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July 26, 2010 - Freedomain Radio - Stefan Molyneux
14:47
1712 Why You Are Unemployed Part Four -- Fiat Currency

How the Federal Reserve steals from you.

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Hi everybody, it's Stefan Molyneux from Free Domain Radio.
This is the last of the series Why You Are Unemployed.
It's going to be a little bit dense, so I'll try and take it slow, but also with due respect for your time.
This is sometimes called a free market system, and many people make this mistake of calling it a free market, but as Noam Chomsky has commented, a free market like free trade might be an interesting idea if the powers that be would actually let it occur, which of course, they don't.
You don't exactly want to open yourself up if you have a lot of money, wealth and power.
To people who will outthink and outcompete you because they have lower living expenses.
So when you become wealthy, the first thing you need to do is to create a gated, violent, coercive, legislated community that keeps all of the poor people away from competing with you because there's a natural overturning In society, classes gain wealth, and then lower classes will out-compete them, and then the lower classes become the upper classes, who are then out-competed by the lower classes again, and it's a natural fertilization or turning over of human society.
It's entirely healthy, and it's the last thing that anybody wants, because, of course, when you get wealthy, the last thing you want is to compete with people who are willing to work for less, and so you will immediately start putting in a variety of legal constrictions to stop these people from competing with you.
In the same way that you come to the New World as an immigrant, the first thing you do is start to raise the drawbridge so that people can't follow you in and disrupt your precious sense of delusionary culture.
So this cycle that is supposed to occur, and that did occur quite regularly in the more free market aspects of the economy in the 19th century in America and the 18th century in England, Ground to a halt this century and what happened was the wealthy used the power of government to prevent further competition and they did this in two main ways.
The first was to take over The currency system.
A currency originally was just a piece of paper that was easier to carry around than gold and silver.
And if you got it stolen, you could just cancel it.
So this is where checks came from.
You put your money in a bank, and then rather than carting $100 worth of gold around, you simply took that note from the bank to another bank where it was recognized as money.
So it was supposed to just represent real currency, gold and silver.
And what happened was, of course, government growth can't occur if the currency is in the hands of the free market, which it absolutely needs to be for you to have any kind of stable economic system, because the first thing that a free market currency wants to do is to give you stability.
And if you want more details on this, you can check out Murray Rothbard's writings on Mises.org or my own modest attempts at this In Practical Anarchy, a free book, a PDF, and audiobook on my website.
But what happened was, governments can't grow when there's private currency, competing currency, currency that actually has to have value and must represent value, because every time the government bribes people, they have to raise their taxes immediately, upfront, and they don't have the ability to type whatever they want, so to speak, into their bank accounts.
And so, the governments want to take over currency first and foremost, and they did this in the United States with the creation of the Federal Reserve, which is a completely private bank for private banking interests, It's no more federal than Federal Express and they did this in 1913 and since then there's been a continual rape of particularly the poor through inflation and devaluation where the dollars lost about 97-98%.
Of its full value. So that's the first thing that you need to do.
And then, catastrophically, what happens is you then have to take over the interest rates, the setting of the interest rates.
Interest rates are very, very powerful signals in a truly free market, because what they do is they tell you, How much people are saving.
So, if a lot of people are putting their money in the bank, then the banks have a lot of money to lend out, and because of that, interest rates will tend to go down.
Where there's an oversupply of money to lend, the price of that money, which is interest rates, goes down.
Conversely, when people aren't saving very much, Then the price of interest, the price of borrowing money goes up.
And that's exactly what you want.
Because if people are saving a lot, at some point they're going to spend it.
I mean, who wants to be the richest guy in the graveyard, right?
So at some point, they or their heirs or whatever are going to spend it.
And what that means is that when there's low interest rates, they find it easy to borrow money because there's lots of deferred consumption, and so they go and build a lot of factories and they invest in a lot of capital goods and do all that kind of juicy stuff with the rational and legitimate anticipation that people are going to blow their savings down the road on goodies, trinkets and health care, particularly when they get old.
And so that's exactly how it works.
Now, if people aren't saving, it means there's not a lot of deferred consumption, which means that you shouldn't build a lot, and so interest rates are higher in that situation, which is exactly what you want.
The Austrian school, which I'm certainly no deep knowledge expert in, but the Austrian school has a great explanation as to why there are these boom and bust cycles, which has to do with the money supply, And it explains why the growth, the excessive growth, first occurs in the capital markets where people are buying equipment for factories rather than couches for their house.
And then why it only hits the consumer market later.
And that's because of this problem of interest rates.
So if you control the money supply and you start to pump out money to bribe people with, you have the monopoly money press going in the basement of the capital, you just start handing out all this money, well all that happens is you get hit with inflation.
And when you get hit with inflation, the price of your government debt, as the government, goes up.
Because interest rates have to take into account inflation.
If inflation is 5% and I want 5% on my money, I have to charge 10% because otherwise if I only charge 5% I'm not making any money off lending money because the inflation has carved away any profits that I might have made from lending the money.
So the moment that you take over the currency, you also have to take over interest rates because you start printing currency or creating lots of fiat currency which drives up interest rates, which drives up the money you have to pay on your national debt and therefore you don't make any money as the government.
So what you have to do is you have to take over the money supply and then you have to take over the setting of interest rates so that you can artificially keep interest rates low even when you're Hyperinflating.
This will only last for so long and you can only cheat reality for so long.
Government programs are like a really fairly slow motion of those Flintstones cartoons.
You run off the cliff and you stand there for a little bit and then you go, ah!
You zoom down and that's really how these sorts of things work.
