Money Creators

of creating money. It is for individuals, as acting, exchanging persons, to “create” money, and even this “creation” is not by fiat—not by voice acclamation as God created the world, but merely by personal preference and use. This is a far cry om the fiat creation of money as propounded by Coogan.

What, then, can be said for the book, Lawful Money Explained? First, it is statist in outlook, collectivistic in its view of the functioning of money, and certainly not a representative of anything resembling a ee market approach to the money question. Second, the book is Keynesian in many of its monetary recommendations. It is a crude, simplistic form of Keynesianism, but still as dangerous as the more “orthodox” Keynesianism.

Third, because the author provided no clear theory of value, the book cannot be called an economic treatise at all.

At best, Miss Coogan was a chronicler, a gatherer of data—in short, a statistician. With no theory of value, she could propose no theory of price. Without a theory of price, it is impossible to understand supply and demand, and it is equally impossible to explain money and its functions.

The book has no consistent economic theory of any kind holding it to-gether. It is a hodgepodge of fallacious reasoning, inaccurate definitions, and socialistic panaceas. Except for her explanation of the actional reserve banking system and the aud involved in it, Coogan offered nothing of any value whatsoever. Her book is non-economics, useless at best, and highly dangerous at worst. Nothing could be further om the truth than to regard this book as a statement of a conservative case for honest money.

Money Creators

T  book to be considered here is her study, Money Creators, published in 193⒌ It is more historical in approach, and for that reason it is considerably longer than Lawful Money Explained . It contains no statement of “first principles,” and is therefore even less of an economic investigation than is the other, if such a thing could be imagined. The lack of any systematic statement of her economic principles does not exempt the book om any of the fallacies reviewed earlier; it only makes them less apparent. It also helps to hide her lack of economic reasoning. The book has little to say about economics or economists; it

17

is based ostensibly upon juridical law rather than on economic law. She scorned economic law. The book’s starting point is the Constitution of the United States.

Constitutional Money

The Constitution was written by a committee in 1787, in an age of little that could be called modern economic science. In fact, if we are to take Coogan seriously, economics was no science at all in those days. Economists, she wrote, were all mere tools of the international banking establishment, and Adam Smith was in the same camp as was Adam Weishaupt, the founder of the revolutionary secret society, the Illumi-nati.23 Nevertheless, Coogan accepted as the absolute standard of economic truth, Article I, Section 8 of the Constitution, in spite of the fact that if the men who wrote it had read any economists at all, they had read Adam Smith. This standard of reference, which Coogan and all American

Greenback writers regard as absolute, is that Congress shall have the power “To coin Money and regulate the Value thereof, and foreign Coin, and fix the Standard of Weights and Measures.” That is what the Constitution says, unquestionably. Unfortunately, the Greenbackers who cite it haven’t the slightest idea what it means.24

Paul Bakewell, a conservative lawyer whose works on money are quite good, did understand what it means, since he understood monetary theory and American legal history. Because this “lawful money” argument is at the center of the Greenbackers’ economic analyses, Bakewell’s research is extremely important, for it destroys the inaccurate legal scholarship that undergirds Greenbackism. He pointed out that, in 1850, before the Supreme Court was such a willing tool of party politics, it unanimously declared the meaning of the words of Article I, Section ⒏

They appertain rather to the execution of an important trust invested by the Constitution and to the obligation to fulfill that truston the part of the government, namely, the trust and duty ofcreating and maintaining a uniform and pure metallic standardof value throughout the United States. The power of coiningmoney and of regulating its value was delegated to Congress by

2324Ibid., p. ⒏Gertrude Coogan,Money Creators(Hawthorne, Calif.: Omni, [1935]

1963), pp. 205–⒎

18

the Constitution for this very purpose as assigned by the amersof that instrument, of creating and preserving the uniformity andpurity of such a standard of value. . . .

Whatever the functions Congress are, by the Constitution,authorized to perform, they are, when the people’s good requiresit, bound to perform; and on this principle, having emitted a circulating medium, a standard of value indispensable for the purposeof the community, and for the action of the government itself,they are accordingly authorized and bound in duty to prevent itsdebasement and expulsion . . . (9 Howard, p. 568).

As Bakewell pointed out, even Alexander Hamilton, a political cen— tralist who designed America’s first national central bank, knew better than to tamper with the metal content of the monetary unit. Jefferson, on this point if on no other, agreed with him.

Aer citing statements by Supreme Court Justices Washington, Clif-ford, and Story that confirm this point, Bakewell concluded: “Thus the earlier opinions of the Supreme Court and of the Founding Fathers clearly indicated that our government has no power to debase the standard of value.” His warning, offered to New Dealers, Keynesians, Chicago School monetarists, and Greenbackers, was straightforward: “If Congress has power to debase the standard of value, there is no limit to that power.”25 Written in 1962, there is little that has happened in the United States’ monetary affairs since that time to indicate that his warning was not in order. It is unfortunate that Greenback advocates have been unwilling to see this warning as applying to their own policies of monetary expansion and currency debasement.

