Thoughts on Austrian Economics

Submitted by Bill St. Clair on Thu, 28 May 2009 10:36:26 GMT  <== Politics ==> 

Howard S. Katz - good summary of the history of the murder of real money. [gsc]

It is not taught in American history that the country got into war with Britain in 1812 precisely because of this defect in the banking system. The Government avoided a tax increase by borrowing from the commercial banks to pay for the war. These banks created money in the form of bank notes, each of which promised that it could be redeemed for gold or silver. But the banks issued a lot more notes than they had gold or silver available for redemption. When the British burned Washington in 1814, the bank depositors got scared and ran to their banks demanding repayment. But the banks could not pay. They had run out of hard money. The value of the bank notes fell, and Daniel Webster reports that a typical Washington D.C. one dollar bank note was actually trading for 75¢.

At that time, the Government was gearing up for another big war effort (a surge if you will). They went to the bankers and asked for more money. "Just one more loan and we can win this war." But the bankers said, "We can't do it. Our notes are already down to 75¢. If we make another big loan with no gold or silver to back it up, our notes will plunge. It will show bad faith. You will see bank notes at 50¢. Unable to get its money the Government made peace.

So sound money is a force for peace. Why isn't this historical fact taught in American history classes? Why don't you go down to your local high school and ask the history teachers to teach real American history? It would be a good idea to teach our children the truth.

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