All right, my friends, welcome back to Anti-War Radio.
It's Chaos 92.7 FM in Austin, Texas, streaming live worldwide on the Internet, ChaosRadioAustin.org.
And the first hour all this week from Ron Paul's campaign for liberty.
I'm Scott Horton, and introducing our first guest today, it's Lew Rockwell.
He's the proprietor of LewRockwell.com, the president of the Ludwig von Mises Institute, the center of the Austrian School of Economics in this country, and a regular guest on this show.
Welcome back, Lew.
Scott, great to be with you.
Well, it's great to have you on the show here again.
So I've been interviewing your guys, the Ludwig von Mises Institute crew, all week here about the economic crisis.
And I thought I'd like to get you on here to talk about a little bit of historical context.
And here's where I'm going to start, Lew.
Thomas Jefferson said, I think it was in a letter to John Adams when they were old men and friends again, he said, I, sir, like you, believe that banks are even more dangerous to our liberties, even than standing armies.
And he also said, and I'm roughly paraphrasing here, what I think amounts to the Jeffersonian theory of the business cycle.
He said, if the banks, and I believe he was in context talking about Alexander Hamilton's plan to combine the banks with the national government in his plan, he said, if the banks ever are allowed to control the creation of currency, they will, by a process of inflation and deflation, they and the corporations which grow up around them, will confiscate all the people's wealth until they find themselves homeless on the lands their fathers conquered.
And I wonder, what could it possibly have been in American history up until that point that even in the era when Thomas Jefferson was still alive and complaining out loud about things, that he already understood that somehow there was an inherent problem with banks issuing currency?
Well, he, you know, he knew from experience, he was, Jefferson was, by the way, a very serious student of economics.
If you look at his library at Monticello, I mean, you know, this is a man who translated J.B.
Say into English.
I mean, this was, he was a very, very significant intellectual, and by the way, I want to mention Albert J. Knox's great biography of Jefferson.
It's short, maybe it's 150 pages.
You can get it from mises.org.
It's the most interesting study of Jefferson, what a great musician he was, what a great linguist he was, what a great historian and economist.
I mean, he really was just a very significant intellectual figure of a sort that, how shall I say, has not exactly populated the American presidency since.
And he knew his economics, and he knew that banking, that is, and he was talking about two kinds of banks.
He was talking about fractional reserve private commercial banks, that is, banks that in effect inflate by loaning out the money that they're supposed to have there for their depositors, and therefore create an inflationary process.
But there's a limit to this when it's just commercial banks.
They really need a central bank of a sort that Hamilton advocated to act as the lender of last resort and to try to protect them from going bankrupt when they should go bankrupt.
And he knew that these institutions, by and large, were always lobbying and advocating for bigger government, and that the companies that benefited from these banks were also in league with the advocates for bigger government.
And so he was exactly right.
Whether they were worse than standing armies, I don't know.
But they definitely go hand in hand with standing armies.
So that we see in the history of America, if, for example, we'd not had a Federal Reserve as established in 1913, in my view, the US never could have been involved in the wars it was involved in the 20th century.
In order to fight those sorts of wars, those sorts of world wars, for those many years, you can't actually get away with just taxing people.
People won't put up with it, nor can you borrow enough money in order to do it, because that wrecks the economy, too, just like all the taxation.
So there are real limits to what government can do in every area, especially in its favorite area of property destruction and mass murder, sometimes called war.
So if it hadn't been for the Central Bank able to just print up unlimited amounts of money, I don't think we would have been involved in the war after war after war and the millions of dead people that have resulted from US interventions in all these various wars.
We wouldn't have been involved in the Iraq War if you hadn't had the Federal Reserve able to turn on the printing press at a moment's notice and just print up what Bush wanted.
This is why there's never any debate in Congress, or one of the reasons there's never any debate about the next $75 billion or $100 billion, or who even keeps track for these monstrous efforts in Afghanistan and in Iraq, because there's a central bank.
So the whole notion of government-connected, and banks have always had an unfortunate relationship with government, that government-connected commercial banks, big banks, especially as backed by a central bank, really is a recipe for disaster in terms of promoting warfare, in terms of promoting big government, in terms of the Hamiltonian agenda versus the Jeffersonian agenda, and of course in causing the sorts of terrible crises, although this is more a government crisis than a crisis for Wall Street than it is for the rest of us, but in causing these booms, artificial booms, and then ultra-real busts.
Well now, Thomas Jefferson, this is the issue which caused him to resign from the first Washington administration, his position as the first Secretary of State of this country, right?
It's great to read Jefferson, there's any number of good collections of his writing.
He really was such a wise guy, I mean he really was just an amazing man, and he was building also on what was the history of the United States, and of the American colonies in fact, before, long before he's writing to John Adams in his old age.
I mean we had terrible paper money inflations in the colonies.
The first of them Murray Rothbard points out in his wonderful book called What Has Government Done to Our Money?
, which is sort of the first thing to read if you want to begin to understand issues of money and banking.
It's short, it's brilliantly written, compellingly written like everything of Murray's, it's available for free on mises.org, you can read it in PDF or you can buy a copy, and also Murray's history of money and banking, which is also available for free reading on PDF on mises.org or again buy it, I certainly recommend having your own copy.
But in the 17th century, the colony of Massachusetts used to earn money, earn is quite the word, by sending up expeditionary forces to attack the people in Quebec, of course with the French colonists versus the American colonists.
And they'd go up and they'd steal and burn and actually they wanted furs and other things that the Quebeckers had.