Miss Coogan understood neither legal history nor economic theory. She informed us that capitalism is the economic and political system that permits private citizens to own and control their own private property.

Yet the most important property of all in an urban, industrialized society, om an economic standpoint, is money. Nevertheless, Coogan did not regard money as a form of private property that may legitimately be controlled by a ee market. She implicitly denied what she proclaimed to be the glory of capitalism: the right to hold property. Naturally, she saw no contradiction here, and therefore she failed to comment upon it.

25Paul Bakewell,13 Curious Errors About Money(Caldwell, Idaho: Caxton, 1962), p. 5⒈

19

She called for “equitable” price levels 2627 and “decent” prices. She did not mention the idea of balancing supply and demand through the price system.28 She recommended the creation of a board of National Monetary Trustees. It would set all prices at the “desired price level.”29 Yet she called herself a capitalist. But then again, so did Keynes.

Coogan rightfully referred to private counterfeiting as “the.” 30 She did not call the State’s printing press money counterfeit, yet the private bills are counterfeits. Naturally not; in her view the very ink of the State’s presses turns cheap paper into valuable money. Private counterfeits do not have this “mystical something” that turns paper into money. That special something is possessed only by the Sovereign Authority. Somehow (she could not explain why), the State’s bills are money, but the private bills are not, in spite of the fact that both look alike and both circulate just as easily. The private bills only act as money, but they are not really lawful money. This is not economics; it is mysticism.

Counterfeiting is the for one reason, and only one reason. Paper bills are issued that look exactly like bills that are backed by 100% of their face value in money metals, but these bills do not have such a backing. In other words, if all the individuals went to claim their money metals at the same time, some people could not collect. The storage warehouse, whether a Treasury building or a private bank, would have been emptied because some people possessed counterfeit claims to the gold and silver, and collected the goods illegally om the rightful owners. This is why counterfeiting is the. It is a claim on goods which do not exist. A bill that is counterfeit, by definition, is a bill that tells the bearer that he is the owner of a certain amount of a money metal, a unit of metal which does not really exist. It does not matter who has issued it—a State Treasury, a bank, or Junior with his homemade printing press—if there are no

2627Coogan, p. 9⒏Ibid., p. ⒉

28The same failure of understanding marred the economic thinking of the colonial

Puritans of New England. They tried, unsuccessfully, to legislate “fair wages” and“reasonable prices.” By 1676 this policy had failed so many times that it was no longerattempted. Only with the coming of the American Revolution did the political authoritiesre-institute price controls, and the immediate result was the devastating shortage of goodsat Valley Forge: Percy L. Greaves, “From Price Control to Valley Forge 1777–1778,”TheFreeman(February 1972). On the development of Puritan economic thought, see North,Puritan Economic Experiments(Tyler, Texas: Institute for Christian Economics, 1988).

2930Coogan, p. 33⒏Ibid., p. ⒕

20

reserves behind the claim, then the bill is counterfeit.31

Coogan saw the truth of this analysis when it is applied to the banking world. If banks, through the actional reserve method, issue bank notes or credit demands above the actual quantity of gold and silver held in storage, they are practicing the. But, in her view, even private backed notes must not be permitted to circulate as currency. In fact, the original public error was to permit private bank notes to circulate as money, even when backed by 100reserves32 ! The State’s notes, however, are to be unbacked notes, and these are to be the only lawful money to circulate in society.33 In other words, honest, 100% reserve notes, which are a form of private property, are made illegal, and the State counterfeit notes are to be the standard of price measurement, the only legal money. This is anti-economics with a vengeance.

Money, meaning lawful (i.e., State counterfeit) money, is not built on confidence, she hastened to add. In fact, only the illegal money of today is built, as she put it, “3% on gold and 97% on ‘confidence,’ ‘courage,’ and other purely psychological and irrelevant factors.” 34 She continued: “We are dishonestly told that a money system depends upon ‘Confidence.’ This is the case under the existing scheme; but it is perversion brought down on us om centuries of deceptive practice.”35 Money supposedly must be built neither on public confidence nor on gold and silver. Gold and silver are not even to be used as coins; they are to be reserved for international payments alone, not for domestic purposes. “They are not necessary as bases for the issuance of domestic money. . . .”36 Money is based solely upon the imprimatur of the State. Lawful money must be “divorced om all metals.”37 There is to be no private coinage whatsoever: “No private individual should ever be allowed the privilege of creating and recalling money at will.”38 The right to own property in the form of money metals or IOU notes for these metals is hereby revoked. And this is put forward as if it were consistent with the principles of the Founding Fathers of our nation! It is not just a travesty of economics; it is a total rejection of political history.

