-- Posted Tuesday, 19 December 2006 | Digg This Article
Copyright © 2006 by Antal E. Fekete
“DISMAL MONETARY SCIENCE”
An Invited Address
Gold Rush 21 Conference
Dawson City, Yukon, Canada
August 8, 2005
Antal E. Fekete
Professor Emeritus
Memorial University of Newfoundland
E-mail:
Lost art of stained glass
The town of Chartres, France, boasts one of the finest and earliest example of gothic cathedrals. Its stained glass windows are the object of pilgrimage from the all over the world. The admiring pilgrims look at them in awe as they discover how their glow changes while the Sun journeys across the sky. Words cannot do justice to the deep burning blue, burgundy, purple among the many other colors. They must be seen to be believed.
Nor can they be duplicated, try as one may, with today’s technology. There was something the medieval stained glass window makers have known that we don’t. Their art is a lost art. For generations after generations its formula was handed down from fathers to sons. But the last member of the dynasty took the secret of blending these exquisite colors with him to the grave when he died. There was many an attempt to rediscover the lost secret – to no avail. No matter how much higher a level chemistry, physics, and other supporting sciences have reached today, the stained glass windows of Chartres are beyond comparison with the proudest achievements of modern science – and art.
Will the gold standard go the way of stained glass?
I want to sound the alarm. The art of the gold standard may go the way of the art of making stained glass windows in Chartres. Calling the gold standard an art is no exaggeration. It achieves as high a degree of harmony in the affairs of man as any other form of art, in addition to being a pillar of economic science. Now this art and science has become and endangered species. When my generation leaves the stage, the gold standard will be expunged from living memory. Young people will only know about the Golden Age of the gold standard what government-controlled schools will let them. Of course, governments like to pose as champions of preserving our intellectual heritage. That may be true, except when it comes to the gold standard which they treat as you would alchemy or astrology. Governments want to be thanked for delivering us from this ‘barbarous relic’. They suggest that we should look at the gold standard with the same sense of shame as you would on vivisepulture or ius primae noctis. The gold standard sprang from superstition, they say. We don’t want to be reminded of the fact that our ancestors fell under its spell. Their example could be contagious. We must cherish our ‘progressive’ paper money system that has freed us from the slavery of superstition.
Yet it is this way of looking at the gold standard that is backward, not the gold standard. It is the paper standard that is based on ignorance, not the gold standard. It is the regime of irredeemable currency that has enslaved savers and producers, not the gold standard. It was the sabotaging of the gold standard that caused the Great Depression, not the gold standard. There is no reason to be ashamed of our monetary heritage and to disown its greatest protagonists and practitioners: the schoolmen, Sir Isaac Newton, Adam Smith, among others. We should go out and pick up the pieces before they fall into oblivion.
Gold War
As Ferdinand Lips’ book Gold Wars so admirably proves, governments have been waging war on gold for centuries, if not for millennia. Recently they have claimed victory and appear to have silenced all critics of their paper money system based on irredeemable promises, in spite of overwhelming historical evidence showing that it is subject to the ‘sudden death syndrome’. Skirmishes that may still go on are just mopping-up operations in the Gold War, as academia and media in fealty to the government suggest. The important thing, according to these sycophants, is that there is no alternative available to money created on the strength of government authority, following scientific principles – the source of great blessings to society. The gold standard has been thoroughly discredited by events in the twentieth century, they say, in particular by the horrible unemployment for which it alone was responsible.
The truth, however, is that the Gold War is still raging. One indication is the governments’ campaign against the gold price. GATA, the organizer of this Conference, can take credit for fighting this clandestine operation, and for demanding transparency and full disclosure of government involvement in the gold market. This is the first front in the gold war. But there is a second front, too, albeit not so widely recognized. Governments and their central banks are engaged in subverting the history and theory of gold as money par excellence. It is a propaganda war. Central banks spend unlimited amounts of public money to subsidize so-called research aimed at discrediting the gold standard, and to suppress evidence that the regime of irredeemable currency is subject to the ‘sudden death syndrome’. Their methodology is borrowed from Hitler: if lies are repeated often enough, and those courageous enough to expose them are taken care of through bribe and blackmail or worse, then people will eventually accept lies as truth.
