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Source link: http://archive.mises.org/8182/war-and-inflation/

War and Inflation

June 8, 2008 by

You can line up 100 professional war historians and political scientists to talk about the 20th century, and not one is likely to mention the role of the Fed in funding US militarism. And yet it is true: the Fed is the institution that has created the money to fund the wars. The story of central banking is one step removed from the story of atom bombs and death camps. It is the most important priority of the state to keep its money machine hidden behind a curtain. Anyone who dares pull the curtain back is accused of every manner of intellectual crime. This is precisely the reason we must talk about it at every occasion. We must end the conspiracy of silence on this issue.

FULL ARTICLE

{ 21 comments }

Jake June 9, 2008 at 2:55 am

Brilliant !!!

Thank you Lew.

Now to get the message out there !!!

Hyrum June 9, 2008 at 8:01 am

This can be used as an argument against any fiat currency since in most wars inflation is used to fund the wars.

Hyrum June 9, 2008 at 8:31 am

This can be used as an argument against any fiat currency since in most wars inflation is used to fund the wars. I say most because I at all the wars in history but I am sure all the wars in the past couple hundred years have been funded with inflation.

fundamentalist June 9, 2008 at 9:06 am

Abolishing the Fed is a nice dream, but you’re not going to win over socialists, which are most of the country. Socialists worship the state; the Fed is part of the state. When you suggest privatizing money, socialist hear instead that 1) you’re attacking their god and 2) you intend to turn control of money over to greedy businessmen.

john June 9, 2008 at 9:38 am

Great article but. There is always a but. Someone is making a lot of money by having a FED. Maybe Eisenhower was correct. It may be the Military industrial complex and of course your friendly neighborhood bank

Brad June 9, 2008 at 9:38 am

***Abolishing the Fed is a nice dream, but you’re not going to win over socialists, which are most of the country.***

That’s hard to say. We get about 50% turnout for Presidential elections (54% for the hotly contested prior election). We get even less for mere Senate/House elections. Basically nearly 50% of the people don’t vote at all. And of the 50-54% turnout there are libertarians and other small government sort who make up even that number. So to say the majority are socialist is somewhat unproven.

But this merely shows that all it takes is a mobilized 1/3 (roughly) of the population to make the decisions. That is due to the less radicalized who still throw their support somewhere and the near half who abstain. Unfortunately it is this 33-40% who run the media, the banks, the government, the unions, the major corporations. THEY create and meet in the corridors of power to tell EVERYONE how they will live. It stands that the Central Bank is the financial engine for this minority. Unfortunately it is more dismotivating to know that this minority also has control over/controlled by those who have access to predator drones, satellites, and unmanned tanks. Even if enough of those who have voted in the past join the abstainers, and enough become radicalized enough to throw off the chains of taxation, intererst manipulation, and inflation, we don’t stand a snowball’s chance. Can we ever hope to change enough minds within the 33%? I’m not holding my breath.

fundamentalist June 9, 2008 at 10:11 am

Brad: “So to say the majority are socialist is somewhat unproven.”

I think we have been lulled to sleep by the success of Republicans since Reagan. But a lot of the Republican votes have come from Democrats who liked Reagan’s conservative cultural ideas, not his economic ones. They’ll put up with smaller government in exchange for social conservativism. Republicans who favor small government are a very small percentage.

The reason Hillary was such a threat to Republicans is that she figured this out. She was going for social conservatism with economic socialism, which would have sucked the air out of the Republican party.

I don’t know about the rest of the country, but Oklahomans are socially conservative but economically socialist, even the Republicans. When one of the parties figures that out, as Hillary did, that’s all she wrote for small government.

Steve Horwitz June 9, 2008 at 10:56 am

I recently made a very similar, if shorter, argument in The Freeman. Free-Market Money: A Key to Peace

Steve Horwitz June 9, 2008 at 11:10 am

Well I guess the hyperlink didn’t take:

http://www.fee.org/pdf/the-freeman/0801Horwitz.pdf

Matt June 9, 2008 at 11:24 am

Lew, an excellent article and to the point.

The Federal Reserve AND Congress are in this together, both plunder the public like the team of thieves.
I can already see the obfuscations and diversionary comments that steer away from the important points made in this article, this distracts from its importance and does injustice to the task ahead which is that we must rid ourselves of the FED or it will destroy us all, it will even destroy itself in the long run, that will be justice indeed but at what high cost in the destruction of lives and property?

Theft is never a policy upon which free people can exist in harmony and prosper. The Federal Reserve is a monetary counterfeiting machine. One of the slogans that was prominent at the time of the founding fathers was “Death to Counterfeiters” we have come full circle, we either get rid of the FED or it will destroy the Republic known as the United States of America.

Mark June 9, 2008 at 12:22 pm

I read the article, and it sounds great. Can someone please explain how printing money is theft, and how exactly it benefits the government. From what I understand, the Fed doesn’t just print the money and give it to George W to spend – it comes back in the form of taxes?

Simon June 9, 2008 at 12:57 pm

Mark, I think what is meant is that the value of the coins, for example, is stolen out of your pocket.

ama gi June 9, 2008 at 1:27 pm

“The art of war is one of vital importance to the State.” Sun Tzu, The Art of War

(I find it interesting that Sun Tzu begins his treatise with that remark.)

http://www.religiousworlds.com/taoism/suntext.html

Eric June 9, 2008 at 1:41 pm

Mark: I’m not sure what you are thinking of when you say, “It comes back in the form of taxes”.

The real problem is not the printing of money, but rather the law that forces you and I to accept this paper for all transactions we make – EVEN if we had made a contract which states that gold (or anything else) was the only valid form of payment. We are likewise forbidden from creating our own money, even if we DON”T force others to accept our money.