31Murray Rothbard wrote: “Counterfeiting is evidently but another name for inflation

—both create new ‘money!’ that is not standard gold or silver, and both function similarly.And now we see why governments are inherently inflationary: because inflation is apowerful and subtle means for government acquisition of the public’s resources, a painlessand all the more dangerous form of taxation.” Rothbard,What Has Government Done toOur Money?(Colorado Springs: Pine Tree Press, 1964), pp. 27–2⒏

323334Coogan, p. ⒗Ibid., p. 29⒍Ibid., p. 29⒌

35363738Ibid., p. 10⒐Ibid., p. 25⒊Ibid., p. 24⒉Ibid., p. 23⒐

21

State Monopoly Money

The State must have a total monopoly of all money creation.

What, then, is to prevent mass inflation? The government is not legally limited in its printing of money by the necessity of 100% specie backing. There should be no such reserves.39 The State is not limited, in Coogan’s view, by the confidence that people will have in the money, for lawful money (statist money) is not like regular money; it is not based on confidence.40 She based her whole system on the premise that only State-printed money is true money, a clearly preposterous historical fact, and also a theory refuted by Mises, Hayek, Hazlitt, and other ee market economists. Her faith was based completely on the hypothetical honesty of State bureaucrats, not on the truth of economic logic or the sanction of private contracts. Her hope was in the State, not private property.

Here is the most fantastic statement I have ever read in any piece of literature that professes to be conservative in orientation. It is almost impossible to take it seriously, yet it is presented as a statement of fact.

Another fear fostered by the money creators (in their efforts tostrangle money) is the fear very commonly held that once thegovernment starts to issue money there will be no end to it. Butlet us reflect upon this libel of the people’s own chosen representatives. . . . Statesmen would fill our Congressional Halls if themoney system were honest.41

All power to the absolutely reliable elected representatives of the People! They are above all suspicion. Only private bankers are to blame for government corruption, for sin in high places. They alone bear the responsibility for the evils of our age! Am I exaggerating? Make the money lawful, she argued, by turning its control over to the State, and “Corruption and ‘legal’ rackets would practically disappear. They existbecause we have a dishonest money system.42 ” Furthermore, we would have no more depressions, and “Poverty could be eliminated om the United States. . . .” 43 And to top it all off: “Were the money system honest, bribery could be practically eliminated.”44

3940Ibid., p. 24⒉Ibid., pp. 263–6⒋

41Ibid., p. 26⒏

42Ibid., p. 25⒍

43Ibid., p. 25⒍

44Ibid., p. 26⒋

22

This is not economics; it is paranoia. It is also messianic. If conservatives have ever thought that Karl Marx was stark raving mad in his visionary promises for the communist society, they should re-examine the literature of this ostensibly conservative movement. All evil, for Coogan, is literally incarnated in the international bankers, just as Marx viewed bourgeois industrialists. These men cause depressions, all by themselves.45 Undoubtedly they can trigger depressions, but to charge them with the whole crime is absurd. Inflation of any kind, whether bank credit inflation or State Treasury note inflation, is the cause of depressions. Anyone doubting this need only read the first chapter of Murray Rothbard’s book,

America’s Great Depression46 , to see the truth of the statement. Governments can cause depressions just as easily as can the bankers, but this Coogan would not admit. Depressions are personal in her view; they have nothing to do with economic theory. This personalization of evil into a selected group is a denial of the basic Christian doctrine of the sinfulness of human beings as a species.47 Yet she went so far as to say that bribery could not take place if only statist money were in operation. 48 The whole idea is hardly worth serious refutation.

What is her idea of inflation? Her definition serves as the keystone for all the policies she presents: “Inflating is the act of increasing the money (demand claims) of a nation faster than the volume of consumer goods available for distribution can be increased.”49 This is in accord with her statement in Lecture No. 7 of Lawful Money Explained: “Arbitrary creation of new money as loans without there having been a previous proportional increase in the total quantity of goods and services for sale alters the purchasing power of all already existing money.” That is why she concluded earlier that “The total volume (numbers of money) should always be proportional to all existing wealth on sale” (No. 3). This definition is totally inaccurate, as I have explained. Money is the most marketable commodity.

45Ibid., p. 23–30.

46Murray N. Rothbard,America’s Great Depression(Princeton, New Jersey: Van

Nostrand, 1963). This is available as a ee download:http://mises.org/Rothbard/agd.pdf.

47See R. J. Rushdoony,The Nature of the American System(Vallecito, California: Ross

House, [1965] 2001), ch. 8: The Conspiracy View of History.”

