(since initially posting this, I have made a few style edits and added some text addressing the Federal Reserve, sourced from William Greider’s Secrets of the Temple
An analysis of Matt Stoller’s “Why Ron Paul Challenges Liberals”. I will point out that Mr. Stoller’s core thesis, “that the anger [Paul] inspires comes not from his positions, but from the tensions that modern American liberals bear within their own worldview” is very obviously flawed. The anger that Paul inspires in progressives can be directly linked to works – the newsletters which deeply violate progressive norms and the ideas espoused in Freedom Under Siege.
Of the newsletter articles, which include those that engage in racial slurs about the laziness of black people, talk about killing a black man and getting away with it, encourage paranoia over a race war, encourage nativism about the descent of the white race, encourage nativism over immigrants with AIDS, advocate the segregation of those with AIDS, Paul, either, at best, simply profited from but did not write them, or, at worst, was directly involved in writing (a paragraph of authorial marks linking Paul to the newsletters is here, a mention of an obscure word used both by Paul in Freedom Under Siege and his newsletter is here). This, in addition to what is stated in Freedom Under Siege, a book written by him, advocating the end of sexual harassment protection, the end of legal protection of those with HIV, AIDS, or other disease from being terminated on the basis of their illness, the end of civil rights legislation in general. All this is in opposition with essential progressive ideals, not a convenient re-interpretation or over-generalization of progressive ideals, but the very core of progressive ideals regarding the dignity and rights of a fellow citizen. It can be taken for granted, then, that the anger felt towards someone who is in such opposition to their ideals may well be over the ideals themselves, whatever the other traits of the opponent.
If individual A is indicted and convicted of deliberate murder, we might state that wealth, poverty, or political inconvenience play a part in the conviction if the evidence is non-existent or spare; on the other hand, if the evidence is strong, untampered, with eyewitnesses, then it can be stated that the conviction is sound, lies with the crime at hand, and whatever the other traits of the individual, the conviction lies with the crime itself, with the individual’s traits irrelevant. Mr. Stoller, showing either arrogance or an absence of intellectual rigor, concedes the crime, but somehow insists that the indictment and conviction takes place because of individual A’s traits.
I will go through Mr. Stoller’s piece in some depth, use well-known, mainstream, and reputable sources for my points. I will leave any commentary to the end, as I do not wish the analysis to be tainted with a pejorative tone.
The essay is structured around an examination of three presidents, Lincoln, Wilson, and FDR, their intertwined use of centralization of financial power, enlarged state power, and war-making.
What connects all three of these Presidents is one thing – big ass wars, and specifically, war financing.
American empire precedes the federal reserve, and war financing took place outside these presidents. The Revolutionary War involved huge debts and the payment of soldiers in scrip, due to the lack of hard currency. A list of those principally culpable for the formation of American empire would not contain these three.
The major elements of the foundation of american empire would include the overthrow and seizure of the Hawaii kingdom by William McKinley for the convenience of the island’s wealthy planter class and white minority; the Spanish-American War, again under McKinley, which gave the US virtual rule over Cuba through the Platt amendment, to the great benefit of sugar and coffee plantation owners, to the great adversity of their laborers; the acquisition of the Phillipines for strategic and commercial advantage. The case for seizure of the Phillipines was opposed on the basis that it was an imperialist power-grab; it was argued for on the grounds that Filipinos were too racially inferior to handle their own sovereignty. These ideas of the inherent inferiority of certain racial groups show up, of course, in Ron Paul’s publications.
Under another republican, Theodore Roosevelt, the Panama independence movement was backed through funding and gunboats. After, Roosevelt formulates his doctrine that gives the United States the right to intercede in any part of the hemisphere it sees fit. Nations in the hemisphere must show “reasonable efficiency and decency in social and political matters, if it keeps order and pays its obligations”, or they may face intervention. This happens under Taft, another republican, in Nicaragua, where the reformist president Jose Santos Zelaya was overthrown for the benefit of american mining interests. A similar coup took place under Honduras, again under Taft, again under the basis of the Roosevelt doctrine, this time for wealthy american landowners. I do not see Taft and Roosevelt in Stoller’s list of miscreants; Paul, in his newsletter, was disgusted at the return of the Panama Canal to its territory, blaming, as usual, the Trilateral Commission and David Rockefeller.
