Capitalism Died Decades Ago

JIM: When the United States stopped backing dollars with gold in 1968, the nature of money changed. All previous constraints on money and credit creation were removed and a new economic paradigm took shape; economic growth was no longer driven by capital accumulation and investment as it had been since the beginning of the Industrial Revolution. Instead, credit creation and consumption became the new drivers of the economy. And over that period of time, the United States debt increased fifty-fold to 50 trillion dollars.

In 2008, however, that debt could not be repaid and the new depression began. And that’s the topic of today’s discussion, the title of a new book, The New Depression: The Breakdown of the Paper Money Economy; and its author joins me on the program Richard Duncan.

Richard, you argue in your book when the United States went off gold backing from the dollar in 1968, the nature of money changed and the result was a proliferation of credit. As you document in your book, we went from almost 1 trillion dollars to today we’re now over 50 trillion. Let’s talk about that.

RICHARD: Right. In the past, up until 1968 it was a law that the Fed had to maintain gold backing for every dollar that it issued. It had to keep 25 percent gold backing for each dollar. After World War II, the US central bank had no difficulty meeting that requirement because the US had so much gold at the end of the war, but in 1968 they came up against that constraint and they would either have to have stop issuing more dollars or somehow acquire more gold.

And in the end what they did is they changed the law and they removed that requirement, and afterwards there was no longer any requirement for the Fed to keep gold backing for the dollars it issued. Read More