Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21
Ultimate Gaming and Home Working PC System Build 2021 - 5950X, RTX 3080, Asus MB - Scan Computers UK - 7th Jan 21
Inflation the bug-bear looking forward through 2021 - 7th Jan 21
ESG ETF Investing Flows Drive Clean Energy to Fresh Highs - 7th Jan 21
5 Financial Market Surprises in 2021 - 7th Jan 21
Time to ‘Reset’ Your Investment Portfolio in 2021? - 7th Jan 21
Bitcoin Price Collapses almost 20% at the start 2021 - 7th Jan 21
Fed Taper Nervous Breakdown - 6th Jan 21
What Will the U.S. Dollar Ring in for 2021? - 6th Jan 21
Stock market frenzy- Ride the bandwagon but be sure to take along some gold coins - 6th Jan 21
Overclockers UK Custom Build Gaming System Review Heat Test and Final Conclusion - 6th Jan 21
Precious Metals Resuming Bull Market, Gold, Silver, GDX Trend Forecasts 2021 - 5th Jan 21
Trump’s Iran-COVID-Gate Anniversary  - 5th Jan 21
2021 May Be A Good Year For The Cannabis / Marijuana Sector - 5th Jan 21
Stock Market Approaching an Important Target - 5th Jan 21
Consumer Prices Are Not Reflecting Higher Inflation; Neither Is The CRB - 5th Jan 21
NEW UK Coronavirus PANIC FULL Lockdown Imminent, All Schools to Close! GCSE Exams Cancelled! - 4th Jan 21
The Year the World Fell Down the Rabbit Hole - 4th Jan 21
A Year Like No Other for Precious Metals… and Everything Else - 4th Jan 21
The Stocks Bull Market is Only Half Completed - 4th Jan 21
An In- Depth Look At Gold Price Trend - 4th Jan 21
Building America Back After a Dark Covid Winter - 4th Jan 21
America's Dark Covid Winter Ahead - 4th Jan 21
Buy a Landrover Discovery Sport in 2021? 3 Year Driving Review - 3rd Jan 21
Stock Market Major Peak in Early April 2021 - 3rd Jan 21
Travel and Holidays 2021 - Flight Knight Cabin Bag Review - 3rd Jan 21
�� Happy New Year 2021 Fireworks and Drone Light Show from London and Sheffied - BBC�� - 2nd Jan 2
The Next IMMINENT Global Catastrophe After Coronavirus - 1st Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Ron Paul's Battle for Financial Sanity

Politics / Central Banks Sep 16, 2009 - 06:17 AM GMT

By: David_Gordon

Politics

Best Financial Markets Analysis ArticleRon Paul has since the inception of his tenure in Congress waged a heroic battle for financial sanity, and in End the Fed he gives us insights from that struggle available nowhere else. Dr. Paul had from an early age an affinity for the free market. "In the 1960s," he tells us, "I discovered the writings of economists such as Ludwig von Mises, F.A. Hayek, Murray N. Rothbard, and Hans F. Sennholz. I gradually found the answers I had been searching for. Even for the experts, it literally took centuries to fully understand the nature of money and the business cycle." (p.43)


Dr. Paul during his service in the Air Force was able to hear Mises speak, and when in Congress met with Hayek. "I had the pleasure of hearing Hayek lecture in Washington, around 1980. Following that meeting, we had a private dinner together and spent several hours visiting." (p.51)

But the principal economist who influenced him was Murray Rothbard. "Of all the Austrian economic greats of the twentieth century, I got to know Murray Rothbard the best.. . . I recall his surprise when he found out I had read his essay ‘Gold and Freely Fluctuating Exchange Rates.’. . . If there’s one book that the Washington establishment should read now, it’s Rothbard’s book America’s Great Depression. In this book, he demonstrates that it was the Fed that created the late-1920s boom that led to bust, and Hoover’s interventions that prolonged the Great Depression." (pp.57–8)

The last remark begins to suggest a key reason that the Fed should be abolished. Far from being a means to maintain monetary stability, as its supporters falsely insist, the Fed through expansion of bank credit bears primary responsibility for the business cycle. The expansion temporarily lowers the money rate of interest below the true market rate, largely determined by people’s time preference, i.e., their preference for present over future goods. Businesses, with money available, expand; but the new projects cannot be sustained. When the monetary expansion ceases (if it doesn’t, we will have hyperinflation, with disastrous consequences), these new investments must be liquidated. The process of doing so is the depression.

