Hitting Back: Why Recovering Austrians are Wrong

Point One: Central Bankers Do Hate Gold

An anti-Austrian economics blog, Recovering Austrians, authored a hit piece that covered ten coarse de-constructive statements that alleged fallacies of Austrian economic thought [1]. The following articles will articulate counter orientations on these assertions by explaining their point of view, offering an opposing position and producing evidence of a finer perspective of the subject.

Recovering Austrians lead with the assertion that Bankers Hate Gold [1]. Leading Austrian economists and those sympathetic to commodities based currency claimed that central banks and governments were averse to backing those currencies with gold. “Hating gold” meant that the faith and credit of a government, usually based upon coercive taxation and a lending scheme coined as national debt, backed a paper or digital currency instead of gold, silver, platinum, oil or some other natural resource. This is fiat currency. Larry White, an advocate of hard assets, defined the Recovering Austrians sentiment when they said, “Central Banks think owning gold is pointless and also try to discourage individuals from owning gold by using their power to suppress the price of gold in the marketplace at times.”[2] Porter Standsberry, a commodities broker and gold advocate explained that most governments choose paper over gold because, “paper money allows the wealthy and powerful vested interests in our economy to manipulate interest rates, prices, the money supply and credit to their exclusive advantage.” [3] Mac Slavo, another hard asset advocate, simplified this explanation by stating it was in the interest of the government to avoid a commodity based standard because it directly benefited from the fiat based specie [4].

Former Presidential Candidate Ron Paul focused on the relationship of governments and central banks and acknowledged that governments are gold adverse. Paul argued that it was fairly typical in the midst of an economic crises for gold to come under attack and that governments historically debased their currency in favor of creating money out of thin air [5]. The Knight of Classical Liberalism, Ludwig Von Mises, changed his mind about the metals throughout his career dismissing it early and then becoming an unwavering spokesman for a gold standard [6]. Lew Rockwell, a political voluntarist and head of the Von Mises Institute, alleged that Keynes’s General Theory, which was introduced at the height of the American Great Depression, advocated for the abolition of the Gold Standard [7]. Rockwell noted that Keynes wanted to frame the Gold Standard as a passe relic of the Victorian Era and that it would be an unnecessary impediment to the economists because they were more responsible than the statists of the previous century [7].

Recovering Austrians alleged that bankers actually love the Gold Standard. Recovering Austrians cited 19th century Europe as an example of bankers who embraced a gold standard and that states left it due to deflation that was the Great Depression [1]. Recovering Austrians further noted, “Populists at the time finally managed to force their Governments to get rid of it. They had been warning about its deflationary tendencies for ever,” [1].

The subtleties of to gold or not to gold deal with the purpose of the metal historically and how people exchange goods and services. The purpose of currency is to function as an extension of bartering– services for services– in a society. The fireman can trade his fireman skills for the restaurateurs without having to barter fire-services for a sandwich because of currency. It allows a fair transaction of value to occur. The fireman may find value in paying what he may feel is a fair market price or go next door for that sandwich which may be better to his liking. This currency allows an equal exchange of value to happen. Money in this context makes men honest. Objectivist Ayn Rand furthered this perspective in her epic 1957 work Atlas Shrugged where she noted:

When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears not all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor–your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money [8].

There are times when men use this means of exchange dishonestly. Gold, because of its timeless value is a hedge against these inequalities of exchange. It has remained valuable and consistent through out all of time. Financial institutions who preserve the equality of the exchange do a service to the society because that money has perceived value. When the state intervenes with a central bank the currency can be expanded and contracted at the will of men– those who are given this power have the means to control how equal that transaction remains. Some men in this capacity become more equal than others. Most of us view this function of money as corruption. When this circumstance happens it is usually exclaimed by mouthpieces of the state as protection for us from ourselves and in the public interest as a matter of national policy or security. What really happens is that the controlling institutions use their influence to manipulate markets, curry favour and undermine the honesty of this exchange.

In 1900 an ounce of gold bought a horse. In 2000 an ounce of gold also bought a horse however, the same value in US dollars went from $18.96 to $279.11 [9].⁠ Several things happened that redirected governments away from the gold standard. Some may view this as conspiratorial while others see a cartel in action. Others may try to explain it as incompetence of the state however, the outcome of all three still devalues the honest exchange of money between individuals.

