Wednesday, Oct. 15th, 2008, members of Iraq Veterans Against the War and supporters gathered near the Hempstead, N.Y., train station to march on the final presidential debate at Hofstra University.

Our intent was made clear in a letter to Bob Schieffer, the debate moderator, one week prior. We wanted two members of our organization inside the debate where they would ask one question of Obama and one of McCain. If CBS and the candidates failed to meet our demands, we would march on Hofstra at 7 p.m. in a peaceful attempt to enter the debate to have our voices heard.

I planned on asking Barack Obama if he would back up his assessment of the occupation of Iraq as illegal by supporting servicemembers who would thus be required to refuse service there. Kris Goldsmith planned on asking McCain about his history of failing to vote in favor of V.A. funding, especially since the beginning of the occupation of Iraq.

Non-violence was stressed in every stage leading up to this action. It was stressed by me and Kris to Det. Thomas J. Calvert and Det. Robert Annese of the Nassau County Police Department the day before the action. Calvert and Annese were in charge of security for the debate, and they assured us they would instruct their officers to respect the non-violent spirit of the action by using restraint towards peaceful veterans and demonstrators.

In every stage of planning, IVAW made every effort to keep all planned tactics and actions “above the table” so that the candidates, the media, the police and the country would know exactly what would happen if our demands were not met.

We were at Hofstra to force the issue that veterans and servicemembers are not being cared for or heard from by our government, and the candidates, CBS and the Nassau County Police Department couldn’t have proved us more correct.

We, the veterans and our supporters, stood together in solidarity, knowing the stakes were high. But a resolve echoed deep from with us to stand our ground and be heard. Twice these candidates had brushed us off, and thrice just wasn’t going to happen.

So at seven p.m. when we’d heard nothing from the moderators, IVAW made good on its promise to the candidates and Det. Calvert. We marched to the front gate of Hofstra, read our questions and peacefully proceeded into police lines.

Because these candidates cared more to hear from “Joe the Plumber” than veterans of Iraq and Afghanistan, ten veterans went to jail and five civilian supporters joined us.

This upsets me, but I knew the risk, and if I must fall in defense of democracy, peace and justice, I offer my sacrifice willingly.

What infuriates me is the GROSS MISCONDUCT of the police in the process, much of which I believe to be illegal.

After my arrest, the police charged their horses onto a sidewalk and unprovokedly knocked my friend Nick Morgan, a veteran of Iraq, to the ground and trampled his face. They then arrested him, put a piece of gauze on his facewound and loaded him onto a bus headed for jail with the rest of the Hempstead 15.

After they brought Nick onto the bus and we the veterans identified him as exhibiting signs of a concussion and as needing immediate medical attention, our arresting officers laughed at us and told us Nick would receive no help unless he himself asked to go to the hospital, though Nick was barely conscience and completely disoriented at the time AND THE COPS KNEW IT!

We pointed out that as a result of a serious head injury, Nick wasn’t aware enough to speak for himself. The police responded with, “too bad.”

After Nick stirred enough for us to instruct him to ask for medical attention, he was taken to a hospital, diagnosed with a fractured cheekbone, given nothing more than Motrin for the pain and brought to the Police Station where he sat chained to a bench for 5 hours with no further medical attention at all.

Additionally, police pulled other members and supporters of ours from the sidewalk and arrested them while horses spun in circles causing injury to most who couldn’t escape their paths.

All of this, I observed after arrest through the large windows of a bus we were detained in which was parked parallel to the demonstration and subsequent atrocities.

While on the bus, the officers mocked us, calling us idiots and whiners. When we arrived at the Nassau County Detention Center, the hazing did not cease.

One officer, when I brought up the prospect of speaking to a lawyer, threatened to, “put me in the back (jail),” where, “the big boys will pop your cherry!” When I asked this officer if he had just threatened an honorably discharged veteran of Afghanistan with prison rape and told him I wanted his name and rank, he refused and told me to look it up on the police report which the Nassau County Police Department has refused to provide us a copy of.

While detained, the three females who were arrested with us, including Marine Reserve Capt. Marlisa Grogan, were sexually harassed by the police who went so far as to hold Ids next to the chained women’s faces and make comments like, “you look like you came out of a Barbie magazine.”

All night, they didn’t stop. “You’re cowards, you’re idiots,” they said. The hostility was thick and unwarranted.

“This non-violent protest stuff is retarded,” they said (as if they’d prefer the alternative). “See how it got your friend’s face fucked up?”

Literally, they said this when they brought Nick in and chained him to the bench. The harassment only increased from there.

