hd, I failed, and failed miserably. Yes I reduced the article,
but there was too much good stuff and I did not know it until
I read it word for word, that new and different and fresh and
quite simply this FAME's Dr. Larry Parks has an exemplary style
that I wish would be duplicated at GATA or the Le Metropole Cafe.
fame.org
J Taylor's Gold & Technology Stocks June 6, 2000
FAME's Dr. Larry Parks
Economic and Social Perils of our Fraudulent Monetary System
Mr. Jon S. Corzine, a former co-chairman of Goldman, Sachs & Company,
spent $35 million of his own money to win the Democratic Senatorial
primary election in New Jersey.....
Why did he spend so much money to run for the Senate?
How does this man, who is among the richest in the world,
intend to "represent" us common folks?
The most important question of all may be: how did he acquire
so much money that he can spend it so freely to buy position
and power?
... Or, did all of this money accrue to his account because he
is a beneficiary of special privileges that allow a small group
to enlist the coercive power of government to line their own pockets?
Many Americans have been deeply troubled by these questions.....
The grease that lubricates our current corrupt system has been
identified by FAME's Dr. Larry Parks. What allows a small group,
especially in the financial sector, to acquire almost obscene
amounts of money, and to use that money to buy power
and perpetuate their position of privilege,
is our fiat "funny money" monetary system.....
An example is Goldman Sachs.....
Thomas Jefferson, James Madison and others among our Founding Fathers
knew that democracy could not last if government legislated or condoned
legal tender printing press or fiat money.
... how our fiat money monetary system is leading America into tyranny.
Adopting a monetary system based on honest weights and measures
is essential if we Americans are to continue enjoying our unalienable
rights as intended for us by our Founding Fathers, namely life, liberty
and the pursuit of happiness.
Taylor: Before we get into details, can you give our readers
a quick summary of what FAME is about?
Dr. Parks: The fiat "funny money" monetary system we now have
is a fraud on the people. To remedy this, FAME seeks full disclosure
and an end to the misrepresentations about our money ... Fiat money
is never the choice of free markets; it is a statist innovation.....
Fiat money monetary systems always collapse because greed
and the lust for power know no limits. Those who possess
the ability to create and benefit from money created
out of nothing always overreach. The result is generally
a move toward more statist government to "remedy" the collapse
and "control/regulate" the economy to help prevent future collapses.....
The main thing that stands in their way, like sand in a gearbox,
is gold, the choice of the people for money. As a result,
those who profit from fiat money have for a very long time
been denigrating gold.....
Taylor: Most people have trouble understanding the notion that banks
create money out of nothing. Can you say something more about that?
Parks: One of the reasons why people have so much trouble
with the concept is that it is so blatantly outrageous.
... who has a rather unique view on the fiat money fraud,
is Rabbi Leonard Gutman, a member of our Board of Advisors.
In the last century, after the debacle with Greenbacks,
the churches led the way back to resumption of gold-as-money.
The churchmen, mostly Protestants, understood that paper money
violates the Eighth Commandment "Thou Shall Not Steal,"
and it violates the admonitions in the Book of Leviticus
(19:35 & 36) not to tamper with weights and measures.
It was the influence of the churches that convinced
President Grant to sign the Resumption Legislation in 1874.
It is my view that the moral argument will again carry the day.
... is not FAME's position. Our program is not to resurrect
the gold standard per se. What we're seeking is a monetary system
based on what we call honest monetary weights and measures.
It just so happens that there are compelling reasons
why the honest monetary weights and measures that
free markets choose is gold-as-money. Accordingly,
rather than promoting a particular system,
our program calls for full disclosure
and no misrepresentations about our money.....
Taylor: ... tell our readers what the "compelling reasons" are
that motivate people to choose gold-as-money?
Dr. Parks: Sure. There are three that come to mind. First, the most
important reason why people choose gold-as-money is that gold is the
most efficient money.
Money serves two purposes in society: to transfer wealth over space,
i.e., to facilitate the exchange of goods and services geographically;
and, to transfer wealth over time, i.e., to facilitate future payment.
The commodity that is chosen for money is the one that fulfils these
purposes most efficiently.
There is a concept in economics that defines this.
It is called salability.
Professor Antal Fekete explains this well in his
award-winning essay "Whither Gold"
(in the reading section of FAME's website www.fame.org).
What salability teaches is that if one lines up all of
the world's commodities and offers ever-increasing
amounts of each into the marketplace,
the one for which the buy/sell spread decreases the least
is said to be the most salable, and, in Fekete's words,
is destined to be used as money. That commodity is gold.
