Rich Lives Matter More: How Robert Kennedy Got to be U.S. Attorney General

A 19 year old black man hits another man over the head with a bear bottle. He is arrested by cops, charged with assault or even attempted murder. He is convicted and serves 2 years in jail. After that he is a felon, and so can't get a job, and ends up in a life of crime.

That is a believable story in the United States of America. Some variation of it has happened millions of times in our history. It could have been a true story in the 1920s, or 1950s, or in 2015.

Now consider this quote from The Passage of Power: The Years of Lyndon Johnson:

At a bar "Magnuson, happened to be already celebrating his birthday there, and his friends began singing Happy Birthday to him. Infuriated over what he apparently regarded as an intrusion into his celebration, Bob walked up behind Magnuson and hit him over the head with a beer bottle, sending him to the hospital for stitches." This was just an example of a pattern of illegal, criminal, violent behavior. In another fight friends said "Bobby would have killed him if we didn't pull him off."

Now there are many reasons an act of violence does not result in jail time. Much violence is simply hidden, as when the victim can't ID the assailant, or has his or her own reasons to avoid the police.

Anyone who thinks all white men and women carry get out of jail free cards with them, should take a look at prison statistics (there are about 120,000 white males in federal prison on any given day in the USA with about 77,000 black men).

Some times violent men avoid jail because they have good lawyers. Some times that may be a public defender, but more generally for serious violence only a private lawyer will do. As a result, black or white, having money for lawyers is the main prerequisite

Some violent men get off scott free because they are part of a system of corruption. That would include cops, friends of cops and judges and politicians, and other connected people.

The Bob above is better known as Bobby or Robert Kennedy. He is better known for being the brother and United States Attorney General of President John F. Kennedy. Bobby was assassinated and died on June 6, 1968. President Kennedy was assassinated and died on November 22, 1963.

Are you surprised? I am. I thought I knew quite a bit about the Kennedy family. Only recently I read Robert Kennedy's The Enemy Within, which is mostly about his (later successful) attempt to jail Jimmy Hoffa. Robert did not mention that he acted like a psychopath at least as late has his college years.

In this particular case the violent criminal was the son of one of the most powerful men in the world, Joseph Kennedy, a billionaire (when there were only a few in the world) who maximized profits by dancing back and forth over the imaginary line separating business from organized crime. Apparently no charges were every brought against Bobby for anything he did. The American Bar Association found nothing objectionable about his ethics. He joined the Justice Department, then became Joe McCarthy's henchman in his anti-communist crusade. And at last, through nepotism, the highest figure in American law enforcement.

My own, anecdotal experience in life confirms the picture. Mainly I stay away from criminals and crime. I figure being a political dissident in America is dangerous enough. But three friends of mine have been involved in crimes that were slightly more than petty. Two, probably binging on drugs, copied a scene out of Cool Hand Luke and one of them was caught. One friend, a cook, punched the restaurant owner in the face during an argument.

All three were white. The cook was charged with assault, convicted, and spent over a year in jail. One thief, as I said, got away. I later learned he followed Bobby's path, getting a law degree and a job at the Justice Department. The one who was caught was quickly released and only orally reprimanded by a judge. I don't know what he did for a career.

The difference? The cook was poor and had poor parents and a public defender. The thief had rich parents, with connections to the intelligence community, and an expensive lawyer.

I know black and hispanic and Native American Indians all get treated worse by law enforcement and the courts. But being white and poor or working class is no picnic.

One more anecdote comes to mind. If you are going to be a terrorist, it pays to be from a rich, powerful family. Ask Patty Hearst.

Black lives matter. We need to do more to end all forms of racism. But we also need to give the same justice to people who commit crimes regardless of their economic status and ability to hire lawyers of various levels of competency.

Gold Asteroid Frightens Republican Science Committee Members

The vote seemed nearly inexplicable, even to the New York Times [See Plan to Capture an Asteroid Runs Into Politics]. NASA (the National Aeronautics and Space Administration) wants to capture a small asteroid, less than 10 meters in diameter, and haul it back into an orbit around earth where it can be examined closely, perhaps by astronauts. The original unmanned mission was planned for 2018.

Republican members of the Science Committee of the U.S. House of Representatives voted to kill the idea. It was not part of the bill they passed (the Democrats' bill included the NASA-recommendations). They prefer a focus on lunar landings, followed by a Mars mission. There are always arguments about how to use NASA's large but not limitless budget, so this might seem to be just another argument about priorities.

A deeper look depends on knowing what scientists might find if they do capture an asteroid.

Mining asteroids is a science fiction theme from last century. Today it is approaching reality, with at least one private group looking for a way to do it and make money at it. [See Tech Billionaires Plan Audacious Mission to Mine Asteroids]. While platinum is a more likely target, the group certainly would not turn away a gold asteroid if they found one.

Asteroids are believed to be quite varied in composition. They fall into three classes: carbon rich, stony, and metallic. The assumption is their composition is fairly reflected in meteorites (meteoroids that fall to earth). Metal meteorites are less common than stony and carbon rich ones, but they are not rare (about 6% of the total). The most common metallic meteorites are iron mixed with nickel.

There is a subgroup of meteorites which have a percentage of gold in them. It is likely that there are meteorites and asteroids which consist mostly or entirely of gold. In fact a current theory is that most or all of the gold in the earth's crust came from asteroid or meteorite impacts, since the planet's original gold would have sunk to the core of the planet. [See Huge Asteroids Brought Gold to Infant Earth]

It would be possible to select an asteroid that is mainly of the metallic type (M-type asteroids) by studying the spectra of various candidates. With advanced surveying gold bearing asteroids could be distinguished from the more common iron-nickel ones.

Why is this a political problem for Republican members of Congress? Because many (but not all) in the party now want to return to the Gold Standard for money. Many wealthy Republicans, and even middle-class Republicans, have spent the last decade accumulating investments in gold.

