Secret Societies and Conspiracies in the Founding of America

Secret Societies and Conspiracies in the Founding of America

Thomas Allen

[Editor’s note: Footnotes in original are omitted.]

Secret societies and conspiracies were highly involved in the founding of American. Rosicrucianism and Freemasonry were heavily involved. Two of the most important conspiracies were the Arnold conspiracy and Randolph conspiracy.

Rosicrucians
In 1693, a movement began in Europe to establish a colony of European Rosicrucian leaders. The objective of these colonists was to establish Rosicrucianism, arts, and trade in the New World. They sought to bring about a New World Order outlined by Sir Francis Bacon in The New Atlantis. This book reveals Bacon’s ideal commonwealth in the political world that the Illuminists have sought through the ages. It describes a utopian society across the ocean from Europe; this society was built upon the principles of Atlantis. This utopia was a world without national boundaries and without racial distinction under a world government.[1]

Under the leadership of Grand Master Johannes Kelpius, a German Pietist theologian, the colonists landed in 1694 in Philadelphia. The colonists brought with them books on alchemy, astrology, and magic; the Cabala; and the writings of the German mystic Jakob Boehme. By 1801 the Rosicrucian Order had become inactive or moved completely underground in America.[2]

Arrival of Freemasonry
After Rosicrucianism, Freemasonry was perhaps the next non-Indian secret society brought to the British colonies. It arrived in 1730 when Daniel Coxe was appointed Provincial Grand Master of New York, New Jersey, and Pennsylvania.[3] In 1733, Henry Price became Provincial Grand Master of New England; he is considered the father of regular Freemasonry in the United States. Benjamin Franklin, who was a Rosicrucian,[4] became provincial Grand Master of Pennsylvania in 1734.[5]

The red Freemasonry of France was introduced in 1761 into the Colonies. Behind red Freemasonry were Frederick the Great, Philip Egalite, Swiss bankers, and British intelligence. The Grand Consistory of Sublime Princes of the Royal Secrets of Paris, which Frederick the Great controlled, sent Stephen Morin, a Jew, to establish the Rite of Perfection, i.e., the Scottish Rite. Philip Egalite, Duke of Clermont and later Duke of Orleans, signed his papers. Louis, Count of Clermont, granted Morin the authority to establish Scottish Rite Freemasonry.[6] His deputy inspector was Henry Francken. Francken appointed Moses M. Hayes, a Jew, of Boston as inspector general of North American Freemasonry. Hayes introduced the Scottish Rite in 1780 into the United States at the New Port Lodge.[7] Hayes also appointed Isaac da Costa, a Jew, as deputy inspector general of South Carolina, Solomon Bush as deputy inspector for Pennsylvania, and B.M. Spitser as deputy inspector for Georgia.[8] In 1801, the first Supreme Council of Scottish Rite Freemasonry was established in Charleston, South Carolina.[9]

Before the appearance of the Sottish Rite, Franklin had been the primary organizer of Freemasonry in the Colonies. The lodges that he organized were connected with the Grand Lodge of London.

American Revolution
Freemasonry was at the center of the American Revolution. At the forefront was the St. Andrew Lodge, which was a Grand Lodge of the Scottish Rite. Joseph Warren, a close friend of Franklin, headed this Lodge. Paul Revere was also a leader of this Lodge. This Lodge was probably behind the Boston Tea Party.[10]

In 1778, the Americans re-occupied Philadelphia after the British evacuation. To celebrate this great occasion, General George Washington, dressed in full Masonic attire, solemnly led 300 Freemasons through Philadelphia to Christ Church. Here a Masonic divine service was held.

Besides Washington and Franklin, many other American revolutionists were Freemasons. They included the following generals: Nathaniel Greene, Henry Knox, Henry Lee (Light-Horse Harry), Richard Montgomery, Israel Putnam, Rufus Putnam, Baron von Steuben, and John Sullivan. (Of Washington’s generals, 33 were Freemasons.) Ethan Allen, leader of the Green Mountain Boys of Vermont, and John Paul Jones were also Freemasons. Alexander Hamilton, John Hancock, Patrick Henry, Thomas Jefferson, James Madison, and John Marshall were Freemasons.[11] John Hancock and eight other Freemasons singed the Declaration of Independence.[12] (Manley Hall, a Masonic writer, asserts that all but one signer were Freemasons.) Fifty of the 59 members of the Constitutional Convention were Freemasons.[13] Of the 39 signers of the Constitution, at lest 13 were master Freemasons.[14] The Continental Army had approximately 14,000 officers of whom 2018 were Freemasons.[15]

Freemasons in England championed the colonists in their struggled for independence. They included William Pitt, Edmund Burke, and the Duke of Manchester (Grand Master of English Freemasonry).

During the American Revolution, Masonic agents freely moved between British controlled areas and American controlled areas.

Freemasons in France were also instrumental in providing the American revolutionists the aid that they needed to secede from England successfully. Through Freemasonry, Franklin made his contacts with the appropriate officials in the French government and outside the government. The most ardent support for the American Revolution came from the French nobles who were Freemasons. (Franklin berated the French nobility and campaigned against it in spite of its zealous support of Freemasonry and the American Revolution.)

The Arnold Conspiracy
William Petty, Earl of Shelburne, head of British intelligence, managed to place his agents in many critical positions among the American revolutionists. Benedict Arnold, a Freemason, is perhaps the best known of these agents.[16]

The Mallet-Prevost family put in place Lord Shelburne’s spy and espionage network. This family was the leader of Swiss espionage. One of the family leaders, General Augustine Prevost became Grand Stewart of the Lodge of Perfection. (This lodge had been established in Albany, New York in 1768.) He was also Prince of Royal Secrets and commander of the British southern forces during the American Revolution. His second in command was James Mark Prevost, his brother. Arnold was one of his agents.[17]

Margaret “Peggy” Shippen Arnold, wife of Benedict Arnold and stepsister of Aaron Burr, was a conduit for communications between Mark Prevost and Benedict Arnold. Mark Prevost often communicated with Peggy Arnold through his wife, Theodosia, who later married Aaron Burr. Through this channel, the arrangement to surrender West Point to the English was initiated. For aiding the English in its failed attempt to capture West Point, Arnold was charged with treason.[18] After conspiring to surrender West Point, Arnold was given his promised command in the British army and fought against the Americans in the South.

The Randolph Conspiracy
In 1774, Edmund Randolph at age 21 joined the Ancient Order of York Masons. After becoming a Freemason, his career began its climb upwards. He soon became an aide de camp to General George Washington. In 1785, he became Deputy Grand Master of the Grand Lodge of Virginia. The next year he was named Grand Master. At the time of his election to Grand Master, Randolph was Attorney General of Virginia. (Since then Freemasons have controlled the legal system of Virginia.)[19]

The Grand Lodge of Virginia was established in 1768 at Williamsburg, which was then the capital of Virginia. John Blair, who was then acting governor of Virginia and later a Virginian delegate to the Constitutional Convention, was its first Grand Master.[20]

Peyton Randolph, Edmund Randolph’s uncle and adoptive father, became the first President of the First Continental Congress. Peyton Randolph was also Grand Master of the Masonic Order.

President Washington appointed Edmund Randolph the first Attorney General of the United States and then the second Secretary of State after Jefferson resigned.

In 1787, Congress called a convention to amend the Articles of Confederation. (This convention became known as the Federal Constitutional Convention of 1787.) At this time, Randolph was Governor of Virginia. He persuaded the Virginia delegation to support scraping the Articles of Confederation and write a new constitution that would incorporate the states into a federation. (“Thus it was the Grand Master of Virginia, Edmund Randolph, in league with Aaron Burr and British intelligence, who foisted on the nation the concept of a federal government which could rule over and above the sovereignties of the states.”[21]) Randolph was also a delegate to the convention.

Result of American Revolution
In spite of the Illuminists involvement in the American Revolution and the Federal Constitutional Convention of 1789, the essence of English freedoms and institutions survived. What saved the new United States from Illuminism and from becoming its communistic, democratic egalitarian new Atlantis, the New World Order, ruled by Illuminists, was that 65 to 99 percent of the Aryan population was Christian. Now the Illuminists began the work of destroying them.

Most of the leaders of the American Revolution who were Freemasons believed that they were fighting to free the American colonies from the tyrannical British rule. They were ignorant of the ultimate objective of the Revolution, which was to establish an illuministic New World Order. The Illuminists who controlled Freemasonry had deceived them, as they deceive most Freemasons today. They had deceived them into believing that Freemasonry was the savior of Christianity and the bearer of liberty and happiness. Only the highest degree Illuminists knew the real objective—the establishment of Lucifer’s New World Order.

Fortunately for Americans, the ideals of the Reformation and the English Revolution guided the American Revolution much more than the ideals of the Renaissance and the French Revolution. In spite many leaders of the American Revolution being Illuminists, Christianity had a much greater influence over the American Revolution than did Illuminism. (Revolutions based primarily on Illuminism, such as the French Revolution and the Bolshevik Revolution lead to despair and anarchy, which is followed by dictatorship. Revolutions based primarily on Christianity, such as the English Revolution and the American Revolution, lead to hope and freedom.)

Endnotes
1. Dennis L. Cuddy, Now Is the Dawning of the New Age New World Order (Oklahoma City, Oklahoma: Hearthstone Publishing, 2000), p. 15. H. Spencer Lewis, Rosicrucian Questions and Answers with Complete History of the Rosicrucian Order (Second Edition. San Jose, California: Rosicrucian Press, 1932), pp. 135-136, 138. William T. Still, New World Order: The Ancient Plan of Secret Societies (Lafayette, Louisiana: Huntington House Publishers, 1990), pp. 46ff.

2. Cuddy, Now Is the Dawning, p. 15. Lewis, pp. 135-136, 138.

3. Bernard Fay, Revolution and Freemasonry 1680-1800 (Boston, Massachusetts: Little, Brown, and Company, 1935), pp. 230-231. Clarence Kelly, Conspiracy Against God and Man: A Study of the Beginnings and Early History of the Great Conspiracy (Belmont, Massachusetts: Western Islands, 1974), p. 55. J. S. M. Ward, Freemasonry and the Ancient Gods (London, England: Simpkin, Marshall, Hamilton, Kent & Co. Ltd., 1921), pp. 230-231.