So this went along fine by the standards of the Massachusetts colonial government and its army, until one year they were totally defeated.
And so they all come back and in the past they had gotten the share of the loot as their pay.
Well now there was no loot and the colonial government had no money and as Murray points out, if there's anything that makes politicians nervous, it's a bunch of armed men standing around wanting to get paid.
And there's no money.
So somebody came up with the bright idea of, hey let's just print it.
So they printed up paper money and it was only going to be just enough of an issue to pay the soldiers and that these notes would be redeemed in specie, that isn't gold or silver, after one year.
Well, the government as I guess maybe is the case for any counterfeiter, said, hey this is great, let's pay all our bills this way.
So eventually they're spewing out the paper money, all gold and silver in effect went into hiding because people didn't want to use the real money when they could use the paper money.
It's coming out at a tremendous, prices went crazy and eventually what happened was a group of the good merchants got together and petitioned the King of England who was in charge of the colony to please stop this and to let, you know, stop the paper money inflation.
And indeed he did at that time and so that little thing ended.
But a lot of economic dislocation and that sort of connection between war and inflation also made very clear.
But you had again, in the 18th century you had various colonies issuing paper money.
It's why in the Constitution that states are not allowed to issue their own paper money.
That was the excuse for including that in the Constitution.
I think Lou, the first thing I ever learned about inflation as a little kid was the phrase, not worth the continental.
And that was part of the story of the Revolutionary War was that they had printed up a bunch of paper money to pay for the Great Secession from England and that was one of the reasons, I believe I remember from, I think it was James Madison's notes, that they wanted to, Hamilton wanted to add the power of Congress in Article 1, Section 8, the power of Congress to emit bills of credit.
And I think it was some of the guys from Vermont and a couple of the other northern states who had really learned the hard way said, absolutely not, we will walk out of this Constitutional Convention and kill the whole thing if you leave that in there.
And so they struck it out.
Indeed they did fund the American Revolutionary War, the Continental Congress, by inflation, by printing up the continental currency.
And there's a famous quote by one of the members of the, and this is going to be only an approximate quote, one of the members of Congress and he said, why should I consent to load my constituents with taxes when we can send to the printer for a wagon load of money and pay for it with but a quire, meaning just a few sheets of it.
So they all thought, hey, this is great, right, just print it up.
And so indeed they, of course they had legal tender laws, you had to accept it.
And so you had instances during the inflation when the, of course the paper money had fallen to $1 and paper money was worth very much less than a dollar in silver, you actually had debtors seeking to force their creditors to pay off the debt in this money.
And you had cases, funny, but the poor lender running out the back door of his house to avoid, you know, having to take this bunch of depreciated paper in return for the very real money that he previously had loaned the guy, this terrible inflation, you know, like a thousand percent inflation during that period.
And the first American economist, Pelletier Webster, in his book on this and similar things, talks about seeing a sailor drunk in a suit made entirely of continental notes.
Somebody had sewed together a suit of paper money and that's, you know, that's about what it was worth at the end.
And yeah, so, however, some people, as in all these inflations, benefit from it, especially the people emitting the notes.
And yeah, you're right that Hamilton wanted that in the Constitution.
They didn't put it in the Constitution.
Of course there was a very unfortunate, I think there are a number of things wrong with the Constitution, and this is one of them, a very unfortunate compromise.
So while the states are forbidden from emitting bills of credit or from making anything a legal tender except gold or silver, Congress is not forbidden from that.
And the good guys in the Constitutional Convention wanted to forbid Congress from being able to do that.
So this was a deliberate compromise to allow a loophole, which of course Hamilton immediately wanted to take advantage of.
Well, it is forbidden in the sense that it's not in Article I, Section 8 and the Tenth Amendment was ratified.
I know, but I mean, at the Constitutional Convention, this was all discussed and the compromise was they wouldn't address it.
Remember that the Ten Amendments came later and they were forced into that by the Anti-Federalists.
Right.
Yeah, I remember Jefferson, in a letter to George Washington, I think, said that if you do this, not only is central banking a bad idea for all the reasons I've just outlined above, and it's a bad plan to do this, but beyond that, you're George Washington, the first president, and you will be setting the precedent, and I think he said you'll be stepping foot onto a boundless field of power from which there will never be any return.
Yeah, and of course Washington had no problem with doing that, and neither have his subsequent people.
And by the way, you know, it was sort of the 18th century version of the current rip-off, that you had all the bonds that had been issued by the Continental Congress, they didn't issue just paper money, but they issued bonds that had been bought up by wealthy speculators at, you know, just a cent or two on the dollar, and then Hamilton immediately argued for redeeming them at par, and taxing everybody else in order to redeem his pals in Philadelphia and elsewhere who had bought up these bonds at the depreciated price, and then he did bring that about, that was this rip-off, sort of an early version of the Wall Street bailout.
Yeah, I remember also reading a letter from Jefferson, I think to Madison, explaining that he saw Hamilton on the steps of, I guess, the Capitol in Philadelphia, and had a big argument with him, and concluded that Hamilton's trip to England, and I'm not certain which trip that was, but whatever trip it was that he took to England completely infected him with all these ideas, and with the idea especially that being in debt to the English would be a great way to keep the peace between the two, or something like that, and so, basically he's just hopeless, James, I don't know what we're going to do, I think I'm going to resign.
Tom DiLorenzo, the author of the great books that have overthrown the idol Abraham Lincoln, has a new book coming out in October on Hamilton, and one of the things that Hamilton, that he ascribes to Hamilton, is that he's the father of central banking, he's the father of the Federal Reserve, the father of much else, evil, and centralized power, and government of, by, and for the plutocracy, and many of the other things that we see today, but I've not read this book yet, but knowing Tom, I'm sure it's a brilliant demolition of Hamilton, the first Treasury Secretary, and the founding father of a lot of evil.