I make these points without citation because they are well-known; I consulted Stephen Kinzer’s Overthrow when writing this for the part on the foundation of american empire, and Ron Chernow’s Alexander Hamilton for the few sentences on the Revolutionary War.
If you think today’s deficits are bad, well, Abraham Lincoln financed the Civil War pretty much entirely by money printing and debt creation, taking America off the gold standard.
He did not take America off the gold standard; paper money was issued, but gold coins remained in circulation, and gold was still used to pay interest on bonds and tariffs. You cannot take a nation off the gold standard, if gold and gold currency is still being used for payment. A table showing the various currencies in circulation – gold coin, gold certificate, paper currency – can be found in A Monetary History of the United States by Milton Friedman and Anna Jacobson Schwartz, page 43.
The argument made at the time was that paper currency was already in existence alongside metallic currency. From Battle Cry Of Freedom by James McPherson:
“Every intelligent man knows that coined money is not the currency of the country,” said Republican Representative Samuel Hooper of Massachusetts. State banknotes—many of them depreciated and irredeemable — were the principal medium of exchange. The issue before Congress was whether the notes of a sovereign government had “as much virtue…as the notes of banks which have suspended specie payments.”
Lincoln did not take such action, unilaterally, but with the support of business, banks, and a majority vote from Congress.
Continuing with Mr. Stoller:
The dollar then became the national currency, and Lincoln didn’t even back those dollars by gold (and gold is written into the Constitution).
Gold is not written into the constitution. The coinage of money is written into the constitution. The argument that currency must be metallic derives from a literal reading of this federal power:
To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
The counterargument is that paper money, as stated by representative Hooper, in the previous quote, was already in use. Paper scrip had been used in payment during the revolutionary war. The insistence that “coin” must imply gold or silver is necessary to make the argument against paper currency, since any metallic currency, without rarer metals such as gold and silver, might be as plentiful as one of paper.
This financing of the Civil War was upheld in a series of cases over the Legal Tender Act of 1862.
I’m not sure what is meant by “upheld”, since the first of the cases over the Legal Tender Act, Hepburn v. Griswold, was heard in 1870, years after the war was over.
Prior to Lincoln, it was these United States. Afterwards, it was the United States.
No, prior to Lincoln it was the United States. After, it was the United States. The constitutional preamble:
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
What changes is that prior to the Civil War, there is the implication that the United States are. From Christopher Hitchens’ Thomas Jefferson: Author of America, following the Louisiana Purchase:
When the treaty was signed, [diplomat and Jefferson friend] Robert Livingston probably spoke for a majority in saying, “From this day, the United States take their place among the powers of first rank.” (Pause to note the locution: it was not until after Gettysburg that Americans began to say “the United States is” rather than “the United States are.”)
The essay then moves on to Woodrow Wilson. I would like to take the time to point out a sentence in this section, not for its factual falsehood, but strange, sloppy thinking:
Like Lincoln, [Wilson] set up a tremendous war financing vehicle to centralize capital flows and therefore, political authority.
The sentence implies, perhaps inadvertently, a Confederate reading of Lincoln. War financing was set up in order to centralize capital flows and political authority. War financing is not set up for war itself, in this case, Confederate insurrection (or “insurrection”, in quotation marks, as Ron Paul writes in Freedom Under Siege), but for the purpose of centralizing capital flows and political authority. War is waged, not out of necessity, but for the selfish purpose that the president be able to make himself tyrant. That’s an extraordinary claim, and I hope that sentence is not making it.
There is also this sentence:
In many ways, Wilson set up the rudiments of America’s police state, and did so arguably to help a transatlantic Anglo-American banking elite.
It makes a claim that is extraordinarily large and dangerous, yet is entirely vague and contains no facts. It may or may not be refutable, since it only makes a claim without factual citation. It reminds me of nothing so much as the sentence, “The Trilateral Commission is no longer known only by those who are knowledgeable about international conspiracies, but is routinely mentioned in the daily news. Evidence of its influence on the Republican and Democratic administrations is all about us”, from the Ron Paul Freedom Report 1978.