48Coogan, p. 26⒋

49Ibid., p. 1⒚

23

I have already pointed out her holistic approach to understanding

prices and money. What I said there applies here, too. The best workable definition of inflation would be an easily grasped concept: “Inflation oc-curs when there is an addition to the quantity of the circulating media.”

Gold, silver, paper bills, demand deposits in banks that are not covered by specie—in short, anything that is added that is not offset by loss, destruction, wear, or hoarding somewhere else in the economy. This being the case, there must always be some inflation or deflation going on in an economy.50 But additions to the supplies of gold and silver occur slowly. Mining is expensive, and gold and silver are both used as ornaments and in industrial use. There are some fluctuations in supply, but these fluctuations are never so drastic as State-created money fluctuations.51 Coogan was concerned with “[w]ide and sudden gyrations in the purchasing power of money,”52 yet these vast changes cannot come as a result of a metal currency. It takes too long to discover the metals, mine them, and produce finished products. That is precisely the reason why gold and silver have been the basis of currency and exchange for millennia. Without private money based on private contracts and the enforcement of laws against aud, we shall continue to experience just those vast fluctuations in the value of the currency that Coogan abhorred.53

Coogan wanted a State currency completely divorced om the precious metals.54 The money supply should be completely subject to the manipulation of the State Monetary Trustees. The whole idea is socialistic to the core. Mises wrote this.

The excellence of the gold standard is to be seen in the fact thatit renders the determination of the monetary unit’s purchasingpower independent of the policies of governments and politicalparties. Furthermore, it prevents rulers om eluding the financial and budgetary prerogatives of the representative assemblies.

Parliamentary control of finances works only if the governmentis not in a position to provide for unauthorized expenditures byincreasing the circulating amount of fiat money.55

Coogan wanted to remove this restriction on the executive head of the government, and at the same time give the power of monetary matters, once held by ee men, over to the national government. Remember, too,

5051Mises,Money and Credit, p. 240.Ibid., p. 23⒏

525354Coogan, p. ⒏North, “Gold’s Dust,”op. cit.Coogan, p. 24⒉

55Mises,Money and Credit, p. 4⒗

24

that all these recommendations were made in 1935, in the middle of Roosevelt’s first term of office. It was not Calvin Coolidge who was occupying the White House; “the revolution was,” in Garet Garrett’s telling phrase in 193⒏ In 1935, Coogan said that the restrictions on money creation that gold provides are not necessary, and that such controls by metal and contracts is only the work of the mythmakers: the international bankers, who think, or at least argue, that such controls are needed.

Hyperinflation

If the State is so trustworthy, how are we to understand the inflations of the French and American Revolutions? Here Coogan as historian rushed to show us that we cannot use these concrete historical cases as arguments against State-controlled fiat money. In the case of the worthless Continental, she tried vainly to skirt the issue.

On November 15, 1777, the Articles of Confederation were agreedto. The first Congress met on March 2, 178⒈ From then untilthe Constitution of the United States was ratified in 1789, thatdocument formed the basis of the government. The Articles ofConfederation did not give the Continental Congress the powerof taxation. The Continental Congress did not issue legal tenderbecause it could not under the Articles of Confederation . . . thelesson learned is little applicable to modern conditions. . . .56

Coogan implied that there was no official money issued by the Congress.

The money was not supported by law or popular consent. 57 It was issued in the period before the Articles were ratified in 178⒈ This, however, is no answer, for the national government did issue paper money. Between

June of 1775 and November of 1779, some $190,000,000 worth of national currency was printed—unbacked bills that eventually fell to no value. There was no restraint applied here by the State hierarchy on the presses.

Furthermore, she had to admit that “Thirteen independent legislatures granted or withheld the means according to their own convenience,” referring to the reimbursement of the national Treasury. Yet it was these legally elected state governments that issued $246,000,000 worth of unbacked notes during this same period. That was legal money, but Coogan

5657Coogan, pp. 185–8⒍Ibid., p. 18⒎

25

refused even to mention this fact. 58 All she could do was to blame the counterfeiters for the fall in value of the so-called “lawful money.”59

What of France? Again, she deliberately misled the reader.

The assignats, the unbacked paper bills, were unquestionably properly stamped State money. “The fact that they were destroyed as money by the gigantic counterfeiting operations of the money creators later, does not detract om their validity.”60 Counterfeiters again, and money creators (i.e., international bankers) at that. Coogan would have us believe that the collapse in their market value was due solely to privately printed counterfeits. The facts indicate otherwise. She failed to point out that between 1790 and 1796, the legal government of France issued a total of 45 billions of ancs worth of unbacked (and, by my definition, counterfeit) assignats, to be followed by an additional two and one half billions in paper mandats. All of it was “legal tender,” and the State coerced the populace into accepting them at their face value, that is, their specie value. 61 The resulting price inflation was unparalleled in that day, worse even than John

Law’s vast fiasco 60 years earlier. Coogan ignored these facts. Issues like these are more easily sidestepped than answered. Such hyperinflation, in a day when “billions” were elsewhere unheard of, is too damaging to her case that all duly elected governments are monetarily trustworthy, even if the representatives are radical revolutionaries and even Illuminists, as they were in France.

