All right, that was some storm troopers of death for you, Chaos Radio 95.9 in Austin, Texas.
I'm Scott Horton.
We're streaming live worldwide on the internet at chaosradioaustin.org and at antiwar.com slash radio.
Our first guest on the show today is Thomas E. Woods.
You can find his website at tomwoods.com, he's a senior fellow at the Ludwig von Mises Institute.
He's the co-author of Who Killed the Constitution with Kevin Gutzman, he's the author of The Politically Incorrect Guide to American History, co-editor with Murray Polner of We Who Dared Say No to War, author of 33 Questions You're Not Supposed to Ask About American History, quite a few books about the history of Catholicism and how the Catholic Church built Western civilization and the church confronts modernity and all kinds of things if you're interested in those things.
And of course he's the author of Meltdown, a free market look at why the stock market collapsed, the economy tanked, and government bailouts will make things worse.
Welcome back to the show, Tom.
How are you doing, man?
Scott, I'm doing great, and in spite of the fact that you have probably got the worst musical taste of anyone I know, I nevertheless consider you one of the great heroic figures in American life today.
Yeah, well, it just goes to show where your standards are, man.
You don't like S.O.
D.?
Seriously, come on.
Look, we're a big tent, though, right?
We're a big tent.
Yeah, we're working on it.
Not everybody likes S.O.
D., I guess I understand that.
It's a generational thing, maybe, although you're only a couple of years older than me.
Yeah, that's right, you bastard.
My dad would resent that remark, but anyway, all right, so, hey, let's talk about the evil of central banking.
This is my favorite thing.
Oh, great, sure, yeah.
The Institute just had an event on this last weekend at Jekyll Island, Georgia.
If that ain't the coolest thing.
Yeah, those people out there who know anything about the Federal Reserve, they immediately hear Jekyll Island, and they know that this is the scene of a crime.
This is where the major bankers in 1910 converged for a secret meeting to discuss basically how to organize American banking on behalf of the public good.
Oh, wait a minute, no, that's what only a stooge would think.
No, no, no, but of course they did what all interest groups do.
They thought, how can we organize American banking in order to keep our scam going and allow us to continue doing things that any other industry we'd be out of business for?
And so when we went there just this past weekend, for some reason, Scott, I had it in my head that it would be sort of creepy there somehow, but of course, no, it's beautiful.
That's why they went there, right?
Yeah, it was J.P. Morgan's private estate back in the day, right?
Right.
So, I mean, obviously you would pick the nicest place you could find, and I'll tell you, it is one beautiful place.
I mean, we should be having these subversive conferences there regularly.
Well, I guess it's not Morgan's private estate anymore.
Well, listen, I got my copy of The Creature from Jekyll Island by G. Edward Griffin right here, and there's a lot of great stuff in here.
Let's go through, if you could help out a little bit, exactly who was it that showed up at Jekyll Island?
When was this me?
It was 1910, right?
Yeah.
And there's kind of a whole story here where they, what, put on fake mustaches and lied to their families about where they were going, and it really was a hush-hush conspiracy where all these guys came together from different directions with pseudonyms and had this very secret meeting, because I guess if people knew where the legislation came from, it wouldn't have really stood a chance in the House, is that it?
Yeah, exactly.
Now, Griffin knows more of the ins and outs of the particulars of who's who, but I mean, I'm more of a theory guy, but I've actually read a good portion of that book by Griffin, which is a book, by the way, as you say, The Creature from Jekyll Island, that we're all told is, well, this is just a kooky book, you know, conspiracy book.
It's not.
There's very little kooky in this book, I have to tell you.
It's really great.
Yeah, the economics in it is all totally sound, and the things he's saying did occur, and there was, I don't remember which participant it was, but we were talking about all the major banking, you know, Kuhn, Loeb, and Morgan, and all the people who sometimes had not been friends with each other, but they realized that when it comes to the system as a whole, they do want to keep that going.
So I don't remember which one of them it was who said this, but one of them said something along the lines of what you were suggesting, that if the general public had any idea who was convening at this meeting to discuss this, that our plans would never be able to be put into effect.
So, I mean, this is freely admitted by these folks, so yes, this thing really did happen, and this is an issue, you know, Gary, let me just go through the list real quick of who were the men at the meeting.
And then I have a very important point, go ahead.
It's Nelson Aldrich, who was the Republican whip in the Senate, and his daughter, I think, had just married John Rockefeller, Jr.