Now, you brought up Lincoln there, but we don't want to get to him yet, because I still want to know what you know about the Jefferson and Madison, and maybe even Monroe eras, and how they dealt with the central bank that Hamilton had created, and then we've got to discuss Andrew Jackson and his war against Francis Biddle.
Well, as you know, the War of 1812 was funded by the first American central bank, and there was a vast inflation, there was a depression after that, a panic, as they called it in those days.
In fact, the Panic of 1813 is the title of Murray Rothbard's Ph.
D. dissertation that he did on this first big-scale American business cycle caused by paper money inflation and central banking, and so, yeah, but eventually, the thing was abolished by Andrew Jackson.
I'm not a fan of Andrew Jackson in most things.
He was a big centralizer.
During his administration, you had the so-called nullification crisis when he passed a huge tax increase, in those days, a tariff increase, and you had lots of people resisting it, and the state of South Carolina said, we're not going to pay the tariff, and that we have the right as a state and building upon the Kentucky and Virginia resolves that Jefferson and Madison had written in the 18th century, said, we're not going to allow you to collect the tariff in our state.
So you may have your guys at Fort Sumter and everything, they're not.
So you had Jackson threatening to start a war and to invade South Carolina to make him pay the tariff.
It's a very interesting pre-Civil War situation that is exactly like the Civil War except minus slavery.
You know, we were told that slavery was the cause of the Civil War.
Well, here was this exact same thing going on, because Jackson was a big slaveholder.
He sounds like Lincoln, if you read what Jackson is saying.
So I'm no Jacksonian.
He was also the guy that helped the Georgians do the Trail of Tears to Oklahoma, too.
I was just going to say he was responsible for the ethnic cleansing of the Indians from the state of Georgia, rather than doing what the good guys at the time recommended.
So why don't they allow them to have their own state?
You know, just have, in effect, an Indian secession from Georgia and let them be a state.
Well, of course, Jackson's choice was, again, this murderous, sent the army down, and many, many thousands and thousands of people died on what, as you say, is called the Trail of Tears, forced by soldiers to march at speeds faster than they really should have been, all the way to Oklahoma, where, of course, they were to later be dispossessed again once the oil was discovered.
But yeah, Jackson...
This monster, he took on the Central Bank.
You know, all these presidents, they all got their problems.
We've never had a situation in which we were freer after some guy's tenure on office than before he got in.
Never in American history.
Every single president has left the government bigger and more powerful than he found it.
So it's a...
Maybe the exception of William Henry Harrison, my favorite president, who died right after he was inaugurated.
So I guess I can say that he didn't do that.
However, Jackson hated the Central Bank, and he wanted to abolish it.
And there was a huge political fight, all kinds of bribes, all kinds of tremendous propaganda in the newspapers smearing Jackson's wife, and all kinds of...
They're willing to do anything to keep the game going, but he vetoed the bill, and he wouldn't allow the bank to be continued, and he set up what was called the Sub-Treasury System, where the U.S. Treasury had offices in various cities for deposit of gold and so forth.
Not an ideal situation, but not a central bank.
So it was...
It's a wonderful thing he did.
It wasn't until Lincoln's national currency system and Lincoln's vast paper money inflation with the Greenbacks that we had the beginnings of not quite central banking, but some aspects of central banking, and certainly monetary depreciation for the benefit of the military contractors and the government, just as usual.
Right.
Now, the Jackson story, if I remember G. Edward Griffin's history of this correctly, in The Creature from Jekyll Island, he says that Jackson, in order to defeat Biddle and win re-election, he had to team up with a bunch of wildcat bankers who really operated under the opposite premise from him.
He thought that here was this central bank allowing all these banks to commit all this fraud and create all this new money, and wanted a gold standard, whereas the people he had to ally himself with to oppose a central bank, they wanted no limit on their reserve ratios.
They wanted to be able to commit as much fraud as they wanted, and that they went and created their own inflationary currencies and caused all kinds of panics themselves in the meantime between Jackson and Lincoln.
Is that right?
Well, you know, there's some truth to that in the sense that the wildcat banks, and they were called that because they typically located out in the rural areas, wild areas where the wildcats roamed, and they did it so that it didn't make it difficult for people to redeem their paper notes, so that they didn't want to have an office in an area where there were a lot of people.
They wanted to be way out in the boondocks, so you'd have to go a very long way to get gold for your notes, and they did indeed have these over-issue of notes, far more than the actual money they had in their vaults, not 100% reserves, not a one-to-one situation, which is honest banking and honest commercial banking.
There's no way that they can cause a nationwide panic, even a significant regional panic, because at some point, there are always runs on the bank.
And this was true even in what happened, how the market took care of these things and kept these guys in check was you had people who would go around, businessmen who would go around and offer to buy up these notes, which were selling at a discount, and then they would get higher private guards to protect them, and they'd bring a huge wagonload of money to the bank and demand, as these notes said they could demand, gold.
And a lot of times, this would shut down the bank, or if it didn't shut down the bank, it kept them from going too crazy.
So the wildcat banks had their problems, but nothing like the modern commercial banks and cahoots with the central bank.
But have we ever had a really legitimate monetary system in this country?
No, but whatever the problems of that era, and there were some problems because of bankers wanting to do something that's inherently fraudulent and make money off of it.