They say that Gold is the only real money (despite there being no Biblical evidence for that). But they suspect that if gold were more common, it would behave like other commodities: it would lose value. Behind their outward confidence in gold, they fear change. They fear the laws of supply and demand and free markets.

Suppose NASA captures a 10 meter cube of gold and got it back to earth safely. How much gold is that? Gold has a density of 19.3 grams per cubic centimeter. There are a lot of cubic centimeters in a 10 meter cube. There are 100 x 100 x 100 cubic centimeters in a cubic meter, and 10 x 10 x 10 cubic meters in a 10 meter cube. That is 1,000,000,000, or 1 billion cubic centimeters.

At a price of $1300 per ounce (gold bugs would say we should measure the value of dollars in gold, not the value of gold in dollars), 19.3 grams of gold, which is 19.3/28.35 or 0.68 ounces, is worth $884.

So the asteroid would be worth $884 billion dollars. Which would not pay for the estimated $2 to $3 billion needed to collect the asteroid.

Still, it would be a lot of gold. And it would mean that for all practical purposes, there is all the gold you want in space.

Only it would not be worth $884 billion, because who would buy it? Especially when even more gold goes whizzing by the earth once in a while, just needing a nudge to capture it?

A gold asteroid of very modest size would cause the value of gold on earth to plummet. This is partly because most gold already mined here is not used for anything, not even jewelry. It is in the hands of speculators, who hope it will go up relative to the U.S. dollar, so that they can buy things they really want, like more handguns, bigger mansions, fancier cars, and the more expensive Senators.

Who exactly voted for the bill [H.R. 2687] that left out the asteroid capture mission? Lamar Smith of Texas, Paul Broun Jr. of Georgia, Larry Bucshon of Indiana, Cynthia Lummis of Wyoming, Steven Palazzo of Missouri, Chris Steward of Utah, Jim Bridenstine of Oklahoma, Mo Brooks of Alabama, Thomas Massie of Kentucky, Kevin Cramer of North Dakota, Ralph Hall of Texas, Randy Hultgren of Illinois, Frank Lucas of Oklahoma, Michael McCaul of Texas, Randy Neugebauer of Texas, Bill Posey of Florida, Dana Rohrabacher of California, David Schweikert of Arizona, James Sensenbrenner Jr. of Wisconsin, Steve Stockman of Texas, and Randy Weber of Texas. Lots of Republicans from Texas on the Science Committee.

And for those of you who love details, here is the Text of H.R. 2687

The Accounting System #12: Electronic Money Takes Over

previous: Unraveling in 1930 and the New Deal

But in the 1930's ubiquitous accounting was being held back by the sheer amount of human effort needed to produce accurate accountings. In addition to adding machines (bulky, mechanical predecessors to today’s electronic calculators), there was some mechanized counting and data manipulation using punch-card machines. After World War II the accounting machines used by humans to do data entry and calculation started a cycle of major upgrades. The machines now known as computers were invented during the war. The new computers could do more than arithmetic: they could be programmed to manipulate numbers and information in almost limitless ways. Starting around 1950 they became available to the largest corporations for accounting and data processing.


With the computer revolution the accounting system itself began to be virtualized. Records and programs were first kept on punch cards or punched paper tapes, then as years passed on magnetic tape, on magnetic disks, and then on hard disk drives. The rules of accounting could be written in computer programming code. Humans still made the rules, and understood the rules, but the code itself had no material substance to it at all. Accounting programming code could be printed out, or viewed on a machine, but its essence was just an arrangement of electric charges or anything else that could represent numbers and symbols.

Money — abstract, virtual, accounting money — began to be transferred between banks using electronic means, tracked by the computerized accounting systems. Various methods were used, but the important thing was that such transfers were accounted for. Otherwise someone could create (or destroy) money in an account by making a phony transfer. More directly, if the accounting system did not catch such errors or cheats, money could be created or destroyed just by changing the balance numbers in accounts.

By 2010, an American could still write paper checks, but once they entered the banking system they would be virtualized. Cancelled paper checks were no longer returned to their writers. In 2002 Germany started phasing out paper checks altogether, and other nations followed suit. An increasing percentage of transactions are done using credit cards or electronic direct transfers to and from bank accounts.

Money is now electronic, and The Accounting System, with its myriad tentacles, must be totally trustworthy or the entire global economy would be at risk. While identity thieves and computer hackers continue to find chinks in the armor of the System, so far it has been reasonably reliable. Errors in accounts are eventually detected and dealt with. People generally trust that the electronic dollars they put in their accounts will be available to withdraw and use later. Creditors, including the banks themselves, trust that they can keep track of loans and, if necessary, courts will trust their electronic records proving indebtedness.  [Contracts may be on paper, and signed by human hands, especially for larger deals like mortgages, but even contracts and signatures are moving to electronic formats.]

Next: to be continued

[The Accounting System, Your Fate is in the Cloud, is a work in progress by William P. Meyers, ©2013]

#8. Eureka: Reserve Banking

previous: #7: Virtualization in Early Banking

Consider a small city served by a single banker-merchant. He has built a safe room to store coins and has a clerk to keep accounts. He has lent out all his own money and, it being a prosperous era, in the past his loans have always been paid back on time and with interest. There are all these coins, really a lot of the coins of this city, sitting in his safe. He can't help thinking that if he could lend them out not only could he earn interest on them, but it would be good for the community. One client wanted a loan for a second fishing boat, which would surely be paid back, since the demand for fresh fish is high. The banker thinks of other clients who would be helped if only he could make loans to them.

Then it strikes him! Like a jolt of lighting, like a burning bush, like Christ speaking to him from the crucifix of the local church. Every day a client or two comes in and deposits or withdraws money. Over time the pile of coins has grown. On no one day do enough clients come in to withdraw all the coins. Eureka! He calls his clerk Big Data and says: go back through the ledgers and find out what the lowest count of coins we've had on deposit in the last five years.

