Antal E. Fekete
Memorial University of Newfoundland
of the Gold Standard
A specter is haunting executive mansions, chambers of legislatures,
and halls of universities: the ghost of the gold standard.
Governments and academia have utterly failed in discharging their
sacred duty to provide a serene environment for the search for and
dissemination of truth regarding economics in general and monetary
science in particular.
This failure has to do, first and foremost, with the incestuous
financing of scientific research ever since
the Federal Reserve
System was launched in the United States in 1913. The formula for
distributing the profits and undivided surpluses of the Federal
Reserve banks has made it possible for the United States Treasury to
grab the lion’s share (in spite of explicit prohibition of Treasury
participation in the earnings of these banks by the Federal Reserve
Act as amended), with far-reaching consequences. As a result the
bond market has been reduced to a gambling casino where shills, in
order to whip up gambling frenzy, conspicuously make obscene gains
at the gaming tables.
Check-Kiting by Another Name
But unknown to the public, at the end of the day the shills (the
Federal Reserve banks) are obliged to hand over their gains to the
casino owner (the United States Treasury). There is nothing open
about what is euphemistically called “open market operations” of the
Federal Reserve. It is in fact a covert conspiratorial operation. It
has come about through unlawful delegation of power without imposing
countervailing responsibilities. It was never authorized by the
Federal Reserve Act of 1913. It defies the principle of checks and
balances. It is immoral. It is the most lucrative business second
only to highway robbery. It is a formula to corrupt and ultimately
to destroy the republic.
Even though later amendments to the Federal Reserve Act
retroactively authorized it, the constitutionality of open market
operation has never been put to the test. It is clear that such an
examination would not be in the interest of the conspirators, and
they would use every means at their disposal to prevent it. The
folksy name for open market operations is check-kiting, whereby two
conspiring parties issue obligations that neither one has the
intention or the means to honor but, when they come up for clearing,
the phantom obligation of one party is covered with that of the
in Financing Research
What concerns us here most is the fact that the junior partner in
the conspiracy, the Federal Reserve, can only increase its share of
the loot beyond the mandated limit of 6 percent per annum of
subscribed capital if it increases its power in a way not measurable
in dollars. It can readily do so by beefing up its “support” of
research, namely, by spending pre-distribution dollars in making
grants to anybody pretending to be able to write awe-inspiring,
mathematically convoluted, nonetheless vacuous, papers on
macroeconomics, or anything else of which the fraudulence and
charlatanism is hard to detect.
As a result of this immoral way of financing research a veritable
deluge of worthless papers has glutted the technical literature on
money which have one common earmark: they all attempt to defend the
indefensible. They try to defend the issuance of irredeemable
promises to pay: the bonds issued by the Treasury and the Federal
Reserve notes issued by the Federal Reserve banks. Thus, then, the
basis for money creation is the flimsy check-kiting scheme whereby
the Federal Reserve banks buy the bonds with the notes while the
Treasury uses the notes to pay the bondholders at maturity.
is supposed to have value because it is ‘redeemable’ in the note
which, in turn, is supposed to have value because it is ‘backed’ by
the bond. In effect both instruments are irredeemable and both lack
backing in the form of any verifiable wealth. At the heart of the
money-creating process, however explained, analyzed or defended, is
the stubborn fact that both the Treasury and the Federal Reserve
banks are privileged to issue obligations that they have neither the
intention nor the means to honor. For any other would-be check-kiters
the running of such a scheme would constitute a crime dealt with by
the Criminal Code.
This double standard of justice has, of course, an immensely
demoralizing effect. But what concerns us here is that the grant
departments of the Federal Reserve banks have effectively put
themselves in charge of deciding what should and what should not be
researched on the subject of money. While they control research on
money directly, they control the appointment of heads of economics
department and directors of research institutions and other
This incest in financing research stands without precedent in the
entire history of science to the eternal shame of our “enlightened”
age, regardless what yardstick we may choose to measure it, of which
the dollar amounts of grant money is only the most conspicuous, but
we should not ignore the more subtle yet more persuasive methods of
arm-twisting: bribe and blackmail.