“Look at you friend’s face,” said one officer. “You’re responsible for that.” As if I gave to order to charge horses onto a crowded sidewalk.

I saw this same officer in the Colony diner where we went to eat after we were charged with disorderly conduct and released. He was with the one who threatened me with prison rape, and when I approached them respectfully and again asked for their names, he leapt to his feet, threw his finger in my face and began threatening to “beat my ass” if I didn’t drop it.

Afterward, one of his friends, also a police officer, approached me, accused me of being drunk and said I was about to get arrested again. I retorted that his accusations were false (considering I’d only gotten out of jail 30 minutes prior) and that I was only interested in learning the names of the officers who arrested and harassed us as I have the legal right to do. He responded with only his name, which he said was Peter Sikinger, but refused to reveal the names of his partners, though to his credit, he did back down from threatening me with arrest.

I am outraged at the egregious conduct of the Nassau Country Police Department and the failure of Det. Calvert to make good on his promise to “make things go as smoothly as possible.”

But mostly, I must put this on the candidates.

Barack Obama and John McCain, you have failed to properly address the occupation of Iraq and veteran and servicemember issues in this campaign. You failed to hear from us, the veterans and servicemembers, at the conventions. Your overwhelming concern for “Joe the Plumber” at the final debate while veterans are killing themselves at a rate of 18 per month is inhumane to say the least.

The fact that you allowed your veterans to be arrested, brutalized and harassed for simply trying to be heard by you is inexcusable. Forever should your consciences be scarred for what you allowed to take place to veterans on American soil.

But our questions still stand, and we still demand answers.

Obama, are you ready to support members of the military refusing to participate in the occupation of Iraq which you have termed “illegal?”

McCain, as a veteran, how can you account for your abysmal failure to vote in favor of post-2003 legislation to fund the V.A. which provides life saving services to men and women who gave all to serve this nation?

Besides which, you both owe the Hempstead 15 an apology. You owe Nick Morgan an apology for the reconstructive surgery he’ll be receiving and the permanent, violent altering of his face that is a result of your failure to hear from us.

You owe every veteran in history a public statement condemning the sidewalk trampling of Nick and Carlos Harris, an Iraq veteran, who also had his foot broken by a horse. As well Geoff Millard, a disabled veteran of Iraq with degenerative spine disease who was knocked to the ground, dragged from the sidewalk and arrested, and Nadine Lubka, one of our supporters, who was kicked in the face by a horse.

And we the people are not done forcing this issue.

I encourage every person who reads this to contact both the Obama and McCain campaigns and demand they answer our questions and condemn the actions of the police Wednesday night.

They don’t own this election, the media doesn’t own this election, we the people own this election, and we deserve to have our voices heard. Any candidate who disagrees with that statement is unworthy the Presidency of the United States of America.

Peace and Solidarity,

Matthis Chiroux

The depression of 1929 is the wrong model for the current economic crisis

By SCOTT REYNOLDS NELSON

As a historian who works on the 19th century, I have been reading my newspaper with a considerable sense of dread. While many commentators on the recent mortgage and banking crisis have drawn parallels to the Great Depression of 1929, that comparison is not particularly apt. Two years ago, I began research on the Panic of 1873, an event of some interest to my colleagues in American business and labor history but probably unknown to everyone else. But as I turn the crank on the microfilm reader, I have been hearing weird echoes of recent events.

When commentators invoke 1929, I am dubious. According to most historians and economists, that depression had more to do with overlarge factory inventories, a stock-market crash, and Germany’s inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now. Contemporary industries have very sensitive controls for trimming production as consumption declines; our current stock-market dip followed bank problems that emerged more than a year ago; and there are no serious international problems with gold reserves, simply because banks no longer peg their lending to them.

In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls “the real Great Depression.” She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.

But the economic fundamentals were shaky. Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad. Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America’s heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region’s assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.

As continental banks tumbled, British banks held back their capital, unsure of which institutions were most involved in the mortgage crisis. The cost to borrow money from another bank — the interbank lending rate — reached impossibly high rates. This banking crisis hit the United States in the fall of 1873. Railroad companies tumbled first. They had crafted complex financial instruments that promised a fixed return, though few understood the underlying object that was guaranteed to investors in case of default. (Answer: nothing). The bonds had sold well at first, but they had tumbled after 1871 as investors began to doubt their value, prices weakened, and many railroads took on short-term bank loans to continue laying track. Then, as short-term lending rates skyrocketed across the Atlantic in 1873, the railroads were in trouble. When the railroad financier Jay Cooke proved unable to pay off his debts, the stock market crashed in September, closing hundreds of banks over the next three years. The panic continued for more than four years in the United States and for nearly six years in Europe.