Then you had Henry P. Davidson, senior partner at J.P. Morgan, a very powerful man in American history.
Charles D. Norton, president of the First National Bank of New York.
Abraham Piet Andrew, assistant secretary of the Treasury.
Frank Vanderlip, president of National City Bank of New York, William Rockefeller's bank, John D.'s brother.
And Benjamin Strong, head of J.P. Morgan's trust company, later to be the first Greenspan chair.
And Paul Warburg, partner in Kuhn, Loeb & Company, representing the Rothschilds and Warburgs in Europe.
Now, you look at that list, you know, I mean, again, this is not like a group of progressives who are going to put all injustices right in society.
And Gary North was pointing out at our conference this weekend that if you do a Google search for Federal Reserve Jekyll Island, what you come up with is, in the first, try to find in the first four pages of search results that you see on Google, any mainstream source whatsoever, a Newsweek, a Time, a New York Times, nothing.
It's all sources that would be condemned as fringe and whatever.
This is what you call a blackout.
I mean, there is no discussion of this at all, and yet you get the sense that if all the steel manufacturers, let's say, gathered on Jekyll Island, and then three years later we get a comprehensive steel tariff, well, there'd be like a smidgen of curiosity about this, right?
But, however, when it comes to this topic, well, no one's allowed to look into it.
There's probably something psychologically wrong with you, if you're even curious.
So it's wonderful, I think, that a guy like Griffin has a book, 600 pages at least, on the Federal Reserve System, and it sells in the fixed figures.
And we've got people interested in this now, and we've got the light being shined on this institution.
Well, it's about freaking time.
It's been almost 100 years.
Right.
Well, and so let's do a little bit of historical setup, too, because there was the giant panic of 1907.
I guess, you know, the textbook at school or the New York Times, if you tried to stick it to them or something, would answer that.
Look, we tried it Tom Wood's way with unregulated free market banking, and it was such a terrible thing that they had to create the Fed, and of course they got the experts to put it together.
Tom, who else are you going to get to do it?
The Grange movement?
All right, Scott.
Give me three good minutes on this one, but I'll make them three good radio minutes for you, okay?
Because this one, this we get all the time, that, you know, stupid heads like me, dogmatic laissez-faire people, we just won't live in reality and understand that things were very unstable before we got the Fed, and then we got stability and so on and so forth.
Okay, first of all, there are two different ways to tackle this.
Number one, George Selgin of the Professor University of Georgia gave a talk that you should find on the internet.
It's called The Fed's Dismal Record.
You can listen to it online, and he's going to be publishing this paper soon, where he goes through all the stats, and it turns out that, in fact, even though we had a highly imperfect system before the Fed, it actually stands up very well to, and in fact is better than, the performance of the Fed itself, for reasons that he goes through and explains and breaks it all down.
And secondly, I would point out, let's look at the fact, let's look at after the Civil War and before the Fed, you do get a bunch of major panics.
You get panic of 1873, you get panic of 1884, a couple in the 1890s, and then the 1907 one that you mentioned.
And we get told that, well, it's because of these we had to have the Fed, but let's look more closely at this, because it's interesting, Canada, you know, is right to the north of us.
Their economy is not entirely dissimilar to ours, and yet Canada had absolutely none of this banking instability during those same years, none of it, and yet they also had fractional reserve banking, they had other issues that we have, but they didn't have this problem.
And so the question becomes, how did Canada get away with having such a stable banking environment, and the U.S. didn't?
Is it because Canada had a central bank that was navigating it through?
No, to the contrary, Canada didn't get a central bank until 1935, more than 20 years after the U.S. fell.
So how did Canada have such a stable system?
And the quick answer is that most of the American states had imposed a regulation called unit banking, which confined every bank to just one office.
It couldn't have a branch elsewhere in the state, and certainly not in other states.
And so that meant that every single bank was extremely fragile and undiversified, and so if anything goes wrong in its general area, it brings the whole bank down because it can't diversify its holdings.
Canada didn't have this self-imposed nightmare, and the result was they had a much stronger system that could withstand shock after the fact, and also before the fact, they were able to diversify to prevent major shocks from bringing them down in the first place.
So it turns out that its regulation in the first place that creates the vulnerability that yields us these panics, they didn't have a panic of 1873 in Canada, they didn't have these problems.
But this point is completely left out in the discussion of the Fed.
All we get is, well, hey, after the Fed, we didn't have a lot of these banking panics.
Well, yeah, no kidding.