The hijacking of the agenda for economic research has resulted in a
distortion of traditional values. The new values favor ephemeral
knowledge, short-horizon planning, consumerism, debt-creation
without seeing how it will be retired, instant gratification,
marginalization of savings, scientific charlatanism, spreading half
truths and even outright falsehoods, while discriminating against
durable knowledge, time-honored scientific values,
work-hard/save-hard ethics, long-horizon planning.
It is no less a
crime of omission than it is a crime of commission, as revealed by
Support for research on the
merit of metallic monetary standards as a political
arrangement of placing the power to create and to extinguish
money directly into the hands of the people, rather than
into the hands of elected representatives or appointed
agents, in conformity with the demands of the U.S.
Constitution, is nil.
Support for research on the
burning question of the “sudden death syndrome” as it
affects irredeemable currencies with a deadly 100 percent
efficiency, is zero.
Support for research on the
question of legality of the open market operations by the
Federal Reserve as it was surreptitiously and illegally
introduced and retroactively authorized, is unavailable.
Support for research on the
scientific foundation of accounting and on the necessity of
taking great pains to make the sharpest possible distinction
between an asset and a liability, capital and credit, debt
owing and debt owning, is naught, in contrast with generous
support for research purporting to justify the practice of
shunting items in the balance sheet of governments from the
liability to the asset column.
Support for research on the code
of inspecting financial statements in order to prevent
overstating assets and understating liabilities, even in the
balance sheet of banks, is non-existent.
Support for the scientific
examination of the curious tenet that it is possible to
increase the volume of unpaid and unpayable debt in the
world indefinitely, is denied.
Support for the examination of
the question whether the issuance of promises to pay which
the issuer has neither the intention nor the means to honor
can have any justification, is not available.
Inflicting Irredeemable Currency
on the People
The above short list already makes it
abundantly clear that something is woefully amiss with the principle
of granting unlimited power, not subject to advice and consent,
still less to control, review or withdrawal by the public,
empowering one particular agency not only to issue purchasing media
but also to direct, permit or inhibit all scientific research
pertaining to the question of its own activity of issuing the
It is a sad commentary on the corruption of the flow of funds in
support of research that neither a single court of justice, nor a
single accredited university in the entire world has found it
possible to place the justification for a world-embracing regime of
irredeemable currency on its agenda, after thirty-five years of
unprecedented economic and financial devastation, including the
decimation of the purchasing power of all the currencies and the
even more vicious decimation of all the bond values, directly
attributable to that regime.
It was this corruption of financing research that has disabled the
immune system of society, that has made economics and monetary
science open to the invasion of quackery and chicanery, ensuring
that the success of the final assault on sound money would be a
foregone conclusion. In the end the government of the United States
could inflict irredeemable currency not only on its own subjects,
but on the people of the rest of the world as well, without meeting
any significant resistance.
Integrity of Financial Journalism
It speaks volumes about its integrity that financial journalism has
failed to alert the public to the imminent danger of a credit
collapse arising out of the universal use of irredeemable currency
which the governments of the world have blithely embraced and
foisted upon their subjects, without bothering to examine the
scientific and juridical arguments against it. In previous instances
of experiments with this type of currency sane and self-respecting
governments have always resisted the temptation of the siren song to
join others living in financial backwater. Whenever weak governments
came to their senses and wanted to return to the path of monetary
rectitude, there was no lack of countries around on the gold
standard to lend them a helping hand.
No such luck this time. The world is a rudderless ship on uncharted
waters, and the storm is fast approaching. When it strikes, it will
be “everybody for himself”. No helping hand will assist survivors.
All defenses against this type of disaster have been dismantled, and
all life savers cast overboard, thanks to the diligence of the
grants departments of the Federal Reserve banks.
Not only have financial journalists failed to alert the people to
the dangers they are facing under the regime of irredeemable
currency, they keep adding insult to injury. They lionize the
Wonderful Wizard of US, King Alan who, unlike King Canute, has been
able to order the tide of inflation to recede. Maybe after disaster
has struck it will be blamed on the ‘early’ retirement of the
In order to soften the coming blow, a group of concerned citizens
have decided to establish, in the year 2006, Gold Standard
University, home for the study of monetary topics placed under taboo
by other institutions of higher learning. Here is a partial list:
(a) The gold standard is a
mechanism whereby the people can exercise their power of
creating or extinguishing money while denying monopoly power of
money creation to would-be crooks.