And there are a lot, by the way, the law allows them, to this day, your deposit is not your property, it's treated legally differently for banks.
They have all kinds of special legal privileges.
It all goes back to what happened to the development of banking through goldsmiths.
It was originally goldsmiths who started doing this, and what happened was they'd have a lot of gold deposited with them, they had the proper vault and the proper protection and so forth, and so people would leave gold with them.
But at some point, you know, and then you'd be issued a warehouse receipt that on deposit at the bank of so-and-so, the goldsmith, I have 25 ounces of gold.
So of course it soon became, if the guy was trusted, it soon became possible for somebody to just use, a businessman to use that receipt in commerce, to buy a ship or whatever, and so soon these things are trading, these warehouse receipts are being used, these are money substitutes that are being used in trade.
So the goldsmith soon figured out that, well gee, I've got all this gold here, I've issued these warehouse receipts, you know what would be really neat, I'll issue more warehouse receipts than I've got gold.
And then I'll be able to spend them and, you know, buy my wife something or buy a new house.
So this was the beginning of fractional reserve banking.
But as you're saying though, you can commit fraud to a certain degree, but left to their own devices in a market, they don't get away with it long, whereas basically what central banking does is it institutionalizes the pyramid scheme and says, don't worry, everybody can commit as much fraud as you want, the name of the game here is bailout.
Yeah, and the banks can't go too far because of the great market institution that Murray Rothbard always praised, the bank run.
And you see it sometimes in old Western movies and that sort of thing, when everybody lines up, hey, the money's not in the bank, and they line up and soon the place is out of business.
So the fear of that keeps even wildcat banks from going too crazy.
So it's not an ideal situation, but again, nothing like the vast torrent of loose money and credit that can be created by the banking system in cahoots with the central bank, as we've seen, you know, just recently since 9-11.
Okay, now what about James K. Polk and the war against Mexico?
How did he finance that?
That was after Jackson, right?
Yeah, he financed it via taxes and borrowing.
It was not actually financed by inflation, but it was a very easy war.
And if the Mexicans had been able to sufficiently resist, and if there'd been a longer war, he wouldn't have been able to keep it up because, you know, people develop what was called in the past war fatigue.
That is, they get sick and tired of paying the taxes.
They may be fooled into the propaganda of the moment, hey, great, you know, and cheer the boys going off with their muskets and the drums and the colorful uniforms and so forth to go get the horrible Mexicans.
But at some point, when your standard of living is being drastically lowered to keep this thing going, thank goodness people say, hey, wait a minute, that's enough.
So in the past, without central banking, there's been a real limit on the length of wars that governments were able to fight.
So it's why the Civil War was able to be so much vaster a war, so much more expensive of a war, obviously so many more people killed and so forth, than the war against Mexico was.
Because of the greenbacks.
Because of the greenback.
And you know, it's funny, because some critics of the Fed cite the greenback as a better way to do it.
How come these bankers get to create credit out of thin air, but then we have to pay them back face value plus interest for money that they never even had?
That's not fair.
Why not just have the government create new money and spend it into circulation, Lew?
Well, you know, you definitely hear that sometimes they even call it Lincoln money.
And populists generally believe that what's wrong with the Federal Reserve is it's private.
It's, by the way, not private.
They think that's what's wrong with it, it's private, that there's interest rate, they have, you know, a very crazed and primitive prejudice against interest rates, which, you know, they call usury, unfortunately, in the Old Testament, too, is where they get it.
But the, and for that matter, earlier thinkers were opposed to interest as well.
So yeah, they think that just having the government inflate directly, I hate to say this, but as bad as that is, it's not as bad as our current system, and not for the reasons any of these people think it would, it would actually be a slight improvement if the Treasury just printed notes, rather than do it through the banking system.
Because what happens when they do it through the banking system, is it causes depressions and recessions and artificial booms, much more than just simply doing inflation in the way that Kublai Khan did it, Marco Polo, in his wonderful adventures, which at the time and subsequently a lot of people thought was a pack of lies, was not a pack of lies, it's a wonderful and accurate story of his travels.
One of the stories he tells, he's visiting China and the Mongol emperors at that time, and Kublai Khan was the emperor, and he says, the most amazing thing, you know, they use paper money instead of gold or silver, and the officials just sign the note, and then everybody takes it.
But then he said that some of those people didn't want to take these notes, and the penalty was death, exactly as it was, by the way, in the French Revolution, if you didn't want to take the revolutionary government's paper notes, you could be killed.
On the other hand, it's not actually possible to make people take currency in that sort of situation, the government can't actually enforce it, and indeed they ended up having to return to a gold standard.
And now, you know, I think it's so important that you bring up Marco Polo in China, that kind of thing, because, and I don't remember if this is the same source of the story or not, but Gerald Griffin talks about that in Jekyll Island, too, the death penalty for not accepting debased currency in China, and he goes through, I don't know, a dozen or two dozen, maybe, stories throughout history of, it's the same thing, it doesn't matter where you are, it doesn't matter what century you're in, you're always going to have a government that tries to monopolize the currency and debase it for their own interests.
No, and of course, money developed originally as the most liquid good for use in commerce by merchants, and eventually settled on gold, but of course then government seized it, stamped the king's picture on it, and inevitably debauched it.
In the old days, however, there was a limit.
If you look at, say, the Roman coins, in the days of Augustus, the denarius was almost pure silver.
After a few more emperors and a lot of inflation, the coin is copper, just coated with silver.
So there was inflation, but they can't actually, they can't do anything but make the coin worthless.
They can't actually do anything more than that.
