Monday, December 22, 2014

An Analysis of Gods of Money – Part 2

An Analysis of Gods of Money – Part 2
Thomas Allen

    17. Engdahl claims that for more than a century N.M. Rothschild & Sons set the world’s daily price of gold [p. 96]. Absurd! Here Engdahl shows his ignorance of the gold standard. First, to change the “price” of gold daily would have required Parliament, Congress, and other governments of countries on the gold standard to change the change the definition of their monetary unit daily. Under the gold standard, the price of gold is not fixed. The monetary unit is defined as a specific weight of gold. For example, between 1837 and 1934, the U.S. dollar was defined as 23.22 grains of pure gold. (To say that the price of gold is fixed under the gold standard is to say that the meter fixes how far light travels in 1/299,792,458 of a second. The distance that light travels during that time fixes the meter, so the weight of gold fixes the monetary unit.)
    If N.M. Rothschild offered to pay more than a pound for 113 grains of gold, which was the value of the pound, people would have sold all their gold to N.M. Rothschild as it would be paying more than 113 grains of gold for 113 grains of gold. If it offered to pay less, no one would have sold it any gold.
    18. According to Engdahl’s description of the New York bankers and the London bankers between the world wars in Chapter 5, the Rothschilds were not as powerful as many believe.
    19. Engdahl claims that President Franklin Roosevelt made the holding or owning gold coins, gold bullion, or gold certificates illegal [p. 123]. That is not quite true. An individual could possess $100 in gold coins. If all the gold coins then in circulation were divided approximately equally among the population, each person would have had between $2 and $3 in gold coins. The U.S. government and the Federal Reserve held 93 percent of the monetary gold. Thus, the U.S. government had no need to collect coins held by the public.
    Like most writers, Engdahl refers to Roosevelt ordering the “confiscation” of the people’s gold [p. 123]. “Confiscation” is merely a euphemism for the more accurate term “stealing.”
    20. Most opponents of the Federal Reserve and the Money Trust believe that the Money Trust or at least a faction of the Money Trust planned and deliberately caused the Great Depression. Engdahl seems to believe that stupidity, greed, arrogance, lust for power, fear, hatred, etc. of the Money Trust and governments caused the Great Depression; it was not a planned event.
    21. Engdahl states that President Hoover took a laissez faire approach to the Great Depression [p. 126]. Earlier he noted that Hoover took an interventionist approach instead of a laissez faire [p. 107]. In America’s Great Depression, Murray Rothbard shows that Hoover’s approach to the Great Depression was highly interventionist. The New Deal was built on the interventionist foundation that Hoover laid.
    22. Engdahl claims that in 1933, Roosevelt began buying newly minted gold above market price. Actually, what he did was to change the definition of the dollar from 23.22 grains of gold to 1/35 of an ounce of gold through several incremental steps. He did not buy gold at an above market price; he devalued the dollar. This action was legalized by the Gold Reserve Act of 1934.
    Engdahl states that Roosevelt resumed the gold standard under the Gold Reserve Act in January 1934 [p. 129]. That is not true. As no one could redeem paper money for gold, which Engdahl acknowledges [p. 129], the gold standard could not exist. The Gold Reserve Act formerly ended the gold standard.
    23. Engdahl calls National Review as an arch-conservative magazine [p. 242]. A better and more accurate description is “neo-conservative.” As he notes, it was and continues to be a promoter of the American Empire. One of its prime objectives was to control the right and direct it away from Washington’s noninterventionist policy and Jefferson’s small highly limited governmental policy. The Old Right, the paleo-conservatives, who advocated small limited government could not be allowed to have a voice.
    Engdahl identifies James Burnham, an operative of the OSS, as a cofounder of National Review [p. 242]. He does not identify the other cofounder, William Buckley. Buckley was a member of the Council on Foreign Relations and Skull and Bones and was a CIA agent.
    Except neo-conservatives, who are as statist as socialists, most conservatives claim that they want limited government. However, most conservatives support a large all-powerful military, i.e., knowingly or unknowingly, they support the military-industrial complex. Thus, they support the warfare state, which is incompatible with limited government.
    24. Engdahl discusses President Kenney’s Executive Order 11110 [p. 250]. Unlike many opponents of the Federal Reserve who discuss this Executive Order, he seems to realize that it dealt with silver certificates. Most write as though it dealt with U.S. notes. Then he claims or at least implies that Kennedy issued $4.2 billion in U.S. notes pursuant to this Executive Order.
    This Executive Order had nothing to do with U.S. notes. U.S. notes and silver certificates are two different types of currencies. Although both were legal tender, U.S. notes were backed by nothing; silver certificates were backed by silver. U.S. notes were an inexpensive form of fiat money. Silver certificates were an expensive form.
    During the Kennedy administration $4.2 billion in U.S. notes were issued. However, they were issued pursuant to an 1878 law that required the U.S. Treasury to maintain a fix supply of $347 billion in U.S. notes.
    The Executive Order did not order the issue of silver certificates. With this Executive Order, Kennedy delegated his power to approve the issue of new silver certificates to the Secretary of the Treasury.
    Engdahl states that Kennedy was the first President since Lincoln to issue interest free money [p. 250]. That is not true. U.S. notes were issued under nearly every President from Lincoln to Nixon. Silver certificates were issued under nearly every President from Hayes to Lyndon Johnson.
    (Engdahl believes that this Executive Order may have led to Kennedy’s assassination [pp. 249-250]. The CIA, FBI, Department of Defense, military-industrial complex, mafia, Mossad, France, Vietnam, Cuba, anti-Castro Cubans,Russia, Lyndon Johnson, and the Texas oilmen among others have been accused of being behind his assassination. If the truth were known, probably several of these were behind it. The poor man did not have a chance.)
    Engdahl suggests that Kennedy’s assassination caused the demise of the silver certificate. It did not. Inflation, deprecation of the U.S. dollar, did. The bullion value of silver in a silver dollar began exceeding the monetary value of a silver dollar. Although no silver certificates were issued after Kennedy’s assassination, or even during his administration, they continued to circulate. They were never called in as were gold certificates.
    25. Engdahl claims that gold has little intrinsic value (p. 264). To the contrary, it has a great deal of intrinsic value — much more than his beloved U.S. note. The U.S. note like the Federal Reserve note has no intrinsic value beyond crude toilet paper and its Btu content.
    He claims that gold’s scarcity made gold serve as a store of value against which countries fixed their currencies [p. 264]. This is only partially true. It is scarce in the sense that it does not exist in large quantities when compared to base metals. However, this scarcity is not what makes it ideal money. A large quantity of gold exists above ground ready to be used as money compared to newly mined gold entering the market. That is, the flow of gold (newly mined gold) is small (about 2 percent) compared to the stock of gold (above ground supply). Thus, newly mined gold has little effect on the value of the existing supply.
    Unlike the U.S. note, people freely chose gold as money. No government had to force it on them. Federal Reserve notes and U.S. notes have to be forced on people to get them to function as money. Moreover, and perhaps more important, gold can actually extinguish debt; U.S. notes and Federal Reserve notes can only discharge debt by passing it to another. Ultimately, the U.S. government ends up owning all debt as U.S. notes and Federal Reserve notes are obligations of the U.S. government.
    26. Engdahl gives the impression that the U.S. government has undergone massive deregulation beginning with the Carter administration. When the EPA came into being in 1970, I worked with two or three volumes of Title 40 of the Code of Federal Regulations. I was working with more than 20 volumes 37 years later. Since 1977 when Carter became President to today, the Code of Federal Regulations has more than doubled. If the United States had undergone massive deregulation since 1977, the Code of Federal Regulations should be much small today than it was in 1977.
    27. Engdahl spends a large part of his book describing how the Rockefellers used governments to increase and protect their wealth and power. Then he claims that they want to turn to a true free market economy to increase and protect their wealth and power [p. 276]. He goes as far as to call such economy neo-feudalism [p. 277]. Feudalism, neo or classical, is hardly free market. It is more like communism. Under feudalism, the monarch owns most of the land. He leases the land to noble families for specific services. Along with the land come the workers, serfs, who are bound to the land and, with few exceptions, cannot legally leave it.
    Based on their actions from the late 1970s, when this abandonment of statism was supposed to have begun to today, the Rockefellers and their associates have not abandon their statism in favor of the free market. Moreover, they have not abandon their control of the U.S. government. If the United States had been on a free market trend since 1977, the U.S. government and its budget would be much smaller today than it was then. To the contrary, both the government and its budget have grown unabated. The U.S. government’s control of the economy has expanded. Apparently, Engdahl has no clue what a free market economy looks like. The Rockefellers do not want a free market economy or free trade, they want a managed economy and managed trade managed for their benefit. That requires the cooperation of government, which is why they expend so many resources to control it.