Okay, great.
So the Fed helps to solve a problem that the government itself caused, you know, big whoop.
Canada didn't have to have a Fed to solve that problem.
Well, and they just have much bigger panics less often instead, I guess.
Exactly.
Because immediately after, not immediately, but within a generation of the Fed being established, we did get the Great Depression, and we're all supposed to, you know, like, that was just practice.
You know, you can't hold this against them.
Yeah, like George Bush was, George Bush was only president for nine months before 9-11 happened.
You can't expect him to have been doing his job after only nine months.
Yeah, exactly.
He's just getting his feet wet for crying out loud.
Yeah.
Well, all right.
So I'm talking to Thomas E. Woods.
He's a fellow at the Mises Institute.
And if you go to Mises Media, you can find here a giant collection of speeches recorded at Jekyll Island on Saturday, the 27th of February.
Ron Paul, Tom, himself, Gary North, Lou Rockwell, George Selgin, Doug French, Peter Klein, Mark Thornton, Christopher Wesley, Robert P. Murphy, many of my favorites.
The birth and death of the Fed, this giant collection of speeches from Jekyll Island last weekend.
Great stuff.
I plan on spending a lot of time going through this.
But so now help me out here, too, because there's the question of fractional reserve banking.
I mean, when you talk about the banks were limited in their branches so that, you know, one part of a company couldn't bail out another part of a company because that other part wasn't allowed to exist in the first place, that kind of thing.
What about the idea that the only reason that there's panics is because these bubbles come from inflationary money?
And if I can try to pack a little more into the question, Tom, I've been arguing Austrian economic theory with a friend of mine who says that he still doesn't quite see how the gold standard or a free market type gold standard would have prevented or could have prevented our current crisis because the bubbles were able to be created on top of all these credit default swaps and all these other derivatives and financial instruments that are apart from, you know, new money being created.
And so couldn't our same crisis have happened without fractional banking?
So if you can answer that kind of giant two-parter, I'll just cut my mic here and let you go.
Yeah.
OK, sure.
Well, let's remember that even if you had a system where there's no fractional reserve banking and you had a 100 percent gold standard, you could still have bank failures because if a bank could still make loans on their time deposit, if you have a CD that you can't get access to for six months, the bank can lend that out for six months.
If it lends it out to Joe Blow, who blows the money, and they don't have the money to produce, that bank could still fail even under 100 percent reserves.
So in other words, even under what I would consider to be the best conceivable banking system, you would still want to permit branch banking to help one branch to get through a difficult time with the help of another branch.
So that's still that's still a useful thing.
On the thing about couldn't this crisis have occurred even under the gold standard?
Well, and again, because, you know, the Democrat types would say that, hey, the panic in 1907 happened on a gold standard.
So it didn't make the difference.
Yeah.
Well, what we should we should bear in mind is a couple of things.
First, the panic of 1907, like most of these panics, is heavily localized.
It is not a nationwide thing that's devastating everybody and everybody's pension is being wiped out.
That's absolutely untrue.
It was confined very largely to New York, did spread out a little bit beyond that, but it's not anything even approaching the type of crisis that we've just had.
But secondly, although we had something sort of like a gold standard, it's still not quite a 100 percent reserve gold standard.
So you could still, in fact, engage in fractional reserve banking.
And that's what these banks like the Knickerbocker Bank in New York were doing.
They had put some of the depositors money into other assets that were illiquid that they couldn't liquidate to get the money back in time.
So they were still engaged in a practice that, you know, perhaps they shouldn't have.
If they hadn't been doing, they wouldn't have been caught flat footed.
So there's still that issue.
And so the immediate response from the central banking type is, well, gee, these banks were playing fast and loose with their depositors money.
Instead of saying, you can't do that anymore, they instead said, let's create a giant institution that will help out banks in that situation.
Well, I don't see how that's the obvious moral or economic conclusion to draw from this situation.
But if you want to know about the current crisis, and we have to give sort of quick answers here on the radio, part of my quick answer would be, first of all, that the House housing bubble itself, the very fact that housing prices are just going crazy.
If you didn't have a money supply that could just be multiplied indefinitely, where would the money come from for people to keep participating in the housing market?
I mean, eventually the housing prices get so high, nobody could afford to do it anymore.
But when you can create money out of thin air to lend to borrowers to keep on participating in the housing bubble, you can just keep it on going.
Well, the thing about gold is you can't create gold out of thin air.
