All Maine Matters

April 2006



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Ben Bernanke and the “Barbarous Relic”
by Thomas E. Brewton

New Federal Reserve chairman Ben Bernanke chairs his first meeting today (3/28). It’s appropriate to view the occasion from an historical perspective.

John Maynard Keynes, the high priest of socialistic scientism applied to economics, wrote in 1923 that “the gold standard is already a barbarous relic.” James Turk, an international authority on gold and gold prices, explains that the true barbarous relic is, not gold or the gold standard, but central banks.

In Monograph Number 55, published as “The ‘Barbarous Relic’ - It is Not What You Think,” by the Committee for Monetary Research and Education, Mr. Turk provides a concise historical review and analysis of the role of currency vs fiat money now produced in excess amounts by central banks, including the Fed.

His monograph is readily understandable by anyone, even by readers without training in economics or banking, and I urge you to acquire it and to read it. To that end, contact Elizabeth Currier at the Committee for Monetary Research and Education, 10004 Greenwood Court, Charlotte, NC 28215-9621, (704) 598-3717.

Mr. Turk demonstrates that central banks, from their inception, have tended to succumb to pressures to create fiat money faster than the increase in underlying assets produced by their economies.

Governments pressure central banks to ‘create’ money by purchasing government debt, thereby avoiding the need to raise taxes to fund welfare-state handouts. Commercial banks support the resulting excess credit creation, because it provides them more funds to lend at a profit.

The result is a false sense of economic well-being such as today’s economy in which our massive trade deficit has effectively been financed by the explosion of so-called home equity (based on the inflated market price) loans on private homes. Our great-grand-parents would be astonished at the extent to which so many of us live far beyond our true means, floating on credit card debt.

To explain this process, Mr. Turk takes us on a summary tour of central banking history. It begins with chartering of the Bank of England in 1694, just five years after the Glorious Revolution that ousted dictatorial James II and produced the English Bill of Rights in 1689. London merchants had been prominent in the opposition to James II, wishing both to end the king’s arbitrary confiscation of their assets and to provide for a satisfactory currency to support expansion of trade.

The intent was that the Bank of England hold gold and silver coins and bullion and issue equal amounts of paper currency, which could be redeemed for gold or silver. Paper currency was then more accurately called bank notes (paper currency even today is simply a promise to pay, a debt of the central bank or of the government).

Over the ensuing two and a quarter centuries, central banks have drifted away from the original concept and repeatedly issued bank notes (or deposit credits to commercial banks) in excess of their underlying assets.

The result invariably is inflation and business recession. Excess credit leads banks to make too many loans, which leads business-es to over expand because of the disjunction between apparent prosperity reflected in credit availability and the real underlying demand for goods and services.

It was this process, financed throughout the 1920s by the Federal Reserve, that created the capital goods bubble that burst, drowning us in the Great Depression of the 1930s. President Franklin Roosevelt’s attacks on businessmen and stock market speculation were either ignorance, or more likely Joseph Goebbels-style propaganda to gain public support for the socialistic collectivization of power by the New Deal.

Gold historically was the anchor that restrained central banks from excess credit creation. If currency in circulation must be held to a strict ratio to gold in the central bank’s possession, inflation will be avoided.

Breaking that link guarantees inflation. The only question is how much inflation will result.

Following the prescription of Harvard’s socialistic economics department professors, President Roosevelt shortly after taking office in 1933 devalued the dollar to create large-scale inflation at one shot and, at the same time, made it illegal for individuals to own gold or to honor their contracts, most of which permitted the debt holder to require payment in gold. Mr. Roosevelt’s true purpose was to manage the nation’s credit as part of the socialistic state-planning he had promised in his 1932 campaign.

Even President Roosevelt’s fellow socialist Benito Mussolini chided him, saying that no government had ever managed to inflate its economy into prosperity.

Commodity prices were stable throughout our history until the advent of the New Deal. Since then, excess credit by the Federal Reserve has been the general rule, and inflation has never stopped. At best inflation has been held to small digits.
The gold standard’s last vestiges were tossed aside by President Nixon in 1971, leaving the dollar to float as a managed, fiat currency.

The consumer price index increased 475% from the beginning of President Roosevelt’s administration in 1933 to the start of President Ronald Reagan’s administration in 1981. In the span of the Johnson, Nixon, and Carter administrations, we experienced the worst burst of inflation in the nation’s history, wiping out more than half the value of people’s life savings.

Men were forced to ‘moonlight,’ holding several jobs, and mothers were pushed into the full-time work force just to pay the rent and grocery bills. Juvenile delinquency, not surprisingly, increased, drug abuse became common, marriages broke up, sexual promiscuity became the norm, illegitimacy soared, education collapsed, and we got President Clinton’s Baby-Boomer anarchist rebels who today are busily destroying what remains of the nation’s moral fiber.

Thomas E. Brewton is a staff writer for the New Media Alliance, Inc. The New Media Alliance is a non-profit (501c3) national coalition of writers, journalists and grass-roots media outlets. His weblog is THE VIEW FROM 1776 (

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