The Greatest Little Book You’ve Ever Read

F. Smith
Barbarous Relic

by George F. Smith: Preface
to The Jolly Roger Dollar

Ron Paul published
Peace, and Prosperity
in 1981. What makes his pamphlet especially
attractive today is the speed with which it can be consumed. A reader
could get through his robust prose during an hour lunch break.

But why would
a reader want to do that? Why not read one of Paul’s more recent
books instead, even if it couldn’t be read in one sitting?

The answer
is, the earlier work provides an excellent foundation for his later
writings. It offers a clear, non-technical summary of his views
on money and the economy.

Ron Paul has
made his mark as an advocate of sound money. As such, he is totally
opposed to fiat money and its imposition through the government-supported
cartel, the Federal Reserve. It is largely through a hijacked monetary
system that government has become a threat to civilization. In this
pamphlet, Paul puts it all in perspective with everyday language,
as if he’s talking to you – over lunch.

Sound money,
he says, is money that is “fully redeemable.” The paper
currency people use in transactions is only a substitute for money
proper, which traditionally has been gold and silver coin. The adverb
“fully” means that every note issued is a claim ticket
to a specified weight of gold stored in a bank warehouse.

Why is this
arrangement sound? Because it makes the value of money depend on
the profitability of mining gold, rather than the “politics
of the hour,” as
Mises put it
. A money that’s sound means the money supply
remains relatively stable.

Unsound money
is money that bankers and government can inflate virtually without
limit. Unsound money equates “monetary policy” with varying
degrees of inflation, as determined by a panel of politically-influenced

Since inflation
is indistinguishable in its effects from counterfeiting, the bureaucrats
are simply counterfeiters with grandiose titles; their sacred monetary
policy is nothing more than “legalized counterfeiting.”
Inflation, Paul explains, citing Murray Rothbard, is “new money
issued by the banking system, under the aegis of government.”

Arabs, businessmen, labor unions, or consumers for rising prices
doesn’t drown out the steady hum of printing presses running 24-hours-a-day,
ballooning the money supply, and thereby debasing every dollar
previously printed.

Hans Sennholz, he says:

An increase
in the money supply confers no social benefits whatsoever. It
merely redistributes income and wealth, disrupts and misguides
economic production, and as such constitutes a powerful weapon
in a conflict society.

If inflation
is so bad, why does it exist? Because it benefits “whoever
gets the new money first” – government, bankers, and favored

A good example
is the credit the government created to bail-out the Chrysler
Corporation, largely to finance a labor contract that pays the
employees twice the average industrial wage. But unions, like
businesses, can only persuade government to inflate if the inflation
mechanism is in place. A redeemable currency would make this impossible.

Who pays for
inflation? The poor and middle classes, and those on fixed incomes.
By the time they get the new money – if they get it at all
– prices have gone up (or they’ve failed to drop, as they
would have without inflation). These groups are cheated by inflation,
and eventually are either wiped out through currency depreciation
or made dependent on government favors. This pattern has been known
for ages, as Paul shows with numerous historical references.

of the money supply through “spurious paper currency,”
noted [Andrew] Jackson, “is always attended by a loss to
the laboring classes.”

all the contrivances for cheating the laboring classes of mankind,”
added Daniel Webster, “none has been found more effectual
than that which deludes them with paper money.”

But if prices
rise from an increase in the money supply, wouldn’t the price
of labor go up, too? Quoting William Gouge, President Jackson’s
Treasury advisor in 1833, Paul writes:

Wages appear
to be among the last things that are raised. . . . The working
man finds all the articles he uses in his family rising in price,
while the money rate of his own wages remains the same.

When Lincoln
issued greenbacks to pay for the Civil War, Paul notes, “prices
rose 183%, while wages went up only 54%. During the World War I
inflation, prices rose 135%, and wages increased only 88%. The same
is true today.”

In answer to
the claim that the Fed was created to prevent inflation and the
periodic panics that erupted in the 19th century, Paul points out
that inflation was written into the central bank’s founding
charter, in the requirement to provide a more “elastic”
currency. With the Federal Reserve Act of 1913,

a 40% gold
cover for Federal Reserve notes and 35% for Federal Reserve deposits
were required. The fact that it was not 100% showed that the central
bankers planned more inflation. . . .

The central
bank never set out to protect the integrity of our money. In fact,
the Fed set out to destroy it by institutionalizing inflation.
The gold coin standard was doomed and today’s inflation made inevitable
the day the Federal Reserve was created.

A gold coin
standard, regulated by the market, acts as a restraint on inflation
because it is the money, not the paper issued as a substitute.
This is why governments hate gold – they can’t produce
it in unlimited quantities. Using a non-redeemable paper currency
avoids the risks of raising taxes while allowing politicians to
pay for their wars and bureaucracies by running the printing press
behind the curtain.

Since a
gold standard enables the average person to restrain the government’s
attempts to inflate, control the economy, run up deficits, and
fight senseless wars, the central planners had to eliminate this
fundamental American freedom to own gold. This was accomplished
with the Gold Reserve Act of 1934, which outlawed private ownership
of gold, prohibited the use of “gold clause” contracts,
and abolished the gold coin standard.

Thanks to Paul
and others who support sound money, the government in 1974

the unconstitutional 1934 law that barred private ownership of
gold. In 1977, gold clause contracts were legalized.

One of my favorite
passages in the book is Paul’s succinct comment on the Great
Depression. Ben Bernanke wrote a collection of technical essays
on the subject and has earned the reputation among his Keynesian
colleagues as an expert on the Depression, never mind that he got
it wrong. In 2002 he famously apologized
to Milton Friedman and Anna Schwartz for the Fed’s mismanagement
of the money supply after the Crash, which he concluded could have
been avoided if central bankers had provided “low and stable
inflation” as a monetary background. (For an in-depth discussion
of this episode, see Joseph Salerno’s Money,
Sound and Unsound
, Chapter 16, “Money and Gold in the
1920s and 1930s: An Austrian View”.) Applying the Austrian
theory of the trade cycle, Ron Paul summarizes the Depression in
25 words:

Reserve inflation during the 1920s, combined with economic interventionism
by both Republican and Democratic administrations, caused and
perpetuated the Great Depression of the 1930s.

One could hardly
state the truth more concisely.

Many commentators
are pointing out that the U.S. is declining into a police state,
if it isn’t there already, but what some – especially
the monetarists – overlook is the connection between honest
money and freedom. For Ron Paul, freedom is “the ultimate justification
for honest money.” And here he presents one of the most familiar
quotes in libertarian literature, a non-Keynesian comment written
by Keynes himself:

There is
no subtler, no surer means of overturning the existing basis of
society than to debauch the currency. The process engages all
the hidden forces of economic law on the side of destruction,
and it does it in a manner which not one man in a million is able
to diagnose.

Ron Paul was
one of those one-in-a-million many years ago. Sit down with him
some lunch hour and see why.

with permission from Barbarous

December 31, 2011

F. Smith [send him mail] is
the author of
Jolly Roger Dollar: An Introduction to Monetary Piracy
, Eyes
of Fire: Thomas Paine and the American Revolution
, and
Flight of the Barbarous Relic
, a novel about a renegade Fed
chairman. Visit his website
and his blog.

© 2011 George F. Smith