-Caveat Lector- Crackpot Alert The Conspiracy Bugaboo By John McCormack (http://www.libertysoft.com/liberty/features/mccormack52 ---------------------------------------------------------------------------- ---- Paranoia strikes deep. ---------------------------------------------------------------------------- ---- There's a lot to like in the militia movement. The militiamen distrust the federal government. They're willing to resist federal assaults on individual rights. They're hostile to the income tax, the Federal Reserve System, and the regulatory state. They enthusiastically exercise the right to keep and bear arms. Yet the militia movement usually alienates freedom-minded Americans. Some of this stems from the movement's crude rhetoric, frequently ignorant public statements, and more-than-slightly-ridiculous paramilitary exercises. But the problem is more serious than that. It's the militias' propensity for conspiracy theories. The militias attribute almost all major political and economic events to an elite group of "Insiders." Rather than focusing on destructive institutional arrangements, conspiracy believers emphasize the supposed malevolence of small, usually alien, groups. This doesn't just keep them from reaching a more sophisticated understanding of the world; sometimes, it leads them to distinctly illiberal policy prescriptions. This tendency can be seen at its worst in the unfortunate overlap in membership and beliefs between a few of the militias and some racist and anti-Semitic groups. Bo Gritz, a "patriot" leader and former presidential candidate, has insisted publicly that the Federal Reserve System is controlled by eight Jewish families. Linda Thompson, the "Acting Adjutant-General of the Unorganized Militia of the U.S.A.," tells interviewers that the Israeli Mossad is responsible for the American farm crisis. Militia members aren't the only Americans with conspiratorial views of history. The John Birch Society, the Nation of Islam, the Aryan Nations, and such Christian Right leaders as Pat Robertson also espouse variations on these beliefs. And some leftists -- Oliver Stone, Mark Lane, and the Christic Institute come to mind --hold conspiracy views that are distantly related to the militias' and nearly as bizarre. Where did these theories come from? What do they entail? What leads people to believe them? Glad you asked. A Brief History of Conspiracy Theory A particular genus of conspiracy theory has persisted in the U.S. and Europe since the nineteenth century. These theories assert that a secret and sinister circle of international bankers exercises control over major political figures, manipulating financial markets to its own benefit and to the detriment of wage-earners and farmers. This power extends to being able to cause wars and depressions and to profit enormously from both. Having no loyalty to any national governments, the conspirators operate from the world's financial capitals, where they continue to scheme for world domination. Jews often -- though not always -- feature prominently in these conspiracies. Such theories are unlike the various plots posited by Kennedy assassination buffs -- which, however mistaken they may be on technical and other grounds, usually have at least the merit of being limited as to goals, time, and participation. They also differ from the Marxist theory that capitalist control of politics flows inevitably from private ownership of the means of production, and that maintaining control does not depend on the conscious efforts of individual capitalists. These "Endless Conspiracy" theories hold that real political power does not lie in the hands of the property-owning class as a whole, but is wielded by a tiny, self-conscious financial elite. Moreover, the conspiracy is virtually unlimited as to time and place. It is centuries old -- or, in the imaginative theories of Robert Welch and Lyndon LaRouche, millennia old -- and over this period its locus of control has shifted from its origins in Central Europe to London and later to New York. In some accounts, the conspirators maintain their influence through mysterious, almost occult powers. Strictly speaking, conspiracy theories of this sort are neither conspiracies nor theories. They are not criminal conspiracies in the legal sense, because they involve people who (supposedly) have the power to change laws to suit themselves. They are not theories in the scientific sense, because few or none of the claims made can be tested. Perhaps because of this, conspiracy theories have been a persistent but usually marginal feature of American politics. Late-nineteenth-century populists, including presidential candidate William Jennings Bryan, attributed the misery of southern and western farmers and miners to nefarious Wall Street and European capitalists. In the 1920s, similarly-minded members of Congress blamed the First World War on munitions-manufacturers such as DuPont, which some theorists had identified as part of the international conspiracy. Conspiracy-watchers also blamed the Bolshevik coup d'etat in Russia and the activities of other Communist parties on the same dark forces. New conspiracy theorists emerged after World War I, asserting that the war and International Communism were the products of the same plutocratic machinations. Perhaps the most influential was Nesta Webster, an