4. Lewis, p. 137.

5. Kelly, p. 55.

6. The Cause of World Unrest (New York, New York: G. P. Putnam’s Sons, 1920), pp. 48-49. Lady Queenborough (Edith Starr Miller), Occult Theocracy (Two Volumes. Hawthorne, California: The Christian Book Club of America, 1933), pp. 189, 336. Nesta H. Webster, Secret Societies and Subversive Movements (Palmdale, California: Omni Publication, 1924), p. 149.

7. Kelly, pp. 55-56. Eustace Mullins, The Curse of Canaan: A Demonology of History (Staunton, Virginia: Revelation Book, 1987), p. 132. Queenborough, p. 190.

8. Cause of World Unrest, p. 49. Kelly, pp. 55-56. Queenborough, p. 190. Webster, p. 149.

9. Gary H. Kah, En Route to Global Occupation (Lafayette, Louisiana: Huntington House Publishers, 1992), p. 110.

10. Fay, pp. 239-240. Still, p. 61.

11. Fay, p. 250. Kelly, p. 55. Jim Marrs, Rule by Secrecy: The Hidden History That Connects the Trilateral Commission, the Freemasons, and the Great Pyramids (New York, New York: Harper Collins Publishers, 2000), pp. 231-232.

12. Cuddy, Now Is the Dawning, p. 23.

13. Still, p. 61.

14. Cuddy, Now Is the Dawning, p. 23.

15. Marrs, p. 232.

16. Mullin, pp. 132-133.

17. Anton Chaitkin, Treason in America From Aaron Burr to Averell Harriman (New York, New York: New Benjamin Franklin House, 1984), p. 148. Mullin, p. 133.

18. Chaitkin, pp. 15-18.

19. Mullin, pp. 181-182.

20. Mullin, p. 181.

21. Mullins, p. 183.

[Editor’s note: List of references in original are omitted.]

Copyright © 2010 by Thomas Coley Allen.

 More articles on history. 

Gold-Exchange Standard

Gold-Exchange Standard
Thomas Allen

[Editor’s notes: Footnotes in the original are omitted.]

When forced to be on a gold standard, governments promote the gold exchange standard— especially if it is the government whose currency is to be the world’s reserve currency. The gold exchange standard is a pseudo gold standard that gives the illusion and prestige of being on the gold standard without the discipline of the gold standard. Governments like the gold exchange standard because it allows them to manipulate their currency domestically. It allows the reserve currency country to export its inflation.

Greaves gives the following description of the gold exchange standard:

(1) The domestic monetary unit is legally defined as the equivalent of a certain fixed weight of gold, called the parity rate; (2) Only money-substitutes are held by individuals and used in domestic business transactions, i.e., there are no domestic gold coins; (3) The national monetary authority maintains the value of all money-substitutes at the legally set parity rate by redeeming in gold such money-substitutes as a holder desires to use abroad at the legal parity rate or at rates between the gold export and import points . . . of such parity; (4) The national monetary authority, as the only official domestic holder of gold and foreign exchange, exchanges all imports of gold and foreign exchange into domestic legal tender money substitutes at the legal parity rate or at rates between the gold export and import points of such rates.

The gold exchange standard makes it possible for the national monetary authority to keep a part of its reserves not in gold but in foreign bank balances which are redeemable in gold.[1]

After World War I, the term came “to mean a monetary system for which reserves are held in foreign currencies convertible into gold, as well as in gold itself.”[2]

Bradford describes the gold exchange standard as follows:

Under a full gold exchange standard, the moneys of the country are not redeemed in gold coin or bullion, but in drafts payable in gold in some foreign gold standard country. As a result, although gold can be exchanged for the money of the country at a fixed price, it is impossible to turn the money into gold on the spot except by the payment of a premium equal to the cost of shipping gold from the foreign gold standard country to the country on the gold exchange standard.

The price of gold in a gold exchange standard country may vary, therefore, by an amount equal to the cost of importing the gold. Nevertheless, these limits are rigidly fixed and relatively narrow, so that it is really the value of a given weight of gold which fixes the value of the moneys of the country.[3]

Governments created the gold-exchange standard. It is a politically created system and not a product of the markets. It allows governments and their central banks to manipulate international gold flows for political reasons. The government holds the reserves of its foreign claims in gold. Most of the world’s gold ends in the vaults of a few central banks. Gold is subordinated to governmental policies and goals. Because of domestic inflation, against which it offers little resistance, the gold-exchange standard becomes unstable and dysfunctional. Although it offers little resistance to the inflation that a government can generate, it offers enough to cause governments to abandon it within a decade or two.

Under the gold exchange standard, the domestic economy operates on a fiat paper monetary system. Domestically, paper money is not redeemable in gold coin or bullion.

The only way that paper money can be converted into gold is for a foreign government, its central bank, or another approved institution to demand that the country whose currency it holds redeem it in gold. Then the government redeeming the currency has to pay the cost of shipping the gold.

Under the gold exchange standard as operated in the twentieth century, the currency of one country is declared to be the reserve currency. (During the 1920s, the reserve currency was the British pound. Between 1944 and 1971, the U.S. dollar was the reserve currency.) The reserved currency country defined its monetary unit to equal a certain weight of gold. Other countries defined their monetary unit to equal so many units of the reserve currency. In reality the gold exchange standard of the 1920s was a British pound standard. The one after World War II was really the U.S. dollar standard.

Before World War I, a few countries that were not on the gold-coin standard had adopted some form of the gold exchange standard. Among them were Austria-Hungary, Russia, Japan, Argentina, and India. They did not want to adopt a gold-coin standard. Yet they wanted the stability in foreign trade and exchange that the gold-coin standard provided. They sought this stability in the gold exchange standard.

After World War I other European countries adopted a gold exchange standard. Many countries, such as Germany, Italy, and Russia, had depleted their gold stock. They did not want to or could not acquire enough gold to maintain a gold stock sufficient to redeem their domestic currencies. An advantage identified by Robertson is that the reserve currency “can easily and speedily be released for investment in more lucrative securities, and again built again out of the proceeds of the sale of such securities, in accordance with the changing needs of the situation; whereas the trundling of gold to and from market is a relatively cumbrous and expensive proceeding.”[4] Thus, the gold-exchange standard can be a convenient and profitable system for the government involved. It can be so convenient and profitable for governments that even countries with adequate gold stocks, such as France, turned to it.

During World War I, Great Britain had suspended the gold standard. Like the other warring countries, it paid for the war with inflation. After the war, it wanted to regain the monetary prestige that it had before the war. To do this, it believed that it had to return to the gold standard at its prewar rate, about $4.86 per ounce of gold. However, because of its wartime inflation, it could not without a significant devaluation of its currency. It did not want to devalue the pound. To avoid devaluation, Great Britain persuaded the other European countries to adopt the gold exchange standard. This was accomplished at the Genoa Conference of 1922.

In 1925, Great Britain initiated the system outlined at the Genoa Conference. During the following three years, most important countries join the gold exchange system. The notable exception was the United States. However, the Federal Reserve did conspire with the Bank of England to ensure the system would operate without formal devaluation of the pound. To prevent devaluation of the pound, the Federal Reserve had to inflate, i.e., devalue the dollar.

Rothbard described the adopted standard as follows:

Instead of each nation issuing currency directly redeemable in gold, it was to keep its reserves in the form of sterling balances in London, which in turn would undertake to redeem sterling in gold. In that way, other countries would pyramid their currencies on top of pounds, and pounds themselves were being inflated throughout the 1920s. Britain could then print pounds without worrying about the accumulated sterling balances being redeemed in gold.[5]

Great Britain could export its inflation almost without penalty. The inflation could continue as long as no country demand redemption or until the economies became so distorted that they broke down. The system finally collapsed in 1931 into the Great Depression. (The inflation caused under the gold exchange standard lead to the Great Depression.)

The gold exchanged standard adopted after World War I was a partial gold exchange standard. Countries maintained part of their reserves in gold and part in foreign currencies. “In such instances, if gold was wanted for use in the arts it could be obtained at a fixed price for that purpose. On the other hand, if the gold was needed for export, the central bank had the option of redeeming its notes in a draft payable in gold in a foreign center.”[6] Thus, in theory at least, “the value of the gold in the money unit fixed the value of the other moneys as closely as in a gold coin or gold bullion standard country.”

In 1944 under the lead of the United States, the leading countries of the world again adopted a gold exchange standard. This system became known as the Bretton Woods international monetary system. Under this system, foreign countries fixed (pegged) their currencies in the U.S. dollar. They maintained this fixed rate of exchange by buying and selling dollars in foreign-exchange markets. The U.S. dollar was fixed (pegged) in gold at $35 per ounce of gold. “Only the United States undertook to buy and sell gold at a fixed rate of exchange in transactions with foreign monetary authorities.”[7] Devaluation was only allowed when a country had inflated at a rate so much greater than the United States that it had depleted its dollar reserves.

The Bretton Wood system collapsed because during the 1950s and especially the 1960s the United States were inflating faster than most other countries. As a result, these countries accumulated excessive quantities of dollars. When they had accumulated too many dollars, they began to demand gold for dollars. Collapse of the system came in 1971 when the United States refused to redeem in gold the dollars for which foreign countries demanded redemption. This action ended the Bretton Wood gold exchange system. (Before 1960, the U.S. monetary gold stock exceeded the liabilities of the U.S. government. By 1971, its monetary stock was less than one-sixth of its liquid liabilities.[8]) With the collapse of the gold exchange system, the world entered the realm of pure fiat money with floating exchange rates determined by supply and demand on foreign-exchange markets.

Under the gold exchange standard as it operated in the 1920s and under Bretton Wood, countries were not on a gold standard. They were on the British pound standard in the 1920s and the U.S. dollar standard under Bretton Wood. Their reserves were mostly British pounds and U.S. dollars, and not gold.