A week later Big Data says: in the last five years we have never had less than 4,000 gold coins on deposit. And how many are on deposit today, our banker asks. 5,282, says Big Data. The banker sends out his clerk to get another blank accounting book.

The new account will record loans to clients that are made using the coin in client deposits. The fisherman borrows 50 coins to buy a new boat. He takes it to the boat builder, who is worried about having 50 gold coins sitting in his workshop or house. So … he takes the coins to the banker and deposits them. The banker will make, perhaps, two gold coins in interest on the loan. The same number of coins are back in the safe as there were at the start. The two gold coins paid in interest along with the original fifty are not even new coins. They are from the banker's stash of depositors' coins. The fisherman has a new boat, the boat builder a small profit, the men who cut timber for the boat have made wages, and the banker is richer.

The banker sees that the system is a closed loop. Most of the coins he loans out come back as deposits. As long as the town is prospering, as long as the total goods owned and services provided continue to grow (as they did in many Italian towns during this period, until the Turks cut off the trade routes to the East and the Portuguese and Spaniards gained monopolies in the West), the Banker can loan out the same coins over and over again. Sometimes coins are traded to outside his loop, but other times coins come in trade from other regions. The coins left in the vault, the ones that are not loaned out because they may be demanded by their owners, are what we call a reserve.

The accounting system is now critical to the banker's success. He has to know who owes him principle and interest, as well as how much he owes depositors. He sees that while he does not have coins to pay all the depositors at once, he does have loans out that will cover the deposits.

Of course, sooner or later, the banker will find that due to a series of withdrawals, he is running out of coins. He knows he'll be okay over time because the loans are still good, and he expects them to be paid in coin. Perhaps his friend who started as a fisherman comes in wanting to make a large withdrawal of coins that will break the bank.

The banker enquires why such a large sum of money is required. The depositor is buying an estate so that he can retire from managing his fishing fleet, leaving it to his son, and enjoy life as the owner of a country estate known for its fine grapes and wines. It so happens that the current possessor of the estate, Luciano,  has borrowed a sizable sum from the bank. The banker suggests that it is dangerous to carry such large sums around. He can facilitate the transaction by giving Luciano a note cancelling his debt along with the coin needed to make up the difference. The fisherman accepts this, and the bank is saved.

Of course in reality the system evolved over time and with many participants, but the idea of the reserve system was a major extension of the accounting system and the beginning of the end for coins. Over the centuries large numbers of banks have failed, some because of fraud but most because they did not keep sufficient reserves. It happened to a few American banks last year and it will happen again next year, and continue as long as the system is used. But on the whole the system of keeping small reserves of coin, and later paper money, and now electronic money, to back a larger accounting of loans and deposits, has worked rather well.

Next: #9: Virtualization with Checking and Credit Cards

[The Accounting System, Your Fate is in the Cloud, is a work in progress by William P. Meyers, ©2013]

The Accountings System #3: Bank Cycles of Credit and Gold

The banking system, which was at the heart of the accounting system, was also found to be wanting for a modern economy. This is because the banking system had three separate functions which did not go well together. It became the core of the social accounting system: a man might claim to be rich, but it his bank checks bounced, people knew the reality was otherwise. It allowed its depositors to keep their money safe and perhaps earn a bit of interest. To make a profit, bankers had to loan out the money of their depositors at an interest rate sufficient to keep their depositors happy, pay for the costs of operation, and still come out ahead.  This was the credit system.

The credit system of the early 1800's in the United States is worth a close look because of the way it resembled and differed from our present system. Individuals were more likely to be sources of credits, which typically took the form of "IOUs." Andrew Jackson, before he became President, is a well documented example. Like most Americans of the era, he seldom could put his hands on much cash or coin, but he owned land, race horses, and slaves of considerable value. If he purchased goods he would write a personal note, an IOU, which he pledged to redeem at a later date, say when he received some cash to pay for his cotton crop.

A creditor holding the Jackson note might want to spend it before then, and would sign it over to another man, perhaps to buy a horse. If a man was considered to have good credit, as Jackson was, his notes might circulate for some time and be considered more sound than bank notes. If a note was collectable, and you took it to the Hermitage to demand payment, and Jackson still had no cash, he might try to pay you off with a slave, dog, horse, or perhaps some wine or whiskey. In effect Andrew would discount his own note, giving you, perhaps, a $250 race horse for a $300 note. As long as creditors were happy with the exchange his credit remained good. Similarly, if you were another local slaver and wanted to buy some possession of Jackson's and he was willing to sell, he would probably accept your IOU (which, along with the shortage of gold, was one reason most people had very little cash to play with).

The primitive banks of that era were in a strangely similar position to private individuals like Jackson. The bank might actually own nothing but a license from the state (usually obtained by bribing legislators), but usually began with a little bit of gold or silver coin. Banks would take deposits – hopefully coin, but also other bank's notes – and then would start making loans, which is to say, creating credit. They tried to avoid loaning their coins, instead issuing their own bank notes. If too many people came in demanding that the bank notes be redeemed in coin, the coin would run out, depositors would demand their deposits, and the bank would fail. The more clever bankers liked to loan to people a goodly distance from home, so that their notes would circulate afar and be unlikely to be redeemed.

This system led to credit cycles of boom and bust. When people were confident in the banknotes and IOUs a speculator could buy land and be confident of selling it in a year or two for more money. Sound familiar? During a boom farmers got good prices for their crops, and manufacturers had little problem selling their wares to the farmers. When credit contracted, as it invariably did, no one wanted to take an IOU or banknote. With little gold to go around, commerce collapsed and people returned to bartering until time healed the wounds and another upward cycle began.

Eventually Americans got tired of this ridiculous system, made banknotes illegal, and tried various banking reserve systems cumulating in the Federal Reserve System. Only the federal government could issue paper money, and that was backed by gold or silver. But that system did not work long either, as the Great Depression proved.

