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Bernanke’s Farewell Tour – Article by Ron Paul

Bernanke’s Farewell Tour – Article by Ron Paul

The New Renaissance Hat
Ron Paul
August 17, 2013
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In mid-July 2013 Federal Reserve Chairman Ben Bernanke delivered what may well be his last Congressional testimony before leaving the Federal Reserve in 2014. Unfortunately, his farewell performance was full of contradictory comments about the state of the economy and the effects of Fed policies on the market. One thing Bernanke inadvertently made clear was that the needs of Wall Street trump Main Street, the economy, and sound money.

Quantitative easing (QE) and effectively zero interest rates have created paper prosperity, but now the Fed must continuously assure Wall Street that the QE spigot will not be turned off. Otherwise even the illusion of recovery will disappear. So Bernanke made every effort to emphasize that the economy was not doing well enough to end QE, while lauding the success of Fed policies in improving the economy.

Bernanke was also intent on denying that Fed policies directly boost financial markets. However, the money the Fed creates out of nothing in order to buy mortgage-backed securities and government debt for the QE3 program, benefits first and foremost the big banks and the financial class — those people who are invited to the Fed auctions. This new money then fuels stock bubbles, bond bubbles, agricultural land bubbles, and others. The consequences of this are felt by ordinary savers, investors, and retirees whose savings lose value because of the Fed’s zero interest rate policy.

As if Wall Street favoritism and zero returns for savers isn’t bad enough, the Fed wants the rest of America to bear a greater inflation burden. The Fed thinks you should lose two percent of the value of your dollar this year. But Bernanke is not satisfied with having reduced purchasing power by ten percent since the 2008 recession. The inflation picture is actually much worse if we look at the old consumer price index —the one that did not assume that ground beef is a perfect substitute for steak.

Using the old CPI metric, as calculated by John Williams at Shadow Government Statistics, we’ve lost close to 50 percent of the purchasing power of our money in just the last five years. So what you were able to buy with the $20 in your pocket before the financial crisis costs more than $30 today. That might be peanuts to Wall Street, but that’s real money for working Americans. And it’s theft by the Fed. It is a direct consequence of the trillions of new dollars the Fed has “not literally” printed—as Bernanke put it.

Bernanke’s final testimony before Congress confirms that the Fed has blatant disregard for the extra costs and the new bubbles it is creating. The Fed only understands paper prosperity, not how middle-class Americans and the poor suffer the consequences of higher prices, resources misallocations, and distortionary bubbles as well as insidious unemployment.

The only way out of this tailspin of monetary favoritism is to restore sound money, which would end the Fed’s ability to put Wall Street first and to manipulate currency. The Fed has proven over and over again that it has no respect for the real money that preserves the value of people’s labor, their wealth, and their ability to live free and prosperous lives. It is beyond time for the Fed, Wall Street, and the federal government to stop manipulating money and stealing from the American people under the false guise of paper prosperity.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission.

Federal Reserve Blows More Bubbles – Article by Ron Paul

Federal Reserve Blows More Bubbles – Article by Ron Paul

The New Renaissance Hat
Ron Paul
May 5, 2013
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Last week at its regular policy-setting meeting, the Federal Reserve announced it would double down on the policies that have failed to produce anything but a stagnant economy. It was a disappointing, but not surprising, move.

The Fed affirmed that it is prepared to increase its monthly purchases of Treasuries and mortgage-backed securities if things don’t start looking up. But actually the Fed has already been buying more than the announced $85 billion per month. Between February and March, the Fed’s securities holdings increased $95 billion. From March to April, they increased $100 billion. In all, the Fed has pumped more than a half trillion dollars into the economy since announcing its latest round of “quantitative easing” (QE3) in September 2012.

Although many were up in arms when the Fed said it would buy $600 billion in government debt outright for the previous round, QE2, all seems quiet about the magnitude of QE3 because it doesn’t come with huge up-front total price tag. But by year’s end the Fed’s balance sheet could hit $4 trillion.

With no recovery in sight, where’s all this money going? It is creating bubbles. Bubbles in the housing sector, the stock market, and government debt. The national debt is fast approaching $17 trillion, with the Fed monetizing most of the newly issued debt. The stock market has been hitting record highs for the past two months as investors seek to capitalize on the Fed’s easy money. After all, as long as the Fed keeps the spigot open, nominal profits are there for the taking. But this is a house of cards. Eventually, just like in 2008-2009, the market will discipline the bad actions of the Fed and seek to find the real normal.