The banking interests of England, France and Germany sent millions to their graves during the Great War in the second decade of the 20th century. The rest of the living were left to pay debt incurred by their governments who took the money from this cartel and debased their currency by refusing to back their currencies with gold. Between 1915 and 1917 Allies received 85 times the amount loaned to Germany [10]⁠. A managing director of Goldman Sachs, Naomi Prims implicated large Wall Street banks as financiers behind the Great War in a 2014 Salon Magazine article [11]. She stated that the Morgan Bank provided over 75% of the funding for the allies in World War I and pushed Wilson out of his campaign promise for neutrality [11]. Prims also noted that National City Bank, also worked with Morgan Bank and financed the French and British while Chase Bank helped finance the Germans [11]. The allies feared the rise of Germany’s economic power and ensured that although they didn’t start the war, Germany paid the costs of the war with reparations and set the stage of grievances for World War II [12]. Notably although Germany didn’t start World War I, they were left with the bill. At the same time the US implemented the income tax and secretly yoked the American people with a private central bank called the Federal Reserve [13].

This pertains to the claim of the Austrian economists noting that central bankers are adverse to gold because government debt required service by taxation, inflation or debt. If the central bank could loan money without having to back it by a commodity like gold, then it could issue debt at will and to whom and in what quantity it chose. The private banking system of the US Federal Reserve is in essence a monopoly over the money supply. Austrian economist Konig laments the abuse of this power again relating to World War I when he noted:

Just as kings debased coins to help pay for their wars, the Federal Reserve used inflation to help pay for US participation in World War I. It did so by creating and issuing dollars in return for government debt. In effect, the Fed’s balance sheet became a repository for war bonds. Furthermore, the Fed brought this debt onto its balance sheet at a higher price than the market would have paid otherwise, a subsidy born by all those who held money as its purchasing power declined [14].

During World War I many of the European states came off the gold standard and the US went from being a debtor nation to a creditor nation because of its gold. When the UK switched from gold coinage or specie to bullion Keynes argued against it. Bankers who argued for flexibility and said that gold was deflationary admit their expansionist tendencies with out explaining what the benefits of expanding this money supply really are. Why would a central bank want to prop up a bank that had mismanaged its money and that of its depositors? By moving away from gold standards banks could mismanage that money and obtain more from the central bank when their methods fail.

There are more recent examples regarding the US Federal Reserve. The Inspector General of the Federal Reserve testified before Congress in 2010 where she noted that 9 trillion dollars were unaccounted for [15]. This audit also revealed trillions in secret bailouts that were given to financial institutions who were deemed too big to fail [16]. Critics of this fiasco lament that our laws fail to criminalize this behaviour even though we criminalize this when private citizens do this. We call it counterfeiting. Ron Paul has advocated for the ablution of the Federal Reserve [17] and prior to leaving Congress in 2012 he sponsor and pass a bill to Audit the Federal Reserve [18]. In spite of this populism the Federal Reserve continues to buy much of its own treasury securities in the tens of billions each month [19].

This perspective remains important because every man woman and child in the US is left responsible for the expenditures of this central bank who officials are not beholden to the people by election. Vice Presidential candidate and former Governor of Alaska, Sara Palin rightly called the national debt slavery [20]. The US Congress consistently refused to abolish the Federal Reserve in spite of this debt instrument [21]. The Recovering Austrians perspective that bankers actually love gold is not as true as their passion for the issuance of state mandated and coerced debt far exceeds any restraint that gold would bring to the management of the currency. The war of 1812, while won by the US military, ensured that the second central bank of the US was established and issued debt [22]. It wasn’t until President Jackson that the US government abolished a private cartel from controlling the supply of money and the those behind the Anglo-American establishment [23] overcame President Jackson’s obstacles the minute the Federal Reserve was re-established in 1913.

These central banks have gone global with institutions like the International Monetary Fund (IMF) where countries and their central banks are loaned money to buy goods and services from Anglophile multinationals under threat of war [24].⁠ Perhaps the US could learn from Hungary who recently paid off its IMF debt [25] or Russia who paid theirs off early [26].

