Of Gold and Empire

For those confused by the linkage between two of Ron Paul's major issues--antiwar and pro-gold--economist Steve Horwitz explains the connection in the January/February issue of The Freeman with a historical review of the links between federal intervention in the currency system and war.

Some excerpts that tell the tale:

Governments that can either create money directly or use regulation to force banks to provide the resources will be able to conduct war more often and with less political resistance than those that cannot.

.......

In 1863 the federal (Union) government for the first time offered charters for individual banks. With charters came regulations, one of which was the requirement that bank-issued currency be backed with U.S. government bonds. Whenever a federally chartered bank wanted to give its customers paper currency, it had to purchase such bonds, whose face value slightly exceeded the value of the currency and then present them to the Comptroller of the Currency in Washington, who then printed the bank’s notes......Interestingly, when the federal government first offered the charters, almost no banks signed up; they kept their state charters because the federal charters offered no advantages and some minor disadvantages. Not content to lose that way of financing the war, Congress quickly passed a 10 percent tax on the banknotes of state-chartered banks..... Between the original bond-collateral requirements and punitive tax on the state-chartered banks, the federal government used its power over the monetary system to ensure a market for bonds to pay for the Civil War.

............

The Johnson administration made a conscious decision to finance the Vietnam War
through inflation rather than higher taxes....At the time Federal Reserve Notes held by foreign central banks were still redeemable in gold at the Fed. As a result of the inflation (depreciating dollar) of the late 1960s, the Fed saw a massive flow back of Federal Reserve Notes from foreign governments, which began to reduce U.S. gold holdings. This drain of gold reserves led President Nixon to close the “gold window” in 1971, breaking the last remaining link between the dollar and gold. With excess supplies of money no longer generating any direct negative economic consequences for the Fed, the even-greater inflation and macroeconomic disorder that characterized the rest of the 1970s and ’80s were no surprise.

Thus the need to finance the Vietnam War led to increased government control over money, which led to macroeconomic disorder (much as we saw in the late nineteenth-century banking panics), which in turn led to calls for more government intervention.

A reason roundtable on the Federal Reserve in the Bernanke era, featuring Milton Friedman and Ron Paul, among others.

Horwitz reviewed Theodore Burczak's Socialism After Hayek in reason's July 2007 issue.

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    reason sucks

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    reason sucks

  • some dude||

    reason sucks

  • s0m d00d||

    season rucks

  • sella bate||

    ceasin' fucks

  • some dude||

    Gold is the people's money.

    I have no other comment on the article.

  • Ebeneezer Scrooge||

    Yeah sure great. I'll bet Ron Paul is going to be president now that this is out.

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    Greasin' trucks.

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    treason trucks

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    Breezin' ducks

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    freezin' pucks

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    Skeezin' ducks!

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    he's in luck

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    WTF?

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    Vancouver Canucks

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    Inflations sucks.

    Imperialism sucks.

    Bureaucracy sucks.

    Hoover sucks. (the vacuum cleaner, not the former president)

    When you throw a tomato at Trump - Donald Ducks

  • some dude||

    reason sucks


    Interestingly, this brings up a question.

    Is reason© capitalized?

    Since it wasn't capitalized I assumed Spanky was referring to generic "reason" sucking, but now I'm not sure.

  • tarran||

    Uhm, Hoover the president sucked. Or was it blowed? I can never get them straight.

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    Uhm, Hoover the president sucked. Or was it blowed? I can never get them straight.

    Depends on which side of the flow you were on I guess.

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    tarran | February 28, 2008, 1:30pm | #
    Uhm, Hoover the president sucked. Or was it blowed? I can never get them straight.


    Pedantic explanation of previous posting (KD 12:59): Since Hoover, the prior president is deceased, I could not, in conscience use the present tense for "Hoover sucks".

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    tweezin' Huck's...

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    Reason clucks.

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    Governments that can either create money directly or use regulation to force banks to provide the resources will be able to conduct war more often and with less political resistance than those that cannot.



    On a gold standard, it is not possible to inflate the money supply beyond the additional gold that comes out of the ground, something less than 2% per annum. This restrains the government from doing all sorts of follish things. That this is a revelation to many just exposes the collective ignorance of fundamental economics.

    Oh, and, "Freezin sucks."

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