True, counterfeiting—private counterfeiting—did go on. Counterfeiting of French notes went on in a scale almost as vast, perhaps more vast, than did the counterfeiting by the French government itself. One facet of this mass counterfeiting Coogan never chose to bring up. How much easier is it to print a counterfeit bill than it is to mint a counterfeit coin? Wisely, she did not mention this obvious issue. She still continued to call for unbacked Treasury notes, damning all supporters of gold as “gold bugs”

58Harold Underwood Faulkner,American Economic History, 5th ed. (New York:

Harper & Bros., 1943), p. 14⒋On the staggering increase in prices during the

American Revolution, see the wholesale price estimates.Historical Statistics of the UnitedStates, Colonial Times to 1957(Washington: Government Printing Office, 1961), p. 772,Series Z 33⒍ Prices in 1780 were an incredible 130 times higher than they were in 177⒌Private counterfeiters did not cause all of that increase, and neither did military operationsas such. The price of goods in relation to gold did not increase by 130-to-one.

5960Coogan, p. 18⒍Coogan, p. 3⒛

61Andrew Dickson White,Fiat Money Inflation in France(Caldwell, Idaho: Caxton,

26

or tools of the international bankers. Her own counterfeiting argument destroys her case for “lawful” money, but she went on, undaunted.

Consider this curious twist of logic. Point No. 1: “Did Mr. Baruch explain that throughout the entire history of money, the only time inflation, as he describes it, took place, was when the internationalists wanted to destroy not only the value of the currency but also the government of a country? Never has any government itself conducted such an inflation.”62

The incarnation of evil, the internationalists, alone practice mass inflation, in order to destroy a nation’s government. Point No. 2: “These [French] assignats, as they were called, were the money which financed the wars fought with other nations by the revolutionaries.” 63 Point No. 3, found in the very next paragraph, I have already quoted, that the gigantic counterfeiting operations (which are only conducted by the internationalists—

Point No. 1) that had their source in London were the sole cause of the collapse of the value of the assignats. Conclusion: the French revolutionaries must have been the enemies of the internationalists! This, of course,

Coogan dared not say, since it is a conclusion that is utterly absurd.

A Stable Price Level

We now come to the only “positive” economic recommendation that Coogan offered. Her reasonable one, that no actional reserves should be permitted, had the destructive clause added on that no private notes, even when backed by 100% gold coin reserves, should be issued. She told us that the dollar must remain stable in its purchasing power. This is an impossible ideal, economically speaking. Mises demonstrated quite adequately that only in legal theory, never in economic theory, can money remain absolutely static in its value. 64 In a ee market, prices change slowly, but they do change.65 Only with continual State intervention can the “stable money” advocates even hope to approach their ideal. But their ideal cannot be attained.

. . . we are by no means in a position to determine with precisionwhether variations have occurred in the exchange-value of moneyom any cause whatever, and if so to what extent, quite apart om

[1914] 1958), pp. 65–6⒐

626364Coogan, p. 9⒊Ibid., p. 3⒛Mises,Money and Credit, p. 19⒍

65Ibid., p. 1⒓ Cf. North, “Downward Price Flexibility,”op. cit.

27

the question of whether such changes have been effected om themonetary side.66

Mises went even further:

Once the principle is so much as admitted that the State mayand should influence the value of money, even if it were only toguarantee the stability of its value, the danger of mistakes andexcesses immediately arises again.67

Mises’s warning went unheard and unheeded by Coogan. He said that, because economists cannot know all the data concerning price changes, they are unable to effect an absolutely stable price level by tampering with its supply. As a statistician, she trusted in the omniscience of statisticians, and she discounted such advice om a mere economist. She called for the creation of a board of federal Monetary Trustees who will maintain “scientific records of prices—price indices which would reliably indicate at what levels the aggregate of raw commodities and aggregate finished goods are changing hands at any particular time.” 68 She then asserted that “The fluctuations [in prices] thereaer should be minor, because the flow of money would always be scientifically related to the actual quantity of physical consumer goods available for distribution.” 69 This would establish a stable purchasing power for the dollar. “Statistical science” could preserve the stability if only we would turn all money control over to these reliable Monetary Trustees.