In the meantime, real families are suffering. While Wall Street and the federal government take advantage of access to the Fed’s new “free” money, the Fed claims there is no inflation. But who hasn’t paid higher prices at the grocery store, the gas pump, for tuition, for insurance? It’s bad enough that household incomes have stagnated, but real purchasing power has declined so much that one in seven Americans, 47.3 million people, are on food stamps. Five million are collecting unemployment insurance with 21.5 million afflicted by unemployment according to the federal government’s own figures. That’s 13.9 percent — close to double the 7.5 percent unemployment number reported last week.

We are certainly not in a recovery. We don’t see the long unemployment and soup-kitchen lines like in the Great Depression, but that’s just because the lines are electronic now.

It is not surprising the Fed has decided to hand the American people more of the same failed policies. But it is disappointing. We know what the real solution is: allow the marketplace to work. Allow entrepreneurs the chance to create instead of stifling innovation with arbitrary regulations. Allow interest rates to rise to equal the risks in the economy. Allow bad debts to be liquidated so we can build on a firm foundation. Stop printing money to benefit the government and big banks. Restore sound money to the economy and the American people. Sound money is the bedrock for prosperity and the best check on big government and crony capitalism.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission.

Neo-Con War Addiction Threatens Our Future – Article by Ron Paul

Neo-Con War Addiction Threatens Our Future – Article by Ron Paul

The New Renaissance Hat
Ron Paul
March 29, 2013
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William Kristol knows what is wrong with the United States. As he wrote recently in the flagship magazine of the neo-conservatives, the Weekly Standard, the problem with the US is that we seem to have lost our appetite for war. According to Kristol, the troubles that have befallen us in the 20th century have all been the result of these periodic bouts of war-weariness, a kind of virus that we catch from time to time.

He claims because of the US “drawdown” in Europe after World War II, Stalin subjugated Eastern Europe. Because of war weariness the United States stopped bombing Southeast Asia in the 1970s, snatching defeat from the jaws of victory. War weariness through the 1990s led to Rwanda, Milosevic, and the rise of the Taliban. It was our fault for not fighting on! According to Kristol, our failure to act as the policeman of the world is why we were attacked on September 11, 2001. Of the 1990s, he wrote, “[t]hat decade of not policing the world ended with 9/11.”

That revisionism is too much even for fellow neo-conservatives like Paul Wolfowitz to swallow. In a 2003 interview, Wolfowitz admitted that it was the presence of US troops in Saudi Arabia that led to the growth of al-Qaeda:

“(W)e can now remove almost all of our forces from Saudi Arabia. Their presence there over the last 12 years has been a source of enormous difficulty for a friendly government. It’s been a huge recruiting device for al Qaeda. In fact if you look at bin Laden, one of his principle grievances was the presence of so-called crusader forces on the holy land, Mecca and Medina.”

But for Kristol and his allies there is never enough war. According to a new study by Brown University, the US invasion of Iraq cost some 190,000 lives, most of them non-combatants. It has cost more than $1.7 trillion, and when all is said and done including interest the cost may well be $6 trillion. Some $212 billion was spent on Iraqi reconstruction with nothing to show for it. Total deaths from US war on Iraq, Afghanistan, and Pakistan have been at least 329, 000. None of this is enough for Kristol.

The neo-con ideology promotes endless war, but neo-cons fight their battles with the blood of others. From the comfortable, subsidized offices of magazines like the Weekly Standard, the neo-conservatives urge the United States to engage in endless war – to be fought by the victims of the “poverty draft” from states where there are few jobs. Ironically, these young people cannot find more productive work because the Federal Reserve’s endless money printing to keep the war machine turning has destroyed our economy. The six trillion dollars that will be spent on the Iraq war are merely pieces of printed paper that further erode the dollar’s purchasing power now and well into the future. It is the inflation tax, which is the most regressive and cruel of all.

Yes, Americans are war weary, concedes Kristol. But he does not blame the average American. The real problem is that the president has dropped the ball on terrifying Americans with the lies and imaginary threats that led to the invasion of Iraq. Writes Kristol: “One can’t, for example, be surprised at the ebbing support of the American public for the war in Afghanistan years after the president stopped trying to mobilize their support, stopped heralding the successes of the troops he’d sent there, and stopped explaining the importance of their mission.”

If only we had more war propaganda from the highest levels of government we could be cured of this war-weariness. Ten years ago the US invaded Iraq under the influence of neo-conservative lies. Those lies continued to promote US military action in places like Libya, and next on their agenda is Syria and then on to Iran. It is time for the American people to shout “enough!”

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article has been released by Dr. Paul into the public domain and may be republished by anyone in any manner.

Where Is the Inflation? – Article by Mark Thornton

Where Is the Inflation? – Article by Mark Thornton

The New Renaissance Hat
Mark Thornton
January 30, 2013
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Critics of the Austrian School of economics have been throwing barbs at Austrians like Robert Murphy because there is very little inflation in the economy. Of course, these critics are speaking about the mainstream concept of the price level as measured by the Consumer Price Index (i.e., CPI).