With paper money, they can just, you know, there's no limit, and as we've seen ever since Richard Nixon on August 15, 1971, severed the final tie between the dollar and gold and made the US monetary policy entirely discretionary for the Federal Reserve, they had no limits on them whatsoever.
They can do far more than any ancient king or emperor or Kublai Khan, there's just a far more efficient system of debauchery.
Well now, how did it work in the Gilded Age, I guess the Morgan era, between Lincoln and Theodore Roosevelt?
It was basically J.P. Morgan acting as the central banker, but he could only do so much, that kind of thing?
Well, there was a so-called national banking system, and there were certain favored national banks that were in cahoots with the government, a shocking situation, I'm sure you'll know, who were given, could issue notes, but there was no central bank, and when there was a crisis caused by too much note issue, Morgan organized all the other bankers in New York to fix it, and indeed they did fix it, and their commerce returned and everything was fine.
On the other hand, unfortunately, J.P. Morgan was decided from this that he shouldn't have to do that again, and that the government should do it, and that we needed a central bank, and so J.P. Morgan, Kennedy Rockefeller, the Kuhn Loeb interests, and so forth, all got together and organized a propaganda campaign for a central bank, which America hadn't had in a very long time.
Well, and you know, one of my favorite parts of that propaganda campaign, and this is, of course, the Fed itself is the creature from Jekyll Island, the little island off the coast of Georgia, that I guess was Morgan's little private island where they met and wrote this thing up, was that they actually opposed it.
Nelson Aldrich, I guess they had originally introduced it in the Senate, and everybody knew Nelson Aldrich's daughter had just married John Rockefeller, Jr., and that kind of thing, so it was kind of dead on arrival there.
And so they had some Democrats introduce it in the House, and all the Republicans and Morgan and Rockefeller-type interests went around giving speeches to the chambers of commerce across the country and so forth, saying, it's Bolshevism, it must be stopped, and so the whole country thought, well, if Rockefeller and Morgan are against it, we're pretty sure this is a good idea, let's break the grip of the money trust by passing this Federal Reserve Act.
Well, it's pretty much the case.
I mean, what they actually did was, part of the propaganda was that there'd be no more business cycles, part of it was that there'd be no more inflation, and that there would be, however, a flexible currency, so that when more money was needed in terms of the farming cycle and that sort of thing, there'd be more, but not too much.
But the key thing about the Federal Reserve was it would break power of the big bankers, they would never be able to harm the American people again.
But, of course, it was the big bankers who had actually written the legislation, and by the way, I highly recommend a visit to Jekyll Island, Georgia.
It's a pretty little island right off the Georgia coast.
It's a park now, and you can go to the former J.P. Morgan Club, which is a hotel, and you can visit all the so-called cottages, actually beautiful mansions, of the Rockefellers and all the various other people who were associated with Morgan.
And you can actually go in the room where the Federal Reserve Act was drafted.
So it's a very neat thing to visit, I highly recommend it.
Yeah, actually, last time I was in Atlanta, I was looking at the map and thinking, ah, gee, I think that's a little too far, but maybe someday.
Well, the Mises Institute has helped two anti-Fed conferences at Jekyll Island.
Really?
Yeah, and maybe we'll do another one and get you to come down to that.
That's funny.
Alright, so this thing was basically signed into law at the end of 1913, the war broke out in Europe, I guess just a few months later, and then by 1917, America was in the war.
Now, what's the relationship between the Federal Reserve Bank and America's war effort and the Wilson administration?
Well, Scott, as you know, to me the conundrum is, do they fight wars to inflate, or do they inflate to fight wars?
Yeah, a little bit of both, maybe.
But I think it's both.
And of course, just I'm sure by the merest happenstance, that the J.P. Morgan crowd, which was entirely in cahoots with similar interests in England and with the English government, then you had the horrific disaster of World War I, probably the worst disaster in the history of Western civilization, especially because part two of it was World War II.
They really are just two parts of the same war.
And so having a central bank, of course, Woodrow Wilson, by the way, it's just not the Democrats.
William Howard Taft, the Republican president, also supported, of course, the establishment of the central bank.
So they turned up the printing presses, and there was a vast artificial boom.
This is the way they funded all the war spending.
But as with any of these artificial booms, they're always followed by a bust.
And goodness, the bust came during the administration of the heroic Warren G. Harding, one of my favorite presidents.
And Harding, who was too busy playing poker and drinking and having a good time, didn't do anything about it.
And as a result, the depression, and it was a depression, of 1920 and 21 and so forth, was very short and very sharp.
So everything was liquidated.
I heard Ron Paul bring that one.
Ron Paul brought that one up on Fox News just yesterday.
He said, yeah, there was a crash right after the war, but we don't even remember it, because it was over quickly, because nobody did anything.
And then they did the exact same thing again, created a whole brand new bubble.
We know it as the Roaring Twenties.
Well, that's right.
But Harding, and by the way, just to mention that, since I was talking about all the bad stuff about Andrew Jackson, let me just mention two good things about poor Warren G. Harding, who is so besmirched by all the presidential historians.
He immediately released Eugene Debs from prison.
Debs had been imprisoned by the monster Woodrow Wilson for saying in a speech that young Americans should not be used as cannon fodder for the war in Europe, and that the conscription bill was unconstitutional and a moral disaster and so forth.
He was put in jail.
His health was destroyed.
He was particularly treated badly as a political prisoner, and Wilson always refused to release him even after the war.
But Warren G. Harding did release him.
Harding, too, pulled the American troops out of Haiti.