Next: The Big Reversal

[The Accounting System, Your Fate is in the Cloud, is a work in progress by William P. Meyers, ©2013]

The Accounting System #2: The Coin Age

Once upon a time there was no Accounting System except Nature itself.

We do not know exactly when in history humans began counting in earnest. We know that some animals have some ability to count, for instance to notice when a child has gone missing. We also know that most animals can see the difference between "more" and "less."

By the time of the early urban civilizations we know about (Egypt, Palestine and Mesopotamia, and China for example) counting and keeping records of counts was a well-established set of skills. Rulers wanted to know how many cows were in their herds, how many soldiers were available for battle, and whether subordinates had contributed their fair share of grain to the royal stores. Merchants needed to track their inventories, as did anyone who farmed on a large scale. This keeping of records of counts of things is the earliest manifestation of The Accounting System.

The ledger, or written record of counts, thus preceded what we now call cash and coin. Coin is generally treated as having inherent value, and for that reason tended over the millennia to standardize on three metals: gold, silver, and copper. Coin stands as a way station between bartering (directly trading one kind of good or service for another) and systemic accounting through modern record keeping.

People counted coins, and thus accounting and bookkeeping seemed to be the art of coin counting. This was the case with the improved accounting systems of early Renaissance Italy. This led to misconceptions, both popular and among the professional accountants, which persist to this day.

Counting things other than coin did not go away, but accountants and ordinary people came to start measuring all things by their value in coin. To keep his books straight, a farmer might count his cows, multiply by a set value per cow, and account for the total as an asset in units of currency.

During the Coin Age (roughly 1400 to 1900) other aspects of the accounting system evolved and expanded. People, from peasants to kings, still needed to count their things. The most important thing to count was land, but that was somewhat more complicated than counting cows or shillings. It required a title system (note the term likely evolved from titles such as duke, lord, sir, and mister) and surveys, and a legal system as well. People who lived on land but had no legal title to it lost it over the centuries. This was particularly obvious in the Americas, where the natives were dispossessed of almost all of their tribal land. Today the land title system extends to every part of the world except the Antarctic.

The human identity system also expanded during the Coin Age. We know that ancient kings took censuses of their subjects. Various forms of identity papers evolved, particularly in Europe. Passports and visas were required for travel. Birth certificates evolved from baptismal records into a pervasive system that came to account for most births. Place of birth was attached to nationality, and the various national identity systems, including Social Security numbers, drivers licenses, and death certificates in the United States, evolved into a system that accounts for each individual human living and dead.

The rapid rise of industrialism, including the rise of industrial methods of agriculture, and parallel expansion of the global human population, put strains on the economic systems of the Coin Age.

In a throwback to the Platonic (or medieval Scholastic) system of intellectual architectures that don't reflect reality, Gold was declared by many people to be the only "real" money. This proved to be impractical to the point of economic disaster.  At times the supply of gold did not grow as fast as the economy, leading to recessions and depressions. At other times the supply of gold from new discoveries grew rapidly, leading to inflation (it took increasing amounts of gold to buy other goods like cows, houses, and services).

Next: Bank Cycles, Credit and Gold

[The Accounting System, Your Fate is in the Cloud, is a work in progress by William P. Meyers, ©2013]

The Accounting System. Introduction: why you should care

Forget the stars. The Accounting System determines your fate. The Accounting System determines whether you are born with or without money and with or without opportunity. It determines your level of childhood mortality, your schooling, your pay if you work, and the size of your estate when you die.

Fortune favors those who are favored by the accounting system. Not surprisingly, those who built the system are those most favored by it.

Within The Accounting System individual people have choices they can make, but as each decade passes those choices are narrowed for most individuals. Because The Accounting System is so complex and pervasive, the naïve may not even realize it exists. People mistake one or more parts for the whole. They may think it is neutral, a mere method certain people use to keep score, when in fact it increasingly determines your score. You score, in the simplest terms, is the money you have to spend, the things that The Accounting System lists as owned by you, and your reputation.

Unless you are lucky enough to be blessed by the System from birth, or to be selected as one of its favorites at some point in your life, it would be a good idea to learn all you can about The Accounting System. Your success or failure in life is highly dependent on how well you understand the System.

Learning is not just collecting facts. It requires assembling those facts into a mental picture that is an accurate reflection of reality. Because The Accounting System is large and complex, there are some steps that will help you learn about it. By stepping back from the system you should be able to see it in perspective. Then you should be able to see where you are in the system, and what paths are available to move to where you want to be in the system.

We will begin with the story of the development of accounting over history, a temporal perspective. That will bring up many subjects that will be developed in more detail in later chapters of this book.

next: The Coin Age

[The Accounting System, Your Fate is in the Cloud, is a work in progress by William P. Meyers, ©2013]

Cicero, Desert Revelations, and Virtue

I started reading Cicero's de Officiis (On Duties), during brief breaks, only because I ran out of better things to read. I have long had an old used Loeb Classical Library copy, with the Latin on left pages and English on the right. I once aspired to learn Latin, but now admit that is a low priority.

I am finding a lot of good stuff in Cicero. I feel like Cicero was a wise and basically modern guy, despite being pre-Christian. Whereas talking to Rick Santorum and crew I feel like there really might be demons about; how else to explain their irrational thought processes?

Today I came across Cicero quoting Prodicus in Xenophon: "When Hercules was just coming into youth's estate ... he went out into a desert place. And as he saw two paths, the path of Pleasure and the path of Virtue, he sat down and debated long and earnestly which one it was better for him to take." That made me think of Jesus, who is after all a Jewish Hercules, also spending his famous 40 days in the desert, where he was tempted by Satan. Jesus and Hercules had a lot in common, including rising from the dead, although Jesus's miracles tended towards healing, and Hercules' were feats of strength. Since they were both supposed by their followers to be sons of God, I suppose that would make them brothers.

I once spent several weeks, more than 40 days, alone in a desert. Nothing much came of it. No voices spoke to me. I did not see visions. The plus of that is for all my faults, I am apparently not inclined to schizophrenia. I only made one important decision in the desert. I decided to finish college. I had dropped out of college for lack of funds and out of exhaustion. I then started working in restaurants, which was a lot easier than going to college. Plus, I had some money to spend for the first time in my life. In college every dime went to tuition, textbooks, my room and cheap carbohydrate-rich foods. Being out of college was way more pleasurable than being in. Still, I decided to go back, so I hitchhiked to Rhode Island and got a job to start saving enough money to enroll again.

Cicero, on the same page as the Hercules quote, is talking about the various ways careers are chosen, and things are not much different today. "We each copy the model he fancies, and we are constrained to adopt their pursuits and vocations. But usually, we are so imbued with the teachings of our parents that we fall irresistibly into their manners and customs."

My parents had been professional terrorists, employees of the U.S. government. My older brother followed their path into the Marine Corps, and while he was not much of a combat guy, he did his logistical role in bossing Islamic people around.

I decided to write novels, which turned out to mean working in restaurants or offices, with an occasional income boost from journalism or technology work. I did finish several novels, but gave that up over a decade ago now.

The more obvious dichotomy in our society than pleasure versus virtue is money versus virtue. Money has for centuries been the mad passion of American society.

Virtue is harder to define. Some let religion define it for them. The world is a complex place, and so too virtue is complex. What is virtuous in one situation may not be virtuous in another. Cicero's world was not brimming with 7 billion people who all want central heating and air conditioning. We all need to think more about virtue in this new context. We might even want to practice it now and then, as the occasion arises.

Gold, Black Friday 1869, and the Federal Reserve

Most Americans don't know about Black Friday 1869, a day that saw one of the many Wall Street Panics that have wracked our nation's history. Yet given the numbskull proposals for economic reform being bandied about today, a close look would be illuminating.

Typical treatments in American History books provide little insight. Take, for example, this passage from The American Pageant by Stanford historian Thomas Bailey:

"The low ethics of the [Ulysses S.] Grant era are well illustrated by a fantastic scheme of "Jubilee Jim" Fisk and Jay Gould. This precious pair conceived the plot, in 1869, of cornering all the gold on the New York market and netting additional millions. Their cunning game could succeed only if the Federal Treasury would hold back its funds. The conspirators worked on Grant directly, and also on his brother-in-law, who received $25,000 for his complicity. On "Black Friday" September 24, Fisk and Gould madly bid the price of gold skyward, while scores of honest businessmen were driven to the wall. The bubble broke when the Treasury, contrary to Grant's earlier assurances, was forced to release gold."

Returning to the gold standard is a hallmark of Ron Paul's presidential campaign. Running parallel to the current gold bubble (which may already be popping), the idea that gold is the only sound form of money (excepting maybe silver) has become quite popular. The idea only appeals because people have had time to forget just how unworkable the gold standard used to be. Black Friday 1869 illustrates that, and more.

The debate about creating a sound money and banking policy for the United States dates back to the colonial era. Money, until the 1900's, was thought of as either being metallic or paper. Metallic money tended to maintain its value better, but the U.S. had to import most of its gold and silver until gold was discovered in California in 1848. Prior to that time the economy was constrained by a lack of gold currency. While paper money could easily be printed to alleviate the shortage of coins, the temptation to just keep printing it has been difficult for politicians and bankers to resist. Too much paper money causes the prices of goods in terms of money to go up: we get inflation. It should be noted, however, that when new sources of gold were found, that also caused too much money to be coined, resulting in inflation. Gold has less inflationary danger as a whole because you can't just print all you want, so for the most part the gold standard has been associated with either price stability or deflation resulting from the constraint on trade from insufficient gold in circulation.

But wrap your head around this: most money today is electronic. That is right. While Tea Party economists prescribe gold as an antidote for Federal Reserve Notes, only a tiny percent of American money today is paper. Money now sits on computers. Bank computers, grouped together, are an accounting system that electronically registers how much money each person has or owes. What is important is not that it is in electronic form (it used to be on old-fashioned paper ledgers), but that the accounting system itself is fair, accountable, and manageable. The Federal Reserve's real job is to keep our economy, and our individual stakes in it, accountable. That is a very hard concept for people who shy away from abstract and complex thoughts, which is most of us most of the time.

The United States economy had seen numerous boom and bust cycles before the Civil War, each with their own unique aspects. The expense of the Civil War led to a number of important economic changes. Paper money was issued by the Federal government; previously it had been issued by private banks. These federal "greenbacks" were meant to supplement, not substitute for, the gold supply and bank-issued money. They could be redeemed for government gold. They allowed for a tremendous expansion of economic activity in the North during the war.

A national banking reserve system was also put in place before 1869. To make bank notes roughly equivalent and prevent bank failures, smaller (typically rural) banks had to keep reserves in larger (urban) banks, and in turn New York City banks held reserves of the banks around the country. While this helped with many old problems, it left a seasonal liquidity problem. Even after the Civil War America's wealth was largely farming-based. In the fall, when farmers sold their crops, "actual cash money" was needed to pay them. This drained the local banks, who in turn called in their reserves. In New York City the reserves drained out of the major banks, and out of the stock and commodities markets. Since this happened each year, and could be predicted, while some banks tried to be prepared, certain speculators took advantage of the situation. In the simplest version, if you wanted to take over a corporation, you could usually buy its stock cheaper in the fall than during the rest of the year.

As described in The First Tycoon: The Epic Life of Cornelius Vanderbilt by T. J. Stiles, railroads were the biggest American corporations of that era. "Commodore" Vanderbilt had achieved successful railroad takeovers partly by purposefully creating money crunches, then buying the stock of rivals cheap. Sometimes he even forced down the price of stocks he owned, so that he could buy back a larger share at low prices. On September 19, 1869 he dumped his stock in the Lake Shore railroad. Lockwood & Company, a large Wall Street brokerage house, had borrowed money to invest in Lake Shore, and was driven to bankruptcy.

Jim Fisk and Jay Gould were rivals of Vanderbilt. Vanderbilt's Lake Shore scheme came during the Gould-Fisk gold corner scheme, which was part of a bigger plan. If dollars sank in price compared to gold, then American crops would be more competitive overseas. Hence, they would need to be exported, and to do that they would have to be shipped to East Coast ports via railroads owned by Fisk and Gould. They would make money on the gold corner and make money for their railroads. They acquired large amounts of gold starting in August, and by mid-September gold was in a bubble, which they planned to deflate while taking profits and after the crops had been shipped.

On September 24, 1869, the Federal Government announced it would sell some (not that much, a few million dollars worth) of its gold. The price of gold collapsed; stocks followed gold down. Many Wall Street companies failed. Neither the gold supply nor the banking reserve system could supply enough liquidity to allow the markets to right themselves.

Vanderbilt, probably the richest man in America, calmed the markets. He had not meant to sink the entire American economy, just some of his railroad rivals. As gold dropped in value, people stopped hoarding it, so gradually both gold and paper money supplies returned to normal.

The nation had several more lessons in the need for a money system that could expand and contract in line with both short term economic conditions and longer trends. Finally, in 1913, the Federal Reserve System was formed.

There are certainly problems with the Federal Reserve System. The Great Depression was not prevented by Federal Reserve action. Neither was the inflation of the 1970s. Nor can the Federal Reserve by itself make up for the stupidity of Congress, or of Wall Street guys who, like Fisk and Gould, outsmart themselves.

But forget the Gold Standard. It is suitable only for antique shows along with muskets, horse-drawn trams, and cowrie-shell money.

Fix and improve the Federal Reserve System; don't abolish it. Clearly it needs to be run by better decision makers. They should put the public interest above the current mission of insuring profitability for bankers and their fat-cat Wall Street shenanigans.

Just as we really need to increase math and science literacy in the United States, we need to increase business and economics literacy. An ill-informed electorate is apt to elect ill-informed and crooked men who can break any system, no matter how well-constructed the system itself is. Discussing the gold standard is a great opportunity to explain how the modern electronic-money economy can be made to work.

Free Amina Farah Ali

Amina Farah Ali is an American citizen living in Minnesota currently being tried for allegedly sending aid to al-Shabaab, a political group in Somalia that has been fighting (like pretty much everyone in Somalia) with the corrupt, cruel, unpopular U.S. sponsored puppet government there.

She refused to stand for the judge, one Chief U.S. District Judge Michael Davis. He has banned her from the courtroom. Apparently he thinks the traditional show of respect for the court is more important than following the U.S. Constitution, which states in the Sixth Amendment, part of the Bill of Rights: "the accused shall enjoy the right ... to be informed of the nature and cause of the accusation; to be confronted with the witnesses against him; to have compulsory process for obtaining witnesses in his favor, and to have assistance of counsel for his offense."

The Constitution lies in shreds on the floor of Judge Davis's federal court, in more ways than this. While that has always been the way of our national government, while that is simply part of the gruel of law, it is always instructive to look at the details.

I don't see how any honest interpretation of the Constitution allows for Ms. Ali and people like her to be accused of any crime at all. The laws she is being prosecuted under are devoid of any basis in the Constitution. They violate international law and all all reasonable standards of ethical behavior.

In this supposed land of the free this law makes it illegal to send funds or supplies to foreign political groups the U.S. government does not like. You can, conversely, send funds and supplies to foreign political groups the U.S. does like. Even accepting, as I do, that Congress has broad power to do what is "necessary and proper" to carry out its Constitutional duties, this law makes a mockery of several sections of the Constitution.

It is also yet another instance of the U.S. government claiming jurisdiction beyond its own borders, a policy that has always infuriated the various nations we have interfered with and made war upon.

Did Ali, in raising $2,100 in pledges to send to Somalia to fight against a gang of thugs flooded with tens of millions of dollars of U.S. taxpayer provided "support", commit treason? This is the main question that needs to be asked. If she did not commit treason, then the law and the prosecution, in fact all the acts of Congress, President Obama, and their court system, are simply overreach.

The U.S. Constitution is very clear about treason (the Funding Fathers having just escaped with their lives from being treasonable to King George): "Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort." [Article III, Section 3] Note the word only. It colors the entire section.

Ms. Ali has certainly not levied war against the United States of America. Perhaps she gave aid and comfort to al-Shabaab, but al-Shabaab is the de facto government of Somalia, not the "transitional" U.S. paid puppet government. According to many treaties we have signed the U.S. is supposed to recognize de facto governments. Not hire thugs to set up puppet regimes.

Al-Shabab is certainly an enemy of the U.S.-made inflatable-doll "government" of Somalia, but anyone in their right mind in Somalia would be. Who wants to be bossed around by a government that you can't even vote for or against. By that, I mean the U.S. government. If Somalia is U.S. territory, shouldn't they get at least two U.S. Senators, a proportional number of Representatives, food stamps, and Social Security? I've noticed food stamps really cut down on opposition to the government.

Suppose I were elected President. No, I'm not running. But I would recognize the de facto government, maybe governments, of Somalia. That is the right thing to do. And suddenly Ms. Ali there is no longer aiding an alleged enemy of the U.S., but an ally.

Making list of enemies in foreign civil wars might seem necessary. I wish General Franco had been declared an enemy of the U.S. in 1936, then we probably could have skipped that entire World War II thing, and the Holocaust, and the occupation of Palestine by Israel. But the Catholic Church loved Franco and its adherents mostly voted Democratic in the U.S., so President Franklin Roosevelt maintained neutrality. So I admit there is a pragmatic argument to be made, but there is also a Constitution to try to keep out of the shredding machine.

Treason is a serious thing. Spying for a foreign nation might amount to treason, even if we were not at war with the nation spied for. But American citizens also have the right of free speech. The Supreme Court, in its wisdom, has declared that money is speech, at least when rich people and corporations corrupt the electoral process with it. If money is speech, then it seems to me Ms. Ali was engaging in speech, not treason. Of course you can expect the jackals of our Supreme Court to say that money is speech when they want it to be, and not when they don't want it to be.

We Americans are supposed to have a right to disagree with our government. They call that free speech. We also have a right to assemble with people who agree with us; that is the right to assembly.

If liking or not liking some political group in a foreign nation becomes treason, then free speech goes out the window. If Congress can declare foreign groups to be enemies for purpose of treason, what would prevent it from declaring domestic groups to be enemies for purpose of treason, except for decency, which is not something you want to rely on from politicians?

As far as treason goes, I think the only reasonable interpretation of the word "Enemy" is a nation with which we are at war. If the U.S. Congress had recognized al-Shabaab as the government of Somalia and then declared war on Somalia, I might not agree with them, but I could agree that once war is declared, the U.S. has a clear enemy, and it could be treason to aid them.

If al-Shabaab made an attack on or within U.S. territory, the Federal Government would have clear cause to deal with the crime, and with any American citizens aiding in the crime. You don't need to invoke the treason clause.

Neither of those situations fits the facts of Ms. Ali's case. She likes a particular "faction," really the de facto government, of Somalia. She sends them some help. Her actions are political, and do not constitute treason. American history is full of cases where our citizens, of their own initiative, have given verbal or material support to political factions outside the U.S. It is our right as human beings, and I believe it is a right covered by the Ninth Amendment (which is too little asserted):

"The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people."

Note: my defense of Ms. Ali's rights in no way is meant to endorse or support al-Shabaab or any other armed faction in Somalia. I think they should all declare a peace and organize their society in a peaceful, humane manner.

Blood Dries Quickly

"But blood dries quickly, at least the blood of ordinary investors. If any journalists recalled the shenanigans of Milken's friends ... no one wrote about it in the national press." — Ben Stein, A License to Steal

When Michael Milken started issuing junk bonds ("high yield bonds") I was in college, studying Political Science, trying to figure out why the world was such a mess and what might be done about it. A decade and a half later, when Milken's empire went down in flames, taking a good section of the Savings and Loan industry with it, I was in Earth First! and the IWW, trying to save the old-growth forests of northern California from Pacific Lumber. That company had been taken over by Charles Hurwitz, using junk bonds and money he had looted from a Texas savings and loan or two.

I had learned a thing or two about business in that interval, mostly by accident, mostly from taking odd jobs, a bit from reading books, and not just Das Capital and Wealth of Nations. And I had taken Economics 101 and 102 in college. I had worked as a paralegal on the bankruptcy of OPM (rumored to stand for Other People's Money), on the economic meltdown related to nuclear reactors known as WPPSS, on the trial of a drug that caused birth defects, and on writing trusts for wealthy people, among other things.

Chang the names of the players, and substitute mortgage-backed securities for junk bonds, and Presidents Bill Clinton and George W. Bush for President Ronald Reagan, and you have a book about 2008 and 2009. Ben Stein's A License to Steal came into my possession more or less by accident a few weeks ago. Published in 1992, it illuminates exactly what is needed to keep financial predators from ruining the economy for the rest of us. The public is, for the most part, not in a position to defend itself against unscrupulous, well-versed liars who have the ability to create securities.

But even after the U.S. government used our taxpayer dollars to make whole the savers at the savings and loans; even after people lost their retirements when junk bonds issued by Milken and held by insurance companies went bad; even when stock holders lost their investments as Milken's friends pillaged well-known American companies, the government did nothing. Worse still, under President Clinton, then under President Bush, the "deregulated" securities markets to a far greater extent.

The popping of the Internet stock bubble in 2001 did not even give Congress, the Federal Reserve, or either major political party pause. The Internet bubble was caused mainly by investor stupidity, but the housing bubble that followed was engineered by the Federal Reserve's low-interest rate policy combined with the "magic" of collateralized debt obligations backed by mortgages that would be impossible to pay off. That little business is mentioned in Stein's 1992 book, but it took a decade to mature into full-scale fraud.

As with the Milken era, most of the people responsible will not go to jail. They have been allowed to say they are sorry. In a showing of political crassness (after Crassus) that would have humbled even the great humbug politicians of 1992, taxpayer money is being used to pay the salaries of the very group of bank executives who scammed the public and the government.

That is the only reason Obama and the Democrats are pretending to do anything about health care. The health care crisis is serious, but if they do anything, they will just move the deck chairs around. While you watch that, you will be forgetting. Forgetting about the national debt, forgetting about how the Democrats were even more eager to bail out the rich fraudsters than the Republicans. After all, it is Republicans who are going to be hit hardest with the tax bill.

Believe it or not, many Republicans are honest. They worked honestly hard for their money and kept their belts tight for a time in order to be able to save and invest. They are mad as hell, and don't believe the Republican Party should be bailing out con artists. Of course they also were choked with their own rope, the fine spun hemp of deregulation and free market fantasy economics.

Blood dries quickly, especially the blood of small-time investors. I wrote an article back in 1996, Charles Hurwitz's Money, that explained how he went from being a small time guy to being a mogul. In short, he defrauded people - people who bought insurance from him, investors in companies he gained control of, tax payers - and defended himself with an army of lawyers. He has not spent a day in jail.

If you live in the hood, mark this lesson well. The drug trade is highly competitive. When all is said and mortality is taken into effect, if makes only ordinary profits. If you really want to make money, study the the Michael Milkens, Charles Hurwitzes and Stanley O'Neals of the world. You can make all the money you want, buy all the lawyers, journalists, and Senators you need, and almost never, ever, go to jail.

If you are an ordinary person who has managed to save some money, keep in mind the old adage about investment deals: if you don't know who the sucker in the deal is, it is you.

I believe that this economic downturn will most likely end, but I cannot entirely discount a long recession or an even greater upheaval. The debt of the group of madmen that calls itself the United States Government is probably unpayable. Some day, when people realize that, there will be hell to pay. Hopefull the citizens of this country will refuse to pay it. Isn't there some old American maxim, No Taxation Without Representation? Do you feel represented?

Give the Iraq Money Back

Billions were stolen by the Bush administration and friends - and now we aren't talking contracts for Halliburton or a few federal dollars for church-based proselytizing. In Billions Over Baghdad former Time reporters Donald L. Barlett and James B. Steele tell the story of how money that had been seized from Iraq was given away to well-connected corrupt friends of the Pentagon and CIA.

Oh, it is not the first time in American history. As early as the Revolutionary War money that was supposed to go for one thing went into dishonest men's pockets. In every war since then taxpayer money has disappeared or been traded for shoddy or even phony goods. Harry Truman documented the wasteful spending just before the U.S. entered World War II.

But in this case it was not American taxpayer money that was grabbed. It was Iraqi money. Taking the money was an act of genocide. I don't trust the Democrats to investigate, because though they might like to make the Republicans look bad, they have a long history of corruption themselves and are probably just mad the money ended up in the other guy's pockets.

Maybe a special prosecutor could do the job, given enough resources. But again, this isn't ordinary stealing, this is the moral equivalent of genocide. So I think the best institution for conducting the investigation could be the World Court.

Better still, let's really go for justice this time. Let's empower a group of Iraqi clerics noted for their incorruptible nature to investigate and determine punishment. While I am against the death penalty as a matter of general principle, I think beheading would not be inappropriate for anyone who dipped into the Iraqi cash fund or looked the other way while it was happening.

So we would lose much of the senior Bush administration, campaign donors, Pentagon contract boys and CIA we-can't-buy-heroin-without-front-money spooks. I guarantee you that if this is pursued far enough, the Republican Party and probably the Democrats too will collapse like the House of Usher. Apparently the Federal Reserve was originally in charge of the money; how safe is the rest of our money system?

Okay, enough said. Let's end the war and start behaving like a civilized race. Let justice be done, though the heavens fall.

Ron Paul's Crazy Gold Standard Proposal

I like many of the stances of Ron Paul, currently in the U.S. House of Representatives for Texas and seeker of the Republican nomination to become President of the United States. I even agree with him on some of his critique of the Federal Reserve System. But his idea of returning to the gold standard for money is crazy, and it is important to understand why.

Let me begin by asking this: what would you think of a candidate that urged returning to the wampum standard? What do the gold standard and wampum standard have in common, and how are they different? What does the U.S. Constitution say? How does Ron Paul's proposal differ from the gold standard used in the 19th century in the United States? Finally, having covered that extensive ground, I

First of all, you should know that none of Ron Paul's ideas are new. They have been discussed by those interested in monetary policy since before Alexander Hamilton laid out the blueprint for the U.S. financial system (though he did not foresee the need for a Federal Reserve).

Wampum (see Wampum) is a kind of money made from sea shells that used to be used by Native American Indians. It had value because it was believed to have value. Like other forms of money, it could facilitate trade, lifting an economy above the pure barter level. While the shells themselves might have some ornamental value, mainly they were a symbol for work done. Much like a modern dollar bill. There were two problems with using wampum for money that would have shown up in a more trade-oriented, modern society. One is that there could be a shortage of wampum if not enough of the appropriate shells could be found. That could constrain trade. The other is that either too much wampum could be produced, or that it could be counterfeited. Then the value of wampum would fall relative to real goods; in effect, you can have inflation even on the wampum standard.

Gold (see Gold) is a metal used for ornamentation and other purposes; it used to be used as money. While more difficult to counterfeit than wampum, it had the same problems when used as money. It did not always prevent inflation. For instance, when the Spanish conquered Mexico and Peru, so much gold and silver was mined that there was inflation in Europe. In the 19th and 20th century, with major veins of native (metallic) gold mostly tapped out, there was not enough gold available to facilitate the rapid growth of commerce. With the introduction of modern methods of extracting low-grade gold ores a related problem arose: the high cost of producing metallic gold.

Even paper money is becoming obsolete; most money today is tracked electronically.

Ron Paul proposes to fix the problem of gold by allowing the value of gold relative to silver to float in value as determined by markets shows how far his mind has wandered from reality. This was a real issue in the U.S. in the 1880's. The Democratic Party, having lost the Civil War (it was the party of Slavery), tried to get back in power at a national level by changing the official silver-to-gold exchange ratio, as exemplified in (losing) presidential candidate William Jennings Bryan's famous Cross of Gold speech. The problem with gold and silver used as money lies not in their exchange ratio, but in the fact that the supply from mining varies over time and does not match the variation in economic activity.

So forget the gold standard.

Ron Paul does remind us that the U.S. Constitution does not clearly allow for paper money, much less authorize the Federal Reserve System. It specifically states in Article I, Section 10 "No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts." However, here "state" is specifically one of the states, not the federal government. In Section 8 it had already given Congress the power "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;
To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;" which seems to give it the power to issue securities, which could be bonds, but has been interpreted as the ability to issue paper money. Why allow issuance of federal paper money and then prohibit the states from accepting it for the payment of debts? This issue was got around for a time by issuing paper money backed by gold or silver. As in so many cases, when the Constitution should have been amended, it was simply re-interpreted.

As to the Federal Reserve, I agree there are problems with it. It is supposed to allow for creation of a money supply sufficient to allow the economy to improve, but not so great as to cause inflation. But it is composed of bankers. Bankers are not like the rest of us. They have a long history of being far more sympathetic to the perceived problems of the rich than to the very real problems of the poor, the working class, and the middle class.

So sure, let's talk about reforming the Federal Reserve to make it responsive to all the people, not just the banks and Wall Street. Let us make it more transparent and find a way to hold those running the Federal Reserve System accountable. But forget the gold standard.

More data:

Ron Paul's Presidential campaign site