Furthermore, the gold exchange standard allows double counting of gold. Each ounce of gold backing the reserve currency is counted as backing the reserve currency. It is also counted as backing the currencies of foreign countries whose currencies the reserve currency backs.

Because countries fixed their currencies to the reserve currency, the gold exchange standard tied the together all their currencies. This fixed exchanged caused the prices and incomes of the difference countries to be interconnected.

Countries on the gold exchange standard do not adjust their currencies to the market valuation of gold. They adjust their currency to the reserve currency, which is based on gold. Thus, one purported advantage is that during financial crisis, these countries do not have to import gold. The crisis is resolved with the domestic currency, which has no direct dependency on gold. (If the country had been operating of the gold-coin standard, the crisis probably would not have occurred.)

Under the gold exchange standard, governments control the international movements of monetary gold. This control allows governmental leaders to conspire to coordinate their domestic inflation of paper money. They do this because only governments or their central banks can redeem the reserve currency in gold. The reserve currency country can inflate with little danger of losing gold because their currency expansion increases the reserves of other countries. This increase allows the other countries to inflate. Only when the reserve currency country begins inflating at a rate much greater than other countries does it begin to loss gold, which eventually leads to the collapse of the system.

The gold exchange standard encourages the reserve currency country to pay for its welfare-warfare state through inflation instead of taxation. Under the gold exchange standard, the reserve currency country exports much of the excess currency to buy foreign goods. Foreign governments need to obtain the reserve currency to pay for their imports. To prevent the system from collapsing, they must accumulate the excess reserve currency. Thus, domestic prices in the reserve currency country, such as the Untied States between 1944 and 1971, do not rise as high as they otherwise would.

The gold exchange standard encourages devaluation of currencies because it makes devaluation easy. A country has no gold coins to call in, i.e., to steal from the people, or outlaws as money as Roosevelt did in 1933. Gold coins do not circulate in most countries on the gold exchange standard. Thus, it allows the devaluating country to cheat its international creditors by reducing the gold that it was obliged to pay.

Individual holders of the reserve currency cannot redeem their paper money. They may be allowed to own gold and gold coins, but neither the banks nor the government will redeem either the reserve currency or its own currency in gold on demand. Only foreign governments and their central banks or other governmentally approved agencies can exchange the reserve currency for gold and then only for large bars, 400 ounces or more. This restriction on redemption takes the control the money supply from the people and gives it to those who really control the government.

A major problem with the gold exchange standard is that it gives the government the power to manipulate its currency. Of coarse, this is a major reason that governments prefer the gold exchange standard to the gold-coin standard, which greatly restricts government’s ability to manipulate the country’s money. Governments have used the gold exchange standard to carry out their inflationary monetary policies.

The gold exchanged standard relies on a country’s monetary gold being concentrated in a single institution. A central bank places the country’s gold under its control and usually in its possession. (During the gold exchange standard under Bretton Wood, the U.S. government possessed the country’s monetary gold.) Thus, central banking is a prerequisite to the gold exchange standard.

The gold exchange standard bridges the gap between the gold-coin standard of the nineteenth century and the pure fiat monetary standard of today. Under the gold-coin standard, the exchange rate of foreign currencies is fixed in the weight of gold in the coin. Under the gold exchange standard, countries fix their exchange rate in the reserve country’s currency, which in turn is fixed in gold. This system allowed a great deal of inflation until countries start redeeming the reserve currency for gold.

ENDNOTES
1. Percy L. Greaves, Jr., Mises Made Easier: A Glossary for Ludwig von Mises’ Human Action (Dobbs Ferry, New York: Free Market Books, 1974), p. 53.

2. Ibid., p. 54.

3. Frederick A. Bradford, Money and Banking (New York, New York: Longmans, Green and Co., 1938), pp. 25-26.

4. D.H. Robertson, Money (Chicago, Illinois: University of Chicago Press, 1957), p. 64.

5. Murray N. Rothbard, The Mystery of Banking (Second ed. Auburn, Alabama: Ludwig von Mises Institute, 2008), p. 244.

6. Bradford, p. 26.

7. Lawrence H. White, Competition and Currency: Essays on Free Banking and Money (New York, New York: New York University Press, 1989), p. 144.

8. Ibid., p. 145.

[Editor’s note: List of references in original is omitted.]

Copyright © 2010 by Thomas Coley Allen.

More articles on money.

Diversity

Diversity
Thomas Allen

People typically view diversity in two diametric ways. One group considers diversity highly desirable. The other considers it highly undesirable. Both groups can be divided into integrationists and segregationists.

As we will see, segregation preserves diversity. Integration destroys diversity.

Let’s look at the pro-diversity integrationists first. They claim that strength is achieved through diversity. Therefore, various diverse races and ethnic groups (nationalities[1]) need to be integrated. Are these people ignorant or hypocrites, or do they knowingly promote covert genocide?

Whenever diverse groups integrate, they amalgamate. They lose their distinctiveness and become indistinguishable from one another. Integration is the systematic destruction of the races and ethnic groups involved. The systematic destruction of a race or nationality is genocide. How it is done is immaterial.

The following example illustrates the destructiveness of integration. Take three jars of water. Put a red dye in one and a yellow dye in another. Integrate (mix) the jar of colorless water with the jar of red water. Uniformity is the consequence of this integration. Pale red water results. Now integrate the yellow water with the pale red water. Again uniformity results. The water is now a pale orange.

Integration has destroyed diversity. Before integration, we had three distinct jars of water: colorless, red, and yellow. After integration, we have one color of water: pale orange. Thus, integration destroys diversity.

If diversity is worth preserving, integration has to be avoided.

Those who know that integration destroys diversity and still insists on integration really hate diversity. Or they hate one or more of the groups being integrated so much that they are willing to destroy other groups to destroy the hated group. These people are promoters of genocide, but who want to conceal their genocide.

Segregationists who despise diversity usually object to their self-destruction. Being unwilling to destroy themselves to destroy diverse groups, they must abandon the covert genocide of integration and adopt some form of overt genocide. Otherwise, they must separate the diverse groups, which maintains diversity.

People who dislike the hyphenated American, e.g., Afro-American and Chinese-American, must either adopt some form of genocide or segregation of or separation from the hyphenated Americans. Most seem to have adopted covert genocide through integration. Few openly promote segregation or geographical separation.

Let’s return to our example. We have three diverse jars of water: colorless, red, and yellow. As long as we keep them separate, we maintain their diversity. They remain colorless, red, and yellow. Once we integrate them, they amalgamate and lose their diversity.

Thus, segregation and separation preserve diversity. If the objective is to save diversity and to preserve our strength through diversity, then segregation is the route to choose. If the objective is to destroy diversity, integration is the choice.

Actions that lead to the destruction of diversity must be avoided if diversity is highly desirable. Diversity should be preserved if strength is achieved through diversity. Conditions must be created to prevent various races and ethnic groups (nationalities) from destroying themselves. Only under conditions where their amalgamation is prevented can diversity be preserved.

Segregation and geographical separation preserve diversity. When diverse groups separate, they can preserve and grow their uniqueness.

One can have diversity. One can have integration. However, one can never have both. People need to decide which is more important: diversity or integration. If they choose diversity, then they must choose segregation and preferably physical separation. (Physical separation is superior to segregation at maintaining diversity.)

Endnote
1. Nationality refers to a people of a common race with a common origin, traditions, culture, and language who are capable of forming or actually have formed a nation-state. When people of one nationality live in a country of another nationality, they are commonly called an ethnic group. For example, Cherokees and Japanese-Americans are ethnic groups in the United States.

Copyright © 2010 by Thomas Coley Allen.

More articles on social issues.

Do We Really Need to Return to Hamilton?

Do We Really Need to Return to Hamilton?
Thomas Allen

[Editor's note: Footnotes in the original are omitted.]

Two contrasting articles appear in the December 2010 issue of Chronicles. They are “Back to Hamilton” by William J. Quirk and “Prosperity” by Clyde Wilson. Quirk’s article reviews Paul Craig Roberts’ book How the Economy Was Lost: The War of the Worlds. Quirk focuses on Roberts’ promotion of protective tariffs as the means to revitalize America’s economy and increase the standard of living standard of middle-class Americans. Quirk seems to agree with Roberts.

Quirk does observe that when the dollar was connected with gold, prices remained fairly stable over time. However, under the true gold standard, general prices should decline over time because productivity rises faster than the money supply. Quirk also notes that gold disciplines politicians and checks governmental expenditures much more effectively than the supposedly independent Federal Reserve. (Where Roberts stands on the gold standard, I do not know. Based on some comments that he has made in his columns and in radio interviews, he does not appear to be an adherent of the gold standard.)

Roberts blames “globalization” for America’s economic problem. He is probably right. However, globalization has nothing to do with free trade. Trade as administered through the World Trade Organization (WTO) and other trade agreements is managed trade. An international bureaucracy answerable to no government manages world trade, which extends to local trade, for the benefit of the international corporations.

That people call these agreements free trade is a travesty. They prevent free trade instead of allowing it. The Thought Police are living and operating. To call WTO, NAFTA, and the like free trade agreements is like calling war, peace; freedom, slavery; and ignorance, strength.

Based on his paraphrase of Pat Buchanan’s statement, Roberts is aware that these agreements are not trade agreements — much less free trade agreements. Their objective is to strip the American worker of his wealth and transfer it to the elite, who control the international corporations.

Quirk shows that the median income rose from 1947 to 1973 and declined from 1998 to 2008. Actually, median income has been declining since 1973. This decline has much more to do with severing gold’s last hold on the dollar in 1971 than with trade agreements.

The common myth that big industry and especially big banks (because they supposedly control the world’s gold) love the gold standard is false. They abhor it because it inhibits their unbridled greed. They love fiat money, especially paper fiat money and its electronic equivalent.

Bankers can create fiat paper money and its electronic equivalent out of nothing. They cannot create gold out of nothing. That is why the gold standard was abandoned.

Big business likes fiat money because they are first in line to get it. Thus, they are first to spend the new money, so they use it before it loses its value. Then they use it to repay their loans after it has lost its value and with that cheat their creditors.

Roberts does not object to managed trade. He objects to who is managing it and how they are managing it. Roberts does not want to replace the current system of managed trade with free trade. He wants to replace it with another system of managed trade.

