Gold: The Money of Freedom and Honesty
by John Laughland
The collapse of two major banks in Britain and America (Bear Stearns and Northern Rock) should make us pause to reflect on the fundamentals of the world financial system.
When currencies around the world were nationalised at the outbreak of the First World War, the reason was obvious. In order to fight the war, states needed to be able to print their own bank notes without actually having the money to do so. The relevant law in France, passed in August 1914, stated baldly “The Bank of France will no longer reimburse its banks notes in cash.”
The cash in question was gold, and bank notes were but titles to a certain amount of gold coin. The supply of money was dictated by the supply of gold. Although the state played a major role in the currency system – all countries had “central banks”, and use of the national currency was obligatory – its principal function was to uphold the promise to pay the bearer of its bank notes a specific sum on demand. Providing that that promise could be kept, the currency was sound.
After the First World War, attempts were made to reinstate the pre-war system because it was considered to be the indispensable bedrock of the financial system and world trade. How could nations trade freely with one another if their currencies fluctuated in value all the time? However, the “gold exchange standard” created at Genoa in 1922 contained a fatal flaw which soon led to the system’s collapse in the fateful year of 1933. That fatal flaw was that two currencies, the British pound sterling and the US dollar, were taken as having equivalent value as gold. Other currencies could be exchanged for them, and they could be used as collateral for their issue.
This was a fatal flaw because it gave a special privilege to these two currencies. That privilege meant they were always in demand, however much of them was in circulation. The great French economist, Jacques Rueff, identified this flaw as one which permitted “a deficit without tears”. The United States and Britain could basically print as many paper dollars or pounds as they liked, safe in the knowledge that they would be soaked up by other central banks to put in their reserves. They could use this paper to buy goods from abroad, exporting capital in return, without any fear that the increase in the money supply would lead to inflation at home.
As the Second World War was coming to an end, and plans were being laid for the post-war financial system, the old memory of fixed exchange rates persisted (although this was only a consequence of the gold standard, not its principal virtue). However, at Bretton Woods in 1944, the same mistake was made as at Geneva, only this time the United States dollar alone achieved supremacy as a currency with a “reserve” status. When its own link to gold was cut in 1971 – Richard Nixon needed to print dollars to fund the war in Vietnam – the world currency system was set adrift on the system we now live with, one in which currencies fluctuate in value against each other all the time.
What we now remember as the “oil crisis” of 1973 was, in fact, little more than a rational response by oil producing nations to the de facto devaluation of the dollar. Oil rose in price because it was denominated in a debased currency. The oil producers said they would price oil against gold instead – i.e. against real, as opposed to paper, money. This never happened, in fact, and black gold continues to be priced in dollars. But this is one of the main reasons why the United States continues to enjoy the “deficit without tears”, i.e. a seemingly limitless trade deficit, paid for by flooding the world with dollars which other countries use either in their central bank reserves or to buy oil.
In the last twenty years or so, this policy has been applied with a vengeance. The United States Federal Reserve, a private organisation with the privilege of printing dollars but owned by private banks, has flooded the American (and world) financial system with cheap credit. This has been the principal cause of the tremendous rise in the price (inflation) of stocks and shares. Other commodities which have risen greatly in price include property and, of course, oil. The financial system as a whole may be helped by this rise in credit, because the banks make money on it by lending the money on at a higher rate, but the economy and society as a whole suffer.
This is because artificially easy credit generates income for banks in the short term by mortgaging the long term instead. A rise in the money supply now makes profits for the banks but pushes up prices for everyone else. Specifically, a rise in property prices (a fixed and real asset which inevitably rises as the value of paper currency is debased) generates huge problems for the whole economy, and especially for family life. Families cannot afford to have more children; and the resulting collapse in the birth rate stores up trouble in the future for important things like pensions and health care. It also drives immigration, which in turn causes its own problems, specifically the abuse of social costs, which drives up taxes, taking yet more money out of the pockets of ordinary working citizens.
