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Money and Freedom
An Application of Natural Laws to the Problem of Money -- The
Disastrous Economic and Political Consequences of our Unsound Monetary
System -- A Suggested Remedy
Robert de Fremery
[March 1955]
"Money is
perhaps the mightiest engine to which man can lend an
intelligent guidance. Unheard, unfelt, unseen, it has the power
to so distribute the burdens, gratifications, and opportunities
of life, that each individual shall enjoy that share of them to
which his merits or good fortune may fairly entitle him; or,
contrariwise, to dispense them with so partial a hand, as to
violate every principle of justice and perpetuate a succession
of social slaveries to the end of time." (Alexander Del
Mar, The Science of Money, p. 39)
"Yet matters pertaining to money must be
comprehended if there is to be judicious thinking about causes,
controls and consequences of inflationary boom. In fact, were it
my habit to indulge in admonitions, I would say that the
American people had better find out about money--and quick!"
(Bradford B. Smith, Economist, United States Steel Corporation,
Speech before the Illinois Manufacturers' Costs Association,
April 15, 1947)
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TABLE OF CONTENTS
- Introduction, Acknowledgements, and Bibliography
- Prologue
- Chapter
I: Some Basic Economic Theory Concerning Money (pp.1-5 in
original text)
An appraisal of the role money has played in the development of
civilization..... Money and the Law of Supply and Demand....
Population as the determinant of total demand in a fully developed
market economy..... The injustice resulting from changes in the
per-capita supply of money..... The "population theory of
value" or "Law of Total Utility" and its
relationship to the Law of Diminishing Utility..... The Quantity
Theory Of Money as an application of the Law of Supply and Demand.
- Chapter
II: Early History Prior to Use of Paper Money (pp. 6-12 in
original text)
The problem of maintaining stable money before a market economy
had become fully developed..... The necessity and dangers of a
government monopoly of the issuance of money..... The "Crime
of 1666"
- Chapter
III: Origin of Banking (pp. 13-20 in original text)
The first stages of banking..... The development of credit
banking..... The struggle between Charles II and the goldsmiths
for control of England's money..... The development of credit
banking in Holland..... Disraeli's comments on English History and
the Revolution of 1688.
- Chapter
IV: Analysis of Credit Banking (pp. 21-40 in original text)
The unsoundness of credit banking..... Why bank panics are
inherent in credit banking..... The analogy between debasing gold
by clipping, etc., and debasing it by issuing false titles to gold
(bank credit)..... The proper function of banks..... Credit
banking as the basic cause of inflation..... Bank credit as a
short sale of gold..... Impossibility of creating bank credit "wisely".....
Bank credit, Gresham's Law, and depressions..... Evolution of the
"business cycle"..... International consequences of
pyramiding credit on gold..... Bank credit a poor substitute for
money because of its elasticity..... The myth that "elasticity"
is needed.
- Chapter
V: Continuation of English History (pp. 41-46 in original
text)
Further development of credit banking in England..... Trade
depressions and demand for banking reform..... Absurd distinction
between notes and checks..... Bank Act of 1844 and the control of
bank notes..... Continuance of depressions..... Loss of faith in
freedom resulting from failure to solve problem of stable
money..... Rise of Socialist thought.
- Chapter
VI: Highlights of Colonial and U.S. History (pp. 46-80 in
original text)
Early history of money in America..... England's desire to have
colonists use her money rather than devise their own.....
Alexander Hamilton's bias for British institutions..... The rise
of credit banking in spite of the Constitution..... Demand for
banking reform and our failure to recognize essential similarity
between notes and checks..... Damaging effects of credit banking
in U.S..... The "panic-proof" Federal Reserve
System..... The Great Depression...... The National Bank
Holiday.....The unsound basis of the "New Deal"
philosophy..... Inadequacy of the Federal Deposit Insurance
Corporation..... Alternative courses of action that confront us
today.
- Chapter
VII: "Shall We Return to a Gold Standard--Now?"
(pp. 81-95 in original text)
A review of a book bearing that title published by the National
Industrial Conference Board.
- Chapter
VIII: Monetary Reform (pp. 96-119 in original text)
- Chapter
IX: Conclusion (pp. 120-121 in original text)
- Epilogue:
"God Looks at Money" (p. 122 in original text)
A take-off on Heavenly Discourse by C.E.S. Wood.
PROLOGUE
"the American
people had better find out about money--and quick!" (Bradford
B. Smith, Economist, U.S. Steel Corp., April 14, 1947)
Seven years have gone by since the above warning was given. There are
doubtless many complacent people who think it was just a false alarm.