Back to Mr. Stoller, who begins his critique of Wilson with the president’s establishment of the Federal Reserve:
On to Woodrow Wilson. Wilson signed the highly controversial Federal Reserve Act in 1913; originally, the Federal Reserve system was supposed to discount commercial and agricultural paper. Government bonds were not really considered part of the system’s mandate. But what happened the next year? Yes, World War I.
This link between the purchase of government bonds being driven by a war funding decision is, again, wrong. The initial decision to buy bonds came not from the Reserve, but from the Reserve Banks, and was taken not for the purpose of funding or regulation, but because government paper was a sound place for keeping funds. From the sane, skeptical, but non-conspiratorial (despite the title) look at the Federal Reserve, William Greider’s Secrets Of The Temple: How The Federal Reserve Runs The Country:
The twelve Reserve Banks formed their alliance against Washington around an issue that, at the time, seemed a peripheral question – the buying and selling of government securities. The original operations of the Federal Reserve did not use the open-market purchases of U.S. securities as the means to create new money or extinguish it. Money was created entirely through the Discount windows at the twelve Reserve Banks. Instead of buying or selling government notes and bonds, the Fed took in “real bills” of trade – the short-term debt notes that banks took when they lent to business and agriculture. When these notes were eventually paid off at the Fed, the money would automatically cease to exist. Creating money for real commercial transactions, it was assumed, would make the money supply self-regulating, growing and contracting always in step with the ebb and flow of private commerce and credit.
When individual Reserve Banks began buying government securities for their separate portfolios, it was not to regulate the money supply but to increase their own earnings. Treasury paper was a safe place to park idle funds and provided a modest return that would help pay for the banks’ operations. Most economists, inside and outside the Fed, did not grasp the larger implications – these random transactions were themselves expanding or shrinking the money in circulation. If Atlanta or Philadelphia bought $1 million in bonds, it was pumping high-powered money into the banking system – $1 million that would be multiplied by bank lending. If it sold bonds, the reverse occurred.
The wiser heads, including Benjamin Strong in New York, rather quickly recognized the connection. When Reserve Banks made open-market transactions, interest rates rose or fell, accordingly, in financial markets. On some occasions, there was plain confusion when one Reserve Bank would be buying bonds while another Reserve Bank was selling.
Strong persuaded the other Reserve Bank officials that the twelve Reserve Banks, at the very least, must coordinate their actions, a proposal that became the means for organizing the regional banks as a rival power center, independent of the Federal Reserve Board in Washington. The New York Fed, it was agreed, would handle all sales and purchases for the others managed in a way that did not disrupt markets. The twelve Reserve Banks formed their own Open Market Investment Committee to decide things. The Federal Reserve Board approved, apparently unaware that it was ceding control of a powerful monetary lever.
It should be emphasized that Strong’s action was not part of some conspiratorial attempt to go off the currency. Strong does not want to go off the gold standard, and fears this possibility.
In 1913, Strong wrote to his friend Paul Warburg warning that if Federal Reserve Notes were made an obligation of the U.S government, they would inevitably constitute “greenbacks,” the fiat money that the Populists had sought. “If the United States government embarks once more upon the expedient or experiment of issuing fiat paper, although in this case supported by bank assets and percentage in gold reserve. the day will come when we will deeply regret it…”
Mr. Stoller writes of government bonds not being part of the original mandate; I am uncertain of where he gets this idea. The original mandate was extraordinarily vague, and certainly allowed for the purchase of government paper. Again, Greider:
The original instructions that Congress gave to the temple were vague (and not much improved over the years). The 1913 act said merely that the Reserve Banks should set Discount loan rates “with a view of accomodating commerce and business.” Credit should be provided to member banks with due regard to “the maintenance of sound credit conditions, and the accommodation of commerce, industry, and agriculture.”
From A Monetary History of the United States (my bolds):
Receipt of gold, rediscounting of “eligible” paper, discounting of foreign trade acceptances, and open market purchases of government securities, bankers’ acceptances, and bills of exchange were the means initially provided for creating Federal Reserve money, and the converse for retiring it.