Self-mutilation by another name
The war must be won on both fronts, or it cannot be won. Governments and their central banks have an exceedingly poor case. Nothing shows this more convincingly than the fact that the American establishment could never muster sufficient moral courage to propose a constitutional amendment, dropping the requirement for a metallic monetary standard which is still on the books. It would rather live with the odium of running an unconstitutional monetary regime, with a most miserable record of falling purchasing power for the currency, and roller-coaster rides for bond values, ruining savers and produvers.
Irredeemable currency is a scheme to wage trade wars and to pauperize people on both sides of the border. Following Milton Friedman, currency devaluation is openly advocated as a legitimate policy to bring trade accounts into balance. The goal is to pauperize people on the other side of the border through gaining illicit trade advantages in making the national currency cheaper. This is to forget that our trading partners could retaliate in kind. They could make their currencies cheaper still. Pauperization of people on this side of the border is the consequence.
The latest charade is the devaluation of the dollar against the Chinese yuan. It can be safely predicted that this, like all previous devaluations of the dollar, will make the position of the American exporters weaker, not stronger, and it will cause more well-paid American manufacturing jobs to be exported, not less. The American trade deficit is growing by leaps and bounds. Why? Because of the insane ‘weak dollar’ policy. The devaluation of the dollar is a huge bonanza for the competitors of American business. They will be able to buy more imported goods per unit of exports than before. By contrast, Americans will be able to buy less. The devaluation of the dollar makes the terms of trade worsen for America, and improve them for the foreign competitors. Devaluation of the national currency is self-mutilation by another name. Champions don’t have their limbs amputated before the race. Governments shouldn’t either.
Mainstream economics is guilty of preaching a false theory which has corroded and will ultimately destroy America’s economic and financial power. It is the false theory that the devaluation of the currency helps the country export more and import less. This theory ignores the fact that production for exports also uses imported ingredients. As these ingredients will cost more in the future, the devaluing country has shot itself in the foot, and will not be as competitive in the world market as before. The flip-side of the coin is that producers in the country against which the national currency has been devalued (in this case, China) are now able to buy the imported ingredients of their exports more cheaply in the world market, and their competitiveness has increased accordingly. They could very well use this advantage to increase their market share, to the detriment of the American exporter. The devaluation ‘magic’ may work in the very short run, until the stockpiles of imported ingredients, which were bought at the pre-devaluation price, run out. Thereafter, they will cost more.
The theory that has formed the basis for the weak dollar policy of the US government for the past 35 years is thoroughly unsound. It is self-defeating. As the record shows, it made the American trade deficit grow rather than contract. It has exposed America to great dangers.
The solution to the problem of persistent trade deficits is not to be found in the manipulation of the value of the national currency downwards. Quite to the contrary, it is to be found in the stabilization of the foreign exchanges through an international gold standard. This presents an educational challenge to GATA: it should lead the fight against official disinformation about gold, just as it has led the fight against official distortion of the value of gold.
Revisionist Theory and History of Money
I have started a new series of articles under the title “The Revisionist Theory and History of Money”. In the first of the series entitled Real Bills and Employment I show that the Great Depression and world-wide unemployment in its wake was caused by obtuse government policies in stamping out the international bill market, not by the gold standard as alleged by mainstream economics. Here is the argument.
1909 was a milestone in the history of money. That year, in preparation for the coming war, the governments of France and Germany have decided to accumulate gold in their coffers. To this end they stopped paying their civil servants in gold coins. This measure necessitated legislation to make the notes of the Bank of France and the Reichsbank of Germany legal tender. Most people did not even notice the subtle change. Gold coins stayed in circulation for another five years. It was not the disappearance of gold coins from circulation that marked the beginning of the destruction of the world’s monetary and payments system. Rather, it was the French and German governments’ decision to sabotage the clearing system of the international gold standard in making the notes of their central banks legal tender.
Gold: the philosopher’s stone
The secret of job-creation is not government spending. It is gold, the philosopher’s stone. More precisely, it is a gold standard cum real bills. It is paying workers in gold coin, as before 1909. If the government pays its civil servants in gold, business has no choice but to pay workers in gold, too. This measure also puts a break on expanding the civil service too fast, and keeps the government from using the civil service for the purpose of controlling the lives of citizens.
At the end of World War I the victorious governments did not allow the bill market to resume its pre-war function of serving as the clearing house for the international gold standard. Trade was made bilateral. Not only did this put the gold standard in jeopardy but, less obviously, it destroyed the wage fund out of which workers in the consumer goods sector could be paid well in advance of the sale of export goods to the final gold-paying consumer. This wage fund had been financed through real bills, not through gold. It is futile to expect that gold should be available to pay wages in the consumer goods sector, in some cases as much as three months in advance of the sale of goods, in the absence of a wage fund. Yet this is exactly what the governments did when they put foreign trade on a ‘cash-and-carry’ basis. They inadvertently abolished the wage fund when they wrecked the bill market, the clearing system of the gold standard. They expected the gold standard to continue smooth operation thereafter. But it could not operate without a proper clearing system. At one point the gold standard would seize up.
Cause of unemployment: denying self-liquidating credit
The causal relationship between the expulsion of real bills and massive unemployment world-wide has escaped the attention of virtually all economists. They attributed it to the failure of the gold standard, due to its alleged inner contradictions. They called the gold standard ‘contractionist’. This represented a colossal misunderstanding of Adam Smith’s Real Bills Doctrine. After the wage fund was destroyed, unemployment could only be alleviated if the government assumed responsibility for paying wages. This it did by creating the so-called ‘welfare state’ that paid workers for not working and farmers for not farming. Had the governments allowed real bill circulation to return, there would have been no unemployment. Everyone eager to earn wages could have found employment in the consumer goods sector. There would have been no unsaleable surpluses either. It’s as simple as that: under the gold standard consumption creates jobs, and jobs create the income which will buy the goods (Say’s Law) – provided the government does not sabotage the clearing system, the bill market.
There were political consequences as well of the government’s sabotaging the clearing system of the gold standard. The popularity of totalitarianism, Nazi Socialism and Bolshevik Communism, were due in large part to the unattractiveness of unemployment-ridden democracies. The fact is that people who sought to escape totalitarianism by voting with their feet were turned back at the border, including shiploads of Jewish refugees from nazified Europe who were not allowed to step on shore when their boats docked in America. There was no place for them underneath the Sun, because there were no jobs waiting for them. With the bath-water of real bills, governments have thrown out the baby of employment opportunities.
Democratic governments were also the culprit for the longevity of totalitarianism. Having destroyed the wage fund by barring international real bills circulation, the borders had to be sealed barring immigration. Recall that under the international gold standard people able and willing to work were always welcome. After the wage fund had been destroyed, the same people became unwanted. They were left to the tender mercies of totalitarian regimes where there was plenty of work for them – in forced labor camps.
Had real bills been allowed to make a come-back, pre-war conditions of employment and prosperity would have been quickly restored after the cessation of hostilities. More consumption would have created more employment opportunities, provided that the clearing system of the gold standard, the international bills market, had not been sabotaged by the government. The gates of immigration could have been kept wide open. The drab, neurotic, and impecunious way of life under the totalitarian regimes would have triggered a massive exodus of workers, similar to the one from East to West Germany prior to the erection of the Berlin Wall. Totalitarian regimes would have been denied manpower. As a result, they would have collapsed much sooner.
Unemployment is still a problem in the world. It wouldn’t be if the gold standard were resurrected together with its clearing system, the market in real bills. It will take an enormous educational effort to convince the electorate that unemployment can be stamped out only if we have an elastic wage fund out of which workers in the consumer goods sector can be paid. Such a wage fund could never be financed out of savings. It must be financed through self-liquidating credit: through the spontaneous circulation of real bills.