The long-term effects of the Panic of 1873 were perverse. For the largest manufacturing companies in the United States — those with guaranteed contracts and the ability to make rebate deals with the railroads — the Panic years were golden. Andrew Carnegie, Cyrus McCormick, and John D. Rockefeller had enough capital reserves to finance their own continuing growth. For smaller industrial firms that relied on seasonal demand and outside capital, the situation was dire. As capital reserves dried up, so did their industries. Carnegie and Rockefeller bought out their competitors at fire-sale prices. The Gilded Age in the United States, as far as industrial concentration was concerned, had begun.

As the panic deepened, ordinary Americans suffered terribly. A cigar maker named Samuel Gompers who was young in 1873 later recalled that with the panic, “economic organization crumbled with some primeval upheaval.” Between 1873 and 1877, as many smaller factories and workshops shuttered their doors, tens of thousands of workers — many former Civil War soldiers — became transients. The terms “tramp” and “bum,” both indirect references to former soldiers, became commonplace American terms. Relief rolls exploded in major cities, with 25-percent unemployment (100,000 workers) in New York City alone. Unemployed workers demonstrated in Boston, Chicago, and New York in the winter of 1873-74 demanding public work. In New York’s Tompkins Square in 1874, police entered the crowd with clubs and beat up thousands of men and women. The most violent strikes in American history followed the panic, including by the secret labor group known as the Molly Maguires in Pennsylvania’s coal fields in 1875, when masked workmen exchanged gunfire with the “Coal and Iron Police,” a private force commissioned by the state. A nationwide railroad strike followed in 1877, in which mobs destroyed railway hubs in Pittsburgh, Chicago, and Cumberland, Md.

In Central and Eastern Europe, times were even harder. Many political analysts blamed the crisis on a combination of foreign banks and Jews. Nationalistic political leaders (or agents of the Russian czar) embraced a new, sophisticated brand of anti-Semitism that proved appealing to thousands who had lost their livelihoods in the panic. Anti-Jewish pogroms followed in the 1880s, particularly in Russia and Ukraine. Heartland communities large and small had found a scapegoat: aliens in their own midst.

The echoes of the past in the current problems with residential mortgages trouble me. Loans after about 2001 were issued to first-time homebuyers who signed up for adjustablerate mortgages they could likely never pay off, even in the best of times. Real-estate speculators, hoping to flip properties, overextended themselves, assuming that home prices would keep climbing. Those debts were wrapped in complex securities that mortgage companies and other entrepreneurial banks then sold to other banks; concerned about the stability of those securities, banks then bought a kind of insurance policy called a credit-derivative swap, which risk managers imagined would protect their investments. More than two million foreclosure filings — default notices, auction-sale notices, and bank repossessions — were reported in 2007. By then trillions of dollars were already invested in this credit-derivative market. Were those new financial instruments resilient enough to cover all the risk? (Answer: no.) As in 1873, a complex financial pyramid rested on a pinhead. Banks are hoarding cash. Banks that hoard cash do not make short-term loans. Businesses large and small now face a potential dearth of short-term credit to buy raw materials, ship their products, and keep goods on shelves.

If there are lessons from 1873, they are different from those of 1929. Most important, when banks fall on Wall Street, they stop all the traffic on Main Street — for a very long time. The protracted reconstruction of banks in the United States and Europe created widespread unemployment. Unions (previously illegal in much of the world) flourished but were then destroyed by corporate institutions that learned to operate on the edge of the law. In Europe, politicians found their scapegoats in Jews, on the fringes of the economy. (Americans, on the other hand, mostly blamed themselves; many began to embrace what would later be called fundamentalist religion.)

The post-panic winners, even after the bailout, might be those firms — financial and otherwise — that have substantial cash reserves. A widespread consolidation of industries may be on the horizon, along with a nationalistic response of high tariff barriers, a decline in international trade, and scapegoating of immigrant competitors for scarce jobs. The failure in July of the World Trade Organization talks begun in Doha seven years ago suggests a new wave of protectionism may be on the way.

In the end, the Panic of 1873 demonstrated that the center of gravity for the world’s credit had shifted west — from Central Europe toward the United States. The current panic suggests a further shift — from the United States to China and India. Beyond that I would not hazard a guess. I still have microfilm to read.