Second, and crucially important, gold is the only commodity
... for which there is more than a year's production supply
above ground. With roughly 140,000 tonnes above ground,
of which about 125,000 tonnes could be easily brought to market,
and with yearly new production at about 2,500 tonnes,
there is a about a fifty-year supply of gold.
If one looks at what most folks consider to be the most critical
commodity, oil, one finds there is not even a three-month production
supply above ground, and, for gasoline, another critical commodity,
there is roughly a two-week supply above ground. The fact that there is
so much gold means that pricing relationships based on gold will not be
materially disturbed if there are new gold finds or if there is a major
disruption in new supply. The same cannot be said about any other
commodity. So, in sum, a major benefit of gold-as-money is that
pricing relationships remain stable.
Third, the pricing relationship that is the most important is the cost
of money itself, i.e., interest rates. It makes no sense, by the way,
to look at the prices of particular goods or a "basket" of goods. Prices
should always become cheaper as saved capital is put to productive use
and intellectual capital (know-how) accumulates. If one looks at
long-term interest rates in Great Britain (a good reference is Ken
Fisher's The Wall Street Waltz), one finds that for the nearly 200+
years when Great Britain was on the gold standard, from about 1720 until
after World War I, long-term interest rates were almost always about 3«
%.
The only time they got higher was during wartime: the Revolutionary
War, the War of 1812, the Napoleonic Wars, and World War I. And even
then, long-term interest rates never got above 6%! Since lower interest
rates are a boon to working people, to manufacturers, to almost
everyone, why shouldn't we have a monetary system that guarantees the
lowest and the most stable interest rates?
Taylor: President Roosevelt pushed through Congress a law
that was in fact unconstitutional.....
... If the judicial branch of government fails to enforce the
Constitution, as it seems to have done with regard to this extremely
important issue of money, what is to keep our government from straying
into dictatorship?
Dr. Parks: There was a most interesting writer about 1950, Garret
Garrett, who addressed this issue in a very easy-to-understand way. He
wrote about how Pharaoh was able to command men and materials to build
what was an enormous waste of Egypt's resources: pyramids. Today,
government is able to engage in waste on a much larger scale because
politicians have easy access to money created out of nothing. If they
had to tax to finance all of their spending, the scope of government
would be greatly reduced for the simple reason that people would object
to paying for it.
Of course, this "waste" goes into someone's pocket. And those who
profit from this system have been working hard to enlarge the benefits
to themselves. Contrary to popular opinion, which says that the benefits
go mainly to welfare people and others who have become disenfranchised
by the system, most of the benefits go to a small cadre of people in
the financial sector.....
Taylor: I want to come back to something you mentioned earlier. A
provision of law passed under Roosevelt made owning gold a felony.
Recently at a Committee for Monetary Research and Education meeting,
former House Banking Committee Chairman Henry Reuss told me that he had
favored repealing that law, which he did in 1974, because he couldn't
see why someone should face the same jail term for owning gold as
someone who gets caught with crack cocaine. Why did Roosevelt find it
necessary to make gold ownership a criminal act? Given the intention of
our Founding Fathers, how could a law like this be constitutional?
Dr. Parks: Actually, the way this came about was not through
legislation?that came later?but through an Executive Order. And, yes,
it is unconstitutional on its face. FAME Foundation Scholar Edwin Vieira
has written extensively on this, and several of his essays appear on
FAME's website www.fame.org. Jay, this is a big story. How much detail
do you want?
Taylor: I'm certain our readers would like a full explanation.
Dr. Parks: To understand what happened, and what the motivation was for
making it a crime to own gold, one needs to look at the antecedents in
the 17th, 18th, and 19th Centuries. During those periods, copper and
precious metals, mostly gold and silver, were used as money. However,
carrying around?or even storing at home?specie is both inconvenient and
risky. The market solved that problem.
People brought their specie, especially gold, to the town goldsmith who
usually had a very strong safe, and they left it with him for
safekeeping. Most times, people paid a small fee for the service. Then,
the receipts that the goldsmiths issued would many times be used as a
proxy for specie on the theory that the goldsmith would redeem them on
demand.
In time, another innovation was that goldsmiths transferred specie from
one account to another based on a written order, as in "pay to the
order of." This evolved into what are known as "demand deposits," or
checking accounts.