So it's much harder under a system of gold, precious metals, to keep these crazy booms going or to get them started in the first place.
And secondly, and this is a key point, the major actors in the financial sector, they behave differently in an atmosphere of fiat money central banking than they do in an atmosphere of hard money.
And even the IMF admitted this in a report two years ago they released, saying, it seems like major financial firms are relying excessively on central banks to bail them out of their liquidity problems.
Well, that sounds like Guido Holtzman, that sounds like Ludwig von Mises, that sounds like something the Mises Institute would write.
That's exactly our point, that the elephant in the living room is this institution with a monopoly on the creation of money, and they can create money with no resource cost whatsoever, unlike gold.
So everybody knows it can happen, and it did.
But the point is, it did happen.
That is exactly what they did.
So people who acted like this were doing exactly the right thing from their point of view.
Well, but what about the golden rule, that he who has a gold mining company gets all the advantage then, if we have a currency based on precious metals, is that what you're saying?
Well, yes and no.
I mean, wouldn't they just replace the inflationists at the central bank at that point?
The more gold they dig up, the lower its value, et cetera?
Okay, well, there are a couple things to know.
First, it still requires effort.
That's part of the reason that Milton Friedman, the free market guy Milton Friedman, was against the gold standard, because of the resource cost involved.
Well, part of the answer to that is that it's precisely because there is a resource cost that this is a much better system.
So they can't just willy-nilly produce all the gold they want.
And then secondly, there's still a profit spread to be had.
I mean, if they produce a whole lot of gold, then the gold itself begins to lose its value, and thus it becomes less and less profitable to keep mining it.
So there is a natural equilibration that occurs, so that we don't just continually have the mining of gold.
In practice, I mean, it's not like we didn't live through this.
We lived through the gold standard for hundreds of years, and the result was not that the kings of the earth were the gold miners.
They earned the same return as anybody.
The result was that we had, in fact, a stable money system.
If you look at the price of something in, let's say, something that cost $100 around 1790, it cost about $100 in 1913, roughly.
Now, that's pretty darn good.
I mean, that's an amazing track record, whereas today, in the system we have now, where there is no restraint, there are no resource costs involved, what have we had?
Well, we've had more than 95% of the value of the currency go away.
Now, if it had been reversed, let's suppose that under the gold standard, we had seen the money lose that much value over time.
You better believe, Scott, that would be used as the single greatest argument about why we can't go back to the bad old gold standard.
But when the tables are turned, well, it's utter silence.
Utter silence.
And yet, the very people who want to give us the Fed and promise that it's going to give us price stability and all the rest of it, these very people, that's the criterion they use.
They say, we need price stability.
Oh yeah, well, why don't you look at a chart of the purchasing power of money, or the CPI, the Consumer Price Index, from the beginning of the Republic through the age of Central Bank.
You look at that chart, and you look at the purchasing power of money, it's consistent, it's constant, the inflation rate's extremely low and constant, and then suddenly, it shoots up practically vertically.
How can I take that seriously, that these people really care about price stability?
How can I take that seriously?
Well, which brings up the question of whether the Central Banking Act, as conceived by these criminals, the richest people in the world, I think what he says in Jekyll Island, it's like one-fifth of the world's wealth, or one-quarter of the world's wealth, all in the room at the same time, these guys meeting and writing up this thing.
What about the idea that the business cycle theory actually doesn't belong to Mises and Hayek, it belongs to them, and they know exactly what they're doing.
Just like Thomas Jefferson said back in the day, first they inflate, then they deflate, they take all your shit, and then they do it again.
Is the creature from Jekyll Island, the Federal Reserve System, not the greatest success?
I mean, hell, we've been at war this whole time, taken over damn near the whole world at this point, less Russia and China.
Well, first of all, I do agree with you.
I don't think it's likely that people who are involved in this are completely innocent, and they have no knowledge, and they're always surprised at the booms and busts.
I mean, come on now.
There are a lot of things I'll believe, that's not one of them.
At the same time, the market is notoriously difficult to time.
Even our best guys out there, who understand everything, can't always time when it's going to bottom out, when it's going to peak.
That's still a gamble, even for the best of us.
So I don't think it's necessarily a clear path to prosperity.
But at the same time, if I had a direct connection to the Fed, and I were a government contractor, or I were an investment bank, the fact is that on net, over time, even though I'm going to go up and down, and I'm going to make the wrong forecast once in a while, still, I have a huge advantage that nobody else has.