Back to Mr. Stoller, and his discussion of the internal security measures of the Wilson administration.
Wilson also implemented a wide variety of highly repressive authoritarian measures, including the Palmer Raids, the Espionage Act of 1917, and the use of modern PR techniques by government agencies.
Here, one can argue that libertarians are wary of centralized financing and political authority for liberal reasons – the ACLU was founded after the Palmer raids.
The Palmer raids, initiated under Attorney General Mitchell Palmer, along with the Espionage Act and the Sedition Act, were almost entirely an attempt to destroy american organized labor, for the ostensible reason that they were part of a larger communist insurgency. The Palmer raids had nothing to do with centralized financing or authority; labor had been persecuted before and after the creation of the Federal Reserve.
The major target of the Espionage Act was the International Workers of the World group; it was government harassment done in concert with the vigilante group the American Protective League (APL), a private business supported organization, which placed operatives in bank and industry, who would root out any subversives, in this case, members of organized labor; nor would he have issue with the practices of private detectives and thugs in the pay of such business. It is a simple and obvious note that Paul would have no difficulty with the private persecution of employees, or the more loathsome business practices of the era which led to the formation of unions, that this is entirely consistent with his admitted writings on private property and contracts.
On to the Palmer raids: Mr. Stoller appears to give Wilson sole responsibility for the authority and supervision of these raids, which I find somewhat strange. The first Palmer raid takes place on November 7, 1919, not co-incidentally, an anniversary of the Russian revolution. On September 25, a month prior, Wilson has already suffered the stroke that destroys him entirely, making him president in name only. The Palmer raids were conducted entirely by Palmer himself, without any presidential oversight whatsoever.
Opposition to the Palmer raids came from within the Wilson government itself, with the Secretary of Labor, William Wilson, former coal miner, who now witnessed his fellow workingmen persecuted. Palmer made these raids in the fervent hope that they would help elect him president. His support at the democratic convention was derived from his strikebreaking and abandonment of anti-trust prosecutions, actions, again, which Ron Paul would heartily support. The opposition to Palmer lay not with any libertarian business owners, but entirely, again, with organized labor, who helped defeat him at this same convention.
Mr. Stoller takes what was fundamentally an anti-labour political action, of public and private powers acting in unison to deprive workers of their rights, not unkin to the anti-labour movement now, and somehow transforms it into something to do with the Federal Reserve.
The previous is sourced from the chapters “The Missing Years”, “‘Palmer – Do Not Let This Country See Red!'”, “The Soviet Ark”, “The Facts Are a Matter of Record” from J. Edgar Hoover: The Man and The Secrets, by Curt Gentry.
And finally, we come to Franklin Delano Roosevelt. Roosevelt’s Fed is a bit more complex, because he did centralize monetary authority using wartime emergency powers, but he did so in peacetime. FDR abrogated gold clause contracts, seized the domestic supply of gold, and devalued the currency.
FDR did not use “wartime” emergency powers for this. The initial executive action immediately following his election, without congressional approval, was to make a de facto bank holiday official, a bank holiday that many banks, national and state had already taken. From Traitor to his Class by H.W. Brands:
As various governors watched banks in their states succumb to “runs”—uncontrolled withdrawal demands by depositors, which frequently ended with the failure of the banks—several pondered the drastic step of declaring “bank holidays,” that is, simply closing the banks to business. The idea, or hope, was that the panic would pass: that if depositors were temporarily prevented from withdrawing their funds, they would calm down and decide they really didn’t need the money. In fact most neither needed nor really wanted the money. Bank deposits earned interest; cash in a can in the garden or in a shoe box under the bed did not. If the depositors could have been sure their money was safe in the banks, nearly all of them would have been happy to leave it there. With this in mind, the governor of Louisiana declared a state bank holiday in early February. Michigan did the same at midmonth, followed by Maryland, Indiana, Arkansas, and Ohio. At the beginning of March twenty other states closed the doors of their banks. By inauguration day, the American banking system was nearly at a standstill.