America, always an imperial power, of course, was occupying Haiti at that point.
He pulled the troops out.
So Harding, I kind of like Warren G. Harding.
By the way, Debs' speech that got him thrown in prison can be found if you just click More Viewpoints.
They're about in the middle of the page at antiwar.com.
Okay, I'm just going to tell one quick story about Wilson.
John V. Denson.
Oh, please do.
I love Wilson bashing.
John V. Denson, editor of two great books, one called The Cost of War and the other An Attack on the American Presidency, and also take a look at his archive on lewisrocker.com.
He had a relative who was at a man called Wild Bill Denson, who was at a dinner party in Birmingham, Alabama, and denounced the idea of conscription and criticized Wilson that this is a dinner party.
He's arrested for subversion, for comments made at a dinner party, arrested, tried, and convicted.
He was going to be sent to prison, thank goodness the thing was overturned, because it turned out that the particular law that made criticism of Wilson and his greatness illegal had not been signed into law when he made these remarks.
So he didn't have to go to prison, but that was the sort of atmosphere, the totalitarian atmosphere under the monster dictator Woodrow Wilson, who was also, by the way, the great inspiration of Franklin D. Roosevelt, who was Wilson's assistant secretary of the Navy.
Yeah, I think that's great that they let him off on the ex post facto, but not on the First Amendment or property rights.
No, no, the First Amendment had no relevance at all.
And in fact, let me just add there real quickly that on LewRockwell.com, your website, the brilliant Joseph Stromberg has an article called, Remembering with Astonishment Woodrow Wilson's Reign of Terror in Defense of Freedom, all about the war on domestic dissent during the Wilson years, and it's just a great article, the best.
Well, you even had, for example, German teachers lynched.
I mean, it was a very, very bad period when people of German descent were forced to change their names and you had the Boston Symphony Orchestra refusing to play any music by German composers, anything by Beethoven or Bach.
I mean, the whole, you know, the hysteria that we associate, say, with the period right after 9-11 is not new.
The sort of war hysteria has taken place before in American history.
Okay, now, Roaring Twenties, inflationary bubble, the Great Depression and why it lasted so long.
Well, during the 1920s, there was vast increase in the money supply.
It did not raise the general price level, quote-unquote, the price level, but it kept it stable, which is a very bad sign because in a free market economy, especially a far freer market economy in the 1920s than now, prices should be gently falling because there's more and more goods and services being produced and the money supply is not going up, money becomes worth more, prices fall.
But there was, you did have booms in the stock market, booms in Florida land, and other areas, other areas of the economy, and it all came to an end in, you know, in 1929.
So what Herbert Hoover did, as Murray Rothbard points out in his great book, America's Great Depression, he really prefigured all of the New Deal.
I mean, it was Hoover who set out to keep prices high.
He had the view, the same view, by the way, that Bernanke and Bush and Paulson have, that you can't ever let prices fall to reflect reality.
After real economics, Austrian economics tells you that the damage is done during the boom, not during the bust, the economic damage takes place when interest rates are lowered artificially by all the inflation, there are all kinds of bad business decisions made, bad investments that are made.
These have to be liquidated.
But Hoover and then Roosevelt sought to do everything possible to keep prices high, labor prices, commodity prices, so that we ended up with 25% unemployment.
And you had such things as farmers being ordered to plow under every other row on their farm of crops, killing pigs, killing cows, anything to keep food prices up.
You know, at a time when people are poorer, they're doing everything to make them even more poor.
So Hoover, of course, even though a great guy on foreign policy, so it wasn't all bad, and a great guy later in American life and opposing the atomic bomb and the Cold War, and he was just, he had good things about him, Herbert Hoover.
But like many of these guys, as a president, he was a total monster.
And he, in effect, prefigured the New Deal.
And Franklin Roosevelt kept this up.
So you would have had, just like earlier in the 1920s, you would have had a short, sharp depression, and then you could have built on prosperity again.
But because of what Hoover and Roosevelt did, bailing out failing industries, so that the wealth destruction continues, keeping prices artificially high, wages artificially high, by even sending around vigilante forces to make sure that the local tailor wasn't lowering his prices.
I mean...
Vigilante forces?
Yeah, government-licensed groups of spies to go around and report to the authorities and also try to stir up popular mob action against somebody who was lowering his prices.
I mean, it's, you know, again, you know, hysteria.
So they did everything wrong, and as a result, we did not get out of the Depression until 1946.
Well, and a big part of that, too, was didn't they raise all the protective tariffs?
And they said, well, all the foreigners are taking our money, we have to stop all this foreign trade, and they raised all the barriers.
You know, it's certainly alarming that the monster Bush, in his talk last night, was blaming foreigners for the present crisis, because they were sending too much money to invest in America.
I know, I saw that, the foreign devils, how dare they?
So that's, so yes, they did also, you know, vastly increase taxes on foreign trade, that is tariffs, and domestic taxes, income taxes, corporate taxes, because the government's revenue was falling, therefore, of course, they had to continue to live in the style to which they had become accustomed, so they had to loot the people even more.
But of course, this is, you know, these are all like you had a playbook from the devil that would say, how to ruin the economy, the following, you know, seven points, and that's exactly what they did, just like it's exactly what Bush and Paulson and Bernanke are doing today very alarmingly.
Now Keynesians would try to tell you that World War II got us out of the Depression, which is absolutely ridiculous, read the great Robert Higgs, for example, on this.