Englishwoman whose 1921 book World Revolution: The Plot Against Civilization provided a chart diagramming the supposed connections between all of the revolutionary movements of Europe during the prior one-and-a-half centuries. According to Webster, the source of the international conspiracy was a renegade Jesuit priest named Adam Weishaupt, who founded the Order of the Illuminati in Bavaria in 1776. The Illuminati were no strangers to the world of political paranoia: they had been suppressed in the 1780s because the Bavarian authorities feared their secretive efforts to promote freethought, were blamed in the next decade for the French Revolution, and in the late 1790s were accused of controlling the Jeffersonian Republicans. According to Webster, they were still a potent political force in the 1920s. She presented no evidence to show how different revolutionary organizations were linked except to point to similarities in their written programs and to such "shocking" coincidences as Weishaupt having formed the Illuminati on May 1, 1776. (You see, May 1 was later chosen by the Communist movement as Labor Day.) As ridiculous as Webster's claims were, they nonetheless captured the imagination of conspiracy believers (including, interestingly, Winston Churchill). Partly as a result, she was later to become a significant figure in Oswald Mosley's British Union of Fascists. Webster insisted that "the Jews" played a large part in the conspiracy, that they had financed the Bolsheviks, and that their "international and insidious hegemony" dominated Western democracies. Similar conspiracy theories were popular during the 1920s among Russian emigrés, who helped circulate them in continental Europe and the United States. No doubt, many Russians were quick to accept these ideas because they had already been exposed to anti-Semitic forgeries such as< cite>The Protocols of the Learned Elders of Zion. The works of Webster and others introduced conspiracy theory to anti-Communist groups in Europe and the U.S. in the inter-war years. These notions were also well-received by several successful American businessman with deep suspicions of the financial establishment, such as Henry Ford. The same ideas continue to bubble up in the writings of latter-day American conspiracy believers, including Pat Robertson. Robertson's book The New World Order is perhaps the best recent example of the Endless Conspiracy idea. Far from original, it is a pastiche of classic conspiracy notions and therefore serves as an excellent source for anyone wishing to get a good overview of the genre. Like the John Birch Society, Robertson espies a coalition between international financiers and Communist governments. "Until we understand this commonality of interest between left-wing Bolsheviks and right-wing monopolistic capitalists," he writes, "we cannot fully comprehend the last seventy years of world history nor the ongoing movement toward world government." (Robertson was writing in 1991.) In order to achieve the "One-World Government" under establishment control, "they have perceived that radical Marxism is an important intermediate step toward their goal of a managed world economy." In the post-Communist era, he reveals, the United Nations is an instrument propelling us toward "a global society, managed by an elite central government that exercises supervision and control by means of its massive army of so-called peacekeeping forces." Like Nesta Webster, Robertson is convinced that establishment institutions are secretly controlled by the conspirators. "A single thread runs from the White House to the State Department to the Council on Foreign Relations to the Trilateral Commission to secret societies," he informs readers. Elsewhere he explains how the Federal Reserve, the income tax, and fractional reserve banking all combine to produce breathtaking profits for commercial bankers, which enable the conspirators to carry out their plans. According to Robertsonian history, the U.S. Federal Reserve System came into being because a "secret" group of international bankers wanted a "privately owned central bank" so that they could manipulate interest rates and the money supply for their own benefit. The income tax was part of the same conspiracy. "The companion piece" to establishing the Federal Reserve, Robertson tells us, "was to change the United States Constitution to force the American citizens to pay for the loans these bankers would make through the Federal Reserve to the treasury." The "Money Trust" picked the unwitting Woodrow Wilson as president in 1912 in order to establish both the Fed and the income tax and to get the U.S. into the First World War. The conspirators guaranteed Wilson's election by getting Theodore Roosevelt to run as well, thereby splitting the Republican vote and ensuring Taft's defeat. In the decades since then, the conspiratorial group has maintained its control by influencing the major news media and industrial corporations through bank lending and voting shares managed by bank trust departments. The group reinforces its power by controlling Ivy League universities and other elite colleges. New recruits to the conspiracy are drawn continually from these elite institutions to perpetuate the plan over generations. This much would be familiar to readers of standard conspiracy tracts, but Robertson adds