# Now Don't Panic, But We're Going to War With Japan in Five Years **URL:** **By** Howard Katz **Published:** January 1, 1973 --- “A principle known to ancient economists, but lost in modern times, is that paper money leads to war and gold money leads to peace.” A principle known to ancient economists, but lost in modern times, is that paper money leads to war and gold money leads to peace. Every major war is accompanied by an inflation and either a suspension of gold or emissions of paper money. War, inflation, and paper money go together. Peace, price stability, and the gold standard go together. Of course, the fact that things have occurred in the past does not mean that they will continue to do so in the future. However, in the case of paper money and war, not only are the events linked, but they are logically interconnected. This can be understood by going back in history to the first linking of paper money and war, the formation of the Bank of England in 1694. Prior to 1650, there was no paper money. People used gold and silver coin. Then, for safekeeping, people started taking their gold to the goldsmith. The goldsmith would issue a paper receipt certifying that they had gold on deposit, and they could claim their gold whenever they wanted, much like checking baggage today. However, unlike baggage, people found that it was not necessary to claim gold immediately to use it. It was easier to pay for a purchase with a paper receipt than bother to reclaim the gold. Since the receipt could be changed for gold, the storekeeper was willing to accept it in place of gold. Clearly, paper money used as a receipt for gold which will be given on demand is perfectly legitimate. However, goldsmiths, noting that most people did not reclaim their gold, decided, in effect, to cheat people—by printing up paper receipts for which no gold existed. This was fraud, but the goldsmiths managed to fool people into thinking it was legitimate by a clever trick. They did not keep the newly printed money for themselves but lent it out to businessmen. They made their profit on the _interest_ they got from these loans. Because the people of the time did not understand the economic theory of interest they accepted this process. The goldsmiths thus became bankers, lending money, and making big profits on the interest payments, profits which were made without doing a bit of work. The illegitimacy of this operation stems from the fact that the money the banks lend does not really exist. This should be distinguished from interest on capital, a proper and necessary transaction. In 1688, a major political revolution occurred in England. King James was replaced by King William, who agreed to submit the monarchy to the power of Parliament. Thus England took a major step toward erecting a republic. William immediately began to fight a series of wars. He was a popular king, and the wars were popular wars. But in 1693, a principle of government began to emerge. Once a democratic form of government had been erected and power had been given to the people through their elected representatives, it was discovered that the people would not pay for war. Parliament refused to vote the King enough funds. When people understood what the war would cost and were asked to pay for it, they preferred not to fight. Right then and there human history might have taken a turn for the better. War might have become obsolete. This, however, was not to be: the King found a way around Parliament’s refusal to vote him funds. A former pirate named William Patterson founded the Bank of England. Patterson started with 72,000 pounds in gold and silver. Like other banker-goldsmiths, he then issued paper receipts. But in this department, Patterson outdid them all. With only 72,000 pounds in gold and silver, he issued paper receipts for 1,200,000 pounds. He then lent all of this money to the government so that the government could continue the war. Patterson was paid interest at the rate of 8 percent per year, that is 8 percent of 1,200,000. Thus he received interest payments of 100,000 _each year_, and his original capital had been only 72,000 pounds. This represents an interest rate of almost 140 percent per year on the original capital. Patterson and his friends made a fortune on the war, while his money was used by the government to bid up prices of goods and cause inflation. Englishmen of the 1690’s thus met the same sequence of events with which we are so familiar—war, paper money and inflation. From this history we can see two reasons why war and paper money go together. The bankers who lend to the government profit from war, and often take the lead in propagandizing for war. During the first World War, bankers associated with J.P. Morgan hired writers to agitate for U.S. entry into the war. The average person who would not support war if he had to pay for it directly in taxes, is misled into supporting it via inflation, but this he does not understand. A careful study of America’s wars reveals that many of them were not necessary. Banks clearly had an interest in war and agitated for it. For example, we are all taught in school that the War of 1812 was fought to prevent the impressment of American seamen. If this had been true, then New England, the portion of the country most dependent on shipping for its economic well-being, would have been a strong supporter of the war. But New England so opposed the war that it threatened to secede from the Union. The hawks in 1812 came from the Western States, which had no seamen. The cry of “Liberate Canada” came from the West, whose wildcat banks issued huge amounts of paper money and lent it to the government to finance the war. As for the Civil War, one cannot ignore the influence of banker Jay Cooke in passing the National Banking Act of 1863, of which the Rothschilds said: “The few who can understand the system will either be so interested in its profits, or so dependent on its favors, that there will be no opposition from that class, while on the other hand, the great body of people mentally incapable of comprehending the tremendous advantages that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.”\* Most people do not know that the Bank of England was pro-Nazi during the 1930’s; it lent money for rearmament to Hitler and also maneuvered behind the scenes to cause the British sellout at Munich. They do not know that Japanese militarism, which ultimately led to Pearl Harbor, was caused in part by Western economic pressure which isolated Japan and hurt her foreign trade, which economic pressure derived directly from the abandonment of the gold standard in the 1930’s. But what of the war to come? On August 15, 1971, in addition to the wage-price freeze, President Nixon took a far more dangerous action. He suspended the redemption of gold by foreign countries presenting U.S. greenbacks. The world had been off gold since the early 1930’s, but when this led to World War II, an attempt was made to partially restore the gold standard via the Bretton Woods agreement of 1944. In 1971, Nixon severed that tenuous tie to gold which existed in foreign trade. Like all other moves away from gold, this will lead to war. The President is in a political bind because of inflation and must do something about it. He has established controls, but he continues to issue paper money through the banking system. And no price and wage controls can work in the face of major emissions of paper money. Therefore, it is only a matter of time before the controls start to break down. When this happens, Nixon will be in even worse trouble. At this time (about 1975), the President will have two choices, both politically bad: to end the controls would lead to a resurgence of inflation; to retain them would be political suicide. Unless he has the courage to stand against public opinion (and Richard Nixon is hardly noted for his courage) there is only one way out of this dilemma—war. War will not reduce inflation or make the controls work; but if the American people are misled into thinking that we have been attacked, then they will rally to support the country and put up with the controls for the duration of the emergency. In weighing the decision to go to war, the President will rely heavily on advisors who represent banking interests, men like Henry Kissinger and Henry Cabot Lodge. He will have been roused to anger against foreign countries by the economic warfare which has been going on since August 15, 1971. He will also be influenced by labor unions such as the International Ladies Garment Workers Union, which is even now conducting a racist, hate campaign against foreigners. Unless all the lessons of history are false, he will take the country to war. The State Department has formulated a new five-power theory in which Japan is no longer considered an ally of the U.S., but an independent power. The U.S. has insulted Japan by making important diplomatic moves which concern its interests without even informing it in advance; we have imposed quotas which put Japanese out of work; our diplomats (especially Kissinger) are personally rude to Japanese diplomats. In short, we will be at war with Japan in just a few years. Americans who value peace now face a decision. Within five to ten years, Vietnam may be enacted again on a much larger scale. This war can be prevented, but only by reversing the abandonment of gold. "Thy silver has become dross," said Isaiah, as he warned the people of his time against military entanglements. Our silver has become dross, and our gold has become paper, and unless we rectify this fraud we pay a penalty in blood. _\*"National Economy and the Banking System of the United States," Document 23, 76th Congress, 1st Session. U.S. Government Printing Office, Washington D.C., 1939._