Let us ignore the problems with the concept of the price level and all the technical problems with CPI. Let us further ignore the fact that this has little to do with the Austrian business cycle theory (ABCT), as the critics would like to suggest. The basic notion that more money, i.e., inflation, causes higher prices, i.e., price inflation, is not a uniquely Austrian view. It is a very old and commonly held view by professional economists and is presented in nearly every textbook that I have examined.

This common view is often labeled the quantity theory of money. Only economists with a Mercantilist or Keynesian ideology even challenge this view. However, only Austrians can explain the current dilemma: why hasn’t the massive money printing by the central banks of the world resulted in higher prices.

Austrian economists like Ludwig von Mises, Benjamin Anderson, and F.A. Hayek saw that commodity prices were stable in the 1920s, but that other prices in the structure of production indicated problems related to the monetary policy of the Federal Reserve. Mises, in particular, warned that Fisher’s “stable dollar” policy, employed at the Fed, was going to result in severe ramifications. Absent the Fed’s easy money policies of the Roaring Twenties, prices would have fallen throughout that decade.

So let’s look at the prices that most economists ignore and see what we find. There are some obvious prices to look at like oil. Mainstream economists really do not like looking at oil prices, they want them taken out of CPI along with food prices, Ben Bernanke says that oil prices have nothing to do with monetary policy and that oil prices are governed by other factors.

As an Austrian economist, I would speculate that in a free market economy, with no central bank, that the price of oil would be stable. I would further speculate, that in the actual economy with a central bank, that the price of oil would be unstable, and that oil prices would reflect monetary policy in a manner informed by ABCT.

That is, artificially low interest rates generated by the Fed would encourage entrepreneurs to start new investment projects. This in turn would stimulate the demand for oil (where supply is relatively inelastic) leading to higher oil prices. As these entrepreneurs would have to pay higher prices for oil, gasoline, and energy (and many other inputs) and as their customers cut back on demand for the entrepreneurs’ goods (in order to pay higher gasoline prices), some of their new investment projects turn from profitable to unprofitable. Therefore, you should see oil prices rise in a boom and fall during the bust. That is pretty much how things work as shown below.

As you can see, the price of oil was very stable when we were on the pseudo Gold Standard. The data also shows dramatic instability during the fiat paper dollar standard (post-1971). Furthermore, in general, the price of oil moves roughly as Austrians would suggest, although monetary policy is not the sole determinant of oil prices, and obviously there is no stable numerical relationship between the two variables.

Another commodity that is noteworthy for its high price is gold. The price of gold also rises in the boom, and falls during the bust. However, since the last recession officially ended in 2009, the price of gold has actually doubled. The Fed’s zero interest rate policy has made the opportunity cost of gold extraordinarily low. The Fed’s massive monetary pumping has created an enormous upside in the price of gold. No surprise here.

Actually, commodity prices increased across the board. The Producer Price Index for commodities shows a similar pattern to oil and gold. The PPI-Commodities was more stable during the pseudo Gold Standard with more volatility during the post-1971 fiat paper standard. The index tends to spike before a recession and then recede during and after the recession. However, the PPI-Commodity Index has returned to all-time record levels.

High prices seem to be the norm. The US stock and bond markets are at, or near, all-time highs. Agricultural land in the US is at all time highs. The Contemporary Art market in New York is booming with record sales and high prices. The real estate markets in Manhattan and Washington, DC, are both at all-time highs as the Austrians would predict. That is, after all, where the money is being created, and the place where much of it is injected into the economy.

This doesn’t even consider what prices would be like if the Fed and world central banks had not acted as they did. Housing prices would be lower, commodity prices would be lower, CPI and PPI would be running negative. Low-income families would have seen a surge in their standard of living. Savers would get a decent return on their savings.

Of course, the stock market and the bond market would also see significantly lower prices. Bank stocks would collapse and the bad banks would close. Finance, hedge funds, and investment banks would have collapsed. Manhattan real estate would be in the tank. The market for fund managers, hedge fund operators, and bankers would evaporate.

In other words, what the Fed chose to do ended up making the rich, richer and the poor, poorer. If they had not embarked on the most extreme and unorthodox monetary policy in memory, the poor would have experienced a relative rise in their standard of living and the rich would have experienced a collective decrease in their standard of living.

There are other major reasons why consumer prices have not risen in tandem with the money supply in the dramatic fashion of oil, gold, stocks and bonds. It would seem that the inflationary and Keynesian policies followed by the US, Europe, China, and Japan have resulted in an economic and financial environment where bankers are afraid to lend, entrepreneurs are afraid to invest, and where everyone is afraid of the currencies with which they are forced to endure.