Congress would give retroactive approval to this holiday, along with the power to open and close banks, embargo gold, and issue notes that would circulate as currency. Brands, again:
The law retroactively granted Roosevelt authority to close the banks and embargo gold, thereby removing any taint of unconstitutionality from Roosevelt’s executive action. Looking forward, the bank bill authorized him to reopen the banks when he saw fit, under the supervision of the comptroller of the currency, and to direct the Federal Reserve to issue notes that would circulate as money, regardless of the strictures of the gold standard, which remained technically in effect.
The second major executive action that Roosevelt asked for, and Congress granted, was unilateral ability to cut the budget. This was done to the detriment of the poor, as it was chiefly used to cut pensions and veterans’ benefits, which Congress very much wanted to cut, but were unable to do given the power of the constituency.
I have a very specific sense in mind of “wartime powers”. They are powers exercised by the executive, without approval of other branches, on the basis of military threat, whether used for military or non-military purposes. It does not include executive powers voted and approved by congress on the basis of a national emergency.
The abandonment of the gold standard is a combination of the powers granted by congress, and later congressional action.
Deflation was an economywide problem, but because of their chronic indebtedness it hit farmers the hardest. Roosevelt had long commiserated with farmers, and even before the success of the bank rescue was assured, he turned to the farm question. There were two ways of dealing with low prices. One was to expand the money supply. This strategy was what the Populists and silver Democrats led by William Jennings Bryan had advocated in the 1890s with their call for remonetizing silver. They lost their fight in the election of 1896, and the country had officially embraced the gold standard—after decades of observing a de facto version—in 1900. Some silver-state Westerners still agitated for silver, but the first step in any systematic expansion of the money supply would be the abandonment of the gold standard.
Curtailing production would tend to raise farm prices, but not as fast or surely as increasing the money supply. Diehard populists like Oklahoma Democrat Elmer Thomas contended that every other effort would be wasted unless the president did something about money. Roosevelt’s farm bill passed the House in mere days and by an overwhelming margin—315 to 98. But Thomas stalled its progress in the Senate by proposing an amendment authorizing the president to expand the money supply by remonetizing silver, redefining the relationship between the dollar and gold, or reissuing the kind of fiat currency—“greenbacks”—that had circulated during and after the Civil War.
Roosevelt had known that the money question would come up, but he had hoped to keep it separate from the farm issue. The Thomas amendment made this impossible—as Thomas knew it would. The Oklahoma senator felt an obligation not merely to farmers but to the people of America generally. “No permanent relief is possible until the masses have buying power,” he declared. The way to give them buying power was to put money in their hands.
Elmer Thomas’s maneuver compelled Roosevelt to take a position on money sooner than he had intended. Roosevelt accepted the Thomas amendment, noting, however, that it only authorized the president to devalue the dollar. It did not require him to do so. “Purely discretionary” was how Roosevelt, speaking at a press conference, characterized his prospective power to expand the money supply. The Thomas amendment provided various methods of achieving inflation. “I do not have to use any of them,” Roosevelt said.
He wasn’t opposed in principle to inflation. On April 5, before the Thomas amendment came to a vote in the Senate, Roosevelt employed his new authority under the banking act to order private possessors of gold to surrender their yellow metal for currency. “The chief purpose of the order,” he explained, “is to restore to the country’s reserves gold held for hoarding and the withholding of which under existing conditions does not promote the public interest.”
The administration’s “monetary goal and objective” proved to be a managed currency, one freed of the constraints of gold. The gold order of April 5 was the first step; Roosevelt’s acceptance of the Thomas amendment two weeks later was a second. “Congratulate me. We are off the gold standard,” he told his economic advisers. Some of them sighed with relief; others spluttered with indignation.
Roosevelt explained that his acceptance of the Thomas amendment was tactical. “He said that the reason for the amendment was that unless something of this sort was done immediately, Congress would take the matter in its own hands and legislate mandatory law instead of permissive,” James Warburg, an adviser to [Secretary of the Treasury Will] Woodin, recalled.
Roosevelt may have overstated the hazard of a congressional diktat, but the result of the Thomas amendment, which passed the Senate in slightly revised form, and the House shortly thereafter, was to augment the president’s power over the money supply. As an indication of what he would do with the added power, he issued an executive order on April 20 forbidding the export of gold without license from the Treasury. More permanently than anything till now, Roosevelt’s embargo cut the dollar adrift from gold.