Quirk (or Roberts, the article is not clear about whom) points to Hamilton’s arguments. Hamilton offered two arguments, which are still used, to promote protective tariffs. (1) They are necessary to build and maintain the industrial base for war. Hence, adherents of protective tariffs fear that the military-industrial complex will not develop and mature unless protective tariffs are imposed. (2) Capital used in industry produces more wealth than that used in agriculture. Today’s proponents also claim that it produces more wealth than that used in services.

If the proponents of protective tariffs want to impose tariffs to protect the military-industrial complex, they should prohibit the importation of strategic metals and rare earths. These materials are essential to modern warfare. Therefore, the country should not depend on foreign sources. The prohibition of their importation, which is the ultimate objective of a protective tariff, would force the extraction of these metals from the oceans and land sources where their concentrations may be as high as micrograms per megaton. Consumer goods that used these materials would no longer exist because no one could afford them. Inferior products would replace items that used these materials. The computer age in America except for the U.S. government, which can manufacture and steal all the money that it needs, and multinationals, which can move their computer work to other countries, may die. No sacrifice is too great for the benefit of the military-industrial complex.

If the purpose of tariffs is to build and maintain a war machine, wouldn’t it be better to subsidize these industries directly from the Defense Department’s budget? Unlike direct subsidies, tariffs do not guarantee that these industries will be built or maintained. Furthermore, direct subsidies reveal the real cost of building and maintaining these industries. Knowing the real cost, the people can then decide if these industries are worth the cost. (A major reason for using trade restrictions like protective tariffs instead of direct subsidies is to conceal the real cost.)

Hamilton was an agent of the bankers and major industrialists. He was himself a banker and helped to found the Bank of New York. He wanted protective tariffs to transfer wealth from the common American, most of whom were farmers at that time, to his rich northern friends.

Wilson reveals the truth of this objective in his article when he writes, “When tariffs were beneficial to the Northern rich and burdensome on everyone else, the United States had tariffs; when ‘free trade’ is beneficial to the Northern rich and a burden to everyone else, we have ‘free trade.’” (Wilson argues that when discussing issues, such as free trade versus protective tariffs, one must look beneath the surface. One must find out who benefits. One will usually find that the ruling elite, and not the people, is the primary beneficiary. Consequently, the power of government needs to be severely restricted to limit the ability of the ruling elite to use it for its benefit.)

According to Quirk, Hamilton intended tariffs to provide temporary protection for America’s manufacturing. How long is “temporary?” The country has had protective tariffs of some sort ever since Congress adopted Hamilton’s proposal. (Yes, the United States still have some protective tariffs and other import restrictions even today with all these so-called “free trade” agreements.)

Do Quirk, Roberts, and other promoters of protective tariffs really believe that Lincoln was right when he sent 600,000 men to their deaths to impose his protective tariff on the South? Protective tariffs, which enriched the North at the expense of the South, were the major reason for the Southern States seceding. If they do not believe that Lincoln was justified in his actions, why? If he were, why? Lincoln was merely doing what they advocated: imposing protective tariffs.

Quirk, Roberts, and other proponents of protective tariffs are victims of Bastiat’s broken window syndrome. They see people being paid to repair the broken window and people selling the material for the repair. They wrongly conclude that breaking the window is good for the economy. They see only the work and selling that it causes. (This mentality misleads people to believe that the massive destruction of capital and labor in war is good for the economy.)

What they fail to see is what Bastiat and any good economist see. A good economist sees the lost of revenue to the people who would have received the window’s owner’s money if he had not had to pay for the broken window. For example, if the owner had wanted a new pair of shoes, a shoe store and manufacturer have suffered a loss. The country as a whole has lost. If the window had not been broken, the owner and the country would have had both a window and a new pair of shoes. After the window is broken, the owner and the country have only a new window. A new pair of shoes has been lost.

Protective tariffs work the same way. They divert money from where the consumer prefers to spend it to pay the tariff or a higher price. Thus, consumers buy less. The economy and country have less wealth.

Hamiltonians like Roberts point to protective tariffs and the economic growth, primarily industrial growth, in America’s history. They conclude that this growth resulted from the tariffs. Without the tariffs, growth would have been much lower — or at least they imply this conclusion. Protective tariff promoters treat “sequences as consequences.”

Wilson notes that treating sequences as consequences is a flawed way of thinking. He writes, “If B follows A, then A was the cause of B. In fact, in understanding the wealth of nations, that is a bad assumption — because there are always multiple variables, some of them unknown, unpredictable, too deep to be observed, and even spirited and unmeasurable.” Because Congress imposed a tariff and the industrial economy of the country grew does not mean that the tariff caused this growth.

Historical examples exist that suggest that the imposition of protective tariffs causes or at least contributes to depressions. Congress enacted the McKinley Tariff Act in 1890. This tariff raised rates and made circumvention more difficult. The country suffered a severe panic in 1893 and a depression that lasted until 1896 or 1897, depending on whose criteria are considered. Did the tariff cause the depression? If everything else is ignored, which the Hamiltonians seem to want to do in promoting tariffs, the answer is yes. Most likely the tariffs were a contributing factor. However, the primary cause was the fiat silver dollar primarily as the Treasury note of 1890.

If protective tariffs really do invigorate the economy as a whole, then apparently it lacks to power to overcome the negative effects of fiat money. If true, then imposing protective tariffs without first eliminating fiat money will not solve the country’s economic problems. It may even make the problems worse.

Quirk begins his article with a discussion of Ben Bernanke and the Federal Reserve. Quirk fails to mention that the Federal Reserve is a child of Hamilton. Hamilton was an advocate of centralized banking. As the United States already have centralized banking, no need exists to go back to Hamilton for that.

Although Roberts disagrees with Bernanke on many issues, the two do agree on one thing. They agree that higher prices are preferable to lower prices. Gasoline at $5 per gallon is better than gasoline at $1 per gallon. Bernanke wants to achieve higher prices through currency depreciation. Roberts wants to achieve them through protective tariffs.

Roberts complains, and rightly so, about the United States “financing its trade and budget deficits by turning over the ownership of existing U.S. assets” and by getting foreigners to buy U.S. Treasury debt with their trade surplus dollars. He claims that dependency on foreigners to finance budget and trade deficits is “beyond the reach of monetary and fiscal policies.” This is not exactly true. If the U.S. government cuts its expenditures to match, or preferably to be below, its revenue, it would not need foreigners to buy its debt. Moreover, reducing the size of the government to match its income would lessen the burden that the economy is currently forced to carry. It would diminish the distortions of the economy that the government’s expenditures cause. It would eliminate agencies whose purpose is to interfere with and thwart economic activity. Or at least it would significantly decrease their intervention. Elimination of debt is a fiscal policy that the U.S. government can undertake to halt the adverse effects described by Roberts.

Once America’s number one export, federal debt, is eliminated, the trade balance becomes self-correcting. If Say’s Law is still valid, and it is, the concern about the trade deficit and the lack of industrial productivity vanishes. If Americans do not produce anything with which to buy imports, foreigners will cease trading with them. Imports will fade away until Americans begin to produce something with which to buy imports. Trade balances automatically correct without governmental intervention. Governmental intervention only leads to more distortion and imbalance.

Based on Quirk’s review of Roberts’ book, Roberts does an excellent job of describing America’s economic problems and much of what has caused these problems. Unfortunately, he offers a false solution.

On the other hand, Wilson identifies the primary cause of America’s economic problems: too much governmental intervention. To solve America’s economic problems, this intervention needs to be drastically reduced.

Wilson begins by giving a good description of a prosperous society. A prosperous society has minimal debt, and its debt is temporary. Only a few people are very rich or very poor. Nearly everyone falls around the middle. Society’s wealth distribution is a narrow bell-shaped curve: It has a small standard deviation. Almost everyone “has an abundance of necessities and access to some small luxuries and leisure.” It has small, unobtrusive governments with the local governments being the most noticeable and important, and the national government, the least. Private patronage supports religion, charity, education, and the arts. Cultural cohesion flourishes.

America has lost most of these aspects of prosperity. Protective tariffs will not bring them back. On the contrary, they concentrate more power in Washington. They concentrate more wealth in the bank accounts of the politically powerful.

Protective tariffs may drive wages up, but this is not a given. However, the increase in prices that protective tariffs cause will nullify much, if not all, of the wage increase. Americans may be worse off after the imposition of protective tariffs. Their real income may decline, and they can afford fewer luxuries and probably fewer necessities. (The gold and silver standards are what drove real wages up during the nineteenth century and not tariffs.)

Wilson asserts, and correctly so, that hard work and merit resulting in an appropriate reward has largely vanished in today’s America. Conniving, scheming, and, most importantly, political connections and being a member of a politically promoted group reward people today. (In turn, the rich and powerful, i.e., the ruling elite, globalists, control most of these people.) After the ruling elite, these are the people who will benefit most from protective tariffs. The ruling elite will use them to control the tariffs and direct the tariffs to protect their interest.
Wilson concludes his article with the following:

Nobody can understand or completely manage a large economy. Surely, there are not many “lessons of history” more obvious and certain than that. But economics is a matter of human thought and action. Human thought and action can be applied to such matters as trade, labor, the money supply, in ways that are better or worse. But better or worse for whom! We need to remember what prosperity is supposed to feel like. But first we must find out who “we” are.

Thus, if improving the prosperity of the people is the objective, America is obviously going in the wrong direction. Ever more government has improved the prosperity of the ruling elite. However, it has diminished it for everyone else. If the people want to regain their lost prosperity, they need to do something different. They need a massive dismantlement of government.