It just delays the inevitable and makes it worse.
So one of the problems that occurs, one of the many problems that occurs when governments take over The money supply and the subsequent setting of interest rates is that entrepreneurs, it's like throwing a burlap sack over their head, spinning them around three times, putting them in a barrel with a gaggle of rabbit monkeys, and then beating them around the head with copies of the Federal Reserve Act.
They come out disoriented and confused with no idea which way is up and how to make future plans because The signals that the free market should be giving them about people's levels of savings and deferred consumption and where to allocate their resources, these are all confused.
The price is fundamentally a signal of where demand is, where resources should be allocated.
And if there's confusion in terms of the price of money, if there's confusion in terms of the value of money through a deflation or inflation, it's always inflation, who are we kidding?
Then entrepreneurs get really, really confused.
So, for example, when you keep interest rates artificially low and you throw lots of subsidies and encouragements and support to banks to make subprime mortgages, what happens is millions of extra houses get built that otherwise should not have been built.
Now, this is a catastrophic waste of resources.
And if your average or even your executive environmentalist had a shred of economic knowledge, they would be raging against the Federal Reserve much more, even so, than an egregious company like BP. Because think of the amount of The amount of wasted energy and resources and trees cut down for no reason and land gouged up for no reason and bricks carved out of the earth for no reason because of Fannie and Freddie and the Federal Reserve policies at low interest rates and the Community Reinvestment Act and all of these things which drove the housing bubble,
it created in court such a massive Pillaging of natural resources and waste of natural resources.
It's completely staggering.
Think of the manufacturing plants, carefully, lovingly, dare I say, put together, now lying empty and wasted because of the overseas shipping of manufacturing jobs.
It's a huge waste of resources, and all of the time and money and labor and resources and energy that went into building these houses Didn't go into an industry that could have given you a job.
This is a very, very big picture thing, but it's so fundamental.
We do not have a free market in America, in Canada, anywhere in the world.
It's more so in some areas, but we really don't have a free market because the foundation of the free market It's private, competing, and therefore stable currencies.
And market-driven, not government-edict-driven interest rates.
Without those things, everything else is just nonsense, right?
Saying you have a free market when the government controls money and interest rates is like saying a man is healthy because he only has a huge brain tumor and the rest of his body is healthy.
No. It's the brain tumor that you focus on.
And you're not healthy if 90% of your body is free of cancer.
And it's not a free market if the government controls these two fundamental things.
And it is the government that controls these.
The last thing that I will say is that there have been two huge increases in productivity over the past two generations.
I mean, it's more than two, but these are the two major ones as I see it.
The first is the computer revolution, that you and I can talk like this, that I can read your scathing and abusive comments and nice comments sometimes below, that you can talk to free to anyone in the world, that you can send documents for free to anyone in the world, that you can look at any piece of information just about anywhere at any time, It's completely staggering in terms of what went forward.
And I've often thought that the 20th century company that was invented by...
In Atmos Shracht, Ayn Rand invented this machine that turns static in the air into electricity.
The true invention of John Galt is the computer and the Internet and all these kinds of communication standards.
Naturally, of course, it is taken over and pillaged by the government to create evermore increasing powers of taxation and control and census and insurance numbers, social insurance numbers, or whatever you call them, wherever you are.
And, of course, to subtract everyone, electronic cameras and Other wretched things like advanced weaponry and so on.
So all of the computer revolution, it should have created a massive doubling, if not tripling, of wealth in the country.
Anybody who did business before this versus after it knows just what an enormous and huge change it is.
But of course, all of the excess That all of the excess wealth that was created by the computer revolution has been entirely hoovered up by the government.
All they do is they use that excess wealth as collateral for more borrowing and more selling of you to others, and that's whatever happens, right?
Economic growth in a fascist, semi-statist market simply fuels the state.
It is food for cancer. Economic growth in this sort of society is food for the cancer of the state.
So that's why you're not any more wealthy, even though there have been these amazing changes in technology.
The other, of course, was the feminist revolution.
I have certain beefs with it because it seemed to be kind of like, you know, socialism with a panty liner, but nonetheless, there was a huge influx of productive women into the workforce, which should also have raised our standards of living absolutely enormously.
When women were freed from the mind-numbing drudgery of housework and allowed to actually do something productive and useful and enjoyable, hopefully, with their brains, there should have been a huge amount of increase in wealth.
But, of course, all of that was simply hoovered up by the government, to the point where, as I said, one parent family a generation or two ago made more take-home pay than a two-person family now.
So all that's happened is that women, rather than being subjected to their husbands' whims, are now controlled by...
They work for the government.
They work to pay taxes, and that's the tragedy of feminism and the tragedy of modernity, of course.
And so I just wanted to sort of point these things out, that massive confusion about prices and interest rates and all of these kinds of things are occurring that have caused massive misallocations and waste and waste and waste of resources, even in the vestiges of the free market.
There's no free market. When you have government control of currency and interest rates, there is only this spread of cancer smaller and then faster and then more rapidly to the point where government starts as your servant and ends up eating you.
It starts as A cancerous cell and ends up encasing you in carcinogens.
So I hope that this helps. I absolutely want you to have enthusiasm and positivity about the future.
I know, I absolutely know in my heart of heart and my bone of the bones and the very depths of my rational soul that reason and evidence and goodwill and peace and love are going to prevail.
But we need to be well armed with knowledge so that in these dark days of laser fights with the evil ones, so to speak, we have as much light and truth and reason and evidence as possible so that we can drive back all of the illusions that have led us to where we are and start climbing these amazing, amazing steps through a truly beautiful and new dawn of humanity.
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