In other words, the reason why price inflation predictions failed to materialize is that Keynesian policy prescriptions like bailouts, stimulus packages, and massive monetary inflation have failed to work and have indeed helped wreck the economy.

Mark Thornton is a senior resident fellow at the Ludwig von Mises Institute in Auburn, Alabama, and is the book-review editor for the Quarterly Journal of Austrian Economics. He is the author of The Economics of Prohibition, coauthor of Tariffs, Blockades, and Inflation: The Economics of the Civil War, and the editor of The Quotable Mises, The Bastiat Collection, and An Essay on Economic Theory. Send him mail. See Mark Thornton’s article archives.

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Copyright © 2013 by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.

The Golden Age of Freedom Is Still Ahead – Article by Anthony Gregory

The Golden Age of Freedom Is Still Ahead – Article by Anthony Gregory

The New Renaissance Hat
Anthony Gregory
October 6, 2012
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Free enterprise is often associated with the past. This perception puts the market’s champions, seen as hopeless reactionaries, on the defensive.

A typical narrative follows: America had an insufficiently active government under the Articles of Confederation. The Constitution expanded the central government to meet society’s needs. In this climate, where property rights continued to trump the common good, the central government could not maintain national cohesion and ensure racial equality. During the Civil War, the federal government grew to preserve the Union, enable commerce through expansion of infrastructure, and abolish the ancient evil of slavery. During the late nineteenth century, laissez faire reigned supreme. Unchecked, robber barons exploited their customers and workers.

American society, so continues the narrative, overcame its laissez-faire history and embraced active government in the Progressive Era. Commerce, banking, monopolies, food and drugs, and labor conditions finally became regulated. The market was still too free, however, causing the stock market crash and the Great Depression, which the New Deal’s reforms finally addressed. Anachronistic free marketers resisted this progress.

A generation later the free market proved inadequate on race relations, education, poverty, social insurance, workers’ conditions, and the environment. New regulations, taxes, and programs arose in the 1960s and 1970s to address these deficiencies. Ronald Reagan’s election marked a conservative counterrevolution toward the free market, causing the savings-and-loan crisis, rising income disparities, and, ultimately, the 2008 financial collapse. After four consecutive reactionary presidents—Bill Clinton being a practitioner of neoliberal austerity—deregulation and market fundamentalism have again revealed themselves as outdated approaches to America’s modern problems.

This repeated recognition that the free market no longer suits society’s needs is a common theme of modern liberalism. Through experience the inadequacy of the unhampered market has forced enlightened observers to accept the need for more government.

One obvious problem with this narrative is the steadily changing definition of “free market.” The free market is said to have caused problems addressed in the Progressive Era, yet once again the market economy was blamed for the Depression.The New Deal is said finally to have abolished laissez faire, yet laissez faire has been the culprit in every crisis since. Thoughtful proponents of this narrative explain that the 1980s, for example, were somehow substantially more laissez-faire than the 1970s, yet they rarely present more than a handful of superficial examples of deregulation amid an overall trend of regulatory expansion.

A major problem market proponents have in confronting this narrative, whatever its shortcomings, arises because they themselves sometimes accept it implicitly, often complaining about the liberties lost over the years. The significant kernel of truth is that the national government has unmistakably grown well beyond anything imagined in 1789 or even the nineteenth century. And surely, for every argument statists have defending this growth, compelling historical and economic counterarguments are available.

Yet we must be careful before conceding this premise that the past was laissez-faire. By celebrating the political economy of yesteryear, we risk associating our ideals with the past’s many injustices. We can and should avoid this baggage entirely.

Slavery: The Opposite of Free Enterprise

No libertarian defends the horrid institution of slavery. The problem comes in how free marketers sometimes describe slavery as a mere exception to the rule of early American freedom. In fact this exception virtually swallowed the principle whole.

Progressives love contrasting the pro-liberty, anti-tax rhetoric of the founding generation with the slavery that they tolerated or championed. Robin Einhorn’s American Taxation, American Slavery is a sophisticated contribution to the argument that those loudly protesting taxes were often the very people who clung to human bondage. This argument indicts the rhetoric of property rights, which is foundational to free enterprise and, in a warped form, the “right” of one person to own another. Infamously, the Supreme Court found in Dred Scott v. Sanford (1857) that the Fifth Amendment protected a white man’s right not to be deprived of his slave without due process. Given this association between America’s slave-owning generations and the rhetoric of liberty, it is crucial that free marketers explain, emphatically and intelligently, how slavery was the very negation of the free-market system.