Do you own stocks? Suppose you own some google stock and someone (google or anyone else) decides to print up some more stock which appears identical with your stock. It would be the same as when a stock splits in two, say, and the next day the value of each outstanding share of stock drops in half – except that you don’t get twice the number of shares. In the same way the cash in your pocket and in your savings drops in value, (although not nearly as quickly) and again you are not compensated for the theft of a portion of the value of your cash.

Another way to look at it is, suppose that you own a car and someone prints up a second ower’s certificate to that car and forces you to accept that they own the car equally with you. The result would be that half the value of your car was just stolen (assuming they get away with it – which they would if the law was changed to allow the practice).

The reason the government benefits is that typically the FED creates the newly printing money and gives it to the government to spend – in return for IOU’s that the government never pays back. In return, the FED is permitted to take those IOU’s and divy them up with the big banks who are then permitted to loan them out 10 times over – i.e. for each dollar of IOU from the government, the banks can make loans of about $10. Then the law states that the money the banks just created is also legal tender and you are forced to accept it in payment.

The final result is that prices go up, while your savings remain mostly the same. But as you become poorer, you are told that the culprit is the retailer or the gas station. It’s a grand theft fraud.

And the real reason they can get away with this is that the government controls our schools and so the population is kept ignorant. It’s a bit like how the slaves were forbidden to get a real education. They don’t care if a few of us know what’s going on, so long as we can’t get someone in office that might change things, like a Ron Paul for instance.

Mathias June 9, 2008 at 2:19 pm

Thank you! This is so much easier to translate to my language, and read for laymen like myself who want the message out.

Mack the Knife June 9, 2008 at 2:26 pm

In my readings about the Fed, I recall the story that Wilson knew that the US would get into WWI, and recalled the difficulty of selling the bonds to provision the army in the US-Mexico war in the 1890s. A Federal Reservie system would provide a mechanism for selling such bonds. But … Wilson knew he could not sell the people on a Fed for this reason.

So … Wilson used the excuse of isolated bank failures to set up the structure of the Fed with a promise that it would prevent bank failures, and sold it to the people for that reason.

I think that is called “bait and switch”.

fusgerm June 9, 2008 at 5:04 pm

This article is a great read. Well written, inspiring, a model of controlled rhetoric. But is it true?

The link between the Federal government’s wars and the Fed is that the government finances wars by deficit budgets, while the Fed monetizes the debt. That may have been true in the past, but in recent years it’s been Middle Eastern and Asian governments which have bought the lion’s share of the deficit – about 90%, last time I checked. That keeps long term interest rates absurdly low and gives the US govt a blank check to do what it likes.

As for the Fed itself, it’s been so busy over the past few months selling US treasuries in favor of bank debt that it’s hardly been doing the US Treasury a favor. Unless, of course, its new role is to weaken the dollar and so enable the US Govt to repay its bondholders in toilet paper.

gene berman June 10, 2008 at 2:33 pm

Brad:

“Fundamentalist” is “fundamentally” correct in his assessment of the prevalence of socialist leaning in this country.

Let me lay it out for you in broad but simple terms…I think you’ll find them unobjectionable.

Identifiable Democrats are (and I think I’m being conservative in my estimate) somewhere north of 50% of those elibible to vote in this country. Maybe not as high as 60%; let’s split the difference and call it 55%. Democrats are ALL socialists, though varying in the degree to which they seek collectivist solutions to various of society’s problems.

Republicans constitute the other large ideologic and voting bloc. But, if you examine the positions of a broad spectrum of R-voters on a list of political beliefs (such as belief and support for state-funded education–both of K-12 and academic-level; belief in the legitimacy of licensing and regulation of “professionals,” whether at state or federal level; support for the existence and activities of entities such as Dept.of Agriculture, Dept. of the Interior, etc., etc., you’d have to come to the conclusion that the immense majority of the “conservatives” are, frankly, also socialists–merely with different view on some topics than their D counterparts. Even small businessmen might surprise you in the degree to which they’d support intervention of one sort or another, all the way from “business licensing” at the local level up to support for tariff protection thought to benefit American workers’ wages.

Most of us favor as great as possible extension of rights of equal access and opportunity to all. But every law on the subject (except thopse restricting the government’s right to discriminate) is an inherently socialistic infringement of peoples’ rights of association and to be free of government’s meddling in their private business and affairs. I could go on–but I think you get my point.

Mark June 13, 2008 at 1:04 pm

Eric – Thanks for the clarification.

You say the fed prints the money, and gives it to the government in the form of IOU’s which never get paid back. Do these figures get recorded in the governemnts deficit/debt totals?

In Canada, we have had a balance budget (Federally) for the last 10 years or so. And the government has actually been paying down the debt a little each year. Does that mean our government is responsible in this regard? Inflation has still been around 2% in Canada, even though we have had balanced budgets for many years.

Fred Mann June 14, 2008 at 6:06 pm

Mark,
I’m not too familiar with Canada’s statistics, but if they’re anything like those in the US, they are way off the mark — always in the government’s favor. That is, price inflation is vastly understated, GDP is overstated, the Federal Reserve is not auditable, etc.
The government employs many tricks to give the appearance of fiscal conservatism. Most likely, Canada’s government is, in reality, just as “irresponsible” in their spending as the US. There is most likely a serious budget deficit, higher inflation, etc.
Remeber, US inflation is also “around 2%”, and energy prices “officially” fell last month. Ha ha!!

Tom Wiersma June 19, 2008 at 6:43 pm

Excellent historic summary of our current dillema that the greater population has to grasp. Free money today for any cause, is going to keep costing like hell tomorrow. Chose wisely.

Thankyou

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