Along the way, the goldsmiths noticed that deposited gold was rarely
redeemed. The reason, of course, is that it was unsafe for folks to
have specie in their possession. And, as long as they trusted the
goldsmith, why bother? So, it turned out that the goldsmiths went into
the lending business. But, they didn't lend the specie itself; they lent
"receipts" for the gold, on which they received interest. This process
is known as "fractional reserve lending." In essence, the goldsmiths,
who had evolved into bankers, were creating money. It was not legal
tender.
One factor that constrained the amount of money that was created by
this process, especially in the U.S. during the 19th Century, was that
the officers and directors of banks, with some constraints, were
personally liable to depositors. So, if a bank went bust, bank
officers' and directors' personal fortunes, e.g., their homes, were on
the line. Nevertheless, some banks did go bust. It many times turned
out that people to whom they loaned banknotes, again, which were
redeemable on demand in gold, were unable to repay, and the collateral
that borrowers put up could not quickly enough be converted (sold for)
into gold.
So, when people found out, or even suspected that a bank was in trouble
and might have difficulty meeting its obligations, there would be a
"run" on the bank, and many times the bank would "fail," i.e., it would
be unable to meet its obligations in a timely manner.
In fact, as Richard Salsman et. al. have shown, depositors lost very
little money; and it was less than the amounts lost by other businesses
that had gone bust. But, for bankers, this was a calamity. They
typically lost everything.
In 1907, there was a particularly pernicious banking panic that spread
over a large portion of the country. None other than JP Morgan bailed
out the banks with a $100 million gold loan.
After he did that, bankers were terrorized by four words: "What if he
[Morgan] dies?" Indeed, Morgan understood the problem, and this was the
genesis of the Federal Reserve. The idea was that there would be an
entity somehow connected to the government that would bail out the
banking system in dire times.....
... for gold on demand. The problem was
that after the banks began to fail in large numbers around 1930 - 1931,
there wasn't enough gold to go around. By 1933, it was clear to some
that a general default was in the cards.
When Roosevelt was inaugurated, wanting to forestall such a default, he
seized the gold. In his Fireside Chat on March 10th, 1933, he explained
why he seized the gold in so many words. He said there wasn't enough to
go around.
Also, on March 1, 1933, three days prior to Roosevelt's inauguration,
George Harrison, the head of the Federal Reserve Bank of New York, had
sent an urgent message to the Federal Reserve Board of Governor Eugene
Meyer and to Hoover's Secretary of the Treasury Ogden Mills that the
New York Reserve Bank's gold reserve had fallen below the legal limit!
There can be no question that too much fiat money had been created.
In sum, the reason gold ownership was given the same penalty as a
felony is that gold-as-money was in competition with the paper money
then being issued, and confiscating and then making it unlawful for
folks to own gold was how the paper money won the competition.
Taylor: It seems a little fantastic that one group of
people?bankers?could get the government to pass legislation so
favorable to themselves and so clearly unfavorable to the rest of us.
Frankly, it seems so biased. It strikes me as opposed to the notion of
equal justice. Some folks might say that it comes close to the concept
of a "conspiracy."
Dr. Parks: I can't opine on that. The result, however, is clear. Also,
it is not unusual for various factions to enlist the coercive power of
government to further their ends at the expense of others.
Taylor: Can you give some examples?
Dr. Parks: Tariffs were historically.....
Taylor: But wasn't JP Morgan in favor of gold-as-money?
Dr. Parks: He was. I'm not suggesting that all bankers are dishonest.
Far from it. And, it's not clear to me that the bankers who put the
Federal Reserve System into being were mindful of how this could
develop. They had a problem, and they looked to government to solve it.
Interestingly, in Cordell Hull's Memoirs, he says that the Federal
Reserve Legislation addressed what was thought to be an "insolvable
problem." Reading the literature of the time, I don't think that those
in charge fully understood the issue.
Taylor: I have to confess, I need more of an explanation, and I think
our readers do too.
Dr. Parks: The problem comes about because the banks should never have
been allowed to issue bank notes that were redeemable on demand in
gold, which were in law promissory notes, without having the gold on
hand.
The reason they got away with that was because they misrepresented to
their customers. From the earliest times, they told customers that they
were making a "deposit" when they put "their" money in a bank. This was
a misrepresentation. In fact and in law, when one puts money in a bank
one is making an unsecured loan to the bank. Rather than being a
"depositor," one becomes an unsecured creditor.
If folks better understood that, then they would have been more mindful
that they were taking counterparty risk, and there would have been more
oversight as to how much leverage, i.e., fractional reserve lending,
that banks did, and there would have been more oversight as to the
risks that banks were taking.