The subjugation of slaves would undermine early America’s status as a free country even if slaves were a tiny minority. They were not. Slaves amounted to 18 percent of the population at the time of the Constitution’s ratification and 12.6 percent on the eve of the Civil War, at which point there were nearly four million.

Libertarians should study the brutality of this system. Historians estimate that hundreds of thousands of slaves were forced to migrate in antebellum America’s internal slave trade. Children were frequently ripped from their families. Beatings and rape were ubiquitous, and torture as punishment was hardly unusual.

Even slaves with relatively humane masters lacked the freedoms that most of today’s Americans, living under the modern leviathan, take for granted.

Peter Kolchin, in his seminal American Slavery: 1619–1877, sums up the reality:

Slaves could hardly turn around without being told what to do.They lived by rules, sometimes carefully constructed and formally spelled out and sometimes haphazardly conceived and erratically imposed. Rules told them when to rise in the morning, when to go to the fields, when to break for meals, how long and how much to work, and when to go to bed; rules also dictated a broad range of activities that were forbidden without special permission, from leaving home to getting married; and rules allowed or did not allow a host of privileges, including the right to raise vegetables on garden plots, trade for small luxuries, hunt, and visit neighbors. Of course, all societies impose rules on their inhabitants in the form of laws, but the rules that bound slaves were unusually detailed, covered matters normally untouched by law, and were arbitrarily imposed and enforced, not by an abstract entity that (at least in theory) represented their interests, but by their owners. Slaves lived with their government.

I thank God I don’t live with my government! For many years the pro-market tradition saw slavery as a grave violation of its principles. Kolchin writes:

Early political economists—including Adam Smith, whose book The Wealth of Nations (1776) remained for decades the most influential justification for the principles underlying capitalism—believed that slavery, by preventing the free buying and selling of labor power and by eliminating the possibility of self-improvement that was the main incentive to productive labor, violated central economic laws.

Although critics blame market exchange for the rise of slavery, this criticism is grossly unfair. The slave trade was indeed a market of sorts—unfree, unjust, and regulated—but the most fundamental relationship in slavery was not a market at all. Kolchin explains:

Slave owners engaged in extensive commercial relations, selling cotton (and other agricultural products), buying items both for personal consumption and for use in their farming operations, borrowing money, and speculating in land and slaves, but the market was conspicuously absent in regulating relations between the masters and their slaves. In other words, relations of exchange were market-dominated, but relations of production were not.

The slave power dominated political life in the South and enjoyed federal support through the Fugitive Slave Clause. Slavery was a major government program, its enforcement costs socialized through law. “The chief way that the South’s slaveholding elite externalized the costs of the peculiar institution was slave patrols,” writes Jeffrey Rogers Hummel in Emancipating Slaves, Enslaving Free Men. These slave patrols were “established in every slave state” to enforce black codes, inflict punishment, and suppress insurrections and were “compulsory for most able bodied white males.” Slave patrols, necessary to slavery’s maintenance, were a flagrant violation of the free economy.

The destruction of the Indians, the restrictions on women owning property, and many other antebellum policies also illustrate that the United States hardly had a free market before the Civil War. Slavery best makes the point. The conflation of a slave society with free enterprise is an obscenity.

Protectionism, Nationalism, and Corporatism

Outside of slavery nineteenth-century America often fell far short of the free-market ideal. Protectionism was a perennial problem, from the nationalist Tariff of 1816 to the sectionally biased Tariff of 1824 and the infamous Tariff of Abominations in 1828, from President Andrew Jackson’s threat to invade South Carolina to enforce the Tariff of 1832 to the Morrill Tariff of 1861. In 1870 the average tariff rate hit 44.6 percent. High tariffs financed the corporatist arrangement of federal subsidies for waterways, canals, and railroads during the Civil War, a war that defied market principles dramatically through its taxation, conscription, militarization of society, massive inflation, and inauguration of new government bureaus.

After slavery’s abolition and before the twentieth century, American economic liberty in some senses achieved a peak, but not without many qualifications. Immediately after the Civil War, state-level black codes kept nominally free blacks in a form of extended slavery, indenturing them to employers and criminalizing “vagrancy.” The U.S.  government began enforcing Reconstruction in the conquered South through military rule. Reconstruction counteracted State-imposed rights violations but also fostered a rise in government education and infrastructure projects financed through federal subsidies and considerable hikes on state-level property taxes. Government schooling became much more prevalent in the South, and by the end of the century 75 percent of the states had compulsory attendance laws.

The banking system—fundamental to any modern economy—was regulated by the federal government for most of the nineteenth century. There was a National Bank from 1791 to 1811 and again from 1816 to 1832.The Civil War birthed a new federal banking system that quickly grew, eventually culminating in the creation of the Federal Reserve in 1913.