I mean, it seems to me, you only have to stop and think for a moment, that the production of bombs and planes and bullets and bombers and so forth, artillery guns, with absolutely no economic value except in murdering people for the government, what happened was they drafted all the unemployed at 16, you know, whatever they were paying, 16 a month or whatever, a very low figure, killed a lot of the unemployed, of course, and had vast war industries, so that they did pretty much end unemployment by sending everybody, you know, drafting the unemployed and sending them overseas.
But the private part of the GDP fell dramatically during World War II, which you might expect, even though the government, of course, got very, very rich, and as Bob Higgs points out, it was only in 1946 when the, and typical economists go by these government statistics, but you can't, GDP plummeted after World War II, but that was because the government was shrinking, last time that happened, by the way, massively shrinking, the private sector massively booming, and Bob points out that 1946, the greatest year of American, of economic growth in American history, he calculates it at 30%, 30% real economic growth in one year because the steel bands of central planning and monstrous redistribution that had been erected and fastened on the economy during World War II were removed.
Well, the War Party saw to it that that didn't last, of course, they ginned up the Cold War as soon as they could, and they didn't want, I guess, for their friends who had turned to manufacturing the weapons of mass destruction to have to, I don't know, go back to making plow shares or whatever their business used to be, and so I guess it was Senator Vandenberg told Harry Truman, scare the hell out of them, Harry, and they pretended that the Soviet Union, which had just lost 20, 25 or whatever million people fighting the Nazis, were about to conquer the whole world if we didn't stop them, and so rather than disarming, as had always been the case after American wars, and there had been a lot of them and a lot of precedence of that disarmament coming later, that didn't really happen.
It started to, but then Truman turned that right around.
No, the monster Truman, of course the murderer of Nagasaki and Hiroshima and a committer of many of the, you know, the seizure of the steel mills and just a fascist monster, deliberately started the Cold War.
I mean, the U.S. started the Cold War.
That seizure of the steel mills, was that C-E-A-S-A-R, or...?
Well, we're probably giving the little creep too much credit to call him Caesar.
Oh, okay, I'm sorry, I just wanted to make sure I understood you right.
So he, yeah, he started the Cold War in order to keep the government, to bring back central government glory and power.
Government loves war, government hates peace, and so they're always looking for wars to start, and in some sense the Cold War, like so-called war on terror, is their ideal war because it can go on forever, it can't be won.
Of course, you know, thank goodness the Soviet Union collapsed and ended the Cold War, much against the American government's will.
They were very, I remember how unhappy they were.
I remember the blood draining out of Bush's and Baker's faces as they came on television to talk about the collapse of the Berlin Wall.
These were two unhappy guys, because of course the chosen enemy was going away.
They soon came up with another one.
But they love the Cold War, they love the war on terror, because it's not a hot war, the government itself is not threatened.
That's all they care about, by the way, the government itself would be threatened.
So you can't have the government destroyed, and it's only good for the government versus the rest of us to have these wars, and the Cold War was financed by inflation, the Korean War by inflation, the Vietnam War by inflation, all the other and of course the Iraq War, the war in Nicaragua, by some counts there have been 200 wars waged by the U.S. since World War II alone, certainly 200 military actions anyway.
Well now, so some are saying that maybe this is the end of our empire, that maybe, well you know Ron Paul always said during his presidential campaign that the empire is going to end, but it isn't going to be because you people finally start listening to me, it's going to be because of what I've been telling you, this won't work, we're broke, we can't do it.
Of course Ron Paul, the great prophet of all of this, if you look at his book, Pillars of Prosperity, available at Mises.org, you see how he for years has been saying exactly what was going to happen, what Fannie Mae and Freddie Mac meant, what that was going to do to the housing market, what the result would be, what the result of the Federal Reserve's actions would be, I mean he's called it every single time, and I'm glad to see he's getting a little bit of recognition for that now.
Yeah, it's great to see him all over TV, it's too bad it's the timing of it I guess if it had to happen, but so do you think that it's possible that the American people or somebody in the state is going to have to figure out, like the guy that came forward who was the head of the Congressional Budget Office who said, hey we're an empire like Rome and we can't do it, we're going bankrupt, there are people like that inside the state, right?
Is there any chance that this will actually be the end of the empire?
As you point out, the key pillar of the empire is the dollar, is the world reserve currency.
This is one of the reasons the US maintains its troops in so many different countries.
It's why we're still occupying Germany and Japan all these years after World War II, because if there's a guy with atomic weapons living in your backyard and he asks you for a loan, you're not going to turn him down.
So that's one of the reasons that the US maintains the empire, but who knows, I mean the present, what they're doing in their present non-crisis, and it's only a crisis for Wall Street and some banks, it's not a crisis for the rest of us, that despite the unbelievable hysterical propaganda from Bush and from all the rest of these officials about how the world is coming to an end, if we don't immediately send a quadrillion dollars to Goldman Sachs.
But all this stuff they're doing can bring down the dollar, it's dollars dropping as against other currencies, even against other inflationary fiat currencies, and as Ron Paul has pointed out, this can actually wreck the dollar.
And don't believe the $700 billion figure, there's never been a government spending projection that was accurate, they always deliberately understate it, and then of course everything they do costs more than what they think anyway.
So I don't know, what is this going to be, a $1.5 trillion bailout, a $2 trillion bailout, then they have to bail out the FDIC, I think most alarming, and they actually tried this in the 30s, despite what Ben Bernanke lied about to Ron Paul, they did not try to liquidate anything.
Hoover was a big inflationist, just like Roosevelt, in the famous phrase, when they pushed on a string, the other side didn't react.