a dimension that would stun even the John Birch Society faithful. Although money may fuel the conspiracy, Robertson insists that neither wealth nor political power is the conspirators' ultimate motivation. Rather, the political and financial leaders visible to ordinary citizens are simply front men for "a tightly knit cabal whose goal is nothing less than a new order for the human race under the domination of Lucifer and his followers." Strange as they might sound, Robertson's claims are rather moderate, as conspiracy theories go. Unlike the versions propagated by the Liberty Lobby, the Aryan Nations, and Posse Comitatus, to name a few, Robertson's book makes no attacks on Jews. Although much of Robertson's conspiracy theory has historically been associated with anti-Semitic movements, he does not blame Jews per se for orchestrating the New World Order; indeed, like other evangelical Christian leaders, he is a vocal supporter of the Israeli state. (This has not prevented left-liberal commentators from claiming that Robertson and his Christian Coalition are mounting a surreptitious anti-Semitic campaign, and that other conservatives -- particularly Jewish neoconservatives -- are too cowardly to repudiate them. See "Rev. Robertson's Grand International Conspiracy Theory," by Michael Lind, in the February 2, 1995 New York Review of Books.) The conspiracy theories promoted by the John Birch Society also avoid attacking Jews as a group. To be sure, some villainous Jewish bankers do appear in Bircher theories, but they are rather modest bogeymen in comparison with the Rockefellers and other establishment WASP figures. Does All This Matter? These theories prevent clear thinking about politics, culture, and society. Their proponents fail to understand how a relatively simple set of rules -- those protecting private property and voluntary contract -- can produce a complex civilization that is the result of human action but not of human design. In the fog of conspiracy thinking, many people misdirect their attention from deeply flawed institutions to non-existent cabals. Like other conspiracy believers, Pat Robertson senses there is something wrong with our Federal Reserve System, but his irrationality leads him to bogus solutions. He objects to the Fed because (he claims) it is owned by private interests that might be foreign. In The New World Order, he endorses a "greenback solution," so that the Fed will no longer "create money out of nothing and lend it out at interest." His alternative is to have Congress monetize deficits directly via the printing press. Not only would we still be on a fiat money standard, but we would be inflating the money supply even faster than we are now. Obsession with conspiracies has led many otherwise pro-private-property activists to take utterly bizarre positions. Franklin Sanders, a Tennessee-based newsletter-writer with a following among hard-money enthusiasts, once wrote an article opposing Margaret Thatcher's privatization program. He knew it was a terrible idea because N.M. Rothschild & Co. was an advisor to the Thatcher government! Similarly, the people who have been convinced by Bo Gritz that eight Jewish families control the international banking system are not likely to become free-banking and private money advocates. They are much more likely to simply rally to anyone promising to "get" those elusive eight families. Conspiracy theories are a debilitating example of what Thomas Sowell calls the "intentional fallacy" -- the idea that someone must be running the whole system. People who believe this seem particularly susceptible to anti-Semitism. Once convinced a group of "Insiders" exists, the conspiracy believer naturally becomes curious about the cabal's membership. According to the theory, the conspirators make money through mysterious ways (i.e., through financial markets), have international social and business ties, have "special" ways of communicating with each other, and seem to prosper when others do not. For some people, Jews are the most obvious candidates for "Insider" status. As a result, for many, conspiracy theory has been the first step down a slippery slope to vehement anti-Semitism. The Aryan Nations, the Order, the Posse Comitatus, the Ku Klux Klan, and neo-Nazi groups all insist the financial system is controlled by a coterie of evil Jews and that the U.S. government amounts to a "Zionist Occupation Government." In which case murder, bombings, armored car robberies, and the shooting of offensive radio talk show hosts become morally justified. Conspiracy Theory vs. Public Choice Theory It is important to distinguish between theories of governmental malfeasance and the kind of conspiracy theory that claims that the Illuminati control the world's governments. Clearly, real conspiracies exist, but they are always limited to relatively small numbers of people working toward a limited end over a limited period of time. There is little doubt, for example, that various federal agencies collaborated to set up both Randy Weaver and David Koresh as public menaces in order to justify their budgets for paramilitary operations. And the feds' efforts to cover up their murderous bungling after the fact almost certainly amount to a criminal conspiracy. But the notion that the BATF and FBI were pawns of a secret group of "international bankers" is just