The first step to take toward solving America’s economic problems is to withdraw from WTO, NAFTA, and similar agreements and organizations. (Withdrawal from the United Nations and all its subordinate organizations would also be beneficial.) Next is ending subsidizing off-shoring and oversea relocating along with all other corporate welfare. Closely related to this action is the elimination of the military-industrial complex by immediately ending all undeclared wars and closing all bases in foreign countries. An armed force necessary to deter attacks on the United States is much smaller than that needed to maintain a world empire. The gold and silver coin standards need to be reintroduced to operate parallel with the current federal reserve note standard with the intention of ending the latter. Abolishing the Federal Reserve and centralized banking is one of the most important elements toward long-term recovery. Eliminating the overly burdensome regulatory environment in which businesses are forced to operate is another necessary component. (This highly regulated environment exists primarily for the benefit of big businesses as it greatly reduces their competition.) Regulatory agencies that have no constitutional foundation, such as the Environmental Protection Agency (the States are perfectly capable of taking care of their environmental problems), should be immediately eliminated. Most important is a return to constitutional government, which would reduce the size of the U.S. government by 90 percent.

Roberts’ and Quirk’s solution differs significantly from the above. They believe that the solution to the economic problems caused by governmental intervention is more governmental intervention. The correct solution is to remove the governmental intervention that caused the problems.

Jefferson was right when he “objected to using government to encourage manufacturing.” The government should leave the economy alone and let manufacturing develop in its own way and at its own pace. Jefferson said, “[It] can hardly be wise in a government to attempt to give a direction to the industry of its citizens.”

Does the county really need to return to Hamilton? Hamilton supported the concentration of political and economic power into the hands of a few. The country has been operating under his philosophy since 1860. His philosophy has led it to where it is today. Has not the time long past to abandon Hamilton’s philosophy? Has not the time come to adopt Jefferson’s philosophy of decentralizing and dispersing political and economic power?

Copyright © 2010 by Thomas Coley Allen.

More articles on economics.

A Review of Rudy Fritsch’s Beyond Mises — Part 2

A Review of Rudy Fritsch’s Beyond Mises — Part 2

Thomas Allen

[Editor’s Note: Any comments about fiat money reformers are solely the author’s. Mr. Fritsch does not mention them in his book. He only refers to the Keynesians and Friedmanites. The author has used remarks that Mr. Fritsch makes to expose the irrationalities, absurdities, and frauds of fiat money reformers. Unless the author specifically mentions Mr. Fritsch making the comment, the reader should assume that the comment is the author’s.]

Mr. Fritsch’s inflation discussion set me to pondering. He argues that the quality of money is the underlying cause of inflation instead of the commonly held belief that its quantity is. He also shows that the velocity of money can be as important, if not more so, as its quantity. This suggests that velocity is connected to demand. Although he does not discuss the demand for money in this context, it seems that quality is connected to demand, especially secular demand as opposed to cyclical or seasonal demand like harvest time and Christmas.

His explanation of the quality of money, i.e., the lack of it, causing inflation tells me that a decline in the demand for money causes inflation. I am not sure if that is his intent.

As the demand for money declines, its value, purchasing power, declines. Or as the purchasing power of money declines, the demand for money declines. Is the decline in purchasing power, quality, caused by a decline in the demand for money, or is it the result of a decline in the demand for money? I am not sure which is cause and which is effect.

For fiat money, its supply affects its purchasing power. As Mr. Fritsch shows, so does its velocity, which is related to demand. The higher the velocity of money is; the lower the demand for money. In the hyperinflation stage, the demand for money approaches zero, and the velocity of money approaches infinity.

The quantity theory focuses on the supply of money. He notes that the quantity theory of money is the dominant explanation of inflation. According to the quantity theory of money, the value of money is inversely proportional to the quantity of goods in the market — the more money and less goods, the lower the value of the money. Considering the succinctness of his explanation, he does a good job of exposing the weakness in relying on the quantity theory to explain inflation.

He argues that the quality of money offers a better explanation. The quality theory focuses on the purchasing power of a unit of money and how long it will retain that purchasing power. The value of money depends on the material of which it is made. High-valued material, such as gold, results in high-quality money. Low-valued material, such as irredeemable paper, results in low-quality money.

As these two theories of money are interrelated if quality is related to demand as I surmise, both should be considered. Although I have no statistical studies to support my conclusion, at least for fiat money, demand or quality seems to dominate at the beginning when people realize their money has lost its quality and at the end when they begin to lose confidence in their money. Supply seems to dominate most other times. Supply probably also dominates when the rate of inflation, i.e., currency depreciation, is low. At least in the United States, that seems true. In the 1970s when the dollar had obviously lost any pretense of quality with the closing of the gold window, inflation, currency depreciation, erupted. In the early 1980s, the rate of currency depreciation subsided. It even appreciated against gold. The quantity of money appeared to dominate as much of the money’s poor quality had been discounted. Now we are probably entering an era when people are again recognizing the massive loss of quality that has occurred during the last 25 years. Soon quality will again dominate. If the U.S. dollar hyperinflates, as it may do, quality will become the sole determiner of inflation.

The greenback, U.S. note, supports the quality theory of inflation. The U.S. government issued the greenback as irredeemable paper money. It was low-quality money. Its value quickly fell. After the enactment of the Resumption Act in 1875, the value of the greenback rose rapidly in 1877 and 1878. By January 1, 1879, it was at par with gold when redemption began.

It also adds some support to the quantity theory of inflation. When Congress froze the quantity of greenbacks and began reducing the supply, the greenback rose in value.

If Mr. Dale is correct, this argument about quantity and quality is irrelevant. According to Mr. Dale, interest causes inflation. The quantity and quality of money are immaterial, or so he seems to imply.

Other fiat money reformers also present arguments that make the quantity and quality of money irrelevant. According to them, inflation, or its lack, depends on who issues the money, and not on its quantity or quality. If private banks, and by inference other private parties, issue the money, then inflation occurs — apparently even if all that they issue are full-weight gold and silver coins whose excess can be melted and used for other purposes. If the government issues the money, then inflation, currency depreciation, is impossible regardless of the quantity issued or the quality of the money. They argue that money issued by the government is of the highest quality, especially if it is irredeemable paper money.

The quality theory of inflation is new to most people. Mr. Fritsch should add more explanation and examples. As he ties the quality of paper money to gold, he provides a weakness that the quantity theory folks, the antigold folks, and the fiat money reformers can use to attack his argument. For example, by 1980 when the dollar price of gold peaked, it was obvious to all that the dollar would never again be redeemed in gold and would never again be officially backed by gold. Yet the dollar price of gold declined for the next 20 years. The quality theory would have predicted a continuous increase in the dollar price of gold because the quality of the paper dollar was in a state of decline.

The example that he gives about the debasement of coins is true. A loss of quality does lead to a loss of purchasing power, inflation. However, the quantity folks can and have argued that debasement leads to an excessive increase in the money supply and that the increase causes inflation. Which is it? Does quality or quantity cause inflation? I suspect both contributed. However, even the quantity folks use quality to judge if inflation is occurring. In the final analysis, one can only determine if inflation, currency depreciation, is occurring by observing a loss in the money’s purchasing power, that is a loss in the money’s quality.

For coin debasement, reasoning supports the quality theory over the quantity theory as the cause of inflation. For example, the coin of the realm is, say, the banco, which contains 20 pennyweights (dwt.) of silver. This is the standard money. The emperor calls in all the 20-dwt. bancos and mints them into new bancos containing 10 dwt. of silver. The new bancos are denominated the same as the old banco, but they contain half the silver. Now the empire has twice as many coins as before. Yet the silver in circulation remains the same. Quantity theory folks would say doubling the number of coins in circulation causes inflation, but they are wrong. True, prices have risen in bancos. However, prices have not risen in silver. Under metallic standards, people make exchanges based on the weight of the monetary metal, in this case silver, in the coin. Their exchanges are not based on words engraved in the coin. Consequently, they require two new bancos (two 10-dwt. coins) to buy what one old banco (one 20-dwt. coin) bought. Although the prices in bancos have doubled, the prices in silver remain the same. Thus, a loss of quality causes inflation instead of an increase in the quantity of coins. In his discussion of seigniorage, Mr. Fritsch notes this outcome.

Coin debasement does result in one major loser: creditors or lenders. Lenders suffer a loss if their contracts are written in terms of bancos. For this example, they lose half of their loans. They only receive half of the silver due to them. When the borrowers pay back the number of bancos borrowed, they pay only half the silver borrowed.

For fiat paper money, quantity may have a more important relationship to inflation than its quality as the money has extremely little quality. Only when people began to lose confidence in the currency does its quality become highly important. Their loss of confidence leads to a loss of demand. A loss of demand leads to an increase in velocity as people spend money at a much higher rate to get rid if it.

Gresham’s law reveals the relationship between quality and demand. When irredeemable paper money and gold coins circulate and the government prohibits accepting gold coins at a premium or paper money at a discount, the low-quality paper money will circulate. It will be used to pay debts. High-quality gold coins will be hoarded. People are demanding gold coins more than paper money. People demand high-quality money more than they demand low-quality money. They spend paper money and keep the gold coins.

Mr. Fritsch does a good job of describing the ultimate debasement of corrupting precious metal money into irredeemable paper money. Evidence of this debasement is seen in the federal reserve note. Originally, federal reserve notes promised the bearer its equivalent in dollars of gold, each dollar of gold equaled to 23.22 grains of fine gold. Now the federal reserve notes declare themselves to be so many dollars, which now equals some unknown depreciating abstraction.

Ultimately, supply and demand fixes the value of money. Commodity money like gold or silver has two utilities: one as money and one as a commodity. Supply and demand of these utilities fix its monetary value. Fiat money like federal reserve notes or greenbacks has only one utility: money. Its supply and demand as money fixes its monetary value.

Mr. Fritsch identifies a major problem with fiat paper money — at least for people who value liberty. Its value depends on how much wealth the government can steal from the people. In the government’s mind, it owns everything and condescends to allow individuals to possess and use some of its wealth — hence, a tax cut is the government giving the people some of its money.

Some fiat money reformers realize this outcome and rejoice in it. They believe that the government should own everything. Others seem ignorant of or want to ignore this outcome.

I have one major, but unimportant, disagreement with Mr. Fritsch. I disagree with his definition of money.

Mr. Fritsch defines money as “that which extinguishes all debt.” He claims that money functioning as a medium of exchange is a use of money. Why is not extinguishing debt as much of a use of money as its use as a medium of exchange? One can just as easily define money as “that which is used to extinguish all debt.” Mr. Hawtrey and Prof. Klien have defined it as such. Others, such as Prof. Walker and Dr. Ely, include such use as part of their definition of money. (Their definitions in my article “What Is Money.”)

