The Mystery of Banking

The Supply of Money
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money supply are pernicious forms of tax because they are covert,
and few people are able to understand why prices are rising.
Direct, overt taxation raises hackles and can cause revolution;
inflationary increases of the money supply can fool the public—
its victims—for centuries.
Only when its paper money has been accepted for a long
while is the government ready to take the final inflationary step:
making it irredeemable, cutting the link with the gold. After call-
ing its dollar bills equivalent to 1/20 gold ounce for many years,
and having built up the customary usage of the paper dollar as
money, the government can then boldly and brazenly sever the
link with gold, and then simply start referring to the dollar bill 
as
money itself. Gold then becomes a mere commodity, and the only
money is paper tickets issued by the government. The gold stan-
dard has become an arbitrary fiat standard.
7
The government, of course, is now in seventh heaven. So long
as paper money was redeemable in gold, the government had to
be careful how many dollars it printed. If, for example, the gov-
ernment has a stock of $30 billion in gold, and keeps issuing more
paper dollars redeemable in that gold, at a certain point, the pub-
lic might start getting worried and call upon the government for
redemption. If it wants to stay on the gold standard, the embar-
rassed government might have to contract the number of dollars
in circulation: by spending less than it receives, and buying back
and burning the paper notes. No government wants to do any-
thing like 
that
. 
So the threat of gold redeemability imposes a constant check
and limit on inflationary issues of government paper. If the gov-
ernment can remove the threat, it can expand and inflate with-
out cease. And so it begins to emit propaganda, trying to per-
suade the public not to use gold coins in their daily lives. Gold is
54
The Mystery of Banking
7
Often, even irredeemable paper is only accepted at first because the
government promises, or the public expects, that the paper after a few years,
and whenever the current “emergency” is over, will become redeemable in
gold once more. More years of habituation are generally necessary before
the public will accept a frankly permanent fiat standard.
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“old-fashioned,” outdated, “a barbarous relic” in J.M. Keynes’s
famous dictum, and something that only hicks and hillbillies
would wish to use as money. Sophisticates use paper. In this way,
by 1933, very few Americans were actually using gold coin in
their daily lives; gold was virtually confined to Christmas presents
for children. For that reason, the public was ready to accept the
confiscation of their gold by the Roosevelt administration in 1933
with barely a murmur. 
4. T
HE
O
RIGINS OF
G
OVERNMENT
P
APER
M
ONEY
Three times before in American history, since the end of the
colonial period, Americans had suffered under an irredeemable
fiat money system. Once was during the American Revolution,
when, to finance the war effort, the central government issued
vast quantities of paper money, or “Continentals.” So rapidly did
they depreciate in value, in terms of goods and in terms of gold
and silver moneys, that long before the end of the war they had
become literally worthless. Hence, the well-known and lasting
motto: “Not Worth a Continental.” The second brief period was
during the War of 1812, when the U.S. went off the gold standard
by the end of the war, and returned over two years later. The
third was during the Civil War, when the North, as well as the
South, printed