To put it in a nutshell, a system of paper currency, easy credit and high taxes destroys the natural order of society. It breaks the social contract and pays for the present at the expense of the future. The financial system, however, prospers. Banks make money because the cheaper credit is, the more money they can lend. In their search for ever greater income, banks have flooded the Western economy with credit. The current “sub-prime” mortgage crisis in the US and Britain is only the tip of the iceberg. It is now very easy to take out vast loans for property in both countries, many multiples of one’s annual salary, on the basis of no proof whatsoever: I, for instance, have a loan which is many times my own annual income and I obtained it without having any regular salary and without providing any proof of my financial position whatever. It was all done by word. My wife, meanwhile, was recently offered a credit card by our local department store, which duly arrived in the post, giving us £6,000 in instant credit even though she has no income whatever, and even though a card was issued in my name without me even having set foot in the shop.
Once people have difficulty repaying such dodgy loans, then of course the whole system risk collapse. The income from these loans is itself used as collateral for other increasingly baroque financial operations but if the basis for them dries up then the knock-on effect can be very serious, since it is a feature of options and other financial instruments that very large sums can be leveraged for very little money. All this, I repeat, is encouraged by the bank which directs operations at the centre, the Federal Reserve, which never pays its own debts and encourages a climate of easy credit.
The real collapse of the world financial system would come if countries and oil producers started to abandon the US dollar, as some are already doing. Because the US prints limitless amounts of green paper, demand for it has to be kept going somehow. Oil is a major source of demand – and one of the reasons for Saddam Hussein’s downfall was that he decided to sell his oil for euros in 2000. The link between paper currency and militarism is integral. If the dollar is abandoned, then the United States will no longer be able to pay for its limitless imports. Indeed, if oil rises significantly in price, then the very fabric of American life will be threatened since all American cities are constructed in such a way that it is not possible to live in them without a motor car.
The argument is also advanced that state control of the financial system is necessary to prevent financial collapse. This argument is looking a little threadbare as banks collapse in London and New York – the collapse of Northern Rock has caused the British government to pump in nearly twice as much money as it spends every year on the armed forces – and as whole currencies collapsed, in Russia and the Far East, in 1998.
Because the vested interests are so great, the US Central Bank and the other countries of the world will do all they can to keep this racket going for as long as possible. They may succeed for a while. But the world financial system is parasitic on society, and it impoverishes it in the end. It is contrary to the natural order and, sooner or later, it is the natural order which will return.
This article was first published at "Brussels Journal".
Stephan Bogner: "The Gold Megathrust"
“One historic experience is that human nature never changes. Man will, therefore, always love and respect honest business dealings with a medium of exchange thy can trust: gold. Gold will finally win the war, but why not call an armistice now? Let us hope this will happen before it is too late, before too much time and too many lives are wasted.” (Ferdinand Lips in “Gold Wars – The Batlle against Sound Money as seen from a Swiss Perspective”, page 251; Fame 2002)
Gold Wars – Thoughts from the Desk of a Gold and Silver Business Owner
Gold Wars is a blog designed and authored by Kirsty Hogg to address inflation, hyper-inflation, the long term manipulation of gold and silver, the gold standard, current economic events, peak oil and other related items. It is named “Gold Wars” in memory of Ferdinand Lips who wrote "Gold Wars. The Battle Against Sound Money As Seen From A Swiss Perspective". "In short: Because the world has forgotten the monetary role of gold, our world is in serious trouble. That is the one major reason for the worrisome state of the world. The abandonment of gold as money, of the discipline of gold, is the major reason if not the only reason why our world has become a very dangerous place. In my opinion, it is the biggest tragedy in world history." — Ferdinand Lips
Read more here: http://goldwars.blogspot.de/
Gold Wars now in Spanish available
Webinar "What about Gold?" with Claudio Grass
Webinar of the European Students for Liberty: "What about Gold?" with Claudio Grass
This webinar will focus on ways to protect yourself and society against the possible consequences of the fiat currency system.
