Murray Rothbard is my favorite economist to read for several reasons. First, his extensive knowledge in economics, history, and business help him see connections where few others would. Second, his style of writing drives home his points in an enjoyable fashion and, even the few times where I believe he goes too far, I still marvel at his ability to muster the facts in a logical fashion to argue his point. to

As Chairman of the Board for LIFE Leadership, I am constantly reading, writing, and speaking. Identifying the top thinkers to read in each field is a high-priority for me and why Murray Rothbard is one of my favorites. For his thinking and writing clear the fog of ignorance on my different subjects. As an example, here is Rothbard’s description of how and why America cartelized its corporations in the late 19th century.

The Five Laws of Decline are alive and well in America and a return to the Six Duties of Society is going to take an active group of people who know leadership, history, and economics.

Sincerely,

Orrin Woodward

Murray Rothbard

By the late 19th century, the Morgans took the lead in trying to pressure the US government to cartelize industries they were interested in — first railroads and then manufacturing: to protect these industries from the winds of free competition, and to use the power of government to enable these industries to restrict production and raise prices.

In particular, the investment bankers acted as a ginger group to work for the cartelization of commercial banks. To some extent, commercial bankers lend out their own capital and money acquired by CDs. But most commercial banking is “deposit banking” based on a gigantic scam: the idea, which most depositors believe, that their money is down at the bank, ready to be redeemed in cash at any time. If Jim has a checking account of $1,000 at a local bank, Jim knows that this is a “demand deposit,” that is, that the bank pledges to pay him $1,000 in cash, on demand, anytime he wishes to “get his money out.” Naturally, the Jims of this world are convinced that their money is safely there, in the bank, for them to take out at any time. Hence, they think of their checking account as equivalent to a warehouse receipt. If they put a chair in a warehouse before going on a trip, they expect to get the chair back whenever they present the receipt. Unfortunately, while banks depend on the warehouse analogy, the depositors are systematically deluded. Their money ain’t there.

An honest warehouse makes sure that the goods entrusted to its care are there, in its storeroom or vault. But banks operate very differently, at least since the days of such deposit banks as the Banks of Amsterdam and Hamburg in the 17th century, which indeed acted as warehouses and backed all of their receipts fully by the assets deposited, e.g., gold and silver. This honest deposit or “giro” banking is called “100 percent reserve” banking. Ever since, banks have habitually created warehouse receipts (originally bank notes and now deposits) out of thin air. Essentially, they are counterfeiters of fake warehouse receipts to cash or standard money, which circulate as if they were genuine, fully backed notes or checking accounts. Banks make money by literally creating money out of thin air, nowadays exclusively deposits rather than bank notes. This sort of swindling or counterfeiting is dignified by the term “fractional reserve banking,” which means that bank deposits are backed by only a small fraction of the cash they promise to have at hand and redeem. (Right now, in the United States, this minimum fraction is fixed by the Federal Reserve System at 10 percent.)

Fractional Reserve Banking

Let’s see how the fractional-reserve process works, in the absence of a central bank. I set up a Rothbard Bank, and invest $1,000 of cash (whether gold or government paper does not matter here). Then I “lend out” $10,000 to someone, either for consumer spending or to invest in his business. How can I “lend out” far more than I have? Ahh, that’s the magic of the “fraction” in the fractional reserve. I simply open up a checking account of $10,000 which I am happy to lend to Mr. Jones. Why does Jones borrow from me? Well, for one thing, I can charge a lower rate of interest than savers would. I don’t have to save up the money myself, but can simply counterfeit it out of thin air. (In the 19th century, I would have been able to issue bank notes, but the Federal Reserve now monopolizes note issues.) Since demand deposits at the Rothbard Bank function as equivalent to cash, the nation’s money supply has just, by magic, increased by $10,000. The inflationary, counterfeiting process is under way.

“Unfortunately, while banks depend on the warehouse analogy, the depositors are systematically deluded. Their money ain’t there.”

The 19th-century English economist Thomas Tooke correctly stated that “free trade in banking is tantamount to free trade in swindling.” But under freedom, and without government support, there are some severe hitches in this counterfeiting process, or in what has been termed “free banking.”

First, why should anyone trust me? Why should anyone accept the checking deposits of the Rothbard Bank?

