Summer Semester, 2002

Monetary Economics 101: The Real Bills Doctrine of Adam Smith

Lecture 2


July 8, 2002

– Let the Gold Eagle Coin Soar without the Heavy Baggage of Dollar Debt –
– Don’t Let the Banks Sabotage the New Gold Coin Standard – – The World without Banks –

Courtesy of Antal E Fekete @ Professor

I extend a hearty welcome to my audience at the first university course offered in the 21st century on the gold standard, made possible by Gold-Eagle University, an educational website to offer you knowledge put under taboo by mainstream/establishment universities. Taking this course will not get you a degree, but it may get you something more precious: a better understanding of the world, its past, present, and future.

In last week’s inaugural lecture I offered a blueprint for a new gold coin standard the features of which can be summed up as follows:

(1) Open the Mint to free and unlimited coinage of gold. The one-ounce Gold Eagle coin should be adopted as a monetary unit minted for the account of anyone tendering the right amount and purity of gold, free of charge.

(2) To get the grass-root circulation of gold coins going, labor organizations (including those of pensioners and retired people) ought to be involved through their Credit Unions offering gold-coin deposit facilities. Banks must be excluded.

(3) Short-term credit to move goods from the producer to the consumer should be provided by the bill market, rather than by the banks, on the pattern of the pre-1914 way to finance world trade with gold.

(4) Long-term credit to the economy should be provided by the gold-bond market. The primary demand for gold bonds comes from financial institutions offering gold life insurance and gold annuity policies to the people. The primary supply is from the government and firms that want to operate on the basis of gold capital. Gold bonds must have a sinking fund protection. Issuers of gold bonds must see the revenues with which to retire the liability.

Parallel Monetary Standard

The first remark on this blueprint which, as far as I am aware, is new and radically different from any other that has been offered so far, is that it expressly avoids fixing the price of gold. At least for a transitional period that may last for several years, the paper dollar and the Eagle gold coins would circulate side-by side at a floating exchange rate. In other words, there would be a parallel monetary standard and the paper dollar would be free to compete with the Gold Eagle. The market should in the end decide which of the two deserved to survive. This is a major departure from historical precedents, which have all involved the stabilization of the paper currency in terms of gold. The question arises: why should we have such a complicated blueprint when a simpler one, fixing the gold price, could accomplish the same objective? Continue reading

The US is the New Falling Roman Empire (Exclusive Interview with Antal E Fekete)

Courtesy of Guillermo Barba @ Inteligencia Financiera Global:

The Inteligencia Financiera Global blog (Global Financial Intelligence Blog) is pleased to present this exclusive interview with Prof. Antal E. Fekete, founder of the New Austrian School of Economics, monetary scientist, proponent of the gold standard and a critic of the monetary system based on irredeemable currency (fiat money).


Thanks for accepting this interview.

– Prof. Fekete, why did you decide to found the “New” Austrian School of Economics (NASOE)? Did you find something wrong within the “old school”? What about Carl Menger and Mises?

– What I have found was that post-Mises Austrian economists, but already Ludwig von Mises himself, had substantially deviated from Carl Menger’s teachings for the worse. Thus in my view a rather large portion of the post-Mises Austrian economists’ research is in error. I took it upon myself to criticize the deviation from Menger and correct it. The list includes their dismissal of Adam Smith’s Gold Bills Doctrine, the theory of interest as distinct from the theory of discount, to name but a few. The New Austrian School of Economics (NASOE) was launched under the slogan: “Back to Menger!”

– We know you don’t support both the Keynesian and Monetarist theories. What’s wrong with them? What’s their biggest mistake, if any?

– The biggest mistake of Keynesianism and Friedman-style monetarism is that they favor the destabilization of the interest rate structure that was stable before, but had started gyrating and, more recently, plunging into the black hole of zero interest. All this was in consequence of Keynes’ and Friedman’ success in undermining and ultimately overthrowing the gold standard.

– If these two theories are wrong, why do you think they have become the mainstream all around the world? Were they imposed by somebody?

– They became mainstream for reasons of their demagoguery. They are designed to appeal to one’s sense of justice: antidote against misery amongst plenty. They take advantage of the appallingly low level of education based, as it is, on envy. It is characterized by an almost complete neglect of the aprioristic branches of science: logic, mathematics and economics. And I say this as a professional mathematician. Keynes ensnared F.D. Roosevelt; Friedman ensnared Nixon. These two presidents were happy to trample upon the United States Constitution at their bidding. As a consequence the gold standard was destroyed and irredeemable currency was foisted upon American citizens in 1933 and, on every inhabitant of the Earth in 1971. At the same time the gold of the people was looted by the government. Continue reading

The truth is out: money is just an IOU, and the banks are rolling in it

It’s good for the Bank of England to admit that the ‘money’ we use, correctly called fiat currency, is just a worthless paper IOU and the only thing that gives it value is your belief that it is worth what you think.

It is debt, not money and this monetary setup is gamed for the few and enslaves the rest of us. Gold and silver are money and have been for 5000 years, a return to sound money and The Real Bills Doctrine is what is required to get this country and the world, back on track.


Courtesy of David Graeber @ The Guardian:

Back in the 1930s, Henry Ford is supposed to have remarked that it was a good thing that most Americans didn’t know how banking really works, because if they did, “there’d be a revolution before tomorrow morning”.

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called “Money Creation in the Modern Economy”, co-authored by three economists from the Bank’s Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct. In doing so, they have effectively thrown the entire theoretical basis for austerity out of the window.

To get a sense of how radical the Bank’s new position is, consider the conventional view, which continues to be the basis of all respectable debate on public policy. People put their money in banks. Banks then lend that money out at interest – either to consumers, or to entrepreneurs willing to invest it in some profitable enterprise. True, the fractional reserve system does allow banks to lend out considerably more than they hold in reserve, and true, if savings don’t suffice, private banks can seek to borrow more from the central bank. Continue reading

The Siren-song of Welfare State

By Hugo Salinas Price and courtesy of Plata:

Our world is run – and has been run for some time now – by a relatively very small group of individuals who have it in their power to manage, as they think, the economies of nations. Managing the affairs of a nation implies making people behave in ways in which they would not otherwise behave. National management of an economy thus means making millions of individuals do what they wouldn’t do if left to themselves.

There is not one single national economy in the world today whose people are free to do as they wish; it is not so much that people are forbidden to do what they think best, as that their choices are being narrowed, day by day, to being able to do only what is allowed.

One of the very first choices which free individuals made thousands of years ago was the choice of the money they would use in their exchanges of goods and services; after using other substances such as salt, or copper, or sea-shells, they finally chose gold and silver for use as money, because all humanity valued these metals above all other substances, and consequently gold and silver were the most convenient substances to use as money. Continue reading