Register here to receive your link to sign in:
https://www2.gotomeeting.com/register/404279778
About the topic: The global financial markets have been in turmoil during recent years. Many have serious doubts about the stability of the fiat currencies that are one of the foundations of the financial system. But what are the alternatives to the current system and is there a way to protect yourself against a possible breakdown? These are the questions that we will look into during this webinar.
About the speaker: Claudio Grass, student of Ferdinand Lips, is Director of the division Precious Metals Services at the Swiss-based precious metals company Global Gold. He will be presenting his views on this matter based on his experience in the field.
https://www2.gotomeeting.com/register/404279778
Interview with Claudio Grass
Our friend Claudio Grass gave an interview at the "Safe Capital Conference"
“It’s not if, but when”
Interview with Claudio Grass
11th of February, Geneva.
“… gold and economic freedom are inseparable. In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. Gold stands as the protector of property rights. If one grasps this, one has no difficulty in understanding the statists antagonism toward the gold standard.”
Alan Greenspan, “Gold and Economic Freedom”, in Capitalism: The Unknown Ideal. Ayn Rand, ed., (New York: New American Library, 1967), 96.
Mr. Grass, you are the Managing Director of the Precious Metals division of Global Gold. Can you tell us a bit more about your company?
Global Gold Inc. was founded in 2008 and is specialized in the purchase and storage of gold, silver, platinum, and palladium. As a subsidiary of BFI Capital Group AG, GlobalGold benefits from a long history, impeccable track record and vast experience in the realm of wealth management, financial services and precious metal investments. Our parent company is a Swiss wealth management group that has been in business since 1991, overseeing more than US$ 2 billion in total client assets and with more than US$ 250 million of assets under discretionary management. Global Gold has quickly grown into an internationally recognized and respected physical precious metals storage programs.
You are one of the keynote speakers on our forthcoming conference about the tragedy of the Euro. Can you comment on the recent developments in Europe? Is the Euro really going to crash?
The Lips Institute mourns Roland Baader
His last book, "Money Socialism", was prefaced by a quote from Ferdinand Lips. A longtime friend of Lips and ally in their common fight against the fraudulent paper money system still threatening the (relatively) free Western civilization, the renowned German economist Roland Baader passed away last Sunday, January 8th. Baader had been a student of Friedrich August von Hayek’s, a prolific writer, courageous philosopher and resolute proponent of a gold standard.
The Lips Institute mourns the loss of a great classical liberal thinker and an unflinching fighter for sound money as the necessary basis of a free society. May he rest in peace!
Ben Davies: Gold Wars – A Golden Renaissance
Ben Davies, CEO of Hinde Capital discusses in his speech "Gold Wars – A Golden Renaissance. A Tribute to Ferdinand Lips (1931 – 2005)" US government suppression of the gold price and the unsustainable debt of the US & UK. It gives some staggering potential price figures for gold and it is a must read!
Philipp Bagus: The Tragedy Of The Euro
Philipp Bagus is a young scholar with a large influence, having forecast all the problems with the Euro and having persuaded many economists on the Continent that this currency is no better than any fiat currency. In some ways it is much worse because it has cartelized the management of European monetary regimes and created a terrible moral hazard.
With this book, Professor Bagus brings his scholarship to English readers, explaining the background to the idea of European unity and its heritage of sound money. He explains that the Euro is not what the older classical liberals had hoped for but instead is a politically managed money that is destined for failure.
He writes with a keen sense for economic analytics and empirical detail, offering one of the most accessible and yet rigorous accounts of the emergence of the Euro. He predicts its downfall due to political pressures, bad banking practices, and exploding public-sector liabilities.
The analogies with the dollar are indeed close, but with welfare states at a more advanced stage, it will be a race to see which paper currency will crumble first.
Professor Bagus brings theoretical power to investigating one of the most important topics in economics today. His arguments and evidence convinced even Jesus Huerta de Soto to withdraw support for the Euro.
Available here.
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