EX-AMERICA: PART FIVE
On the use of inflation as a revolutionary weapon, Lenin said the best way to destroy the capitalist system was to debauch its currency.
Writing in 1920, John Maynard Keynes said: "Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. By a continuing process of inflation, governments can confiscate secretly and unobserved an important part of the wealth of their citizens. By this means they not only confiscate, but confiscate arbitrarily, and while the process impoverishes many it actually enriches some."
John Maynard Keynes was the brilliant John Law of modern finance. He gave the New Deal the scientific jargon for deficit spending and managed inflation, probably because he wanted to see how it would work here before England tried it.
The American who speaks most clearly on the political evils of deliberate inflation is Professor Walter E. Spahr.
He says: "It should not be surprising that apparently all who would socialize our economy are opposed to the restoration of a redeemable currency in the United States. Either because they understand the relationship between an irredeemable currency and the processes of socialization or because they simply note that Socialist, Communist, and Fascist governments employ irredeemable currencies as a means of controlling and managing the people, advocates of government dictatorship seem invariably to defend irredeemable currencies with the utmost vigor. The evidence seems overwhelming that a defender of irredeemable currency is, wittingly or unwittingly, an advocate of socialism or of government dictatorship in some form.
"So long as a government has the power over a people that is provided by an irredeemable currency, all efforts to stop a government disposed to lead a people into socialism tend to be, and probably will be futile. The people of the United States have observed all sorts of efforts, organized and individual, to bring pressure upon Congress to end its spending orgy and processes of socialization. It should be amply clear by this time that none of these efforts has succeeded. Moreover, there is no reason for supposing that any of them, except the restoration of redeemability, can succeed in arresting our march into socialism."
Here you have the devil, his convert and his antagonist, all three, bearing witness alike; and to this you add the testimony of experience which is complete in Russia, unfinished in Europe, and cumulative in this country.
Those who take the New Deal to have been the beginning of revolutionary change in the character of government are wont to cite its laws, and its many innovations within the law and to forget that if it had been without the means to enforce them all of its intentions would have died in the straw. It had to have money; and not only a great deal of money, but freedom from the conventional limitations of money. It knew that.
Unerringly, therefore, its first act was to prepare inflation; and this was to be a kind of inflation we had never imagined before, that is, inflation for a premeditated political purpose.
First it called out of the people's hands all of the gold there was under the pretense of conserving it for the duration of the emergency. Having got physical possession of the gold, its next act was to confiscate it. By edict, all gold then existing in the country as well as any that might thereafter be mined became government property. Thus gold was nationalized. A private citizen, under pain of fine and imprisonment, was forbidden to have a gold piece in his possession. In place of that famous American gold standard paper dollar, which was the same as gold in the whole wide world because the holder could exchange it for gold at will, there was introduced a paper dollar redeemable in nothing but itself. This irredeemable paper dollar was planned money—planned for inflation. Not only was it declared to be lawful money for all purposes; it was made to be the only lawful money. Private contracts calling for payment in any other kind of money were illegal.
After that it was all coasting. The New Deal planners in the White House wrote a series of monetary laws which a captive Congress enacted, sometimes without even reading them.
One of these laws authorized the government to print three billion dollars of counterfeit money—literally counterfeit, because it would represent nothing of value beyond the engraver's art. It resembled money and the government said it was money, but the word of the government was no longer of any value since it had just performed an act of repudiation.
Another law authorized the government to help itself to three billion dollars out of the Federal Reserve banks in exchange for its IOU's. That was the beginning of the practice of converting government deficits into money.
Another law authorized the President in his own discretion to "reduce the gold content of the dollar." Here the ingenuity of the planners was superb. This new irredeemable paper dollar had no gold content. The fiction that it had nevertheless was to serve a purpose.
One way to depreciate the value of the dollar was to print it endlessly; but that was yet too slow for the planners. Another way was to price the dollar down in terms of gold. Suddenly then the United States Treasury began to buy gold all over the world, offering each day more and more dollars for an ounce of gold, with the result of making the paper dollar worth less. This was the weirdest spectacle in all monetary history. Never before had a government undertaken in a deliberate manner to beat down the international value of its own money.
How many more dollars today than yesterday should be offered for an ounce of gold was each morning settled between the President and the Secretary of the Treasury.
In his private diary the Secretary of the Treasury, Mr. Morgenthau, wrote: "The actual price on any given day made little difference. The amounts settled on were generally arbitrary. One day, for instance, the bedside conference decided on a rise of 21c; 'It's a lucky number/ the President remarked, 'because it's three times seven.' "Mr. Morgenthau commented: "If anybody ever knew how we really set the gold price through a combination of lucky numbers, and so forth, I think they would really be frightened."
When this wonderful bedside hoax began, the price of gold everywhere in the world was $20.67 an ounce in American money; when it ended the United States Treasury was offering $35 an ounce for all the free gold in the world.
At that point the President announced that the imaginary gold content of the dollar was reduced from 100 to 59 cents. Bad as it may sound, the planners knew all the time what they were doing. The outcome was that the New Deal got nearly three billion dollars out of the sky, to do with what it would. How? It was very simple.
The government said: "When we nationalized the gold and buried it at Fort Knox it was worth $20.67 an ounce. Now it is worth $35.00 an ounce. The difference is $2,800,000,000, and that is profit and belongs to the government."
Later, when the Recovery Program was sagging, the Congress delivered to the President a free public purse with more than three billion dollars in it, to do with what he would.
By that time the meaning of money had become exceedingly dim. The Congress could appropriate billions without asking or thinking where the money would come from. The government knew how to find billions. It had learned how to turn its deficits into money by forcing its IOU's into the banks, where they served as security for more credit.
The national debt began to rise in an alarming manner and conservative economists filled the land with cries of impending ruin. Yet nothing disastrous happened. People began to ask why this could not go on forever. Where was the end of it? Why were all the Cassandras wrong—Cassandra, the prophet of ill, fated to prophesy truly and be unbelieved?