Scott Reynolds Nelson is a professor of history at the College of William and Mary. Among his books is Steel Drivin’ Man: John Henry, the Untold Story of an American legend (Oxford University Press, 2006).

graph source.

I want a Porsche, nothing new just one that’s in the sub $10,000 range so I can save up cash and have my preemptive mid-life crisis fun car to woo all the burner girls who wear leather utility fashion belts.  Any fast sexy car with less than 20mpg will do though.

I want a huge ass HDTV so I can play my Wii in full glory.

I don’t care about my car’s MPG.  I track it, but I did math and economically it’s only $600/yr more if I get 20mpg vs 25mpg average.  I blow that much money on drugs to have fun with you guys anyways.  So fuck it.  It’s all about emissions anyways, not MPG.

I *love* flushing the toilet after each evacuation.  I would rather be overly hygienic than save the sewage treatment plant 0.00000420% capacity of use.

I wear aluminum dioxide when I go out and play with you hippies.  I’d rather not smell like taco bell hot sauce when I’m trying to sleep with you hairy hippies.

I think landfills are oil converters.  Not an example of ignorant human stupidity.  It takes millions of years to make oil from dead animals just as the same as the trash will take millions of years to turn back into oil which we used.  We’re only stupid for using our back yards as these slow-churn oil factories.   Seagulls thank us for our efforts.

Here’s a picture of our living room. Notice the glory that is a faux rustic fireplace. Complete with all the expensive gas bills to make you feel as helpless to the power of the man as possible.

Not only will my city provided flatulence utility company enjoy sending me bills, I will also be able to melt a fancy HDTV as well. I think Best Buy and the Gas company send kick backs to whomever thought that was the BEST IDEA EVAR. There’s also something which I call a “fart sniffer deck” looking out towards the neighborhood. This includes a beautiful semi-rust(ic)ed black painted metal guard to ensure that your tequila nights don’t end with a statistic and a news story. Also included is about 4′x8′ of chemically treated wood to keep bird shit from suddenly saying hello to your downstairs neighbors. I feel officially middle-class now.

Moving on we will see the kitchen. This is a normal kitchen but there are a few things worth mentioning.

Included in this kitchen is a beautifully stunning nook for meals in a trapezoid. There’s something aristocratic about dining in a polygon. Next, we’ll see the kitchen with your standard STAINLESS STEEL SINK, OH EM GEE!!!1!1one!!1one!!!11! Dude must be worth some bank for some steel which turns bleach water green. Perpendicular to the sink is the golden ticket. That right there allows my wife to get a part-time job. She tried to retire on me with all this free time she thinks that she will have, but all I had to do was point out that there’s more floor space to sweep and she felt like a contributing member to society again. I was worried that she’d become one of those wives which sits on her ass and watches the L word, learning snarky lesbian man-hating come backs for when I tell her to make me a god damn motherfucking pie. She is pregnant, doesn’t she know she has to work twice as hard now to please me now that she’s gaining weight? My life is so good.

For your information, I would never be caught in an apron. I mean, there are some dudes who get hogs wearing their domestic servants’ clothing. I for one feel that if I am going to wear something my slave sports while tending to me hand-and-foot, that it would be under the strictly enforced rule that there be some fluid exchange from me to her.  Before and after.

Moving on we go to the trinity of sleeping quarters. On the way to the place where infidelity and drug use happen, we notice the hallway. In this hallway we’ll notice my wife, wearing something on her feet while she expresses her feelings of universal usefulness in gay song.  Also worth mentioning is an Olympic certified bowling alley. I’ll now be able to take my perfect 300 from Wii Bowling into the real world. I’m so blessed.

I could tell you my tricks, but then I’d just tell you some bullshit about how you need to align your dude to be 2/3 of the way towards the first tick on the lane to your right from the center. Then I just might tell some more lies that you that you need to release the ball at the last possible second in order for it to shoot as straight as possible. But I’d never give you a straight answer, I am superior and I digress.

I’m starting to lose my steam here, so in condensed form are the 2 bedrooms which I want no part in, other than to use as castigation implements.

There’s a bathroom along the way which is a regular type which you would typically use for your monolithic beer shits. Here’s some pics to bust a nut over.

Now we come to the master fornication facility. When I come home from work I order my cum receptacle to give the children their nightly dose of methyl trichloride to go sleep.  I then order her to  enter this part of my sheet rock den for her nightly prayer.