plain silly. Public Choice offers a much more plausible explanation for government encroachment on our liberties. It is simply an iron law of bureaucracy that governments tend to increase their power and their demands on citizens' wealth unless opposed by an informed and vigilant citizenry. Unfortunately, certain kinds of people can't seem to make sense of the world without believing in some hidden evil force in their midst. Conspiracy theory is attractive to many people because it radically simplifies what they have to understand about how the world works. Once one accepts the conspiracy, there is no end to the phenomena that can be explained. Did the First World War lead to the birth of socialist governments? The Insiders must have benefited financially from their political success. Have gold prices failed to rise as predicted by newsletter-writers? No doubt the Bilderbergers conspired to suppress the price. Has The Economist demolished some argument you made? No need to respond -- The Economistis a Rothschild publication. Is Africa a collection of basket cases? Powerful international economic interests must have pushed African countries into independence prematurely. Political Marginalization of Conspiracy Theorists Although books promoting conspiracy theories have sometimes been widely distributed, actual belief in the conspiracies has usually been limited to the political fringe. Since the Second World War, no major political figure in the U.S. -- not even Joe McCarthy -- has espoused such views, and only a handful of congressmen and state officials have ever been associated with them. The John Birch Society was read out of the mainstream conservative movement by the early 1960s, owing in part to the efforts of people such as National Review editor William F. Buckley. While major news media occasionally feature articles on organizations whose members hold such views, the theories themselves are not discussed at any length. Usually, the ideas seem so manifestly absurd to journalists that no refutation seems required. Neither libertarian nor mainstream conservative periodicals differ from conventionally liberal news media in this respect. Because organizations promoting conspiracy theories are never party to serious political discussion, libertarian writers find no reason to deal with conspiracy theories directly. Many feel that to respond to them in detail is to confer a degree of intellectual respectability on the ideas, and that the most prudent course of action is to ignore them. Treating conspiracy theorists with silent contempt has had unfortunate consequences. While libertarian journals have provided intellectual ammunition to their readers for all sorts of other battles, few dissections of conspiracy fallacies have appeared in free-market publications. Readers who could look to any one of several periodicals for detailed criticism of statist propositions have not been presented with corresponding arguments against conspiracy theories. This has permitted conspiracy-mongers to promote their ideas in an intellectual vacuum and to suggest that the lack of response from the conventional media is evidence of a plot to prevent the real story from being exposed. Personal circumstances often affect how receptive people are to conspiracy theories. Few militia members, for example, have any first-hand experience with the world of high finance or with the members of the organizations that loom so large in conspiracy demonology (such as the Council on Foreign Relations and the Trilateral Commission). Claims that would immediately sound laughable to people with direct knowledge of financial institutions and political decision-making may seem plausible to less knowledgeable individuals if presented by an articulate person with an apparently coherent explanation of international events. People who would be willing to consider objections to conspiracy theories on logical and factual grounds often succumb to them because they hear no other explanations. An open airing of these issues would satisfy many people that conspiracy theory has no merit. We can begin by taking apart Pat Robertson's very representative theory. While it is true that his book contains a blizzard of bogus charges that can be neither verified or refuted, the conspiracy theory itself rests on just a single reasonable supposition and an utterly false explanation of the banking system. Robertson reasonably supposes that a sociopolitical elite would use its influence for financial gain at public expense if presented with opportunities to do so. On this foundation, Robertson constructs a model of a perpetual money machine commanded by the "Insiders." According to Robertson, the conspiracy is empowered by a privately owned Federal Reserve and immensely profitable commercial banks that benefit from war, taxation, and socialism. Belief in this money-making process depends upon a number of propositions that are not only false, but can fairly easily be refuted. 