The only difference that I see between the two is that when money is used as a medium of exchange, the action of the buyer and seller occurs in the present. With extinguishing debt, money or an item is borrowed in the present, and the debt is paid, extinguished, in the future.

Could not one just as easily define money, as Prof. Mises and many other economists do, to be that which is used to make nonbarter exchanges? Money can be used to make all nonbarter exchanges.

Prof. Dusenberry has one of the best definitions that I have come across. He defines money as “something that people are willing to accept in exchanges, even if they have no use for the thing themselves. . . . [M]oney is something people accept in exchange for goods, in the expectation of passing it on to someone else in a further exchange.”

Mr. Fritsch somewhat contradicts himself with his sugar example. If I borrow a pound of sugar from my neighbor with the understanding that I will repay the debt with a pound of sugar next week, I am obligated to pay with sugar and not money. If my neighbor insists that I keep my promise to repay my debt with sugar, I cannot extinguish this debt with money (assuming no legal tender laws). I must extinguish this debt with sugar. Thus, money cannot extinguish this debt.

He states that sugar is not money because it does not extinguish all debt. However, debts must be paid in whatever the lender and borrower agree to use (again assuming no legal tender law). Thus, I find his definition of money questionable.

Actually, he does sort of support money as that which is used as a medium of exchange. However, he does so by claiming that a debt has occurred even with cash payment. That is an unusual claim. If I hand the store clerk a 10-dwt. gold coin for an item priced at 10 dwt. of gold, where is the debt? If a debt is occurring, I as the buyer am the lender, and the store as the seller is the debtor. The store gets my 10-dwt. gold coin before I get the item. Thus, the item has extinguished the debt instead of money.

His description of buying with credit cards is correct. If more people realized that a purchase with a credit card merely transfers debt and does not extinguish it, perhaps most would use their credit cards more judiciously.

He implies that only money that is universally acceptable as money can extinguish all debt. Any money or thing that claims to be money that cannot extinguish all debt is not real money. Does this mean that gold did not become real money until all the most primitive tribes on the planet accepted it as extinguishing debt? As I have shown, even gold cannot extinguish all debts — at least not without violation of contracts or being forced on people via legal tender laws.

He states that a debt contracted in U.S. dollars cannot be paid off with Swiss francs. With that I cannot argue. However, he implies that a debt contracted in U.S. gold dollars could be paid off with Swiss gold francs. In his discussion on money, Henry George, who wrote during the era of the gold standard, disagrees with Mr. Fritsch. Mr. George contends that most people would not recognize the Swiss gold franc as money for payment of a U.S. gold dollar debt or transaction. They would insist on payment in gold dollars. Does this mean that gold is not money? When stamped as a Swiss franc, it does not extinguish all debt.

Mr. Fritsch is correct that fiat money fails to extinguish debt. As he remarks, it is an obligation, a debt itself. Being a debt itself, it cannot extinguish debt. It can only transfer debt. A debt can only be extinguished by something, such as gold or silver, that is no one else’s obligation. This is an important point that fiat money folks fail to recognize or acknowledge.

He gives a good concise description of fractional reserve banking. Unfortunately, many people, including most Austrians, consider issuing bank notes to buy real bills as fractional reserve banking. He correctly distinguishes between issuing bank notes to buy real bills, which is not fractional reserve banking, and issuing bank notes in excess of unobligated gold (or under our present system, unobligated federal reserve notes) for loans, which is fractional reserve banking.

He provides a good and simple description of the pernicious effects for bond sellers in particular and the economy in general of governments or their central banks forcing interest rates downward. As he observes, only bond speculators who are long benefit. New bond sellers benefit if interest rates stabilize.

As they drive interest rates lower, fiat money folks refuse to acknowledge the power of the markets. (The government’s other market manipulations also attempt to defeat the power of the markets.) No government or banking system has ever defeated the markets. Markets are too powerful. They are more powerful than the combined political weight of the world. They brought down the Roman Empire, the British Empire, and the Soviet Empire and are now bringing down the American Empire. They will bring down the emerging Chinese Empire if China does not cease fighting them.

In summary, Mr. Fritsch has written an excellent and simple book on money. Anyone with an interest in monetary science should read it.

Part 1

More articles on money. 

A Review of Rudy Fritsch’s Beyond Mises — Part 1

A Review of Rudy Fritsch’s Beyond Mises — Part 1

Thomas Allen

The following article is a review of Beyond Mises: Based on the Work of Antal Fekete by Rudy J. Fritsch and published by Hypnonaissance, Canada, 2010. This book may be bought at http://www.beyondmises.com/about-Rudy-Fritsch.html.

Mr. Fritsch has written an excellent book. I enjoyed reading it and learned from it. I especially like his examples and analogies. This is a book that I highly recommend for anyone who is interested in monetary theories in general and Prof. Fekete’s theory in particular, which is the true gold-coin standard accompanied by the real bills doctrine. It is an excellent introduction to Prof. Fekete’s theory. For anyone who is new to his theory, this is a good book to read before reading his writings. For anyone familiar with his work, it is also a good book to read as a refresher and to bring certain aspects of his theory into a better focus.

Also, this book is an excellent book for anyone who wants to learn about real money. It provides an overview of the real bills doctrine, the quality theory of money, and other aspects of money not often found in other monetary writings.

Any comments about fiat money reformers are solely mine. Mr. Fritsch does not mention them in his book. He only refers to the Keynesians and Friedmanites. I have used remarks that he makes to expose the irrationalities, absurdities, and frauds of fiat money reformers. Unless I specifically mention Mr. Fritsch making the comment, the reader should assume that the comment is mine.

Mr. Fritsch contrasts Prof. Mises’ concept of gold certificates and bank notes with that of Prof. Fekete. Prof. Mises claims that gold certificates and bank notes have present value like a gold coin. Prof. Fekete rebuts this claim. He argues that they were obligations, a future good, and not a present good like a gold coin. Prof. Fekete is correct. Gold certificates and bank notes are like checks, and if I understand Prof. Mises correctly, Prof. Mises considers a check to be a future good, a continuing obligation. Gold certificates, bank notes, and checks are all forms of credit money, which makes them obligations and future goods. The transaction is not completed until the gold is transferred, which extinguishes the credit.

Mr. Fritsch gives a good overview of subjective valuation and individual value scales.

In some of my critiques of the fiat monetary reformers (money cranks as others call them), I use the individual’s value scale to show that their reforms are doomed to fail just as the current Keynesian system is. Under a fiat monetary system, a small group or an individual decides how much money should be created and placed in circulation. To know how much is really needed, they have to know the value scale of every individual on the planet, which is about six billion value scales. The only thing constant about these value scales is that they are constantly changing as Mr. Fritsch illustrates. For any small group to know how much money is needed, when it is needed, and where it is needed — and getting that amount there at the right time — is impossible. The markets will always do a better job. And the freer the markets, the better the job it will do.

To deviate from his book for a few paragraphs, the reason that I have exposed fiat monetary reformers like Mr. Dale, Mr. Cook, Mr. Norburn, and the American Monetary Institute is that they are misleading many people. (For my critiques of their proposals, see “Analysis of Byron Dale’s Monetary Reforms as Presented in Bashed by the Bankers,” “Analysis of Richard Cook’s Monetary Reforms as Presented in We Hold These Truths,” “Analysis of Charles Norburn’s Monetary Reforms as Presented in Honest Money,” and “Analysis of the American Monetary Institute’s American Monetary Act.”) After listening to talk radio shows, especially on shortwave where these reformers get a forum, I find many otherwise intelligent people following for their poison.

They deceive people by accurately describing the current monetary system and its destructive effects on the economy and society. They usually focus on the Federal Reserve or the banking system in general. According to them, a major part of the problem is the private ownership structure of the Federal Reserve. Now comes their false solution. The government should acquire ownership of the Fed or abolish it and transfer its monetary authorities to another governmental agency. For them, the problem is not centralized banking itself, it is the ownership structure (I have never heard a good rationale explaining away the Bank of England, which is a governmental agency.) Furthermore, if the government would just issue the money directly, our economic problems would go away. They differ on the criteria for issuing the new money. None seem to have a mechanism for removing excess money from the economy other than the government having a budget surplus, which is highly unlikely. To them, the problem is who issues the fiat money and how it is issued. The problem is never fiat money itself. They also agree that gold should not be money.

Fiat money reformers are the Jannes and Jambres (2 Timothy 3:8) of the reconstruction of America’s monetary system. They are like Pharaoh’s wise men who confronted Moses with their magic (Exodus 7:11).

Besides the fiat money reformers, another barrier that adherents of the true gold standard, the gold-coin standard, face comes from “hard money” folks. Nearly all advocate a fiat monetary system that incorporates gold. Most support using gold to back the money in some fashion. Under the true gold standard, gold does not back the money: Gold is the money. Many of these folks seem to support some kind of gold-exchange standard. (Gold-exchanged standards are political contrivances and are not market creations like real bills or the gold-coin standard. For an explanation of the gold exchange standard, see my article “Gold-Exchange Standard.”) Some seem to want a system similar to the euro where gold backs a fraction of the money. Only a few seem to want to require the paper money to be redeemed in gold on the demand of citizens of the issuing country.

Many of these hard-money folks appear to oppose returning to the true gold standard because they believe that there is not enough gold. Without the real bills doctrine, their concern has some validity. However, as I show in “There Is Enough Gold” with further explanation in “Response to Dale’s Analysis of ‘There Is Enough Gold’” when the real bills doctrine accompanies the gold-coin standard, enough gold is available to accommodate world trade many times over. Even under the silver standard, enough silver is available to accommodate world trade several times over.

Now back to Mr. Fritsch’s book, his description of Keynesian economics reminds me of allopathic medicine. Keynesians attempt to cure chronic economic problems by attacking the symptoms while ignoring the underlying cause. Allopathic medicine attempts to cure chronic diseases by attacking (suppressing) the symptoms while ignoring the underlying cause.