As Dr. Paul aptly remarks, "The Fed can indeed provide liquidity in these times [of credit contraction] by a simple operation of printing more paper money to cover deposits. But if you think of the cycle as beginning in the boom phase – when money and credit are loose and lending soars to fund unsustainable projects – matters change substantially.. . .when central banks push down [interest] rates on a whim, the impression is created that savings are there when they are in fact completely absent. The resulting bust becomes inevitable as goods that come to production can’t be purchased, and reality sets in by waves. Businesses fail, homes are foreclosed upon, and people bail out of stocks or whatever is the fashionable investment of the day." (pp.29–30)

Instead of the Fed and its false claim that we need an "elastic" currency, we should instead remove the government entirely from the creation of money. In a free society, money would be a commodity; most likely that commodity would be gold. "In fact, I’m only observing reality: the idea of sound money in most of human history has been bound up with gold money. Can there be sound money without a gold standard? In principle, yes. And I’d be very happy for a system that would permit markets to once again choose the most suitable money, whatever that turns out to be. I’m not for government imposing any particular standard: no central bank, no legal tender, no privilege for any commodity chosen as a backing for the currency." (p.71)

Dr. Paul has presented the Austrian view of money in a succinct, accurate, and effective way; but what justifies the claim that he offers insights available nowhere else? Are there not many excellent books and articles that explain the views of Mises and Rothbard on money, not least the works of those two economists themselves? The answer arises from Dr. Paul’s many years of service in Congress. In that capacity, he has had conversations with several Fed Chairmen, and one of these conversations enables us to solve a mystery.

Alan Greenspan epitomizes the control of the money supply by the government that Dr. Paul opposes. But is this not at first sight surprising? Greenspan was a follower of Ayn Rand and shared her devotion to laissez-faire capitalism. In an essay written for the Objectivist newsletter, reprinted in Capitalism: The Unknown Ideal, Greenspan offered a strong defense of the gold standard. The vital advantage of the gold standard, Greenspan explained, is to prevent the government from manipulating the money supply: "in the absence of the gold standard, there is no way to protect savings from confiscation through inflation. . . 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." (p.81)

Greenspan, amazingly, told Dr. Paul "that he had just recently reread it [the article] and wouldn’t change a word of it." (p.86). How could Greenspan say this, while presiding over a system that embodies the government control of money his article repudiated? Greenspan thought that he could conduct the financial system in the same way as the gold standard would operate. "I [Greenspan] think that you will find. . .that the most effective central banks in this fiat money period tend to be successful largely because we tend to replicate that which would have probably have occurred under a commodity standard in general." (p.88)

In other words, we need to remove government from the money supply, unless, of course, I and people like me are in control. Greenspan’s position brings to mind the Jewish tradition that King Solomon thought that the restrictions imposed in Deuteronomy (XVII: 16-17) on kings about wives and horses did not apply to him. Because, as the wisest of men, he knew the reasons for these restrictions, he could avoid the temptations these rules guarded against and take more wives and horses than allowed. His overweening arrogance led to disaster, and Greenspan has fallen victim to the same syndrome.

Dr. Paul does not regard Greenspan as the smartest of the Fed Chairmen he met. "I had the most interaction with [Paul] Volcker. He was more personable and smarter than the others, including the more recent board chairmen Alan Greenspan and Ben Bernanke" (p.48).

For Bernanke, it is clear that Dr. Paul has a deep distaste. He suspects that Bernanke has acted in secret to manipulate the price of gold, and he bristles at Bernanke’s refusal to disclose his operations to Congress. "So when Bernanke quickly refuses to give us information about the trillions of dollars of credit that he recently passed out in the bailout process because that would be ‘counterproductive,’ he is really saying, ‘It’s none of your business.’" (p.174)

The book recounts remarkable conversations with others besides Greenspan. When he served on the Gold Commission in Ronald Reagan’s administration, he on one occasion flew by helicopter with the president to Andrews Air Force Base. "‘Ron,’ the president told me, ‘no great nation that abandoned the gold standard has remained a great nation.’ He indeed was sympathetic, as he was to many libertarian constitutional ideas, but he was also swayed by staff pressure to be pragmatic on most issues." (p.74)

Reagan, it is apparent, could not break with the illusion that the government needs to be in control. That illusion is avidly propagated by those who profit from it. One such was the notorious George R. Brown, a longtime backer of Lyndon Johnson. Brown displayed interest in Dr. Paul’s campaign for Congress in 1976, and in one conversation told him, "‘Remember, for the economic system to work, business and government must be partners. I cringed and quickly scooted out the door. . . Once I was in office and after my votes and positions became known, the message was clear, and I never heard from him [Brown] again." (p.159)

Dr. Paul’s fight for freedom has not been confined to the issue of sound money. He has also led the struggle against an interventionist and imperialist foreign policy. But the fight for liberty is seamless, and he shows that an aggressive foreign policy depends on government control of the money supply: "it is no coincidence that the century of total war coincided with the century of central banking. When governments had to fund their own wars without a paper money machine to rely upon, they economized on resources. They found diplomatic solutions to prevent war, and after they started a war they ended it as soon as possible." (p.63)

The book contains an abundance of other arguments against our current monetary system, e.g., that it violates the Constitution. Dr. Paul brings to bear on his topic much learning, and readers will discover how monetary debasement helped bring the Byzantine Empire to ruin as well as Thomas Paine’s poor opinion of paper money. Those who have absorbed the book’s message will come to a clear conclusion: End the Fed.

September 16, 2009

David Gordon [send him mail] is a senior fellow at the Ludwig von Mises Institute and editor of its Mises Review. He is also the author of The Essential Rothbard. See also his Books on Liberty.

http://www.lewrockwell.com

    © 2009 Copyright / David Gordon LewRockwell.com - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules