REVIEWSrnCredit Socialismrnby Llewellyn H. Rockwell, Jr.rnMoney of the Mind: Borrowing andrnLending in America From the CivilrnWar to Michael Milkenrnby ]ames GrantrnNew York: Farrar, Straus & Giroux;rn512 pp., $25.00rnIn May 1991, Risa Kugal, a fortyishrnNew York woman who said she wasrnunemployed and supported by herrnmother, appeared at court in Brooklyn.rnShe was there, as James Grant tells us, tornhave $75,000 in credit card debt wipedrnoff the books under Chapter Seven ofrnthe federal bankruptcy code. She owedrn$18,000 on five Citibank cards, morernthan $17,000 on three American Expressrncards, and smaller amounts on arnhost of accounts like Macy’s. Her assets,rnshe said, were $750.rnThe bankruptcy process is supposedrnto be long and arduous, but Judge ConradrnB. Duberstein takes less than sevenrnminutes, on average, to forgive the profligaternand stick the federal government’srnthumb in their creditors’ eyes. Kugal,rnunusually, was questioned on how exactlyrnshe had come to owe so muchrnmoney on credit cards. “1 used one tornpay off another,” she answered, and wasrnpromptly cleansed of her obligations.rnAnother bankruptcy judge, Marvin Holland,rnhoped Kugal didn’t feel bad. Hernannounced: “I don’t want anybody tornleave this court feeling uncomfortable,rnguilty, or ashamed. You should walk outrnof here with your head held high. Yournshould feel proud.” This is a microcosmrnof America. Holland’s message is sentrnby Washington, D. C , to all its clients,rnfrom welfare bums to S&L bandits.rnHow have we come to this?rnThere are two official schools ofrnthought on the 1980’s: the left-Clintonian,rnwhich condemns the decade asrnone of greed and social Darwinism, andrnthe Wall Street /ourndZ-supply side,rnwhich praises it as the eschaton immanetizedrn(Wall Street got rich, thernmasses got rhetoric, the government gotrnbigger, and the neoconservatives gotrnjobs). No one has yet told the true storyrnof the age of Reagan (suggested title:rnBetrayal), but we do now have a revisionist.rnOld Right history of money andrnfinance that rescues truth from the distorters.rnJames Grant is editor of Grant’s InterestrnRate Observer, the most influentialrn(and sardonic) publication of its kind.rnFor him, the 1980’s were the years ofrneasy money and credit socialism sold asrnconservatism. A paleolibertarian, Grantrnrecognizes the essentially coUectivist naturernof the Reagan boom, fueled as itrnwas by central bank credit expansionrnrather than tax cuts. Bankruptcy becamerna snap, and banks and “thrifts”rnmade money making profligate loans thernAmerican people are now asked to repay.rnBut credit socialism did not beginrnwith Reagan, and Grant surveys money,rnborrowing, and lending from the NationalrnBanking Act of 1864 to the fiveyearrnloan on the Yugo, a car that doesn’trnlast that long.rnMoney and banking have always beenrncontentious areas of American policy.rnAmong the Founders, the Jeffersoniansrnfavored hard money for reasons of limitedrngovernment, the Hamiltonians inflationrnas part of their big-governmentrnprogram. (Although in fairness I shouldrnadd that today’s ncocon makes Hamiltonrnlook like John Randolph ofrnRoanoke.) From the Polk administrationrnuntil Lincoln’s war of centralization,rnwe had the excellent Subtreasuryrnsystem, under which government couldrnnot inflate and circulating money consistedrnof gold and silver coins. Bankingrnwas “free,” meaning there were few restrictionsrnon entry and each bank issuedrnits own notes. Bankers—distrustedrnthroughout most of American history—rncould issue more notes than they hadrnspecie on deposit, but without a nationalrnbanking system, there could bernno widespread business cycles (today’srnare possible only through governmentcontrivedrnincreases in bank credit). ButrnLincoln’s depreciating greenbacks andrnincome tax couldn’t pay all the costs ofrnattacking and pillaging the South, so thernrump Congress passed the NationalrnBanking Act of 1864. Under it, certainrnbanks were designated national and onlyrnthey could issue bank notes, whichrnhad to be accepted at par by other nationalrnbanks and by the Treasury, even ifrnthe issuer were insolvent. In return forrnthis privilege, the national banks boughtrnall of the Treasury bonds issued.rnBy 1879, the United States hadrnworked itself back to a gold standard.rn”As the Constitution restricted the freedomrnof action of the Justice Department,”rnsays Grant, “so did the gold standardrncurb the activities of the Treasury.rnBound by a legal definition of money,rnthe government could not print its wayrnout of a jam,” nor could it “bribe thernvoters.” This was not a satisfactory systemrnto big debtors, however, who understood,rnsays Grant, that “a debt is arnpromise to pay a sum of money. Cheapenrnthat money, and the burden of debtrnbecomes lighter.”rnGrover Cleveland opposed inflation.rnIt would align, he said, the country “notrnwith the enlightened nations of Christendom,rnbut side by side with China,rnwith the republic of Mexico, with thernrepublics of Central and South America,rnand with every other semi-civilizedrncountry on the globe.” But the banksrnwanted inflation and a cartelization ofrntheir industry, so that they could profitrnfrom expanding credit without fear ofrnbank runs. And the government wantedrnmore power. The result was the FederalrnReserve System. The Wall Street journalrnhad pleaded with Congress “to give usrnwhat every other civilized country possesses,rna central bank,” and we got it.rnWhen the Federal Reserve Act wasrnsigned on December 23, 1913, the UnitedrnCigar Stores Co. ran full-page adsrnhailing it as the equivalent of the Declarationrnof Independence. Panics, it assuredrnAmericans, had now “become effete.”rnThe Fed, added RepresentativernCarter Glass of Virginia, is “an altruisticrninstitution” and the key to permanentrnprosperity. Really a special interest institution,rnit has brought us nothing butrntrouble.rnDuring World War I, the Fed createdrnmassive amounts of credit to fund thernwar, as it has done for other unnecessaryrnwars. Since heavy inflation requiresrnat least the unofficial abandonment ofrnthe gold standard, it became unpatrioticrnto use gold coins rather than paper money,rnor even to give a gold piece as arnChristmas present. The Fed stoppedrnthe artificial boom in 1920 by ceasingrnto inflate (something it must always dorneventually to avoid hyperinflation), causingrna sharp, short depression. But then.rn36/CHRONICLESrnrnrn