One thing is missing from his discussion of real bills. He does not discuss selling a bill (commercial money) to a bank and having the bank convert the bill into bank notes and checkbook money (bank money). In my “Response to Dale’s Analysis of ‘There Is Enough Gold,’” I give a brief discussion of this action. I also mention it in some of my other articles.

Mr. Fritsch remarks that labor is a poor selection for money, resulting in poor quality money because it lacks the ability to store value. This inability to store value is one of the several reasons that Mr. Dale’s fiat monetary reform would result in poor quality and inferior money. He claims that his money would be based on labor associated with building roads. (An irony is that Mr. Dale has a better understanding of the true gold-coin standard than many hard money folks. Like most people, he is convinced that there is not enough gold for it to function as money today.)

In his discussion on credit, Mr. Fritsch gives two examples: John borrowing $200 and Ricardo selling a TV today for payment 60 days later. These types of transactions could not occur under Mr. Cook’s monetary system. At least they could not occur without governmental approval. Mr. Cook asserts that all credit should be the property of the government. Only the government should be allowed to create credit.

I have a minor correction to make about Mr. Fritsch’s comment on the Federal Reserve’s assets and liabilities. He states that U.S. government bonds are assets of the Federal Reserve and liabilities of the U.S. Treasury and that federal reserve notes are liabilities of the Federal Reserve. In the bookkeeping sense, he is correct. Bonds are on the asset side of the ledger, and federal reserve notes are on the liability side.

If I understand the U.S. monetary laws correctly, federal reserve notes are not liabilities of the Federal Reserve. They are the liabilities of the U.S. government. To enhance their acceptability, Congress made them obligations of the U.S. government. Thus, it appears that the law gives the Federal Reserve “its cake and lets it eat it too” by making the Federal Reserve’s liabilities the U.S. government’s liabilities.

Mr. Fritsch asks if the U.S. Treasury tried to buy back its bonds, where would it get the money. The U.S. government can buy back a little less than $347 million by printing U.S. notes. As far as I know, the law that allows the Department of the Treasury to print that many U.S. notes still exists. Congress could always increase that amount to cover the entire debt. That would make the fiat money reformers happy. It would also quickly expose the fraud and bankruptcy concealed by the current system.

As Mr. Fritsch so well illustrates, fiat paper money does not survive the military might of the issuing government that forces it on the people. (Fiat money made of a commodity, such as the silver dollar from 1878 to 1900, can survive its issuing government to the extent of the value of the commodity.) Some fiat monetary reformers believe that money should die with its issuing government. Such a belief reveals their lack of concern for the people.

Mr. Fritsch provides a good discussion of interest. For most fiat money reformers, interest is the arch enemy to be slain. Most disguise interest by calling it a fee (generally, a one-time fixed fee or a percentage fee charged up-front, which presumably would be much less than the standard interest rate), share-the-wealth or income, or something similar. Nearly all would definitely outlaw compound interest, which would do away with conventional savings accounts. Few go as far as prohibiting any kind of payment for a loan above the amount lent, which really does get rid of interest. Most do not seem to realize the chaos and poverty that they would create by outlawing interest. They need to answer my questions for anti-usurers in my article “Questions for Anti-Usurers.”

As Mr. Fritsch notes, the dual benefit of interest for lender and borrower can occur only with commodity money. It does not occur with fiat money. As fiat money reformers want to keep fiat money, they must deal with the one-sided effects of interest under fiat monetary regimes. Thus, most seek to suppress it, if not outright outlaw it. Instead of freeing the people and the economy from the heavy hand of government by returning to the true gold-coin standard, they seek to extend it in their attempt to control or eliminate interest. Thus, instead of eliminating the governmental intervention that caused the problem, they want more governmental intervention to solve the problem. How much simpler and freer the gold standard makes life.

Mr. Fritsch discusses the leather strap that used to be used in schools to maintain order and discipline. It was seldom applied. Students knowing that the leather strap was there and would be applied was usually enough to maintain order and discipline. (Much of the unruliness in schools today comes from the removal of the leather strap.)

He uses the leather strap as an analogy for the gold standard, which he calls the “Golden Strap.” It was highly efficient and effective at maintaining economic order and restraining politicians. With the outbreak of World War I, politicians the world over saw a chance to discard the Golden Strap. Discard it they did.

The world is surely in need of it today. It has been needed since World War I. To avoid the strap, countries adopted the gold exchange standard after World War I instead of returning to the gold-coin-standard-real-bills system as existed before the war. They then abandoned the gold exchange standard in the 1930s to avoid the strap. The same thing happened following World War II. A gold exchange standard was established and then abandoned when the strap appeared.

I may have a disagreement with Mr. Fritsch’s concept of the demand for money or it may be my misunderstanding of his argument or it may be semantics. To me, a person’s demand for money is how much money he wants to hold, hoard. It is not how much he would accept if someone gave him all he wanted. In this case, his acceptance demand is only limited by the space that he has to store the money. If the money were electronic, it would exceed a googolplex. When a person spends money, his demand for what he buys exceeds his demand for the money that he spends; otherwise, he would not make the purchase.

Mr. Fritsch writes that the discovery and exploitation of new gold and silver supplies never led to inflation. Did not the massive hoards of gold and silver that the Spaniards plundered from the Indians of Central and South America and sent to Spain cause an inflation in Spain that eventually brought Spain down? Didn’t this inflation spread across Europe?

Most economists attribute the rise in prices between 1896 and 1914 as caused by the large quantity of gold entering the markets from the new mines in South Africa. Thus, an increase in the world supply of gold led to a decline in its purchasing power. (Others contribute gold’s decline in purchasing power to natural market forces and not to the South African gold entering the markets.)

I am convinced that the primary cause of the decline in prices during the nineteenth century, especially the latter part, was the increase in productivity. New goods were being offered at a faster rate than the money supply was growing — hence, the downward trend in prices. This is what one would expect under the gold standard.

Moreover, if national bank notes had been tied to real bills instead of U.S. government bonds, the deflation in the United States between 1870 and 1896 would have been reduced. Under the real bills doctrine, money to buy new goods entering the markets would have been injected into the economy along with the new goods. Backing bank notes by government bonds instead of real bills greatly interfered with this process.

Copyright © 2010 by Thomas Coley Allen.

Part 2 

More articles on money. 

Questions for Anti-Usurers

Questions for Anti-Usurers

Thomas Allen

According to Deuteronomy 23:19, “Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury.” Webster’s New International Dictionary of the English Language, second edition, unabridged, 1948, defines “usury” as “a premium or increase paid, or stipulated, for a loan of money or goods.” Usury is a return or income on property without any apparent effort by the property owner. Usury is also called “interest,” “dividend,” “rent,” and “fee.”

The following are questions that opponents of usury need to answer to show that usury is undesirable.

1. Why have not the anti-usurers established loan companies that make interest-free loans? Why do they not put their money where their mouths are? If interest-free loans are economically preferable to interest-bearing loans, would not companies making interest-free loans soon drive companies making interest-bearing loans out of business? A truly interest-free loan would be without fees, etc. With a truly interest-free loan, a person, for example, borrows $10,000 for five years. At the end of five years, he pays the lender $10,000. The lender never receives anything more than $10,000 from the borrower. The borrower does not pay any more than $10,000. If the anti-usurers are not willing to do at least this much, why should they complain?

2. Why do most anti-usurers seek to hide their interest as fees, share-the-wealth, buy-out schemes, and the like? Loan fees are merely interest by another name. (Points and fees for mortgages originated as a means to circumvent interest caps when market interest rates for mortgages rose above the statutory ceiling.)

3. Why do anti-usurers want to outlaw savings accounts and certificates of deposit? Savings accounts and certificates of deposit are interest-bearing loans to banks. Why do anti-usurers want to require small account holders to pay bankers to hold their money?

4. As savings are mostly in the form of interest-bearing loans, where will savers put their savings? How will savers earn an income from their savings? Where can the common man, who can save only a small sum, put his money to earn a return? Why are savers to be penalized?

5. Why do anti-usurers want to outlaw publicly traded corporations? Corporative stock is merely an indefinite loan with a highly variable interest rate. From a corporation’s perspective, the primary difference between mortgages, bonds, and stocks is the priority of payment. Is not a dividend a return on a stock like interest on a loan? Is it not a return on money?

6. Without the ability to earn interest and interest on interest, how will the common man accumulate enough capital (store enough labor) to provide for himself in his old age? Or do the anti-usurers endorse the welfare state and want to force everyone in the community, ultimately under the penalty of death, to support the old?

7. Why do anti-usurers want to push people away from relatively low-risk investments like savings accounts, bonds, and dividend-paying stock and to commodity speculating and gambling? Besides speculating and gambling, where else can a person earn a return on his meager savings? Most do not have enough to start a viable business, and the anti-usurers seem to want to deny them this opportunity. If they do not, how will someone raise enough capital to start a viable business? If he combines with others to form a viable business, the partnership will have an unwieldy number of partners.

8. Why do the anti-usury people want to keep the poor impoverished? If they do not, why do the anti-usurers want to prevent the poor from earning a return on any savings that they manage to accumulate?

9. Where will the masses live? No one will be able to borrow to buy a house. (The best that a lender could hope for if the borrower failed to pay the loan would be to receive a house in unknown condition and of unknown value. If the value of the house exceeds the loan, the borrower gets the excess. Such high-risk lending makes the risk of potentially highly rewarding commodity speculating look small.) The anti-usurers have shut off most avenues, except gambling and speculating, of increasing savings sufficiently to buy a house outright. So, if a person does not inherit a fortune or have parents who will give him the money, where does he get the money to buy a house? Does he have the government steal it from the wealthy and give it to him? He cannot rent a place to live because no sane person will become a landlord. Renting a house or apartment is merely lending capital or property as a house or apartment. Rent on a house or apartment is usury (see the definition above). The landlord lends the use of the house or apartment. In return, the landlord receives interest, which is commonly called rent. Under an anti-usury regime, the only thing that a renter should be obligated to do is to return the house or apartment to the landlord when his lease expires. Before anti-usurers try to weasel their way out of this dilemma by distinguishing between lending money and lending housing, they must explain why paying a person for the use of his property is acceptable while not paying a person for the use of his property is unacceptable. Why is receiving an increase from lending capital acceptable while receiving an increase from lending capital is not?

