Education is The Key
to Monetary Reform

Monday, May 30, 2005

By Dr. Edwin Vieira, Jr.

Few matters in contemporary politics are as striking as the disproportion between the silliness of the arguments in favor of doing nothing to reform America's monetary and banking systems, and the seriousness of the dangers to which that course of inaction exposes this country.

•The most basic of these contentions arrantly denies that any real problem exists. For example, many people dismiss the likelihood of hyperinflation with the airy assertion that the Federal Reserve System can and will prevent huge increases in the supply of Federal Reserve Notes and bank-account currency, because hyperinflation is not in the System's interest. Maybe so. But hyperdepreciation--which causes the selfsame economic effects as hyperinflation--can occur without any increase in the supply of currency, if the demand for that currency drops precipitously. And what may be in the Federal Reserve System's interest may prove to be of little interest to, and to have no control over, the rest of the world. In fact, a future hyperdepreciation requires no new mistakes by the Federal Reserve, the Department of the Treasury, or Congress. Their past mistakes--coupled with an understanding of those blunders by the holders of Federal Reserve Notes, and the holders' consequent loss of confidence in that currency--will be quite enough.

•Other arguments in favor of doing nothing rely upon shifting responsibility for solving the problem from the American people as a whole to supposed "experts" or "authorities". For example, many people contend that, if a crisis breaks out, the Federal Reserve, the Department of the Treasury, or Congress will take timely and appropriate action. Both history and theory, though, expose this reasoning as particularly obtuse. For example, since 1860 numerous monetary and banking crises have arisen in this country. And, with each irruption, Congress has driven America further and further in the direction of unsound money and Ponzified, political banking. So, however Congress were to respond to a new crisis, the odds are that its erstwhile "solution" would merely make things worse. This fear finds firm foundation in the failure of Congress, the Department of the Treasury, the Federal Reserve, or any leading politicians or bankers even to advocate, let alone to act on, a program of reform that might forefend a future collapse. Nothing is being put into place, prepared, or even proposed.

To be sure, this may be because America's leaders simply do not understand the danger menacing this country. Such monumental ignorance or incompetence in high places, however, is not an excuse, but an indictment. More likely, though, is that America's leaders understand perfectly well the predicament this country faces, but can and will do nothing to cure it, because the Establishment (whose puppets they are) depends on unsound money and Ponzified banking to maintain its economic and political power. The Establishment will never willingly surrender that power. Rather, it and its hirelings will do anything, and sacrifice anybody, to salvage the present system--and surely will expend no resources to correct, let alone to replace, it.

•Another argument for doing nothing minimizes the problem by shifting the context of discussion from speculations about what might happen to actual present experience and the simplistic presumption of economic empiricism that what is happening will continue to happen. For example, not a few people point out that so-called "gold bugs" and other "prophets of doom" have been predicting terrible monetary and banking crises since the end of World War II--and nothing so serious has occurred to verify their clairvoyance. In one sense, this criticism is not without substance, because since World War II nothing as cataclysmic as the stock-market collapse of 1929, the banking crisis of 1932-1933, or the Great Depression has befallen this country all at once. But in a more important sense it is mistaken, because a truly serious upheaval may take many different forms.

After all, to deny that America's monetary and banking systems have not been in a continuing meltdown since 1946, one must disregard that

• the Federal Reserve Note has depreciated more than 90% in its purchasing power;


• Americans have suffered an aggregate loss in the real value of their accumulated savings of almost 16 trillion paper "dollars" (measured in 2004 purchasing power);[1]


• further depreciation of the Federal Reserve's currency is the only realistic prediction that can be made, based on the historical record and present political and economic tendencies; and


• redistribution of wealth through inflationism--the political-economic policy of systematically increasing the supply of irredeemable currency in order to benefit the issuers and their clients, at everyone else's expense--has resulted in massive malinvestments of capital that will inevitably derange this country's economy.

True, the frogs have been slowly--and, to most of them, imperceptibly--boiled. But boiled they have been, nonetheless. And from the point of view of the country as a whole, it is the boiling that has constituted a chronic crisis, not the speed at which it has occurred. Moreover, even if the systematic, institutionalized looting of Americans' monetary savings over half a century does not merit the exact appellation "crisis", it is nevertheless an extraordinarily serious economic, political, and moral problem--especially when one realizes that America remains ruled by the acaparadores (political looters) who have engineered and profited from this massive redistribution of wealth, and who can be expected to continue the process until they are stopped.

•Yet another argument for inaction is that a crisis cannot possibly be occurring, because the monetary system is still working. Even if the Federal Reserve Note has proven to be a poor store of value, nonetheless the currency still remains a unit and measure of value, and as a medium of exchange actually buys goods and services in the marketplace. Therefore, anxiety as to its imminent collapse is unwarranted. Such observations are historically myopic, as reference to the experience of Germany in the early 1920s proves.

