Stephen Carson from Radical Liberation joins me to talk about the history of the gold standard, and why it's important to have a gold standard in the 21st century. We also talk about what it means to be a money machine, and what it's like to live on the Gold Standard.
00:02:51.240And that's a big part about what's happening here, because I think a lot of people have the background of like, OK, at some point the gold standard existed, but it kind of fell away.
00:03:00.320And they don't really know anything about the history behind it.
00:03:02.660And I think there's some things that will shock the average person kind of when they're more familiar with everything that went on.
00:03:08.160But before we get in deeper into that kind of surprising history that was involved, what is the gold standard?
00:04:34.900Furthermore, unlike, say, a gem, if you split the gold coin, if you split the gold into smaller pieces, each piece still retains that, you know, half of a gold coin is worth half the value of the gold coin.
00:04:47.200Whereas half of a beautiful diamond that you split in half is worth way less than half of the original value of the diamond.
00:05:19.200It might sound silly to you that cigarettes or ramen noodles would be used as money, but you have to admit, cigarettes, ramen noodles, salt, they have a use besides money.
00:05:30.080So the value of them has a certain floor.
00:05:32.560You're never going to, if your money is gold or cigarettes or salt or whatever, it's not going to become completely valueless because it still has its use as a commodity.
00:05:45.980People tend to associate it with jewelry, which is a use, but it also has industrial uses and so forth.
00:05:52.580So there is just a base value of gold that's never going away, even if, as is our case now, gold is not being used as a money.
00:06:00.660So if gold is so obviously useful, right, and we can tell through, like you said, over time, it's very common for it in many different cultures to be used as this kind of basis for exchange.
00:06:14.820If it is so obviously useful, then why would any government seek to go off of a gold standard?
00:06:20.920If it's so self-evidently useful and good at this kind of thing, why would a government want to abandon it?
00:06:27.620Well, that's what we're going to spend the whole show discussing.
00:06:31.540So I don't want to give you a pass right now, but I mean, I just say in brief, it's not for our good.
00:07:20.760I know you said you want to talk a little bit of kind of a forgotten depression before we get into FDR and some of the big things we were talking about.
00:07:28.580So one of the things you and I have both been learning about is the significance of the crisis or sometimes in the literature it's called the exception.
00:07:48.020So part of what I want to do here is I want to focus on three crises.
00:07:52.100And the first one I want to cover is just to sort of set the context of how a crisis, an economic crisis can be handled, because I want to anticipate those who are going to say in defense of FDR, who I am going to attack.
00:08:08.860In defense of FDR, they'll say, well, he had to do it.
00:08:18.020Well, history has been kind to us in this regard, because in 1920, we had a crisis that was as big or worse than the one that happened in 1929.
00:08:32.240After World War I, there was a similar crisis.
00:08:36.820And let me, well, I'll just tell you really quick.
00:08:39.240I'm going to go through this really fast.
00:08:40.8001920, the U.S. stock market fell by nearly 50 percent.
00:08:44.720Corporate profits declined by over 90 percent.
00:08:47.200Unemployment jumped from 4 percent to nearly 12 percent.
00:08:51.020And gross national gross national product declined by 17 percent.
00:08:55.400So if you compare that stock market drop, for example, to 1929, it was actually worse than Black Friday.
00:10:51.860The rally in business production and unemployment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise.
00:11:05.280It was not based on government policy designed to make business good.
00:11:09.460So hopefully it's clear why I'm bringing this up.
00:11:14.860And it puts the lie to anyone who would say, well, FDR had to do all this, you know, alphabet soup agencies and what we're going to talk about with gold and all that.
00:11:24.640He had to do it, or we would never have gotten out of the depression.
00:12:19.380Well, it's the exact opposite of what we've heard, right?
00:12:21.500If FDR hadn't stepped in and created all these jobs and, you know, created all these programs, then there's no way that the United States possibly could have survived it.
00:12:31.360So, you know, that's the exact opposite of what we learned about how you get out of the Great Depression, right?
00:14:16.580This is hard for us to go back in time because we think of the paper money as money.
00:14:21.020The paper money was just a representation for the gold.
00:14:24.420It was just a matter of convenience, sort of like a check, writing someone a check rather than handing them a pile of hundreds or something.
00:14:55.360OK, so here's the thing about the banks.
00:15:01.320Regular folks, including us still, think we can just go and pull out the money we've deposited in our checking accounts whenever we want.