1. The Federal Reserve is privately owned. Although nominal shares in the Fed were sold to member banks at its establishment, it is not privately owned in any meaningful sense. Bank member shareholders elect only six of the nine Fed directors and of those six, only three can be bankers or bank shareholders. More importantly, member banks do not control the Federal Open Market Committee, which determines monetary policy. Seven of the twelve members of the FOMC are the Fed governors, appointed by the president and confirmed by the Congress. The other five members include the head of the New York Fed and four other regional Federal Reserve Banks. Moreover, holding shares in the Fed is not a very profitable activity. Dividends to member shareholders are limited to 6% of nominal capital (hardly a great rate of return) and all Fed revenues above this amount (invariably vastly greater sums) are returned to the U.S. Treasury. In 1994, for example, total dividends to member banks amounted to $212 million while the Treasury received $20.5 billion, 97 times as much. The Fed is, and always has been, an arm of the U.S. government. 2. Lending money to the government has been a lucrative activity. This is a truly reckless claim for someone with a conservative middle-class constituency to make. Robertson's followers must be as aware as anyone else that the financial rewards to buying U.S. Treasury securities (i.e., lending money to the U.S. government) are negligible. Even if one had been entirely exempt from income taxation during the twentieth century, something that was most assuredly not the case for either the average American or rich bankers, investing in Treasury securities would have provided returns just slightly greater than the rate of inflation. From 1926 to 1990, the average annualized returns to holding short-term Treasury bills was 3.7%, to holding medium-term Treasury notes was 5.1%, and to holding long-term Treasury bonds was 4.9%, while inflation averaged 3.2%. For any individual or institution that paid significant taxes, the inflation-adjusted returns were negative over the whole period. For long periods of time, in fact, real returns were extremely negative. Anyone buying long-dated Treasury bonds in 1940 (for a 2% yield to maturity) and holding them until 1980 would have seen the real value of his capital reduced by 57% even if he were entirely exempt from income tax. If the same person had been in the 50% tax bracket for this period, his real loss would have been 73% of his original capital. 3. Fractional reserve banking allows individual private commercial banks to create money out of nothing and to lend it out at interest. It is true, as any elementary economics textbook will show, that the fractional reserve commercial banking system as a whole creates money when the Fed buys securities, commercial banks make loans, and borrowed cash is deposited in other commercial banks. But this does not permit individual banks to earn free interest on loans they make from self-created money, as Robertson suggests. Commercial banks must still pay competitive rates of interest on the deposits they take in to fund the loans they make. Robertson's sense of banking economics is grossly distorted. He illustrates the process of fractional reserve banking with a preposterous example in which a bank with $5 million in capital enjoys $90 million in gross interest income and $10 million in net interest income. The return on capital for the largest U.S. commercial banks has usually ranged between 10% and 15% per annum, not especially impressive in comparison with non-bank enterprises and nothing like the 2,000% in Robertson's illustration. If the fractional reserve process and "insider" connections enabled one to make a fortune in finance, this would be evident in the Chase Manhattan Bank's stock price, particularly during the years when David Rockefeller was chairman. In fact, Chase's share price was lower in nominal terms (adjusted for splits) when Rockefeller stepped down as chairman of Chase in 1981 than it was when he took over in 1969. As the Consumer Price Index increased 250% over the period, this represents a serious loss of capital. David Rockefeller owes his billionaire status to the fortune he inherited from his grandfather who made it refining crude oil. Fractional reserve banking hasn't added anything to it. While Chase Manhattan's performance has been particularly lackluster during the last three decades, none of the other New York money center banks that figure in Robertson's conspiracy tales have been especially profitable. As almost any undergraduate business student is aware, the compensation paid to officers of, or partners in, major investment banks (which do not create money through the fractional reserve process) has generally been much greater than that of their counterparts in major commercial banks. Of course, the relationship would be reversed if Robertson's understanding of the banking system were valid. 