The index number is a necessary coordinate of any attempt to stabilize the value of the dollar, whether in a system like Coogan’s where all money is State controlled, or where there is part ee coinage and part State-controlled money. Mises demonstrated that the assumption of all index number systems must be that there is a static unit of measurement of purchasing power available to the statistician.70 If there is no static unit of measurement, then obviously measurement is impossible. One cannot measure distance if the units of measurement also vary in length. But, in human society, such a static standard does not exist. Human relations are always changing: supplies of goods, demand for goods, the supply of currency, all vary om moment to moment. Only with the assumption of the ant hill society can men even hope to discover this nonexistent static

66676869Ibid., p. 23⒎Ibid., p. 23⒎Coogan, pp. 250–5⒈Ibid., p. 25⒈

70Mises,Money and Credit, pp. 187 ff.

28

measuring rod of purchasing power. This is why each economist devises a different index number system of measuring such changes of money value. There is no unity among statisticians as to what the standard is to be. Which is the “normal” year by which to measure prices? Which goods are to be selected to evaluate the importance of the change in purchasing power? The whole idea of universally valid index numbers is fallacious; once again it presupposes an outlook of collectivism. As Rothbard put it: “Goods are not bought in their totality against money, but only by individuals in individual transactions, and therefore there can be no scientific method of combining them.”71 Unless we assume that men’s desires and needs are constant, we cannot discover a standard, static measure of the “equitable” year of comparison. “All these stabilization plans,” he continued, “of course, involve in one way or another an attack on the gold or other commodity standard, since the value of gold fluctuates as a result of continual changes in the supply of and the demand for gold.” 72

One of the most enlightening statements concerning the possibility of index numbers comes om Melchior Palyi.

Statisticians compile data which add up to the much-revered figurecalled the national income. Planners plan by that figure, supposedly, setting targets for its growth. . . . Now, the national income is a somewhat less than reliable “aggregate.” The data . . .about the components entering into such aggregates as nationalincome, volume of production, savings and investments, etc., arepure “guesstimates,” subject to arbitrary manipulation. The methods to substitute what amounts to “very wild guesses” in the placeof factual knowledge are known to the statisticians as “interpolat—ing between benchmarks, extrapolating om benchmarks, blow—ing up sample data, using imposed weights, inserting trends, applying booster factors. . . .73

Once again, Coogan dried into the old Keynesian fallacy of “aggregate economics.” Hazlitt dealt at length with the problem, and his arguments serve to refute Coogan as well as they refute Keynes.74 Her

71Murray N. Rothbard,Man, Economy, and State(Princeton, New Jersey: Van

Nostrand, 1962), p. 740.

72Ibid., p. 74⒈

73Melchior Palyi,An Inflation Primer(Chicago: Regnery, 1961), p. 8⒋ Download itfor ee here:http://bit.ly/Palyi

74Hazlitt,Failure of the “New Economics.”ch. 2⒎

29

hope in the “scientific” Monetary Trustees was a futile one. If a system such as this one were imposed upon the American people, it would spell the end of eedom. These bureaucrats would dictate what the standards of the arbitrary index numbers were, and their word would be law. Who could challenge the validity of such “scientific” operations? Who would be permitted to voice such objections? Even the duly elected representatives in the legislature would be powerless against this economic dictatorship, in spite of the fact that the powers of the Monetary Trusteeship are supposedly delegated by the “trustworthy” elected officials whom Coogan revered so much. As Hayek explained, “In these instances delegation means that some authority is given power to make with the force of law what to all intents and purposes are arbitrary decisions.”75 The “experts” are the true formulators of the law; their delegated authority has become the final authority.76 The Monetary Trustees would become the economic tyrants of the nation. We would be sold into economic slavery at the cost of a promised, but impossible, “stable dollar.”

Coogan said that she was opposed to any State-enforced redistribution of wealth,77 yet she championed an inflationary State currency that would necessarily redistribute a nation’s wealth. Not looking at society om the perspective of the individual, she missed the implications of State inflation in this respect. Her error is colossal.

If the general price level remains constant because of additional paper money being injected into the economy, then by definition there is monetary inflation going on. In a highly productive ee market economy,

Mises pointed out that there is “a general tendency of money prices and money wages to drop.78 As more goods are produced, and because the supply of money metals remains relatively constant, prices and wages tend to fall in terms of money metals. Real wages, meaning the quantity of goods that a given wage will buy, will be rising because of the increased production. Therefore, Coogan’s “stable price” scheme is definitely inflationary, for prices ought to be declining.79 In the United States, for example, between 1867 and 1897, the wholesale price index fell (with 1929 as the base year) om about 168 to 68, or 100 points, or some 60%.

Simultaneously, the country’s population almost doubled, om 37 million

75F. A. Hayek,The Road to Serfdom(Chicago: University of Chicago Press, 1944), p. 6⒍

767778Ibid., p. 6⒌Coogan, p. 29⒊Mises,Money and Credit, p. 4⒘

79North, “Downward Price Flexibility,”op. cit.