    Moreover, free trade does not require any international organization like the World Trade Organization to manage it. It requires no management. Managed trade is the bane of free trade. All that free trade requires is for governments to get out of the way and let their people trade. None of the trade deals that Engdahl describes throughout his book are free trade deals. Even when he claims that free trade was behind the deals, they were not free trade deals.
    28. Engdahl calls Milton Friedman’s teachings as “radical free market dogma” [p. 276]. I am not sure what Engdahl means by a “radical free market dogma,” but Friedman was an ardent opponent of free market banking and money. He supported centralized banking, the Federal Reserve System, and the banking cartel that it entailed. Also, he was a proponent of the government controlling the monetary system and opposed the gold standard.
    Engdahl gives the impression that the Federal Reserve abandoned Keynesianism for Friedmanism. It may have abandoned Keynesianism, but it never adopted Friedman’s doctrine. Friedman advocated the Federal Reserve creating the same quantity of money month after month, year after year, without regards to employment, interest rates, or anything else.
    29. Engdahl claims that when interest rates rose from 6 to 8 percent under Volcker, wealthy bondholders reaped staggering profits on their bonds [pp. 278-279]. When interest rates rise, the value of existing bonds falls. If the interest rate doubles, the value of existing bonds falls about half. People holding bonds when the Federal Reserve raised interest rates lost wealth. People who had advance knowledge that the Federal Reserve was going to raise interest rates could profit handsomely by shorting bonds. When they knew in advance that the Federal Reserve was going to start reducing rates, they could cover their shorts and begin to buy bonds. Thus, they can receive enormous profits.
    If the Rockefellers and their banker, industrial, and government comrades were really promoting the free market, they would have dismantled the Federal Reserve. They would not have used it to manipulate interest rates or to control banking.
    The crisis that Engdahl describes that governments of several foreign countries endured following Volcker’s raising interest rates [p. 286] would not have occurred if those governments had followed the example of President Jackson. If they had no debts, a change in interest rates would not have affected them.
    Engdahl does not discuss the massive destruction of capital that came with falling interest rates. A company that borrowed $10 million with bonds at 10 percent interest was at a competitive disadvantage with a company that later borrowed $10 million with bonds at 5 percent. It had to pay twice the interest. If it bought its bonds to avoid the higher interest, it would have to pay $20 million for them. (The value of bonds rises as interest rates drop. If the interest rate falls by half, the value of bonds approximately double.) Under the gold standard, interest rates vary little and are usually low. The interest rate gyrations that have occurred in recent decades would not have happened under the gold standard.
    30. Engdahl blames the inflation of the 1970s and early 1980s on a 140 percent increase in the price of oil and not on government deficits. Inflation is a monetary phenomenon. If the money supply were stagnant, a large increase in the price of oil could cause a good deal of havoc, but it would not cause a rise in general prices. As the increased oil prices caused oil-related products, assets, and services to rise, prices of other things would have to fall.
    31.Engdahl states that President Reagan filled his administration with laissez faire economists [p. 286]. If he did, they had little influence. The size of the U.S. government and its power over the economy grew during his administration.
    Moreover, he claims that “Reagan’s free market had all but destroyed an entire national economy: the USA’s” [p. 293]. He blames this destruction on the Federal Reserve raising interest rates to very high levels and spends pages describing its destructive effect. The Federal Reserve is not a creature of the free market; it is a governmentally created entity. A governmental monopoly, such as the Federal Reserve, with the power to manipulate interest rates and to control the banking cartel is not free market.
    In Chapter 16, Engdahl describes Greenspan’s management (mismanagement?) of the Federal Reserve. He claims that Greenspan was a proponent of the free market. He describes Greenspan’s creating booms and busts in various markets via manipulating interest rates while he protected banks and other financial institutions that he deemed too big to fail. In spite of his rhetoric, Greenspan was no proponent of the free market. If he were, he would not have used his office to manipulate interest rates or to bail out banks and other financial companies to keep them from bankruptcy. Moreover, he would have pushed for the abolishment of the Federal Reserve System and would have promoted a decentralized competitive banking system without any central bank. He would have advocated returning to the classical gold standard. Then interest rates would have been steady at a low level.
    In summary, in spite of its shortcomings, Engdahl’s book is worth reading. In spite of his lack of understanding the free market and the gold standard, his book does contain a good deal of useful information.

Copyright © 2014 by Thomas Coley Allen.

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