In the late nineteenth century Benjamin Tucker identified four federally created monopoly powers that robbed Americans of their liberty—the land monopoly, money monopoly, patent monopoly, and tariff monopoly. These mostly involved federal privileges, but the heavy hand of government was also felt locally. Nineteenth-century state governments, at times working with federal authorities, displaced and killed American Indians; regulated various professions, labor relations, consumption goods, and businesses; and implemented social programs.

All in all, the U.S. regulatory state, explains Roderick Long, was not a twentieth-century innovation, but rather was “deeply involved from the start, particularly in the banking and currency industries and in the assignment of property titles to land. (Even such land as was not stolen from the natives was seldom appropriated in accordance with any sort of Lockean homesteading principle; instead, vast tracts of unimproved land were simply declared property by barbed wire or legislative fiat.)”

In substantial ways the economy of the late nineteenth century was freer than today, although some groups were heavily controlled, not least of all the southern blacks persecuted by Jim Crow laws, to say nothing of whites restricted by segregation from freely associating with these blacks.

Even nationally the twilight of the nineteenth century was a mixed bag. Veto-happy Grover Cleveland was probably the most laissez-faire president in half a century and ever since. Yet Cleveland’s terms had nontrivial blemishes: He used U.S. Marshals to quell the Pullman strike and enforce the Sherman Antitrust Act, supported the Dawes Act’s aggrandizement of presidential authority over Indian affairs, strengthened the Chinese Exclusion Act, begrudgingly acquiesced to an income tax to offset reduced tariff revenue, created the Interstate Commerce Commission, and despite a largely anti-imperialist record, threatened and used military force to assert dominance in Latin America against European influence and in favor of U.S. banking interests.

Shifting Definition

The market’s defenders often mimic its opponents in moving the benchmarks to describe historical periods as “laissez-faire.” This dangerous game does not stop with the nineteenth century.

American life before the New Deal was certainly freer in important respects, but we must be cautious in defending the 1920s. Putting aside the bloated bureaucracies lingering from World War I, the Fordney McCumber Tariff of 1922, the Immigration Control Act of 1924, and the calamity of alcohol prohibition, it was 1920s credit expansion that Austrian economists credibly blame for the boom and 1929 crash. We lose credibility in carelessly praising the pre–New Deal Era while blaming the Depression on policies enacted in that time.

Less ambitious free marketers idealize the 1950s—the decade of top marginal tax rates exceeding 90 percent (and, for the poorest Americans, 20 percent); the FCC’s puritanical regulation of the airwaves and maintenance of the telephone monopoly; the booming military-industrial complex; and the growing regimentation of industry, farming, and higher education. The transformative Great Society was in many ways an expansion on Eisenhower-era precedents more than a qualitative break from the past.

Even more desperate acts of nostalgia glorify the Reagan years. Although some government impositions were curtailed on the margins, Ronald Reagan oversaw growth of the New Deal–Great Society regime, as deficit spending exploded, Social Security and protectionism expanded, and foreign aid and bureaucracies ballooned.

None of this sober reflection backward should prompt us to see our history as an inexorable march toward liberty. There have been major advances in modern times—abolition of the draft, strengthened free-speech rights, and greater legal tolerance for minorities—but even in areas like racial oppression and personal freedom, many matters have worsened. Over two million Americans are behind bars. The drug war has devastated African-American communities. Last year the national government deported more immigrants than ever before. The war on terror has shredded basic rights. Washington’s run-of-the-mill economic interventions—in the name of health, equality, environmentalism, and fighting poverty—have escalated.The national debt and entitlement state have seen an unprecedented boom.

Neither today’s dismal state of affairs nor past oppression should make us nihilistic. History can teach us a lot about liberty. Certain areas of American life were freer in the nineteenth century than today and others were not, and the social blessings arising from relative conditions of liberty are worth identifying and understanding. Economics shows that free markets serve the masses by elevating workers’ productivity and smashing the old order of privilege and oppression. Both experience and economic science demonstrate the superiority of liberty to statism.

The golden era of freedom and free markets is not now and it’s not behind us. It is still ahead of us. This is reason to rejoice. We can happily envision a much better future.

Anthony Gregory is a Research Fellow at the Independent Institute.

This article was published by The Foundation for Economic Education and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

Gold is Good Money – Article by Ron Paul

Gold is Good Money – Article by Ron Paul

The New Renaissance Hat
Ron Paul
October 1, 2012
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Last year the Chairman of the Federal Reserve told me that gold is not money, a position which central banks, national governments, and mainstream economists have claimed is the consensus for decades.  But lately there have been some high-profile defections from that consensus.  As Forbes recently reported, the president of the Bundesbank (Germany’s central bank) and two highly respected analysts at Deutsche Bank have praised gold as good money.

