalty.
A standard coin is a full-bodied coin:
its monetary value cannot deviate from the market value of its metal content.
If monetary value fell below market value, then people would melt it down and
put its metal content to more profitable uses. If monetary value rose above
market value, then gold and silver would keep flowing to the Mint until the
trend was reversed and the two values were equalized once more. In this way
the people themselves, and not politicians or appointed bureaucrats and
bankers would decide what the stock of money ought to be. This is as intended
by the Constitution that was crafted on the principle that the U.S. government
is one of limited and enumerated powers. Unequivocally, the Mint is the
symbol of the tenet that the power to regulate the value of the coin is
reserved directly to the people, as they regulate the flow of the monetary
metals to the Mint. It will be recalled that the power to print money
is an unlimited power, to be denied to governments at all hazards.
The production of coppers and nickels of
course greatly surpasses that of silver and gold pieces. Yet the word
"Mint" did not get into the Constitution because of that effort. The
production of subsidiary coinage is entirely unimportant, even dispensable. Its
production certainly does not affect the rights of individuals. By contrast,
the constitutionally mandated task of the Mint to produce standard silver and
gold coins is at the heart of the freedom issue. The number produced since
1933 is nil. The souvenir gold and silver coins offered for sale are not to
be confused with full-bodied standard coins. This epitomizes the greatest
fraud in the monetary history of the world: keeping up the pretence that the
Constitution is strictly observed. Maybe it is too much to expect that
financial journalists such as Smith see through the fraud.
Most significantly, the Constitution did
not establish a Central Bank -- it established the Mint instead. Were the
founding fathers forgetful? Mainstream economists, including Keynesians and Friedmanites, will never be able to talk down to the
framers of the Constitution for their failure to enshrine the idea of a
central bank in the Constitution. The monetary clauses of the U.S.
Constitution have been and will continue to be the beacon of upright
politicians in matters of money. Just compare the stature of Ron Paul, the
only presidential candidate who dares call for the abolition of the
unreconstructed Federal Reserve System, with that of Fed Chairman Bernanke and his impertinent boast that the U.S.
government has given his Board a useful tool, namely the printing press, so
that he can inundate this country, and the rest of the world to boot, with
fast-depreciating scraps of paper called Federal Reserve notes.
The U.S. government has not been
granted power to create money, still less to delegate such power to a banking
concern. If it exercises or delegates such power, then it is in direct
violation of the Constitution. It is a usurper. No amount of badmouthing the
gold standard will cover up this fact.
Barron Young Smith, like everyone else,
is entitled to his opinion that "switching to the gold standard is a
terrible idea." But he can't escape the odium that will be his lot when
the cry of people pauperized by the ultimate collapse of the irredeemable
dollar will reach high heaven. These people have learned to work hard, save
hard, and they created a unique Constitution in their new country in order to
safeguard their freedom and to make sure that they will not suffer as did
their ancestors in the old country because of monetary debasement inflicted
upon the people by spendthrift kings.
Then destroyers appeared among the
people in the form of perjurious politicians and
other usurpers cajoling them into yielding their power to issue money, and
bribing them with the idea of the welfare state. Now the people, bereft of
their jobs as well as savings, are exposed to the greatest dangers brought to
them by the irredeemable dollar. Congressman Ron Paul is the only candidate
who has the courage to warn people of the coming disaster. Barron Young
Smith's slur on his character and campaign, I repeat, cannot be tolerated.
It is a siren song enticing people to
their destruction.
References:
A.E. Fekete,
The Anti-Gold Gospel According to Kaletsky, www.professorfekete.com
A.E. Fekete, Uncle Sam Crying 'Uncle!', www.professorfekete.com
Barron Young Smith, What Would Happen If We Adopted the Gold Standard?
(appended below)
GOLD STANDARD UNIVERSITY LIVE
Session Three has just
concluded in Dallas, Texas. The subject of the 13-lecture
course was Adam Smith's Real Bills Doctrine and Its Relevance Today. (Monetary
Economics 102). The titles of the follow-up conferences were: 1. The
Economics of Gold Mining and 2. Gold Profits in Troubled Times:
Putting the Basis to Good Use. Course material will soon be available in
print and in DVD format to all interested parties.
Session Four is planned to
take place in Szombathely, Hungary (at the Martineum Academy where the first two sessions
were held). The subject of the 13-lecture course is The Bond Market and
the Market Process Determining the Rate of Interest (Monetary Economics
201). Tentative date: June 27-30. For more information please contact GSUL@t-online.hu
. Further announcements will be made at the website www.professorfekete.com.
What Would Happen If We Adopted The Gold
Standard?
by Barron Young Smith
 Thanks largely
to Ron Paul, the idea of switching to the gold
standard is back in circulation. Even on this website, libertarian Alvaro
Vargas Llosa advocated it,
complaining that "money was too important to be left to the
politicians," and Tucker Carlson credulously speculated
that Ron Paul's gold fixation might mean "the Ron Paul movement is more
sophisticated than most journalists understand."