In having direct connection to the Fed, I get the first infusions of that money before prices have risen as a result, so I enjoy a windfall.
I mean, there's no question about that.
One other thing about whoever has the gold rules, one difference would be that if we had a free market of money, there wouldn't be legal tender laws, so that even if, by some crazy situation, some guy cornered the whole gold market, well, first of all, number one, someday he's going to have to spend it, and then it just goes back into circulation problem solved.
But even if he didn't, as long as there's no legal tender laws, we're not stuck to this.
The economy would just move into silver, move into some other type of money.
The problem today is that not only do they have a monopoly on producing it, they can force us.
We have to accept their crummy money.
We are forced to accept it.
In the German hyperinflation, that was one of the problems.
You were forced to accept this crummy money.
Well, in the free market, nobody's forced to accept anything.
You have the right to say, you know, go screw yourself.
I don't want your crummy paper with some jerk president on the face of it.
Yeah, you know, that's one of the things in The Creature from Jekyll Island, is Marco Polo, when he went to China, he came back, he goes, yeah, the emperor there, he just puts his face on a piece of paper, and it's the death penalty if you don't want to trade in his paper.
Yeah, exactly.
He's a really great economist, the emperor of China, Marco Polo reported.
Exactly.
You know, it's worth noting, Scott, by the way, given, you know, anti-war radio that you do, that when we look at the neocons, just the other day, David Frum, I assume, you know, we don't need to introduce him, but David Frum had an article that...
He's the author of An End to Evil.
An End to Evil, which is just such an idiotic, I mean, let's not even get started, but David Frum wrote this article about what's wrong with the gold standard, it's stupid, and you have to be an idiot to support it, and all the arguments he makes against it are all kinky.
All of them, that, well, if we had the gold standard, we wouldn't be able to engage in fiscal stimulus.
Well, good.
I mean, that's one of the merits of the gold standard, that you don't get caught up in these superstitions about fiscal stimulus.
So all his arguments are all Keynesian.
And then when you look at...
I mean, I always wondered that, Scott, when I wrote Meltdown, it came out last year, it got a lot of attention, and even some neocon talk radio hosts had me on their shows, and I have to say, they were polite, they listened, they were respectful, and I even had some say that I changed their minds on the subject, but then I wondered, well, as soon as they realized, though, what this really means, if you really didn't have a Federal Reserve system, if they realized that this means it would be a lot harder for the government to finance the wars, are they going to stay in support of my position?
And it reminds me of what Irving Kristol, I think it was Irving Kristol, who, years ago, he was sort of the godfather of the neocon, he was saying that, basically, we have to support capitalism, we need the free market economy.
Why?
Because if we're going to fight all these wars we want to fight, we need a great engine of wealth so we can siphon off the wealth to fund all the wars.
That's the number one priority.
Sound money would be like number 87 for these guys.
Yeah, well, this has got to be reason for a realignment on our side for peace and the Bill of Rights, even more so, you know, reason number 92 of ours, that, you know, these guys, the real so-called centrist moderates, the people who are pro-government and pro-war on every issue, they have their realignment together, the neocons and the neoliberals, the Center for American Progress and the Foreign Policy Initiative, why they work hand in glove, no problem at all.
We'll call it the counterinsurgency strategy and inflationary money.
It's all the more reason why those of us on the left, the right, and the libertarians who put the Bill of Rights and end to the war on terrorism and the world empire as our top priorities have got to get our act together, Tom.
I'm sorry I don't have time to let you get too much of an answer in there, but I've got to go.
All right, 30 seconds, I'll just say, keep an open mind on these money issues, and Ludwig von Mises said that the idea of a hard money that government can't just manipulate, this belongs right up there with Bills of Rights as protections to the liberties of the people.
We've got to think about this.
Yeah, very important point.
And listen, everybody, go again to Mises Media, there's an entire giant collection of speeches, The Birth and Death of the Fed, My Battle Against the Fed, The Source and Workings of the Latest Crisis, Heckle and Jekyll, How Murray Rothbard Got the Fed's Story Right, and on and on.
Thornton, Paul, Woods, Gary North, Lou Rockwell, of course, and many others.
It's all there at Mises.org.
And check out Tom's site, TomWoods.com.
Thanks very much.
Thank you, Scott.
Oh yeah, and Meltdown, a free market look at why everything is the Federal Reserve's fault by Tom Woods as well.
Hey everybody, Scott Horton here for LibertyStickers.com.
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