30

to 72 million, and real output went up by 400%. This means that real per capita income doubled. The money stock tripled, om $⒈3 billion to $⒋5 billion, but the velocity of money (turnovers per unit of time) was cut in half, indicating that the effective impact of the monetary inflation was reduced considerably. 80 What does this mean? It means that per capita output can rise drastically in the face of falling prices. More important, it means that if prices can fall by 60% in the face of a tripling of the money stock, then if the general price level remains stable, we can be fairly certain that the State is pursuing a policy of extensive monetary inflation.

Conservative economists of the 1920s, as well as liberals, were lured into making outrageously inaccurate statements about the blessings of

“stable prices” and the “fact” that there would never again be a depression. Irving Fisher, perhaps the most prestigious economist of the day, made one of these ridiculous statements in September of 192⒐ 81 Fisher, like

Coogan, was a supporter of “stable prices,” and it was he who, more than any other economist, deserves the title of “father of the index number,” that magical tool which supposedly enables the State’s planners to stabilize the economy while preserving human eedom. Rothbard’s warning in this regard should forever silence the “conservative” Greenback advocates.

One of the reasons that most economists of the 1920’s did not recognize the existence of an inflationary problem was the widespreadadoption of a stable price level as the goal and criterion for monetary policy. The extent to which the Federal Reserve authoritieswere guided by a desire to keep the price level stable has been amatter of considerable controversy. Far less controversial is the factthat more and more economists came to consider a stable price levelas the major goal of monetary policy. The fact that general priceswere more or less stable during the 1920’s told most economiststhat there was no inflationary threat, and therefore the events ofthe great depression caught them completely unaware.

Actually, bank credit expansion creates its mischievous effectsby distorting price relations and by raising and altering prices

80The money and income data come om Milton Friedman and Anna Jacobson

Schwartz,A Monetary History of the United States, 1867–1960(Princeton, New Jersey:Princeton University Press, 1953), charts 3, 8 (pp. 30, 94–95). The population figures areinHistorical Statistics, p. 7, Series A 1–⒊

81New York Herald Tribune(Sept. 5, 1929), cited inOh Yeah?(New York: Viking,

1931), p. 3⒎

31

compared to what they would have been without the expansion.

Statistically, therefore, we can only identi the increase in moneysupply, a simple fact. We cannot prove inflation by pointing toprice increases. We can only approximate explanations of complexprice movements by engaging in a comprehensive economic historyof an era, a task which is beyond the scope of this study. Suffice itto say here that the stability of wholesale prices in the 1920’s wasthe result of monetary inflation offset by increased productivity,which lowered costs of production and increased the supply ofgoods. But this “offset” was only statistical; it did not culminatethe boom-bust cycle, it only obscured it. The economists whoemphasized the importance of a stable price level were thus especially deceived, for they should have concentrated on what washappening to the supply of money. Consequently, the economistswho raised an alarm over inflation in the 1920’s were largely thequalitativists. They were written off as hopelessly old-fashionedby the “newer” economists who realized the overriding importanceof the quantitative in monetary affairs. The trouble did not liewith particular credit on particular markets (such as stock or realestate); the boom in the stock and real estate markets reflected

Mises’ trade cycle: a disproportionate boom in the prices of titlesto capital goods, caused by the increase in money supply attendantupon bank credit expansion.82

Monetary Inflation

Coogan never explained how monetary inflation enters the economy. She said that the government pays the inflated currency into use (No. 7), but she let it go at that. What really happens in the Greenback economy is this. Unbacked, counterfeit bills are printed by the Treasury. The State takes these bills and purchases goods and services for the government. Those selling to the State now have quantities of new, counterfeit bills at their disposal. These favored individuals and firms can now go into the market and buy up goods which before they had not been able to afford. In doing so they deplete supplies and/or raise the prices of the goods they are buying. Competitors, unfavored by the government bureaucrats, have no counterfeit bills at their disposal. They had planned their purchases according to the pre-inflation prices. Now those prices have been raised,

82Rothbard,America’s Great Depression, pp. 153–5⒋

32

or else they have not been permitted to fall, by the phony Treasury notes, and the honest competition cannot make the purchases they had planned on. They restrict their purchases, cut back on sales, and perhaps must lower the wages of their employees. They may even be forced out of business. Why? Because the government has imposed an invisible tax on these unfavored companies. Counterfeit bills have raised prices above the non-inflation levels, and people who do not have access to the counterfeit government bills can no longer buy. Thus, pensioners and those with fixed incomes are robbed by the State through the policy of inflation. Government has not created wealth by the inflation; it has merely redistributed wealth om those with fixed incomes to those who are closest (chronologically) to the State’s counterfeit money. A few get rich, while the majority of the public is hurt by the rising prices.