You’ll see the little child-sized torture chamber that we use whenever we feel the inconvenience of parenting. However, the most important feature here is the purple blanket of passion, made for us by a Korean sweat shop back in the 90s. I bet they’re all looking for husbands by now. I should go back and see what brothel they’re employed by and perhaps buy their dowry out. After I ship them over I’ll make them cook and clean, and force my wife to walk up and down the 4 flights of stairs multiple times daily to keep the cheese away. The added bonus is not only will my wife be in top form, but so will my harem of illegal teenage aliens! I could write a self-help book for the morbidly obese. I think I might. After I save up the legal fees to pay McDonalds to stop suing me for taking their customers away.

Now for the Le Royal du Fromage - The Master Bathroom™

This shower has it all man. Glass doors so I can be lecherous and stare at dirty sluts all day. It has a big rain shower head so I can feel as if I’m in a thunderstorm running away from a microburst of doom. Finally, it has these 3 jets specifically designed to wash my knee pits, ass crack, and upper back. This has thousands of hours of engineering put into it by people who know that if you spray water at 100mph into your ass crack, that the only way in which you freak out in gay pride, is to also spray water on the breeder pressure points on the knee pit and upper back as well, genius!

Welp, that’s all that I have for now. I have about 800 sq ft of property left to shuffle from the old pad to the new place. After I’m done healing from my future body cast experience, we’ll be having a house warming party to properly ruin relations with the downstairs neighbors as fast as possible! Joy!

I was going through a lot of craziness setting up my Sprint Instinct to use as a modem, but I figured it out tonight.

First, make sure your phone is in Modem mode.  I do that you need to go to the Dialer portion of your phone and dial ##USB# (##872#) and it will change to Default USB: MDM.  If it says Default USB: MSC then you’re in flash card mode and you’ll mount the flash drive and have no modem access.

You may need to power cycle your phone.  I didn’t test it otherwise, leave comments with what you find out.

If you type dmesg you’ll see mention of device ttyACM0, this is your modem device.  The rest is setting it up.

[10502.038262] usb 1-1: new full speed USB device using uhci_hcd and address 21
[10502.201491] usb 1-1: configuration #1 chosen from 1 choice
[10502.251216] cdc_acm 1-1:1.0: ttyACM0: USB ACM device


Connecting your Sprint Instinct is much like connecting your Treo 650 Palm device.

/etc/chatscripts/Instinct:
TIMEOUT 5
ABORT '\nBUSY\r'
ABORT '\nERROR\r'
ABORT '\nNO ANSWER\r'
ABORT '\nNO CARRIER\r'
ABORT '\nNO DIALTONE\r'
ABORT '\nRINGING\r\n\rRINGING\r'
'' \rATZ
TIMEOUT 12
OK ATD#777
TIMEOUT 22
CONNECT ""

/etc/ppp/peers/Instinct:
noauth
connect "/usr/sbin/chat -v -f /etc/chatscripts/Instinct"
defaultroute
usepeerdns
/dev/ttyACM0
115200
local
novj

To connect:

sudo pon Instinct

To disconnect:

sudo poff Instinct

That’s it.  Do a ifconfig ppp0 and you’ll see your IP and be able to surf the web. If you want make gnome buttons to turn it on or off then make sure you run the application in a terminal and you’ll be fine.

by Alan Greenspan
[written in 1966]

This article originally appeared in a newsletter: The Objectivist published in 1966 and was reprinted in Ayn Rand’s Capitalism: The Unknown Ideal

Buy the book - clickAn almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense - perhaps more clearly and subtly than many consistent defenders of laissez-faire - that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term “luxury good” implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value, will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society’s divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one-so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the “easy money” country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World Was I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline-argued economic interventionists-why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely-it was claimed-there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (”paper reserves”) could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates. The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market-triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain’s abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed “a mixed gold standard”; yet it is gold that took the blame.) But the opposition to the gold standard in any form-from a growing number of welfare-state advocates-was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which-through a complex series of steps-the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

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Alan Greenspan
[written in 1966]

This article originally appeared in a newsletter called The Objectivist published in 1966 and was reprinted in Ayn Rand’s Capitalism: The Unknown Ideal
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We Stand As One.

That little sentence is supposed to inspire unity of the American people. Allow us to appreciate the sacrifices our fore-fathers made in efforts to make you have the choice between a2m or golden showers. As much as I enjoy those things when babysitting children, I understood the message quite differently. You see not only does it imply the message of unity to the optimist, it also implies some American centric bigotry to the realist; We are the only one worth pay attention to.

I’m losing my interest in being more descriptive, but I offer this perception: We have designed the world economy to supply for us. Ponder those implications and discuss in comments.