I have no doubt that Roosevelt’s actions, then and now, are controversial. To have a thesis, however, which argues about the intertwining of finance and military under democratic presidents, then to label temporary powers voted by congress to the executive in a financial emergency without any mention of war as “war-time” in order to make one’s case, strikes me as a little dishonest.
Back to Mr. Stoller:
[FDR] constrained banks with aggressive regulation and seizures of insolvent banks, saving depositors with the Reconstruction Finance Corporation. He also used the RFC to set up much of what we know today as the Federal government, including early versions of disaster relief, small business lending, massive bridge and railroad building, the FHA, Fannie Mae, and state and local aid.
The Reconstruction Finance Corporation was set up under Republican Herbert Hoover, with this very mandate, to provide funds for reconstruction and relief.
After this overview of the three presidents is the main part of Mr. Stoller’s thesis.
Modern liberalism is a mixture of two elements. One is a support of Federal power – what came out of the late 1930s, World War II, and the civil rights era where a social safety net and warfare were financed by Wall Street, the Federal Reserve and the RFC, and human rights were enforced by a Federal government, unions, and a cadre of corporate, journalistic and technocratic experts (and cheap oil made the whole system run.)
And two, it originates from the anti-war sentiment of the Vietnam era, with its distrust of centralized authority mobilizing national resources for what were perceived to be immoral priorities.
I wish to focus on one point: “a social safety net and warfare were financed by Wall Street, the Federal Reserve and the RFC”. It would seem that both a social safety net and warfare would be financed by a labourer’s taxes, that this is the nature, say, of social security, with a portion of one’s wages saved for later needs. It also formed a part of the opposition to war, including Viet Nam, beyond the awful objectives and wretched nature of war itself: that the wages from my labour could best be served in schools, medicine, and food for fellow citizens rather than killing those in a distant place. By making the labourer beholden for his benefits to Wall Street, Federal Reserve, and the RFC, Mr. Stoller removes all agency for the worker, making him entirely a dependent on these powers.
When you throw in the recent financial crisis, the corruption of big finance, the increasing militarization of society, Iraq and Afghanistan, and the collapse of the moral authority of the technocrats, you have a big problem. Liberalism doesn’t really exist much within the Democratic Party so much anymore, but it also has a profound challenge insofar as the rudiments of liberalism going back to the 1930s don’t work.
It would seem that if the social safety net, warfare, as well as (though Mr. Stoller strangely doesn’t mention this), tax breaks and subsidies for large corporations were all funded by the contributions of worker’s wages, then the worker is not beholden to finance, not beholden to the military, not beholden to any technocrat. But no: Mr. Stoller has removed this possibility. And because the labourer, according to Mr. Stoller, is beholden to these, he is unable to make his own critique of the existing morass. He must rely on a degenerate conspiracy minded racist who stands apart from all of them:
This is why Ron Paul can critique the Federal Reserve and American empire, and why liberals have essentially no answer to his ideas, arguing instead over Paul having character defects.
Again, as stated before, Mr. Stoller leaves out the simple fact of a worker’s wages freely earned, with his own sweat, a portion of which goes to taxes funding all these things, in order to remove an agency and participation that the worker has, not as supplicant, but as an engine of all this.
I will make no statements derived from this analysis, as I believe they would be a little too passionate, and a little too defamatory. That can be left for another time, until others, preferably with a stronger background than I in economics and history, can examine Mr. Stoller’s essay as fully, or more fully and in-depth, than I have, providing either confirmation or dissent of what is written here.
For the time being, I will only say this. Mr. Stoller’s essay been praised as “genuinely brilliant” by Mr. Glenn Greenwald, of Salon, in his piece, “Progressives and the Ron Paul Fallacies”. Given the flaws in Mr. Stoller’s work, Mr. Greenwald has either barely read this essay, his knowledge of the economic and political history of the United States is very limited, or his knowledge of the history of the United States is very different from mine. I am told by many that my blog is barely readable; should Mr. Greenwald ever decide to barely read it, and declare me an authentic genius, I would be grateful.