10. At least some anti-usurers are consistent enough to view the renting and leasing of land, dwellings, tools, machines, etc. as the same as renting and leasing money. If one leases a car [money], the owner of the car [money] gets the car [money] back at the end of the lease. Any money paid for the lease is ill-gotten gain made on property that is returned. It is all usury. (See the definition above.) Why do the anti-usurers want to outlaw leasing and renting and rental businesses? If they do not, why are they inconsistent? Will not outlawing rental businesses force people to buy expensive equipment that they will use only once? Does not such outlawry force people to waste their resources and time in buying and selling things? What happens if they do not have the money to buy the equipment and no one will lend it gratuitously? For example, if a person is moving and cannot afford to hire a moving company and cannot afford to buy a truck to move his furniture, what does he do with his furniture? Abandon it? Sell it as a discount to get rid of it quickly?

11. Will not insurance be more expensive if usury is outlawed? As insurance companies earn much of their income via lending (stock, bonds, and mortgages), where will they invest premiums to earn a return to keep down the costs of policies? Will they not be forced to collect the full amount of coverage plus the cost of security from policyholders and hoard the money in vaults?

12. Why do the anti-usurers oppose large-scale capital investments like power plants, steel mills, and automobile manufacturing assembly lines? If they do not oppose them, how will sufficient capital be saved and combined to build them—as their system discourages the savings of capital, i.e., the storing of labor? Without resorting to theft via taxation, how will enough funds be accumulated to build extremely expensive undertakings? (Remember that stock is as much of a loan as a bond; so selling stock cannot be used—unless no dividends are ever paid and no capital gains are made. What about capital losses?)

13. Why should a person be forced to risk his capital without hope of compensation, which is what anti-usury laws do? Why would any sane person want to incur the liability involved by letting another use his (the lender’s) property without compensation? Why do most anti-usurers fail to recognize that the lender risks losing his property? Why should a lender risk losing his property without compensation? Why would any rational person want to incur the risk of lending without compensation?

14. If a person buys a farm for money, to whom do the profits from the crops grown on the farm in subsequent years belong? The buyer or the seller? Does not consistency dictate that they go to the seller? Is not the buyer receiving an increase (interest) on his money (the money used to buy the farm) if he keeps any of the profits?

15. Except for charitable purposes, why should one person forgo his consumption today without compensation by lending to another person so that the other person can consume today? Is not the present value of everything greater than its future value for prisoners of time? If not, why? What are the exceptions and why are they exceptions?

16. Which has more value: a possession today or a promise to pay in the future? Or are they equal in value? If so, why? If not, why should they be treated as equal in value? Why do anti-usurers claim that they are equal in value? (As interest expresses the difference in value between the two and as the anti-usurers would outlaw interest, they in effect are claiming that they are equal in value.) If their values are not equal, then the one who promises to pay in the future is stealing value from the one who is lending what he possesses today. How can this theft be justified?

17. A person lends his gardening tools (or money) to his neighbor to prepare his (the neighbor’s) garden. The neighbor returns the tools (or money) to the lender after the time has passed for preparing the garden (using the money as the lender wanted). Although the lender cannot prepare his garden, anti-usurers assert that the lender has suffered no loss as the lent property has been returned and, therefore, should receive no compensation. Why should not the lender be compensated? Has he not sacrificed his welfare for that of his neighbor? Should the neighbor get a free ride for this sacrifice?

18. Some anti-usurers argue that the lender has no claim on any portion of the labor of the borrower. If true, then why does the borrower have a claim on part of the labor of the lender? The lender forgoes the use of his stored labor while the borrower is using it. Therefore, the borrower has claimed part of the lender’s labor without compensation. Why the inconsistency?

19. Does any rational person ever borrow money at interest unless he believes that the benefits of the loan outweigh the cost? If so, when and why? Why would a rational person borrow when he believes that the cost of the loan will exceed the benefit? Why would he do with borrowing that which he would never do in any other transaction, economic or otherwise? (A rational person will never undertake any kind of transaction unless he believes that the benefits will exceed the cost.)

20. Anti-usurers argue that a lender’s claim that interest is payment for his service of letting the borrower use the lender’s property is false. The lender has not surrendered any of his wealth, and he does not become poorer making the loan. Does he not become poorer if the loan is not paid back? Moreover, does he not give up the use of his property when he lends it to another? How can two people use the same property simultaneously? Does not the lender forgo the additional wealth that his property could have earned him if he had not lent it? Why should he forgo this income without compensation? Why does not the lender provide the borrower a service with the loan? If no service is rendered, is not the borrower better off without the loan, which becomes an obligation? So why borrow?

21. Why is it unjust and oppressive for a lender to demand payment for the use of his property (including money) as compensation for not being able to use that property while the borrower has control of it? Why should the lender suffer a time-use loss without compensation?

22. Do anti-usurers really believe, as some argue, that the borrower is rendering a real and valuable service to the lender by keeping the property (money) for the term of the loan and returning it to the lender? If true, should not the lender pay the borrower interest on the loan? If the lender should not pay the borrower, why should the borrower be forced to render the service of holding the lender’s property (money) for no fee? Cannot a lender keep his own property (money) more securely than he can by entrusting it to another? Why would he entrust it to another? (The exception may be storing his property [money] at an institution skilled in protecting stored property [money].)

23. Why do anti-usurers not only fail to see that a lender is providing a service but frequently argue that he provides no service at all? On the contrary, as just discussed, some claim that the borrower is providing a service for the lender. What service is the borrower providing the lender? Is not the lender providing the borrower a service by providing the borrower the use of property that he would not otherwise have? Would not the borrower have to do without the property lent to him if the lender did not lend it? Why should the lender not be compensated for providing the service of lending the borrower the use of the lender’s property?

24. Do anti-usurers really believe as some seem to argue that borrowers borrow money to sit on it and not use it for investment or consumption? Do lenders lend money to borrowers with the thought that the borrower is doing the lender a favor by holding and using the lender’s money for a time as some anti-usurers argue?

25. Interest rates inform savers about where their savings are most needed and about how much savings are needed. If interest is outlawed, what will inform savers about where their savings are most needed and how much is needed?

26. Interest serves as a rationing tool to equalize the supply of lenders to the demand of borrowers. Without interest, will not the demand of borrowers soar and the supply of lenders collapse? Will not borrowers believe that an unlimited amount of money is available for loans? Will not lenders believe that the demand for money by people who really need it is near zero? If this is not true, then why does not the law of supply and demand apply to lending and renting of property? If interest is not used to ration lending, what will ration loans among borrowers?

27. Why do some anti-usurers believe that an exchange between two people is an act of usury if in the minds of the anti-usurers one party receives a thing of value much greater than the other? Do they not realize that no exchange can occur unless each person values what he receives more than what he gives up? Do they not realize that nothing has absolute value? (Things may have absolute value in the mind of God. What man knows the mind of God?) Are not all values subjective and constantly changing? For example, is not the value of a poor meal much greater for a hungry man than an excellent meal is for someone who has just eaten a buffet? If not, why?

28. Do anti-usurers propose to outlaw the selling of bills of exchange? No lending or borrowing is involved with a bill of exchange. When a bill of exchange is sold, it is sold for less than the face amount due. Money today is worth more than money tomorrow is worth today. Thus, no rational person will buy a bill of exchange due in a day, week, or month for full face value. Do anti-usurers propose to void this law of nature? Will they make the selling of a bill of exchange below face value a criminal act?

29. Why was life better during the anti-usury eras of the Dark Ages and Middle Ages than during the usury era of modern times?

30. Were the convoluted loans created during the Middle Ages and Renaissance to circumvent anti-usury laws better than the straightforward interest-bearing loans of today? If so, why?

31. The Industrial Revolution was built on interest-bearing loans, of which many were interest-bearing small savings accounts (small loans to banks). Why do the anti-usurers promote a system that would have prevented the industrial age from occurring? Was life before the Industrial Revolution that much better? If so, how and why?

32. Some anti-usurers cite the historical record of one government after another outlawing usury. As governments are usually the largest debtors in any society, do they not have a bias toward interest-free loans? Do not interest-free loans make their wars cheaper and, therefore, make wars more enticing?

33. Why should consenting adults be prohibited from engaging in interest-bearing lending—one as the lender and the other as the borrower?

34. Why should a person with capital who needs income be prevented from agreeing with a person who can produce income but lacks the capital to do so to exchange capital for income? By all common usury definitions, this income would be considered usury. The person with capital who cannot produce income is usually an older person. The person lacking capital who can produce income is a younger person. Why should the older person be denied a steady stream of income? Why should the younger person be denied the capital to produce income?

35. Who is ever really forced to borrow at interest? How many people have had a legal interest-bearing loan forced on them? Who are they? Can a person avoid paying interest by not borrowing? He can do without for whatever he was going to use the borrowed money; can he not?

36. Those who make a Scriptural argument against usury ought to know that the Scriptures allow interest-bearing loans to strangers, i.e., people of a different race. (“Unto a stranger thou mayest lend upon usury. . . .” [Deuteronomy 23:20]) If they do not have this rudimentary knowledge, they should not be making a Scriptural argument. Does not the prohibition against lending money to people of one’s own race give an incentive to lend to people of other races? If not, why? Do the anti-usury people intend to remove this incentive to lend to people of other races while neglecting their own race by outlawing interest-bearing loans to everyone? If so, why do they want to void what the Scriptures clearly allow? Does not the anti-usury program lead to the absurdity of Asians lending to Europeans to build up Europe while Europeans lend to Asians to build up Asia? Likewise, does it not lead to the absurdity of Europeans having to borrow from Asians to buy their cars and houses while Asians have to borrow from Europeans to buy their cars and houses? Or do the anti-usurers really believe that rational people will risk their property (lend their money) for no chance of reward when they can risk their property where they have a chance of reward?

Copyright © 2010 by Thomas Coley Allen.

More articles on economics.