Nobody wanted to borrow any money in the Depression, no banks wanted to be involved in lending money, and so despite the Federal Reserve's attempts to inflate, it didn't work and there was a big deflation.
The one great thing about a Depression, by the way, is deflation that people, you may be poor but prices are lower, but of course the government did everything possible to keep prices up, thereby robbing people of the one good thing that results from an economic downturn.
So here we are with the exact same thing going on now, and yeah, this actually could bring down the empire, the whole regime is threatened by this, this is not good for them, even though I guess they probably, by bribing, by threatening, by bludgeoning, they will get this bailout through, but they've made a decision, if necessary, to bring on hyperinflation to make sure that nobody on Wall Street gets hurt.
I mean, they're actually choosing the Weimar solution, they're choosing to do what the Weimar German government did when they were illegitimately loaded with war reparations, even though Germany was not responsible for starting World War I, but they were treated as if they were, and they made the decision to just print up money to pay the debt.
You think it could be that bad of hyperinflation?
You think it could really be that bad of hyperinflation?
Oh yeah, because it's not that these guys sit down and say, well we don't care if there's going to be hyperinflation, we're still going to do it, because of course they're too much the masters of the universe in their own mind, but they're not actually in control, because hyperinflation depends on what's in our heads, it's how we value the dollar, it's what we think economic conditions are, it's what we think that the future inflation rate is going to be.
When I say they've made the decision to go for hyperinflation, I don't think anybody's consciously made that decision, but the decisions they're making can bring on hyperinflation, and they definitely are making the decision to print versus liquidate.
So the only healthy, moral, rational thing to do in the current situation is to let the bankrupt go bankrupt, let prices of housing and other things fall to their market level, and then you build for the future.
Bob Higgs and others point out, again, this is not a crisis for America, not a crisis for the world, it's only a crisis for certain plutocratic business interests, and of course they in some sense own the state, or certainly the state and they are in partnership, and we already have a fascist economy, it's being made more fascist even as we watch over these last couple of weeks.
They're having trouble because they didn't have time to weave their normal propaganda curtain to cover this up.
It's a little too openly a bailout of billionaires by regular working people.
They couldn't quite disguise that, that's why they're having trouble, and I'm afraid they're going to get it through.
I hope to goodness that they don't, but if Obama had a decent, unowned bone in his body, he would come out against this bailout and immediately be elected president and be the hero of the western world.
But his biggest donor is Goldman Sachs, and he's Bear Stearns, and former Lehman Brothers and all these firms are big backers of Obama just like they are of McCain, so these guys are both wholly owned.
They talked today about rising above politics to all endorse the bailout, well of course the bailout is politics, it's ridiculous lies of the regime.
The most vicious kind of politics is robbing the poor to enrich the rich, and the government itself, it's the American system, but it sure is an outrage, and we can certainly hope and pray that there's a chance to stop it, but I'm afraid they're going to fasten it on us.
On the other hand, it's diminished the regime's legitimacy, everybody sees them for what they are, as Murray Rothbard said, a gang of thieves writ large, they're not doing this in the public interest or whatever, nobody, no American is for this, this is the entire American people versus the state and the power elite, it's a great moment, and if we ever are able to bring down the regime, if we're ever able to reestablish freedom, if we're ever able to end the fascist system that has been fastened on us and on the rest of the world by the U.S. government, this is what it will look like, you'll see the entire people united against the state and the power elite, and that time the bad guys won't be able to stand against us.
Well, and you know, I like to think that even though Ron didn't get the nomination, that he spent enough time invoking America's best traditions and the founders and the Constitution and liberty and free markets and property rights to kind of remind the American people, at least if they've heard of that stuff before, that maybe we'll turn to a more market-based solution when this thing is passed rather than another new deal, but I don't know.
Well, Ron Paul, of course, is a hero.
I mean, he is the great libertarian hero, and look at him in this crisis, look at what he's saying.
Just the other day he was denounced in all the Texas papers for refusing to vote, the only guy in Texas to refuse to vote for the welfare for victims of Hurricane Ike, and they are victimized, they've been victimized by the Houston and Texas government, of course, and the U.S. government in FEMA, but Ron wouldn't vote for it, so he doesn't believe for welfare, even for his own congressional district.
What a man.
I mean, he just is such a great libertarian, and he actually knows economics.
I mean, he doesn't formally have any degrees in medicine rather than economics, but he is an economist, he's a great economist, and he's a great teacher of the Austrian school.
He's taught millions of people about real economics, about sound money, about sound banking, about the evil of the Federal Reserve over these last, really over the last 30 years, but especially in the presidential campaign.
So he's laid the groundwork for the hope we've got for the future.
I think there is hope for the future.
I think the regime has been damaged by this.
If the dollar comes down as the world reserve currency, that will also be good news, although we'll suffer from it, but we're going to suffer no matter what they do.
So if the empire is ended, greatest news ever for the American people and for the people of the world.
I think they are not entirely in control of the situation.
The market is far bigger than the Fed or the government, and they can't actually do this indefinitely.
Maybe they're going to get away with it this time.
Next time, maybe they won't but at some point, they won't get away with it.
Then we'll be in a truly revolutionary situation, and it's the job of libertarians at that point to argue for freedom, for sound money, for sound banking, for no Federal Reserve, no more warfare state, mind our own business, pay attention to our own problems, and become real Americans again.
All right, everybody, that's Lew Rockwell.
He's the president of the Ludwig von Mises Institute.
Of course, the most popular libertarian website in the world is his, lewrockwell.com.
Thanks very much for your time today on the show, sir.
Oh, Scott, great to be with you.