But second, even if I were trusted, and I were able to con my way into the trust of the gullible, there is another severe problem, caused by the fact that the banking system is competitive, with free entry into the field. After all, the Rothbard Bank is limited in its clientele. After Jones borrows checking deposits from me, he is going to spend that money. Why else pay for a loan? Sooner or later, the money he spends, whether for a vacation, or for expanding his business, will be spent on the goods or services of clients of some other bank, say the Rockwell Bank. The Rockwell Bank is not particularly interested in holding checking accounts on my bank; it wants reserves so that it can pyramid its own counterfeiting on top of cash reserves. And so if, to make the case simple, the Rockwell Bank gets a $10,000 check on the Rothbard Bank, it is going to demand cash so that it can do some inflationary counterfeit pyramiding of its own.

But, I, of course, can’t pay the $10,000, so I’m finished. Bankrupt. Found out. By rights, I should be in jail as an embezzler, but at least my phoney checking deposits and I are out of the game, and out of the money supply.

Hence, under free competition, and without government support and enforcement, there will only be limited scope for fractional-reserve counterfeiting. Banks could form cartels to prop each other up, but generally cartels on the market don’t work well without government enforcement, without the government cracking down on competitors who insist on busting the cartel, in this case, forcing competing banks to pay up.

Jorg Guido Hulsmann

The Cobden Centre’s Andy Duncan did an excellent review of Jorg Guido Hulsmann’s fantastic book The Ethics of Money Production. In my opinion the number one battle for freedom begins with checking the Five Laws of Decline (FLD) destruction of the monetary system by the State elites. What is the point in checking government through representative government, separation of powers, term limits if the government can have access to practically unlimited funds? The State, simply by partnering with the Big Banks, runs a fraudulent Fractional Reserve Banking system anchored by the State’s favored central bank to bilk society’s monetary system. 

Indeed, my new book And Justice For All spells out how the elites plunder the production of society. Since Adam Smith and Jean Baptiste Say, economists have recognized the 3 factors of all production – labor, land, and capital. The elites have plundered all three factors of production. Thankfully, Human Slavery (the plunder of society’s production through the monopolization of labor) is diminishing worldwide along with Land Serfdom (the plunder of society’s production through monopolization of land). However, Financial Subjection (the plunder of society’s production through the monopolization of capital) is exploding.

Why is it, you ask? Simply put, society cannot resist oppression until it discovers its source. The central planning of the financial system is inconceivable, illogical, and inconsistent since its underlying presuppositions run counter to our alleged free market system. Nonetheless, because the FLD rewards too tempting to ignore, the State and Big Bankers fill society with propaganda designed to confuse and disorient. As a result, the elites capitalize on society’s ignorance for massive FLD gains. Fortunately, anyone who invests the time to read and understands The Ethics of Money Production will not remain ignorant.

LIFE Leadership intends to play its part in educating society in the 8F’s of life to play its part in the restoration of liberty. Below is a portion of Andy Duncan’s review.

Sincerely,

Orrin Woodward

The book is divided into three beautifully-written main parts:

• The Natural Production of Money
• Inflation
• Monetary Order and Monetary Systems

These three parts cover everything you might think of, from the invention of metallic money all the way through to the end of Bretton-Woods and then the later creation of the Euro.  However, the heart of the book is a sequence of four chapters — in the second part of the book on Inflation —with two of these chapter titles, alas, unfortunately insisting on the use of American spellings and the appalling employment of the letter ‘zed’; the chapter content, however, is still very good, even if has fallen under the unwelcome control of an American spell-checker:

• Legalized Falsifications
• Legal Monopolies
• Legal-Tender Laws
• Legalized Suspensions of Payments

When you are the elite organisation calling yourself ‘The State’, you have a monopoly on law in a particular territory; it is with this power that you can subvert and distort the natural order of private property, thus leading to the impoverishment and helotry of everyone else within that territory, under your rule, even leading to the ridiculous notion that any debt this elite runs up — to maintain their position of privilege — is somehow ‘owed’ by the subjugated population, despite no-one ever asking their opinion about whether this debt should have been taken on by the elite and despite all the benefits of the spending of that debt going directly into the grasping hands of that same privileged elite.

The whole problem with money is the state’s imposition of legal privileges for bankers, given to bankers in return for the promise that they will always soak up the debts of politicians, to enable politicians to enslave their populations over time in a Procrustean bed of warfare and welfare, to the ultimate benefit of the politicians and their friends, and to the detriment of everyone else.

These chapters make clear how that mechanism of monetary enslavement operates, and therefore how we can break that mechanism and become free again from the appalling bondage of government bonds. It is with the removal of these legal privileges and a restoration of the natural order of private property rights that we will be able to put the wheels back on the cart, get moving again, and put the politicians back in their place,

Do not give in to evil, but proceed ever more boldly against it.