00:15:09.280But that actually is not true because the bank doesn't have all the money.
00:15:13.680They have this terrible practice of loaning out most of the money you put in your demand deposits, like 90 percent or more of it, which works fine most of the time, because most of the time we don't run and empty our checking accounts all at once.
00:15:29.880But sometimes, like in 1933, there's a crisis and everybody wants their cash.
00:15:34.320So everyone goes and the bank says, sorry, we can't give you all that cash because we don't have it.
00:15:40.780Yeah, this is kind of the it's a wonderful life moment where they all show up to the daily, you know, it's all the money is in his house and her house.
00:15:54.640And and supposedly I'm supposed to be comforted by the fact that if you like read the fine print or something or know the ins and outs of banking, you know that when you put your money in your checking account, really, you're not storing the money.
00:16:06.920Really, you're loaning it to somebody that you don't know.
00:16:10.780But I don't think that's how most people understand their checking account.
00:18:05.500Americans were forced to hand over all their gold in 1933, assuming it would be returned, by the way, after the economic crisis had passed.
00:18:14.200But the federal government hid its intentions every step of the way and they never returned the gold.
00:19:17.540So he had to take gold off the table as an option if he was going to be able to use inflation to fund all the crazy New Deal programs.
00:19:25.680So if your plan is to artificially inflate in order to spend way more than you possibly could otherwise, you can't allow a competing currency.
00:19:35.240You can't allow something to compete and hold value because then your currency would become worthless.
00:19:40.320You have to drive all competition out of the market in order for you to use those tricks.
00:19:46.340Yep. And you'll see it with, you know, third world countries who start putting all kinds of controls or try to on the use of the U.S. dollar because they're trying to make their currency even worse than the U.S. dollar.
00:19:58.920And they don't want to compete with the U.S. dollar.
00:20:01.000So there'll be all these capital controls and all kinds of stuff trying to keep people in the reservation, basically, so that the government can do its tricks, you know.
00:21:50.780Yeah, you can see why I wanted to share this with you.
00:21:52.680I mean, this isn't just such a perfect picture of how power really works, right?
00:21:56.700And it's something we see over and over again, right?
00:21:59.060The times that monetary, and I'm sure we're going to, you've already started and we're going to get deeper into it.
00:22:03.400But the times monetary policy always gets fuzzy, tends to be around these imperial presidencies, right?
00:22:08.540It tends to be around these presidencies that already have kind of the intention to act and then kind of have the, you know, like you said, the crisis, the moment of exception.
00:22:20.740They're already going to do a lot of extra constitutional things.
00:22:24.440I mean, a lot of people would look at this and say, seizing gold.
00:22:27.260I mean, there's at least a few amendments that have to protect my right to my own property, right?
00:22:32.960How can an executive order or even an act of Congress possibly allow them to violate the Constitution in this way?
00:22:39.800But like you said, you know, a little bit of historical revisionism, a little bit of sweeping under the rug, the explanation that, you know, it's a single moment.
00:22:48.260And then you move beyond it. Somehow, all of a sudden, these actions become, oh, they were just necessary.
00:22:52.700If we hadn't done this, we wouldn't have gotten to where we are. So it's fine.
00:22:54.820It doesn't matter if the Constitution was suspended. It's not a big issue.
00:22:58.500I mean, it's comical, Aaron, because, you know, one of the points I think you've been making is that, you know, we don't really live under a rule of law and so forth.
00:23:06.400And what a fakie joke of a way to make it seem like, oh, no, no, we're still, you know, constitutional.
00:23:16.100We're still under the rule of law because we retroactively made it OK.
00:23:21.100The thing he did last week, which was completely illegal. Right.
00:23:24.960Absolutely. What? It's like it's clown world in 1930.
00:23:29.260It's the War Powers Act for money. Yeah. Yeah, exactly. Right. Right. Exactly.
00:23:33.480OK. So what else did this act do? It gave the secretary. This is the part key to our story.
00:23:38.700It gave the secretary of the Treasury the power to require all individuals and corporations to hand over all their gold coin, gold bullion or gold certificates.
00:23:47.140If, in his judgment, such action is necessary to protect the currency system of the United States.
00:23:53.180All right. And it gets better in terms of the power of emergency.
00:23:58.420And also what it did is it built on a wartime measure from World War One.
00:24:04.960Now, bear in mind, World War One's been over for a while at this point.