But future historians -- who will have the benefit of hindsight -- may
say that the warning came too late.
Social forces for both good and evil may be likened to gigantic
flywheels which, once set in motion, are difficult to stop. And many
destructive social forces -- including Communism -- were set in motion
long ago by our failure to stabilize money. These evil forces have
gained increasing momentum as the years have gone by. And it may well
be that even in 1947 it was too late to stop these forces from
eventually destroying our civilization.
Seven years have gone by -- and we are that much closer to the edge
of destruction. But when man is aware of extreme danger, it is not his
nature to lie down without a battle. He steels himself for the final
struggle--always with the hope that somehow, somewhere, he will find
the strength, the courage, and above all, the understanding necessary
to overcome the evil forces that oppose him.
For it is understanding, more than anything else, that we
need so desperately. If the evil forces that threaten to engulf us
were set in motion and given increasing momentum by the environment
resulting from our failure to stabilize money, then our best hope of
eventually destroying those evil forces lies in solving the problem of
money.
Money is supposed to serve man as a standard of value and a medium of
exchange. It is as a standard of value that money is of primary
importance in determining the stability of our economic, social, and
political institutions. The men who built and maintain the complex
market economy that sustains our civilization are totally dependent
upon the stability of our standard of value. Our businessmen are
engaged in combining various values, in the form of raw materials,
labor, and management, for the purpose of producing salable products.
But periodically they find that their finished products have less
value than the sum of the values used in their production. So
production stops.
Naturally we should expect such a thing to be continually happening
to a small percentage of our producers, i.e., there will always be a
few businessmen who will misjudge the marketability and value of the
products they produce. But it is absurd to have a situation
periodically recurring in which a large percentage of producers find
they have misjudged the market. It is absurd to have recurring periods
of what appears to be "overproduction." And although we have
been taught that our periodic depressions are inherent in our free
economic system, there is ample evidence to prove otherwise. There is
ample evidence to prove that the real cause of our troubles is a
faulty standard of value and a banking system that debases our
standard of value to a far greater extent than the most unscrupulous
practices of earlier despots and tyrants. This debasement of our
standard of value inevitably causes significant changes in that
standard and could well account for what appears to be "overproduction"
-- a situation in which a large percentage of producers find the end
value of the products they produce to be less than the sum of values
used in the production of those products.
The few who understand our monetary system have played it for all
that it is worth. They have become enormously wealthy. From whence
came their wealth? From the many who do not understand that system.
Where else could it come from? Man has allowed himself to be
systematically exploited by a comparatively small number of his fellow
men. And he has nobody but himself to blame -- for it was his own
failure to solve the problem of money that made it possible for the
exploitation to take place.
It is this ignorance of what causes his troubles that leads to still
more troubles. For man instinctively seek justice--justice for himself
and for his fellow man. And in his blind struggle to obtain justice,
man turns away from the natural laws. He loses faith in the ability of
freedom to produce justice. He wrongly blames his troubles on the
operation of natural laws instead of on the unstable money for
which he alone is responsible.
No longer wishing to rely on natural laws, and not realizing the true
cause of his troubles, man turns to various "isms"--Fascism,
Naziism, Welfarestatism, Communism, and Socialism. He turns to these "isms"
in a desperate effort to secure a more just economic system; a more
even flow of production; a more just distribution of the products
being produced; and a more just provision for those who, by reason of
age or other limitations, are unable to take part in further
production and whose savings have been destroyed by inflation.
But to the extent that man relies on government rather than upon
natural laws, he must give up the freedom and liberty that go along
with the operation of natural laws. This he is apparently willing to
do. A certain minimum of security and justice means more to man than
complete freedom. Man is willing to bargain away his freedom in the
hope of getting greater security and justice. But the attainment of
security and justice by sacrificing freedom is a delusion; for once a
man allows his freedom to be taken away from him, he subjects himself
to still more insecurity and injustice. Man can't improve upon the
natural laws that govern the production and distribution of wealth.
And that man who thinks he can -- lacks humility. Such men -- no
matter how well intentioned--always throw a monkey wrench into the
machinery of the universe. Their minds are finite after all.
We must not follow such false leaders. For every time we do--every
time we allow ourselves to be regulated by the finite mind of one of
our fellow men rather than by the natural laws of the universe -- we
subject ourselves to still more injustice. Nothing is so destructive
of the moral fabric of society -- nothing is so destructive of all
that is good in man--as the loss of his individual freedom. When man
begins bargaining away his freedom in the hope of getting greater
security, he has set the stage for a progressive deterioration of
society that will eventually result in its total disintegration.