Winston Churchill once wrote:

There are few words which are used more loosely than the word “Civilization.” What does it mean? It means a society based upon the opinion of civilians. It means that violence, the rule of warriors and despotic chiefs, the conditions of camps and warfare, of riot and tyranny, give place to parliaments where laws are made, and independent courts of justice in which over long periods those laws are maintained.

That is Civilization—and in its soil grow continually freedom, comfort and culture. When Civilization reigns, in any country, a wider and less harassed life is afforded to the masses of the people. The traditions of the past are cherished, and the inheritance bequeathed to us by former wise or valiant men becomes a rich estate to be enjoyed and used by all.

Today, this view is becoming increasingly ignored as the State seeks to gain more power over society. In the video below I discuss some of the ramifications of the Rule of Law on liberty in Western Civilization.

Sincerely,

Orrin Woodward – LIFE Leadership Chairman of the Board

Thomas Woods – Meltdown

The Austrian business-cycle theory is the missing factor in today’s economic discussions. It connects the dots on so many seemingly disparate data points and explains systematically what everyone else is treating as isolated events. Unfortunately, the business-cycle theory is rarely discussed and almost never truly understood by today’s talking heads.

The Austrian School of economics is the only school that has developed a working model of how savings and investment needs work together to create the natural rate of interest. No where is there a need for the central banks Statist central planning interventions to artificially lower the interest rates.

This, in fact, is why the theory is kept from mainstream discussions because it places the blame for the Global Financial Crisis where it belongs, namely, on the State’s partnership with the central banks to run the banking system cartel. The banking cartel is designed to protect the fraudulent fractional reserve banking system from collapsing upon itself. 

LIFE Leadership is set to release the first of my planned three book series on society and the State titled And Justice for All. The book will be available at the June Columbus major function. In the book, I describe how the State intervenes within society, allegedly to serve the populace, but actually to increase its power. I go on to describe how these State interventions affect society.  

Justice for all is the goal of every righteous society, but the government must be restrained to perform only its intended functions to accomplish the assignment. Who guards the guardians? This ought to be the question asked by all concerned citizens to ensure the destructive Five Laws of Decline do not destroy the productive Six Duties of Society.

Here is a brief summary on the business-cycle and Thomas Woods excellent book Meltdown from the Mises Institute. I highly encourage everyone to read this book as it is the best simple description of the business-cycle theory.

Sincerely,

Orrin Woodward – LIFE Leadership’s Chairman of the Board

Austrian business-cycle theory is straightforward, for those willing to devote the necessary time to study praxeology. But therein lies a problem. The average person lacks the patience to read Human Action and Man, Economy, and State. How then can he acquire the rudiments of Austrian cycle theory and grasp why the theory is true? To set the question aside, on the grounds that it is unnecessary for the man in the street to bother with such matters, is a counsel of despair. If the public does not understand the economics of depression, there is little hope that we can avoid disastrous government policies. Unless the free market receives sufficient popular support, our economic future is bleak.

Woods supplies just what we need. With great clarity, he shows that the Austrian theory of the cycle is firmly grounded in common sense. Additionally — and here his skill as a trained historian comes to the fore — he shows that Austrian theory explains not only the Great Depression but other less-well-known economic downturns as well. When the government followed a “hands-off” policy, recovery from a downturn was rapid; when, as most notably was the case in the New Deal, government tried to take control, the economy sputtered.

The basics of Austrian cycle theory fall readily into place once one considers a fundamental point: the economy can grow only by producing more goods. An expansion of the money supply does not suffice. Efforts to get something for nothing, by the government’s deficit spending or by an expansion of the money supply, cannot produce lasting prosperity.

The speed with which an economy grows depends on the extent to which people prefer present goods to future goods. Other things being equal, people always prefer satisfaction in the present; but the extent to which this preference prevails is crucial for economic development. In order to obtain more consumer goods than are immediately available, people must postpone satisfaction by saving, enabling a greater production of capital goods to occur.

The extent that they are willing to do so determines the rate of economic growth.

The preference people have for the present forms the main part of the rate of interest: Mises called this the originary rate of interest. This rate registers the way people allocate resources between consumption and production.

Trouble arises when the government, by increasing the supply of bank credit, depresses the money rate of interest below the natural rate. Businessmen, seeing that money is available, invest in capital-goods industries, and the result is a boom.

Once the monetary expansion stops, the boom cannot be sustained. The entrepreneurs who expanded their production of capital goods need more money to sustain their projects, but not enough is available at an interest rate that will secure for them a positive return. In the absence of monetary expansion, the rate of interest rises, since time preference has not changed (or at least there is no reason to assume it has.) At the higher rate of interest that now prevails, formerly profitable enterprises now have to be liquidated. This process of liquidation is precisely the depression.