00:24:08.880Yeah. It's been over for, what, 15 years or something like that.
00:24:13.480Right. And so the Emergency Banking Act amended the Trading with the Enemy Act of 1917.
00:24:22.080OK. The Trading with the Enemy Act, as you can imagine, was to criminalize economic intercourse between American citizens and declared enemies of the United States.
00:24:31.620Right. A wartime measure. And probably most people were like, OK, well, that's fair enough.
00:24:35.480We're at war with them. We shouldn't be like helping them with trading with them or whatever. Right.
00:24:40.040But one provision of that act had granted the president the power to regulate and even prohibit any transactions in foreign exchange,
00:24:50.960export or ear markings of gold or silver coin or bullion or currency by any person within the U.S.
00:24:57.460So people thought that once the war had been over for two years, the Trading with the Enemy Act would no longer possess any force.
00:25:05.540The Supreme Court explained that no specific limitation restricted the act's provisions to World War One.
00:25:11.340So this thing that initially everybody would be like, well, it's an emergency act.
00:25:15.300Quietly, you know, in a Supreme Court thing that probably no one paid attention to, they quietly said,
00:25:20.340it doesn't matter whether the emergency is still ongoing or not. The rule is still in place. Right.
00:25:25.320Right. One more thing. And then I want you to I mean, you can see why I'm bringing this stuff up to you.
00:25:31.020Yeah. So rather the trading, rather the Supreme Court said the trading with the enemy act stood ready to meet additional wars
00:25:37.740and additional enemies and could be called into service once again under those circumstances.
00:25:42.660The funny part being that no one would have expected that the additional enemies in the 1930s would be the American people themselves.
00:25:48.740Yeah. Yeah. For people who are currently enjoying the the acceleration of the Patriot Act onto the American population,
00:25:58.960you can't help but draw those parallels. Right.
00:26:01.320Like just absolutely say you have this zombie piece of legislation that's or or even a Supreme Court decision that is made in a particular time,
00:26:10.440in a particular with a particular context, assuming that it's all going to be short term,
00:26:15.580that the the power granted will be very specific, specific and circumspect.
00:26:20.660And it turns out, actually, it just becomes legal cover for the constant violation.
00:26:26.300And we stay in the state of emergency and fortuity. Right.
00:26:30.420Yeah. Right. Right. Right. And I mean, I can just imagine like with the 9-11 Patriot Act, you know,
00:26:34.620I can just imagine some poor guy getting arrested and being charged with like terrorism.
00:26:38.960He's like, what? Terrorism? Well, it's this 9-11 provision, you know, this this law that got passed right after 9-11.
00:26:46.500We're using it on you. 9-11. What? I didn't fly any buildings, the World Trade Center.
00:26:51.860What are you talking about? You know, but but that is our legal reality.
00:26:56.220Yeah. You can also be almost the, you know, like old and old.
00:26:59.540This is kind of the version of like owning gold is, you know, you're siding with Putin here.
00:27:03.620You know, like it's the update of that ridiculousness.
00:27:26.680OK, so a month later, so all that was put into place, the Emergency Baking Act, the extension of the Trading with Enemy Act.
00:27:34.080And so a month later, claiming authority from the Emergency Baking Act and its amendment to the Trading with the Enemy Act, which extended its application.
00:27:42.820President Roosevelt ordered all individuals and corporations in America to hand over their gold holdings to the federal government in exchange for an equivalent amount of paper currency.
00:27:50.760The people were not yet told that the gold they were delivering to the government would never be returned to them.
00:28:06.160So it's a little hard to understand why Americans didn't put up more of a ruckus.
00:28:11.100I mean, well, number one is that, as we know, 1929 did introduce a crisis, which you may not know, but Herbert Hoover made it worse by not taking the Warren Harding route, but the very opposite.
00:28:24.360And so, you know, people have a sense of a crisis.
00:28:27.520And as usual, and this is why power likes using a crisis, right?
00:28:35.000You pull together, you gather the herd together, right, to face the enemy or face the emergency, right?
00:28:42.040And so the mindset was, up until you have to get yourself back into a place that's really mentally unfamiliar.
00:28:49.360Up until this time, the American dollar could always be redeemed for gold, remember?
00:28:54.120So that's the mindset that people have.
00:28:56.440And they're thinking, oh, well, this is a little temporary emergency measure.