Gold Standard University Live
I have decided to make my Gold Standard University that has existed on the Internet since 2002 ‘live’. The inaugural session will take place in February, 2007. I urge GATA to engage governments on the second front of the Gold War as well. What better way to fire to opening salvo than endorsing Gold Standard University Live?
We owe it to the younger generation to tell them the truth about the gold standard and its clearing system, and how they fell victim to government sabotage. They should know that the gold standard is not only part of their heritage, but of their birthright as well. It is inseparable from the right of the pursuit of happiness of which the Declaration of Independence speaks. The international gold standard is the only monetary system that can guarantee work for everybody eager to earn wages, under the system of division of labor and fair trade practices world-wide – provided that its clearing system, the market in real bills, is not sabotaged by the governments.
References
Antal E. Fekete, A Revisionist Theory and History of Money, ‘Gold Rush 21’ Conference Proceedings, August, 2005, Dawson City, Yukon, Canada, p 101-102; Gold Anti-Trust Action Committee, Inc., 7 Villa Louisa Road, Manchester, Connecticut 06043-7541, U.S.A.
Antal E. Fekete, Real Bills and Employment, ibid., p 103-108.
Gold Standard University Live, GOTO: and ask for: “Announcement”.
December 20, 2006.
GOLD STANDARD UNIVERSITY LIVE
At the MARTINEUM, in the city of Szombathely, Hungary
Inaugural Session starts on February 14, 2007
Gold Standard University was started on the Internet by Antal E. Fekete, Professor Emeritus, Memorial University of Newfoundland in the Summer of 2002. Now it will go ‘live’. The host institute is MARTINEUM , an institute of Higher Adult Education, see The program is in two parts: (1) intensive instruction taking up the first week; and (2) an optional recreational program and sight-seeing during the second week that is available for interested participants. The first week of scientific program consists of one of the following four courses of 13 lectures each:
Monetary Economics 101: The Real Bills Doctrine of Adam Smith
Monetary Economics 102: Gold and Interest
Monetary Economics 201: The Bill Market and the Discount Rate
Monetary Economics 202: The Bond Market and the rate of Interest
The 100 level courses are independent of each other. The 200 level courses have prerequisites as follows: 101 is prerequisite for 201 and 102 for 202. Some of the lectures of the 100 level courses are available, free of charge, on the Internet, see, e.g., ,
, .
The inaugural session is scheduled for the week of February 14, 2007, at which time the course Gold and Interest will be offered. Gold Standard University Live will continue on the premises of MARTINEUM, in Szombathely, Hungary. Further sessions will be announced later depending on interest, up to one session per month. They will have the same format: one week of intensive instruction covering one of the above four courses in thirteen lectures, followed by an optional second week of recreation.
Gold Standard University Live is seeking accreditation from the Hungarian Board for Higher Adult Education. Accreditation is expected in 2007. Those participants who have completed the four courses will get a certificate confirming this.
Martineum offers a full range of guest services, including private rooms, double rooms, dorms, and meal services. Breakfast is included in the room charge; other meals are ‘pay as you go’. Lecture rooms are on the premises. Language of instruction is English. Send your inquiry about the combined registration and tuition fee, including room and breakfast for seven days for the one-week academic program. Charge for the optional second-week of recreation and sight-seeing is additional. Participants pay their own fare to and from Szombathely.
Nearest international airport is Graz, Austria, about 75 miles from Szombathely to the South-West. Other international airports serving Szombathely are: Vienna, Austria, about 100 miles to the North-West; and Budapest, Hungary, about 175 miles to the North-East. From all three cities direct train services to Szombathely are available.
Szombathely is the capital city of Vas County in Hungary. If you would like to learn more about that part of world, please look up where you will find well-written and well-illustrated information in English on the local population, culture, history, economy, and geography.
Pre-registration is available at a non-refundable fee of $25 per person which, however, will be counted towards the registration and tuition fee. Contact for details.
Further announcement will be made in early January, 2007.