(b) The longevity of the regime of irredeemable currency
can be extended through machinations such as the artificial
suppression of the dollar price of gold, but only at the price
of making the inevitable credit collapse a great deal more
painful and recovery ever more protracted.
(c) The idea of increasing the stock of money based on
scientific principles is chimerical. There is no scientific way
of determining the optimal rate of increase in the money supply
any more than there is a scientific way of predicting future. If
the power to increase the money supply is delegated to an agency
dressed in a scientific garb, then this agency represents
impostors hell-bent to usurp unlimited power under false
pretenses. Unlimited power inevitably means unlimited
(d) The regime of irredeemable currency is a scheme
whereby savers and producers are disenfranchised. Savers are
deprived of their power of choosing the form in which they want
to save. They are forced to save in terms of a depreciating
currency. Producers are deprived of their right to sell to
whomever they wish to sell. They are forced to give the right of
first refusal to the issuer of irredeemable currency.
(e) The chief merit of the gold standard is not to be
found in the stabilization of prices which is neither possible
nor desirable, but in the stabilization of interest rates. Only
the gold standard can guarantee the lowest level for the rate of
interest that is still compatible with conditions in a free
economy. There is no bond speculation under a gold standard. The
resulting stable interest rate structure benefits both the
savers and the producers.
(f) The so-called open market operations of the Federal
Reserve is a fraudulent practice. It should have never been
authorized. It is a prescription to destabilize interest rates
if not in the short then certainly in the long run. Bond
speculators crowd out savers and producers in the bond market.
Anticipating its moves, they act en bloc before the Federal
Reserve, to pick up risk-less profits. They rush from one side of
market to the other which will generate a destabilizing
oscillation in the rate of interest, to the great detriment of
both the savers and the producers.
(g) Gold hoarding under a gold standard is harmless.
(This assumes that saboteurs are not permitted or encouraged to
spread false rumors about the imminent suspension of gold
payments by the government or by the banks.) Gold hoarding is a
legitimate tool in the hand of the bondholder to withdraw bank
reserves thereby forcing banks to contract credit, thus allowing
the rate of interest to rise and find its proper level. Gold
hoarding is also a legitimate tool in the hands of the
electorate to force the government to fulfill its election
promises for greater economy in public spending. In the absence
of a gold standard the electorate is helpless. It has no way to
hold cynical vote-buying politicians to account.
(h) By contrast, hoarding other marketable commodities is
harmful. It is destabilizing as it contributes to oscillating
speculative money flows between the commodity market and the
bond market. It may trigger a runaway resonating vibrator
between prices and interest rates. It can only be prevented by
removing all obstacles in the way of gold hoarding, which is the
proper outlet for the propensity to hoard.
The Gold Standard University appeals to
who cherish freedom and the
ideal of government of limited and enumerated powers
who support the principle of
checks and balances in public affairs as well as the notion
of delegating power only if it is encumbered with
who reject the formula to
finance scientific research through an incestuous
combination of the monopoly to create money and the monopoly
to dictate the agenda for monetary research
who reject the prostitution of
mathematics to be used as a smoke-screen with which to
camouflage the enslavement of the entire population of earth
and it calls upon them to step
forward and support the cause of exposing monetary deceit
and mischief, to fight pseudo-monetary-science and the
obfuscation of eternal monetary truths.
The global regime of irredeemable
currency has reduced the people of the world to bondage. Monetary
servitude is no better than other forms long since discarded by
history, such as slavery and serfdom. It may well be worse if for no
other reason than being covert, whereas previous forms of bondage
have been overt.
Disenfranchised scum of the earth, rise! Put an end to the
usurpation of power by the clique of impostors pretending to be
monetary experts! Chase the money-mongers out of the temple! Cast
your jail-keepers into the sixth circle of the seven in Hell, to
which Dante confined all counterfeiters of money, perpetrators of
false pretenses, and other tormentors of widows and orphans!
Scientific truth is on your side! It is you, not your slave-drivers,
who command the high moral ground! You can win a world free of
yokes! The only thing you may lose is your shackles!
People of the world, unite!