Further, the promise that banks made to their note holders.....
Had banks made these kinds of disclosures, which were in fact the
truth, then not only would they garner less "deposits," but they
wouldn't have been able to lever up so much, and their profits would
have been substantially less. In essence.....
Taylor: So, what I think I hear you saying is that fractional reserve
lending and gold-as-money don't mix, that fractional reserve lending,
which is in essence money creation, is very profitable for banks,
and to be able to do that they needed to get rid of gold.
Dr. Parks: Exactly. Also, because of the tendency to overreach,
fractional reserve lending eventually leads to ruination. This led to
the creation of a so-called "lender of last resort." I say "so-called"
because what is being done here is not lending per se, but rather money
creation by the central bank. As George Soros put it, the gold standard
had to be discarded because it was incompatible with the notion of a
lender of last resort.
Taylor: This is a good segue into my next question. I know that some of
your work demonstrates that fiat money results in a massive
reallocation of wealth from those who produce it, namely labor and
entrepreneurs, to bankers, to Wall Street firms, and to large corporate
entities closely associated with major banking interests. Could you give
our readers an idea about the mechanics of how fiat money.....
Let me digress for a moment.....
... Either way, ordinary people lose.
Taylor: So I guess another way of looking at the fiat money creation is
that it is really legal counterfeiting by the banking system.
Dr. Parks: Exactly. There is in Murray Rothbard's What Has Government
Done to Our Money? a cute line about this. He refers to a cartoon in
which two counterfeiters are turning out bogus money in a basement. One
counterfeiter says to the other:
"I guess the retail sector is about to get a boost."
Taylor: Would you care to provide our readers with some evidence and
perhaps give them an idea of the size of this re-allocation of wealth
and the mechanics of the wealth transfer?
Dr. Parks: The Federal Deposit Insurance Corporation (FDIC) has.....
... developed all sorts of "financial products," which are not
products at all, but rather manipulations, to garner more fees for
themselves.
Examples of these are derivatives. In addition.....
... as in "currency trading," which is, in effect, gambling.....
The so-called lender of last resort facility at the Federal Reserve
and the FDIC back all of this, up. In other words, ordinary taxpayers
subsidize all of these activities. And since every subsidy involves
wealth transfer, in effect these activities work to transfer wealth
from ordinary taxpayers to the financial sector.....
... I think you can see why this is going to end very badly.
... the reason the Fed did not bail out LTCM directly, and the
Fed is empowered to do that, is that the Fed can play the bailout card
only a few times before people will very strenuously object. So, the Fed
is waiting for when the stakes are much higher, as they most certainly
will be.
Today, depending upon whom one listens to, there may be as much as $120
trillion in notional derivative bets. Granted, only a very tiny portion
of that is really at risk, but even that tiny portion, if lost, would
overwhelm the banking system and result in a complete collapse.
Questions for your readers: Is it fair that ordinary taxpayers be the
ultimate counterparty to these bets and be forced by law to pay off if
the banks lose? What part of our Constitution authorizes this kind of
wealth transfer?in Mr. Greenspan's words, "without limit"?
Other, and even more compelling evidence that there is a problem is
that the Bank for International Settlements (BIS) has established a
Financial Stability Institute. If financial stability were not a big
problem, then why is the BIS so concerned?
Taylor: Critics of the gold standard suggest that it is a bad idea
because it doesn't allow government enough flexibility to avert
recessions and depressions. How would you respond to that viewpoint?
Dr. Parks: Jay, this is a big topic and could consume the whole
interview. In a nutshell, we wouldn't have material recessions and
depressions if, even under the gold standard, the banks did not create
money out of nothing. As I explained earlier, had it not been for
misrepresentation and nondisclosure, the banks would never have been
able to lever up, and there would be no systemic instability.
Part of the problem is that in "emergencies," such as wars, there's
almost never enough money that can be taxed to pay for the war, and so
those in power resort to other means. That almost always meant specie
suspension, especially in Great Britain, and in the U.S. too, as with
the Civil War. What folks need to address is are all of these wars
really justified; and, are they the will of the people, or, rather, are
they military adventurism on behalf of a small minority? It is my sense
that, if our country were credibly threatened or attacked, the resources
to defeat the enemy would become available without fiat money.
Taylor: Correct me if I am wrong, but I believe it would be your
position that the existence of fiat money undermines individual liberty
and also poses a threat to the political process. Would you care to
comment on the relationship between paper money, backed by nothing, and
how that is destructive to liberty and the democratic process?