During and immediately after World War I, Germany experienced a great deal of inflation, such that, by 31 July 1923, the cost of living index had already risen from 1 (in 1913) to 39,000. Thereafter, monetary destruction, as measured by the index, proceeded with lightning-like speed--28 August 1923: 754,000, 25 September 1923: 14,200,000, 30 October 1923: 3,000,000,000, 27 November 1923: 792,800,000,000, and 4 December 1923: 1,535,000,000,000.[2] Thus, in little more than four months the cost of living climbed by a multiple of 39,359,000! Plainly, that goods and services still had market prices in July through December of 1923 proved that the German monetary, banking, and price systems, even using the depreciating Reichsmark as their unit and measure of value, were still "working" (in the mechanistic sense). Yet it was the very "working" of those systems that caused the eventual disaster. Had Germans marshalled their economic insight or followed their instinct of self-preservation, and dumped the rotting Reichsmark at its first sign of serious instability, they would have escaped the worst effects of the inflation. Unfortunately, their shortsightedness and inertia allowed the process of monetary destruction to develop a momentum that proved unstoppable, short of complete destruction of the currency and impoverishment of everyone whose financial position depended upon it. Delay in identifying and responding to the danger turned a potentially avoidable or soluble problem into a catastrophe. To say that such a situation could never be repeated in America is the worst variety of wishful thinking.

•A similar argument that encourages Americans to sit on their hands depends on disregard of Frederic Bastiat's justly famous economic principle of "the seen and the unseen": namely, that people do not attempt to compare the past and present situations to what could have happened, had this country's monetary and banking systems not been debauched. True, since 1946 those systems have "worked", just as they are "working" today. And undoubtedly this country is far wealthier in certain material ways now than it was then. The important question, though, is whether, with sound money and honest banking instead of irredeemable legal-tender paper currency and the Ponzi scheme of fractional-reserve central banking, America would not be even wealthier, her wealth more favorably and equitably distributed, and her economy more soundly structured because not propped up by a huge financial landfill of debt, and even more secure yet because not subject to the rapacious claims of a General Government steeped in the arrogance of usurped and tyrannous power financed by endless monetization of public debt through the Federal Reserve System.

That all too many Americans suffer from the kind of multifaceted naivete well freighted with ignorance that the foregoing arguments exhibit leads many pessimistic observers to predict that only a monetary and banking disaster of the first magnitude will finally shock their countrymen into thought and action. Only when Americans watch the monetary and banking systems collapse into ruins, and find themselves hurled into poverty, will they realize that something is seriously wrong, and demand fundamental changes. This prediction and recommendation, however, beg an important psycho-political question: At that critical point, exactly how will Americans react to their plight, its cause, and its cure? Will they carefully study what went wrong and learn how to correct the situation, or desperately accept whatever panaceas the most strident demagogues propose? If Americans cannot see the forest for the trees today, when everything is calm, how will they do so when panic and chaos reign over them?

To answer this question, America's own experience may be the best teacher. In the midst of the horrendous banking crisis of 1932, Americans elected Franklin Delano Roosevelt--and then re-elected him again and again, although he proved to be as incompetent and dishonest a figure as ever disgraced high public office in this country, and in particular did everything he could to decouple the monetary system from constitutional principles and economic sense. And great numbers of Americans still revere his memory today, although he left this country saddled with a political heritage that threatens national survival--the deadly incubus of Social Security being not even the most baneful of his legacies.

In light of this, waiting (let alone hoping) for a monetary and banking crisis to illuminate and energize Americans in the right direction is folly. Now is the time for a critical mass of Americans to study this matter, to determine what is wrong and who is at fault, and to decide what to do--while time remains to put the malefactors out of public office and the necessary reforms into practice. The chronic crisis in money and banking is the result of an even more serious crisis in public education. And without solving that crisis, Americans will solve no other.

To be sure, few people like to study. It is tedious, and consumes their leisure moments. Undoubtedly, watching football on wide-screen TV is far more entertaining than reading thick books about fiat currency and fractional-reserve banking. But Americans have no choice. Like it or not, they all are scheduled to take a mandatory final examination in monetary and banking law and economics in the not-so-distant future. And on the cumulative grade Americans receive hangs the future of their country. Americans' final examination will be "pass/fail" with a vengeance and permanence unlike any other this country has ever experienced.

The books are out there. They need to be cracked--immediately, if not sooner.

Footnotes:

1, See American Institute for Economic Research, Economic Education Bulletin, Volume XLV, Number 1 (January 2005) [at: www.aier.org]

2, C. Bresciani-Turroni, The Economics of Inflation: A Study of Currency Depreciation in Post-War Germany (1937), pages 35-36.

NOTE: In accordance with Title 17 U.S.C. section 107, any copyrighted material herein is distributed without profit or payment to those who have expressed prior interest in receiving this information for non-profit research and educational purposes only. For further information please refer to: http://www.law.cornell.edu/uscode/17/107.shtml

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