Why is gold good money?  Because it possesses all the monetary properties that the market demands: it is divisible, portable, recognizable and, most importantly, scarce – making it a stable store of value. It is all things the market needs good money to be and has been recognized as such throughout history.  Gold rose to nearly $1800 an ounce after the Fed’s most recent round of quantitative easing because the people know that gold is money when fiat money fails.

Central bankers recognize this too, even if they officially deny it.  Some analysts have speculated that the International Monetary Fund’s real clout is due to its large holdings of gold.  And central banks around the world have increased their gold holdings over the last year, especially in emerging market economies trying to protect themselves from the collapse of Western fiat currencies.

Fiat money is not good money because it can be issued without limit and therefore cannot act as a stable store of value. A fiat monetary system gives complete discretion to those who run the printing press, allowing national governments to spend money without having to suffer the political consequences of raising taxes.  Fiat money benefits those who create it and receive it first, enriching national governments and their cronies.  And the negative effects of fiat money are disguised so that people do not realize that money the Fed creates today is the reason for the busts, rising prices and unemployment, and diminished standard of living tomorrow.

This is why it is so important to allow people the freedom to choose stable money.  Earlier this Congress I introduced the Free Competition in Currency Act (H.R. 1098) to permit people to use gold as money again. By eliminating taxes on gold and other precious metals and repealing legal tender laws, people are given the option between using good money or fiat money. If the federal government persists in debasing the dollar – as money monopolists have always done – then the people would be able to protect themselves by using alternatives such as gold that are both sound and stable.

As the fiat money pyramid crumbles, gold retains its luster.  Rather than being the barbarous relic Keynesians have tried to lead us to believe it is, gold is, as the Bundesbank president put it, “a timeless classic.”  The defamation of gold wrought by central banks and national governments is because gold exposes the devaluation of fiat currencies and the flawed policies of the national government.  National governments hate gold because the people cannot be fooled by it.

Representative Ron Paul (R – TX), MD, was a three-time Republican candidate for U. S. President. See his Congressional webpage and his official campaign website

This article has been released by Dr. Paul into the public domain and may be republished by anyone in any manner.

Interest Rates Are Prices – Article by Ron Paul

Interest Rates Are Prices – Article by Ron Paul

The New Renaissance Hat
Ron Paul
September 28, 2012
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One of the most enduring myths in the United States is that this country has a free market, when in reality, the market is merely the structural shell of formerly free institutions.  The federal government pulls the strings behind the scenes.  No better illustration of this can be found than in the Federal Reserve’s manipulation of interest rates.

The Fed has interfered with the proper function of interest rates for decades, but perhaps never as boldly as it has in the past few years through its policies of quantitative easing.  In Chairman Bernanke’s most recent press conference he stated that the Fed wishes not only to drive down rates on Treasury debt, but also rates on mortgages, corporate bonds, and other important interest rates.  Markets greeted this statement enthusiastically, as this means trillions more newly-created dollars flowing directly to Wall Street.

Because the interest rate is the price of money, manipulation of interest rates has the same effect in the market for loanable funds as price controls have in markets for goods and services. Since demand for funds has increased, but the supply is not being increased, the only way to match the shortfall is to continue to create new credit. But this process cannot continue indefinitely. At some point the capital projects funded by the new credit are completed. Houses must be sold, mines must begin to produce ore, factories must begin to operate and produce consumer goods.

But because consumption patterns have either remained unchanged or have become more present-oriented, by the time these new capital projects are finished and begin to produce, the producers find no market for their goods. Because the coordination between savings and consumption was severed through the artificial lowering of the interest rate, both savers and borrowers have been signaled into unsustainable patterns of economic activity. Resources that would have been used in productive endeavors under a regime of market-determined interest rates are instead shuttled into endeavors that only after the fact are determined to be unprofitable.  In order to return to a functioning economy, those resources which have been malinvested need to be liquidated and shifted into sectors in which they can be put to productive use.

Another effect of the injections of credit into the system is that prices rise.  More money chasing the same amount of goods results in a rise in prices.  Wall Street and the banking system gain the use of the new credit before prices rise.  Main Street, however, sees the prices rise before they are able to take advantage of the newly-created credit. The purchasing power of the dollar is eroded and the standard of living of the American people drops.

We live today not in a free market economic system but in a “mixed economy”, marked by an uneasy mixture of corporatism; vestiges of free-market capitalism; and outright central planning in some sectors.  Each infusion of credit by the Fed distorts the structure of the economy, damages the important role that interest rates play in the market, and erodes the purchasing power of the dollar.  Fed policymakers view themselves as wise gurus managing the economy, yet every action they take results in economic distortion and devastation.