Dr. Parks: At a minimum, those who are in charge of creating money line
their own nests and those of their friends and associates. This, by the
way, goes a long way in explaining the growing disparity in income and
wealth between the financial elite and ordinary people. As they
continually enrich themselves, they use some of that money as "campaign
contributions" to, in effect, buy off the politicians. (Sometimes, they
or their children become politicians themselves!) As for the
politicians, they are in a tough spot.
Because it takes so much money to buy television time, which they must
buy if they are to be reelected, politicians must get the money. If
they don't, then they are out.....
Obviously, this doesn't apply to politicians who may be independently
wealthy or who are genuinely popular for their honesty and conviction,
such as Congressman Ron Paul of Texas.....
... What I'm saying is that, under a fiat money monetary
regime, the politicians are not ultimately in charge. Those who create
the money are.
... to suppress gold. I am glad that Bill Murphy and his
team are bringing attention to possible manipulation of the gold market.
But, as I think you understand, there is a lot more at stake here than
profit or lost profits in the gold market.
In one sense, the statists have it right. The price of gold is a
measure of confidence in the economy and the monetary system that helps
drive it. There is myriad evidence that the central banks of the world,
and the Federal Reserve in particular, have been exceedingly hostile to
gold.....
Taylor: You know that most economics professors around the world scoff
at the idea of resurrecting the gold standard. Seems that most everyone
has bought into the idea that fiat money is better because it provides
policy makers with the ability to manipulate the money supply to either
stimulate or slow down the economy, depending on how they perceive
economic need.
Given the enormous bias against gold-as-money, it would certainly seem
as though FAME has its work cut out to say the least. What do you think
the chances are that the U.S. will one day return to a monetary system
that can be described as a system of honest weights and measures, and
how do you propose to get the job done?
Dr. Parks: It is looking very problematical today that we will any time
soon return to an honest monetary system. For example, if the system
collapsed tomorrow, who do you suppose people would turn to set things
right? I'll tell you. It will be to the same folks who perpetrate our
current fraudulent system.
They have spent their whole lives with the fiat money monetary system;
they profited from it; their friends have profited from it; or, to sum
it up, they have a lifetime's experience and relationships in place. Are
they going to in any way admit that all of this was somehow wrong or
misguided? Or will they seek to scapegoat it? The history of the world
is that when things go wrong at a national level, scapegoats are found.
Your readers can take a guess at who some of the scapegoats will be.
On the other hand, if people are really concerned and want to do
something material about this, then we have a proven strategy and a
plan. And that strategy has had great success in other public policy
areas; it will have success in getting rid of our unjust fiat money
monetary system as well.
However, someone is going to have to step up to the plate to pay to
make this happen. For now, those who favor our fraudulent system can
sleep easy.....
Taylor: Dr. Parks, I'm sure many of our subscribers are sympathetic to
your cause. How might they help you and FAME?
Dr. Parks: In addition to funding, I am looking for allies in the Fight
for Honest Monetary Weights and Measures. The first, and most
important, is Organized Labor. Labor has the lobbying infrastructure in
place, and, in the words of AFL-CIO President John Sweeney, when
speaking on other matters of concern to Labor, Labor has the votes, and
Labor can do something about it. Further, ordinary working people are
the principal victims of fiat money. If the victims don't want to do
something about it, why should other people bother?
What Labor needs today, in my view, is a unifying issue, and Labor
doesn't have one. For many reasons, I believe that Labor should embrace
the money issue as it did in the last century.
The second group is the clergy. As I mentioned earlier, in the 19th
Century the churches led the way to resumption. They positioned the
money issue as a moral issue, and that is the way I see it too. Another
issue that came up then was sovereignty, or who is in charge. It was
felt in the Jackson Era that no bank should be in charge of money. It
gives them too much power. I agree.
Taylor: Larry, this has been one of the most interesting and
significant interviews I have ever published since we began our
interview series one year ago. I also believe it may be one of the most
useful from an investor viewpoint in understanding the most basic
fundamentals that will impact their investments in the longer term. But
there are still many more relevant issues that I would yet like to ask
you about. Would you be willing to continue this interview so that we
could publish a Part II in our July issue?
Dr. Parks: I would be delighted to do so. Thank you, Jay. I appreciate
the opportunity.
CONTACT INFORMATION
Larry Parks, Executive Director
FAME,501(c)(3)
211 East 43rd Street
New York, New York 10017-4707
Phone:212-818-1206
Fax: 212-818-1197
LPARKS@FAME.ORG
www.fame.org
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