The endless struggle for justice will continue to be an underlying
factor in the rise and fall of civilizations -- in the birth and death
of societies dedicated to freedom -- until such time as man solves the
problem of money--that device of his own creation which makes his
complex civilization possible, but which can, in turn, destroy it.
San Anselmo, Calif. Robert de Fremery, March, 1955
INTRODUCTION, ACKNOWLEDGEMENTS & BIBLIOGRAPHY
Although library shelves are already weighted down with books about
money, I have no hesitation in offering one more. Any real student of
the subject is fully aware of the controversy that still exists in
this field. And if a person feels he can contribute toward a better
understanding of this all-important subject, he owes it to himself and
his fellow man to make the effort to do so.
Most of the research that led to the writing of this book was
motivated primarily by a passionate desire to gain a better
understanding of economics. Since 1940, every effort has been made to
subject my conclusions to the acid test of discussion and criticism.
Early drafts of this book were read and valuable criticism received
from Professor Milton Friedman, Univ. of Chicago; Seth Axley,
investment analyst; Bradford B. Smith, Economist, U. S. Steel Corp.;
W. I. King, Economic Advisor for the Committee for Constitutional
Government; Professor Carl Uhr, Univ. of San Francisco; William
Daegling, Credit Dept., Anglo California Bank; and, last but by no
means least, my late father-in-law, David Atkins, author of
Economics of Freedom, Measurement of Economic Value, and A
Dimensional National Economy.
Were I to pick out any one person to whom I am most indebted, I would
select David Atkins. In a period in which skepticism and lack of faith
in freedom reigned supreme, it was he who planted a picture in my mind
that I shall never forget. "A free economic system using a sound
money and a sound system of taxation," he said, "may be
likened to a pyramid resting squarely on its base. A
government-controlled economic system, on the other hand, may be
likened to an inverted pyramid resting precariously on its apex."
Human energy -- in the eyes of my father-in-law--could no more be
controlled and regulated over a long period of time than could the
cosmic forces that regulate the universe. Any attempt to control or
regulate the flow of human energy can only be done by repression. And
repression will eventually result in revolution. It is worthwhile,
therefore, to study the economics of freedom. Unless we solve the
problems of a free society, we are doomed to go the way of all
civilizations before us.
In compiling the bibliography below, I have listed only those books
that contributed materially to the development of my thinking.
- Aftalion L'Or, Le Monnaie et Leur Valeur
- Adams, Brooks The Law of Civilization and Decay
- Anderson, B. M., Jr. Economics and the Public Welfare
- _____. The Value of Money
- Angell, James W. The Behaviour of Money
- Atkins, David Economics of Freedom
- _____. Measurement of Economic Value
- _____. A Dimensional National Economy
- Beard, Charles A. Rise of American Civilization
- Berkey, W. A. The Money Question
- Blakiston Series: Readings in Monetary Theory
- van der Borght, R. History of Banking in all the Leading
Nations (Chapter on Holland only)
- Bradford, F. A. Money and Banking
- Bryan, W. J. The First Battle
- Coulborn, W. A. L. A Discussion of Money
- Currie, Laughlin The Supply and Control of Money in the United
States
- Del Mar, A. History of Monetary Systems
- _____. The Science Of Money
- de Lynden, R. A. The Curse of Credit
- Dunkman, W. E. Qualitative Credit Control
- Eccles, Marriner Beckoning Frontiers
- Feavearyear, A. E. The Pound Sterling
- George, Henry Progress and Poverty
- Gide and Rist History of Economic Doctrines
- Groseclose, Elgin Money: The Human Conflict
- von Haberler, G. Prosperity and Depression
- Hart, A. F. Money, Debt and Economic Activity
- Hawtrey, R. G. A Century of Bank Rate
- Hayek, F. A. Prices and Production
- _____. Monetary Nationalism and International Stability
- Hollis, Christopher The Two Nations
- Jevons, W. S. Money and the Mechanism of Exchange
- Lippmann, Walter The Good Society
- McCracken, H. L. Value Theory and Business Cycles
- Mints, Lloyd History of Banking Theory
- von Mises, L. The Theory of Money and Credit
- Phillips, McMannus
- and Nelson Banking and The Business Cycle
- Roberson, D. H. Money
- Scherman, Harry The Promises Men Live By
- Tilden, Freeman A World in Debt
- Voorhis, Jerry Out of Debt--Out of Danger
- Whittlesey, C. R. International Monetary Issues
- Wood, C. S. Heavenly Discourse
- _____. Too Much Government
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