00:29:00.200And then we'll go back and these dollars that look just the same as they did yesterday, I'll be able to go to the bank and I'll exchange it for gold, just like I would have a week ago, right?
00:29:10.020It was hard to imagine that this was being used as an opportunity to just completely change everything.
00:29:17.240It seemed like a small step in a way, if you follow me, because people weren't walking around with gold coins.
00:29:22.980They were using the paper dollar that represented the gold and the gold was at the bank.
00:29:26.980And so that's really the instrument through which they could put this into practice, is that most of the gold was sitting in vaults at banks.
00:29:36.440And so the government just worked with the banks to grab the gold.
00:29:39.100Yeah, it makes more sense, like you said, now after kind of the post-pandemic and everything, how egregiously things have changed.
00:29:48.020But you look back to something like 9-11 and most people say, okay, a little bit, you know, additional security to make sure that, you know, there's not a bomb on my plane or something.
00:30:07.840Yeah, so these things not only stayed with us, the things that seemed like a small change in the moment, but they actually accelerate over time.
00:30:17.740The security is far more serious now than it was then.
00:30:21.100And now your point is now this would have been even less of a shock to them at this time because, like you said, the average person, they're not actually – like in theory, like the idea is my money is worth gold and I can go change it at any time.
00:30:34.500But the average person is not walking around with gold in their pocket.
00:30:37.240They're not regularly going to the bank to switch their gold for – their cash for gold, their gold for cash.
00:30:42.420And so the idea that, you know, okay, we're going to put this on hold for a year or two or something until things go back to normal, that wouldn't have been something that immediately affected your life because it's not like you were walking around with a bunch of gold bars in your pockets.
00:30:56.460And there's just this, you know, and I think in some ways it speaks well of people.
00:31:00.880There's this assumption of assuming the best kind of, you know, that people just figure, well, you know, okay, they'll do the right thing, you know.
00:31:11.480And also it helps to emphasize that this is very unusual in the history of the world to have a paper money that is not backed by anything at all.
00:31:22.560It's – up until this time it was unheard of basically.
00:31:26.260It had happened briefly in the French Revolution, I think, but as usual it just became a hyperinflation and the paper money became worthless.
00:31:32.640And then, well, you know, some of these have become sayings or idioms, right, of not worth a confederate or an assignat or whatever, right?
00:31:44.440These were monies that were not properly backed and they were just paper and they became worthless, right?
00:31:50.000So people had briefly tried these experiments, but no one saw that as like a good idea to do for long term, right?
00:31:56.580It always fell apart and through most of history people had precious metals.
00:32:02.540Okay, so then June 5th, 1933, at the behest of Roosevelt, Congress passed a joint resolution that made it illegal to require payment in gold or a particular kind of coin or currency.
00:32:17.460That meant that any provision in a private contract or even in a public one, like when someone bought a government bond, promising payment in gold was nullified.
00:32:28.960So this – we talked about President Roosevelt's unconstitutional action getting blessed retroactively.
00:32:36.160Well, these are contracts that already have been written and signed and agreed legally, and now those contracts are nullified retroactively.
00:32:43.440They actually go back in time and say, no, that contract doesn't – the provisions of that contract are no good, right?
00:34:42.460Now, what other outcome would be possible?
00:34:45.800With the value of the dollar constantly changing, lenders had no way of knowing whether the dollars they would earn from repaid loans in the future would be worth less than the dollars they were lending in the present, or how much less, or whatever, right?
00:34:59.600So Senator Carter Glass, Democrat of Virginia, as he put it,
00:35:03.020no man outside of a lunatic asylum will loan his money today on a farm mortgage.
00:35:07.100Now, if you know anything about business and farming, you can imagine the disastrous effect here.
00:35:14.640A lot of people use loans to, you know, say a farmer buying some, borrowing early in the season to pay back after they harvest, right?
00:35:27.840This would be a very typical model, and businesses operate in a similar way.
00:35:58.300Again, something we see over and over throughout history, the generation of the problem, the need for the exception,
00:36:04.840and then the exercise of power that remains permanent once the theoretical crisis that was already brought into existence by the very leader who now attempts to solve it,
00:36:15.220your power is now permanent at the end of the whole thing.
00:36:18.180Yeah, and Ludwig von Mises put it in a wonderful way in the title of one of his speeches or pamphlets.
00:36:24.100It's middle of the road policy leads to socialism.