4. The great European banking houses benefited from World War I and the overthrow of the continental monarchies. They profited from the political success of socialism. Rothschilds and Warburgs were among the more conspicuous financial losers of the two world wars and the collapse of the continental monarchies, despite Robertson's absurd claim that "high finance held sway along with socialism" after 1918. Warburg wealth was sharply reduced by the German defeat in the First World War and their bank was completely expropriated after Hitler came to power in 1933. One member of the family did manage to establish a merchant bank in London after World War II, but this was not a commercial bank and is no longer even an independent institution. Three of the four Rothschild branches in continental Europe that flourished under conservative nineteenth-century monarchies (in Frankfurt, Vienna, and Naples) were gone for good within 20 years of the end of the First Word War. The surviving Paris bank was eventually nationalized by the socialist president François Mitterand in 1981. It is true that the London merchant bank N.M. Rothschild & Sons remains a substantial institution, but it is only one of several prominent merchant banks in London today. No Rothschild institution has ever achieved much size in the United States or anywhere else outside of Europe. If Robertson's beliefs about the workings of international finance had any validity, the Rothschilds, Warburgs, and other alleged conspirators would have done very well this century. But while a few members of those families have achieved some distinction in the last 70 years, none of them possess anything remotely like the wealth of their nineteenth-century forebears. The mid-nineteenth-century Rothschilds had no peers in terms of wealth; their collective net worth would have been about $20 billion in contemporary dollars. Yet not a single Rothschild or Warburg appears on any of the lists of the world's richest individuals and families compiled today by financial journals such as Forbes. In fact, no U.S. commercial banker of today could possibly live in the manner of such turn-of-the-century American bankers as J.P. Morgan and George Baker in the period before the income tax and the Federal Reserve System. The handful of remaining Gilded Age mansions in New York are reminders of the wealth American financiers accumulated during the last century. The fact that none of these is currently in use as a private home is stark testament to the effect of income and inheritance taxes on private fortunes. 5. Western banks benefit from the ruin of Third World economies because those countries then become "dependent" on the banks. Banks benefit from borrowers who are dependent upon them (i.e., who can't repay their loans) no more than taxpayers benefit from welfare recipients. It is true that commercial banks have sometimes succeeded in getting the federal government and quasi-public financial institutions to bail them out of problem Third World loans. But this is part of a general problem of businesses using the political process to rescue themselves from their own blunders, and is not an issue peculiar to commercial banks. Dealing with Conspiracy Theories It is extremely important for us to distinguish between foolish conspiracy claims and legitimate issues. Clearly, we have no reason to mute criticism of defective institutions simply because they are the targets of irrational conspiracy theorists. The fact that the Federal Reserve System is foolish in theory and destructive in practice is in no way mitigated just because a bunch of nuts think it is run for private profit by a bunch of Jewish conspirators. The fact that the income tax is bad public policy is not lessened because some John Birchers are convinced it was conceived two centuries ago by Adam Weishaupt and put in place by the Bavarian Illuminati. The theories espoused by Pat Robertson and his ilk need to be challenged, publicly and persistently. No argument is likely to drive sense into the hardcore paranoiacs, but debunking the most popular fallacies will help many people avoid getting stuck in the intellectual quicksand of conspiracy theory. By distinguishing our rational objections to big government from the conspiracy theorists' irrational objections, we individualists can clearly disassociate ourselves and our political goals from people most Americans rightly consider cranks. And in the process, we can promote a better understanding of how society and government actually work. ---------------------------------------------------------------------------- ---- Liberty, March 1996, © Copyright 1996, Liberty Foundation ---------------------------------------------------------------------------- ---- <Liberty> <Current Issue> <Regular Features> <Contributors> <Liberty Book Club> ---------------------------------------------------------------------------- ---- LIBERTY Unbound Webmaster ([EMAIL PROTECTED]) > <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance—not soap-boxing—please! These are sordid matters and 'conspiracy theory'—with its many half-truths, mis- directions and outright frauds—is used politically by different groups with major and minor effects spread throughout the spectrum of time and thought. That being said, CTRLgives no endorsement to the validity of posts, and always suggests to readers; be wary of what you read. CTRL gives no credence to Holocaust denial and nazi's need not apply. Let us please be civil and as always, Caveat Lector. ======================================================================== Archives Available at: http://peach.ease.lsoft.com/archives/ctrl.html <A HREF="http://peach.ease.lsoft.com/archives/ctrl.html">Archives of [EMAIL PROTECTED]</A> http:[EMAIL PROTECTED]/ <A HREF="http:[EMAIL PROTECTED]/">ctrl</A> ======================================================================== To subscribe to Conspiracy Theory Research List[CTRL] send email: SUBSCRIBE CTRL [to:] [EMAIL PROTECTED] To UNsubscribe to Conspiracy Theory Research List[CTRL] send email: SIGNOFF CTRL [to:] [EMAIL PROTECTED] Om