But it turns out that switching to the
gold standard is a terrible idea. To clear up the issue, I called Professor
Jeff Frieden, a monetary expert at Harvard, to find
out exactly what would happen if we made the switch.
- The United States
would be unable to respond quickly and effectively to sudden economic
shocks. Recessions would be deeper and longer, and the economy would be
biased towards deflationary spirals. Witness the fact that the United States, which remained on the gold
standard till 1933, had a much longer and deeper recession than Britain,
which had gone off gold in 1931.
Milton Freidman himself (often cited as
the supreme authority by gold-standard bearers) warned about just this
problem in his magnum opus, Monetary History of the United States,
1867-1960, instead advocating a steadily-expanding supply of paper money.
- It would
increase government regulation of the economy. With no Fed, inexpert
Congress will bear the onus of alleviating economic suffering. With
deeper, longer recessions, Congressmen will inevitably succumb to
pressure for more spending and regulation of the economy--as they did
during the Great Depression.
Indeed, Fed management of the money
supply was originally meant to stave off calls for socialism by
rendering free-market capitalism more resilient, flexible, and humane. Switching
back to gold would breathe new life into anti-capitalist politics.
- It would
increase our reliance on foreign credit and ship yet more jobs overseas.
Ron Paul says "our economy and our very independence as a nation is
increasingly in the hands of foreign governments such as China and Saudi Arabia." But
adopting the gold standard would actually exacerbate this problem, not
alleviate it.
Assuming we're not in a recession,
economic growth would then continually cause deflation, making
domestically-produced products more expensive and foreign imports
cheaper--increasing consumption of imports. The trade deficit would continue
to balloon at the expense of American jobs.
- Insofar as
it helps anybody, the gold standard would favor
Wall Street bankers over entrepreneurs, businesses, and workers. Ron
Paul likes to rail against Wall Street, complaining that our money is being
"inflated at the behest of big government and big banks," who
cause "[y]our income and savings [to] lose their value."
But banks, being creditors, benefit from
deflation, not inflation--since inflation makes it easier for debtors
to pay back their loans at lower prices. Credit card bills and business loans
would become more expensive, increasing everybody's debt except the banks'.
One of the great ironies of Ron Paul's
campaign is that it was the inflexibility of the gold standard during the
1890s spawned the anti-Washington Populist movement, led by William Jennings
Bryan (read his eloquent attack on the gold standard here).
Now, Ron Paul leads a movement with
similar populist tendencies. But--perversely--he's on a crusade to resurrect
a great symbol of Wall Street-Washington dominance over the individual.
Not only would the gold standard have
disastrous effects for the U.S.
economy, it would undermine liberty, increase debt, and weaken the country. Somewhere, Alexander Hamilton's
ghost is cracking a smile.
Antal E. Fekete
Professor,
Intermountain Institute of Science and Applied Mathematics, Missoula, MT 59806, U.S.A.
Gold Standard University
aefekete@hotmail.com
Professor Antal E. Fekete
was born and educated in Hungary.
He immigrated to Canada
in 1956. In
addition to teaching in Canada,
he worked in the Washington
DC office of Congressman W. E. Dannemeyer for five years on monetary and fiscal reform
till 1990. He taught as visiting professor of economics at the Francisco Marroquin University
in Guatemala City
in 1996. Since 2001 he has been consulting professor at Sapientia University,
Cluj-Napoca, Romania. In 1996 Professor Fekete won the first prize in the International Currency
Essay contest sponsored by Bank Lips Ltd. of Switzerland. He also runs the Gold Standard University.
DISCLAIMER AND CONFLICTS
DISCLAIMER AND CONFLICTS
THE PUBLICATION OF THIS LETTER IS FOR YOUR INFORMATION AND AMUSEMENT ONLY. THE
AUTHOR IS NOT SOLICITING ANY ACTION BASED UPON IT, NOR IS HE SUGGESTING THAT
IT REPRESENTS, UNDER ANY CIRCUMSTANCES, A RECOMMENDATION TO BUY OR SELL ANY
SECURITY. THE CONTENT OF THIS LETTER IS DERIVED FROM INFORMATION AND SOURCES
BELIEVED TO BE RELIABLE, BUT THE AUTHOR MAKES NO REPRESENTATION THAT IT IS
COMPLETE OR ERROR-FREE, AND IT SHOULD NOT BE RELIED UPON AS SUCH. IT IS TO BE
TAKEN AS THE AUTHORS OPINION AS SHAPED BY HIS EXPERIENCE, RATHER THAN A
STATEMENT OF FACTS. THE AUTHOR MAY HAVE INVESTMENT POSITIONS, LONG OR SHORT,
IN ANY SECURITIES MENTIONED, WHICH MAY BE CHANGED AT ANY TIME FOR ANY REASON.
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