Coogan looked at the economy om the point of view of collectivism, never seeing the way monetary inflation acts at the individual level. She seemed to think that all people will have simultaneous access to the State’s “funny money,” but this is not the case. Those receiving it first will be benefited, since they will be able to buy first at yesterday’s non-inflated prices. Those furthest away (chronologically) om the Treasury will pay for the gains of the early beneficiaries by being forced to restrict their consumption of goods and services due to the downward inflexibility of many prices. There has been a forced, arbitrary, somewhat random redistribution of wealth. So, when Coogan said that she was opposed to the forced redistribution of wealth, and at the same time proposed a “stable price level” that would require monetary inflation to keep it stable in the aggregate, she was contradicting herself. One cannot argue simultaneously against redistribution and for monetary inflation. The latter produces the former.83

When she called for monetary expansion, she realized that the government is trying to avoid raising visible taxes, for she wrote that “Increases in currency would be made partly to deay the expenses of the Government and in lieu of taxation.” 84 In lieu of visible, budgeted, congressionally controlled taxation, yes, but not in lieu of taxation as such. Someone has to pay. When she said that “the purchasing power created at the original source benefits all,” she was deceiving the reader. 85 It benefits only those

8384Coogan, p. 29⒊Ibid., p. 25⒈

85Ibid., p. 26⒉

33

who receive the counterfeit fiat money first; it hurts those who do not have immediate access to the newly created money.

Something for Nothing

State officials know that few people understand that monetary expansion is really a form of indirect taxation, and so they can increase State expenditures without having to declare unpopular new tax confiscations. This is why Austrian School economist Hans Sennholz wrote in American Opinion (Sept. 1964) that “[m]any of the foes of the Federal Reserve

System are rabid collectivists.” They support statist monetary inflation as if it were a golden goose. It offers the State something for nothing. Somebody has to pay, but since the taxes are hidden, few people scream. If someone does, then Keynes can come forward and paci the liberals, while Coogan steps out to silence the conservatives. It is a nice arrangement for the statists. A more unjust tax could hardly be devised, of course. It is not predictable; people cannot plan very easily for it, and they do not know which prices will be raised. But the idea of something for nothing is too tempting to the State. If a little monetary inflation is good, why not more? The State can buy more and more goods (and votes) if it just keeps printing money faster than prices are rising, until the monetary system is destroyed. By permitting the State to print money that has no gold or silver backing, voters commit economic suicide, and Coogan stands in the galleries and shouts her encouragement. In fact, the whole Greenback movement is there, proclaiming that gold is old fashioned, a tool of the international bankers. Those who listen to their dreams will reap the whirlwind.

Coogan actually applauded the idea of something for nothing. In fact, she said it must always be this way: “This is what has been done and what has to be done in order to have money, a man-made instrumentality.” 86 Fiat money has to exist; “all money is fiat money.” 87 But this is just not true. Money is not originally created by fiat, but by the voluntary use of certain goods by people involved in commerce. Mining costs, in the long run, are no higher or lower than in any other business, and the profits are no greater. But States can print bills cheaply, bills that are never used for ornament and industrial use, as money metals sometimes can be.

8687Ibid., p. 300.Ibid., p. 28⒊

34

Coogan’s proposals would destroy the best safeguard we have against the ever-hungry State: the use of money metals in commerce. 88

A Gold Coin Standard

A good answer to Coogan’s whole statist system was provided by El-gin Groseclose in 1934, the year before Money Creators was published.

Coogan attacked the right of ee coinage of metals and the right of men to issue 100% backed receipts for these metals. Groseclose wrote:

The principle of ee coinage has proved its practical worth as adeterrent to debasement and depreciation. Where coinage is onprivate account there is no profit to the state in tampering withthe standard, and there is no opportunity for such practice by theindividual. . . .

In the twentieth century, sovereignties began to reassert theirmonopoly of money, and under the pretext of assuring full employment through the manipulation of the interest rate, have used theirpower for the spread of statism, the socialization of activity, theannihilation of private property, and the extinction of individualliberty.89

There is one more argument that Coogan offered against the use of gold coins as a reliable basis of our economic transactions. It is, in reality, the best argument for gold that she presents.

The fact that this country requires somewhere between sixty toseventy-five billion dollars of money in order that the people mayeffect the exchanges incident to a civilized existence, is proof sufficient that gold is hopelessly inadequate to serve the needs of thepeople of the world for money.90

Coogan’s book is a long attack against the inflated money distributed through the actional reserve banking system. Yet, when it came time to attack gold, she took as her standard of quantity needed for exchange the

88North, “Gold’s Dust”

89Elgin Groseclose,Money and Man: A Survey of Monetary Experience(Norman,

Oklahoma: University of Oklahoma Press, 1934), pp. 167, 17⒈ Download it for ee here:

http://mises.org/books/money.pdf.

90Coogan, p. 29⒍

35