Unless Congress gets serious about reining in the Federal Reserve and putting an end to its manipulation, the economic distortions the Fed has caused will not be liquidated; they will become more entrenched, keeping true economic recovery out of our grasp and sowing the seeds for future crisis.

Representative Ron Paul (R – TX), MD, was a three-time Republican candidate for U. S. President. See his Congressional webpage and his official campaign website

This article has been released by Dr. Paul into the public domain and may be republished by anyone in any manner.

How Long Will the Dollar Remain the World’s Reserve Currency? – Article by Ron Paul

How Long Will the Dollar Remain the World’s Reserve Currency? – Article by Ron Paul

The New Renaissance Hat
Ron Paul
September 3, 2012
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We frequently hear the financial press refer to the U.S. dollar as the “world’s reserve currency,” implying that our dollar will always retain its value in an ever shifting world economy.  But this is a dangerous and mistaken assumption.

Since August 15, 1971, when President Nixon closed the gold window and refused to pay out any of our remaining 280 million ounces of gold, the U.S. dollar has operated as a pure fiat currency.  This means the dollar became an article of faith in the continued stability and might of the U.S. government

In essence, we declared our insolvency in 1971.   Everyone recognized some other monetary system had to be devised in order to bring stability to the markets.

Amazingly, a new system was devised which allowed the U.S. to operate the printing presses for the world reserve currency with no restraints placed on it– not even a pretense of gold convertibility! Realizing the world was embarking on something new and mind-boggling, elite money managers, with especially strong support from U.S. authorities, struck an agreement with OPEC in the 1970s to price oil in U.S. dollars exclusively for all worldwide transactions. This gave the dollar a special place among world currencies and in essence backed the dollar with oil.

In return, the U.S. promised to protect the various oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coup. This arrangement helped ignite radical Islamic movements among those who resented our influence in the region. The arrangement also gave the dollar artificial strength, with tremendous financial benefits for the United States. It allowed us to export our monetary inflation by buying oil and other goods at a great discount as the dollar flourished.

In 2003, however, Iran began pricing its oil exports in Euro for Asian and European buyers.  The Iranian government also opened an oil bourse in 2008 on the island of Kish in the Persian Gulf for the express purpose of trading oil in Euro and other currencies. In 2009 Iran completely ceased any oil transactions in U.S. dollars.  These actions by the second largest OPEC oil producer pose a direct threat to the continued status of our dollar as the world’s reserve currency, a threat which partially explains our ongoing hostility toward Tehran.

While the erosion of our petrodollar agreement with OPEC certainly threatens the dollar’s status in the Middle East, an even larger threat resides in the Far East.  Our greatest benefactors for the last twenty years– Asian central banks– have lost their appetite for holding U.S. dollars.  China, Japan, and Asia in general have been happy to hold U.S. debt instruments in recent decades, but they will not prop up our spending habits forever.  Foreign central banks understand that American leaders do not have the discipline to maintain a stable currency.

If we act now to replace the fiat system with a stable dollar backed by precious metals or commodities, the dollar can regain its status as the safest store of value among all government currencies.  If not, the rest of the world will abandon the dollar as the global reserve currency.

Both Congress and American consumers will then find borrowing a dramatically more expensive proposition. Remember, our entire consumption economy is based on the willingness of foreigners to hold U.S. debt.  We face a reordering of the entire world economy if the federal government cannot print, borrow, and spend money at a rate that satisfies its endless appetite for deficit spending.

Representative Ron Paul (R – TX), MD, was a three-time Republican candidate for U. S. President. See his Congressional webpage and his official campaign website

This article has been released by Dr. Paul into the public domain and may be republished by anyone in any manner.

Republican National Travesty – and What to Do Next – Video by G. Stolyarov II

Republican National Travesty – and What to Do Next – Video by G. Stolyarov II

The Republican National Convention was a farce, in spite of courageous actions by Ron Paul’s supporters, including the Nevada delegation which Mr. Stolyarov helped elect as a State Delegate.

The change of rules by the Republican National Committee turns the Republican Party into a rigid oligarchy, with no chance for grassroots activists and ideas rising to prominence.

Mr. Stolyarov expresses his thoughts about where friends of liberty should focus next. Breaking the two-party system and supporting Gary Johnson for President, while also working outside the political system to improve individual freedom through technology.

References

Gary Johnson 2012
– “RINOs Boehner & Sununu Booed As They Change The Rules In A Major Power Grab” – Video – August 28, 2012
– “Evidence Shows RNC Rigged Vote on Rule Change at Republican Convention 2012?” – Texas GOP Vote
– “Call Off the Global Drug War” – Jimmy Carter – June 16, 2012
– “A Cruel and Unusual Record” – Jimmy Carter – June 24, 2012