References:

[1] “Top Ten Austrian Economics Lies and Mistakes.” Recovering Austrians.
[2] L. White, “Do Central Banks Really Hate Gold?” Silver Doctors, 2014.
[3] P. Stansburry, “Three terrible lies you need to know about Gold.” The Crux, 2011.
[4] M. Slavo, “Why Bankers, Governments and the Media Hate Gold.” Shit HIts the Fan Plan, 2011.
[5] R. Paul, “Why Governments Hate Gold.” Safe Haven, 2010.
[6] J. G. Hülsmann, “Preface,” in The Last Knight of Liberalism, Kindle., Auburn, Alabama, 2007.
[7] L. H. Rockwell Jr., “Hazlitt and Keynes: Opposite Callings,” in Fascism Versus Capitalism, Kindle., Auburn, Alabama: Von Mises Institute, 2013, p. 103.
[8] A. Rand, “Francisco D’Aconia’s Money Speech,” in Atlas Shrugged, Kindle Edi., 1957.
[9] “HISTORICAL GOLD PRICES- 1833 to Present.” National Mining Association, Washington, DC.
[10] K. Zeese, “The Link Between War and Big Finance,” War is a Crime, 2011. [Online]. Available: http://warisacrime.org/content/link-between-war-and-big-finance. [Accessed: 15-Mar-2015].
[11] J. Eidelson, “‘We are in great danger’: Ex-banker details how mega-banks destroyed America,” Salon Magazine, Apr-2014.
[12] S. R. Burant, “Weimar Germany and the Rise of the Nazis,” East Germany: A Country Study, 1987. [Online]. Available: http://www.shsu.edu/~his_ncp/Weimar.html.
[13] G. E. Griffin, The Creature from Jekyll Island: A Second Look at the Federal Reserve, 5th Editio. Amer Media, 2010.
[14] J. P. Konig, “How the Fed Helped Pay for World War I,” The Mises Institute, 2009. [Online]. Available: http://mises.org/library/how-fed-helped-pay-world-war-i. [Accessed: 15-Mar-2015].
[15] 9 Trillion Dollars Missing from Federal Reserve,Fed Inspector General Can’t Explain. United States of America: Youtube Video, 2010.
[16] M. Cardinale, “First Federal Reserve Audit Reveals Trillions in Secret Bailouts,” Nation of Change, Washington, D.C., 29-Aug-2011.
[17] R. Paul, End the Fed, Kindle. New York, New York: Grand Central Publishing, 2009, p. 224.
[18] J. Bendery, “Federal Reserve Audit Bill Overwhelmingly Passes The House,” Huffington Post, Washington, D.C., 25-Jul-2012.
[19] “Ponzi Scheme: The Federal Reserve Bought Approximately 80 Percent Of U.S. Treasury Securities Issued In 2009.” [Online]. Available: http://theeconomiccollapseblog.com/archives/ponzi-scheme-the-federal-reserve-bought-approximately-80-percent-of-u-s-treasury-securities-issued-in-2009. [Accessed: 04-Apr-2013].
[20] T. Lee, “Palin: I Compared Federal Debt to Slavery to ‘Make a Point,’” Brietbart News, 2013. [Online]. Available: http://www.breitbart.com/Big-Government/2013/11/14/Palin-Compared-Debt-To-Slavery-To-Make-Point.
[21] R. Lee, “Is a Federal Reserve Note a debt instrument?,” 2013. .
[22] M. Rivero, “All Wars Are Bankers Wars!,” http://www.whatreallyhappened.com, 2013. [Online]. Available: http://whatreallyhappened.com/WRHARTICLES/allwarsarebankerwars.php. [Accessed: 18-Apr-2013].
[23] C. Quigley, Anglo-American Establishment, First. G S G & Associates Pub, 1981, p. 354.
[24] J. Perkins, Confessions of an Economic Hit Man, Kindle. Plume, 2005, p. 303.
[25] S. Baker, “Cutting Loose: Hungary pays off IMF debt, may eye EU exit – Russia Today news,” OpEd News, 2013. [Online]. Available: http://www.opednews.com/articles/Cutting-Loose-Hungary-pay-by-Scott-Baker-Banks_Debt_Debt-Ceiling_Debt-Ceiling-130826-40.html.
[26] “Russia Paid Off Its Debt To IMF Ahead of Schedule,” Rianovosti, 2005. [Online]. Available: http://en.ria.ru/business/20050201/39701023.html.

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