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How
much gold?
Many readers of
my column have asked me how much gold I think there is in Fort Knox, and
how much gold I think is being hoarded by Americans that may be available for
coinage in case the U.S. Mint is re-opened to gold.
I
don't have the figures or estimates. From my perspective these figures do not
matter any more. What matters is whether confidence can be restored to the
extent that gold will start flowing to the Mint. Here the situation is
definitely sad, as shown by the treatment of presidential candidate Ron Paul
by the establishment, his own party, the media, the investing public, and the
electorate. He has been given the cold shoulder by all in these extraordinary
times, just when the financial world started crumbling all around us. He
might be God’s messenger, but he has been treated no better than any
other before him who was sent out to be prophet in his own land. Even a
debate on gold as money, let alone the realization of it, is strenuously
opposed by everybody, including the people themselves who are going to suffer
for their denseness and put-on deafness as the dollar is ignominiously
removed from the stage.
Gold
on the go
Gold sitting in
vaults is one thing, and gold on the go is another. Gold on the go is as
different from gold in hoards as day is from night. The former suggests
confidence in the present and radiant optimism about the future. You dare
spend your gold coin as you fully expect it to come back to you on the same
terms. The latter suggests fading confidence in the present and deep
pessimism about the future. The gold coin is not to be spent. It may never
come back to you.
Whenever
gold is being hoarded, there is a danger that the economy will plunge to its
worst levels, possibly all the way back to barbarism. If all the gold is
hoarded, prosperity will collapse regardless of the state of knowledge and
technology. But if the Mint is re-opened, gold will flow to the Mint and the
economy may rise from the dead. People will be talking about an
„economic miracle”. Our leaders fail to see this. To them gold is
still the „barbarous relic”, rather than the elixir of life, turning
the moribund economy around from the brink.
Key
to confidence
Trade and
commerce, and prosperity that depends on them, hinge
upon two primal ingredients: integrity and confidence. It is the function of
money to implement their existence and interaction. For 63 centuries they
have worked together since the first gold slug was used in exchange by men.
Gold is the key to confidence. The
universal acceptability of gold throughout history has enabled the agencies
of production, consumption, exchange, and distribution to bring about the
highest level of prosperity commensurate with the prevailing level of
knowledge and technology. Take gold out and, lo and behold: knowledge and
technology will no longer uphold prosperity. Sinking back to the Dark Ages
becomes inevitable.
Terror
of the error
The United States
has missed its chance, in this election year, to have a grand national debate
on the merit of a metallic currency, and how gold could be pressed into
service at the eleventh hour, to stave off world disaster. The U.S. Mint will
not be reopened to gold, and the „terror of the error” will run
its course to the bitter end. A depression will engulf the world. Suave qui peut ―
that's the message from the 2008 presidential election campaign that has
aborted six months too early.
End
of the Roman Empire
Maybe a foreign
country will open her Mint to gold and silver. The Chinese could do it, but
like all Orientals they are too suspicious and secretive, and they totally
lack the trust which is the characteristic of the Western way of doing
business. Be that as it may, history appears to be repeating itself. It
conjures up the split of the Roman
Empire into an Eastern and a Westerm
half in 395 A.D.
By 476 the Western half ceased to exist, entering the Dark Ages.
Civilization, as people had known it, was gone. However, the Eastern half,
partly due to the fact that it could keep its Mint open to gold, continued in
existence for another thousand years. Circulating gold represented
confidence. Confidence in production, confidence in trade, confidence in the
future.
Dark
Ages
We no longer
talk about deflation and depression. We face the Second Coming of the Dark
Ages. At the time of the collapse of the Roman Empire all the gold was still
available that had kept a munificient world trade
going. The trouble was not a shortage of gold. The trouble was that gold was
going into hiding. Had it been put back into circulation, then the Dark Ages
could have been fended off. It did not happen, because of the ignorance and
selfishness of the leaders, and their self-conceit that a fast-depreciating
monetary system will serve the purposes of their Empire. As gold was going
into hiding, and there was no statesmanship to press it back into service,
there was no way to save civilization in the Western part of the Roman Empire.
It
is important to understand that the Dark Ages that followed, and gold going
into hiding, are just two sides of the same coin. We have the same double
threat facing us today. This time, too, the Dark Ages could last several hundred
years.
Bezant,
savior of civilization
The Eastern half
of the Roman Empire, Constantinople,
fared better. There, they kept the Mint open to gold for another thousand
years. Not only did people survive: they prospered. The gold coin of the
Empire, the bezant (named for Byzantium,
as Constantinople
was called before Great Constantine renamed it after himself) saved
civilization from ruin to which the Western part of the Empire succumbed so
easily.
If
history is repeating itself, then the Oriental half of our civilization,
backed by the born-again economic strength of China,
will have the wisdom to save the world by opening the Mint to silver.
Unfortunately, it will not benefit the Occident.
People
crying out in despair
Our government
leaders conducting our irredeemable currency and credit program do not
understand that people can be faced with tragedy and disaster in the wake of
the collapse of the monetary system. Until such a devastating catastrophe
occurs, they proceed as though some special Providence
will protect this nation from the monetary and social chaos in which the
helpless and hopeless mass of people cry out in despair. People can do little
or nothing but suffer because inept men, in the area of monetary economics,
threw the Constitution to the winds, usurped unlimited power, and took
possession of the monetary program of the nation.
When
monetary statesmanship is replaced by foolishness, recklessness,
irresponsibility, and related examples of human misbehavior, catastrophe and
chaos await the unfortunate nation caught in that frequent tragedy of mankind.
Impostors
sewing the Emperor’s invisible clothes
The common
procedure is to avoid upright monetary scientists whose efforts in behalf of
the helpless mass of people are generally resented, ridiculed, taxed out of
existence and, sometimes, subjected to other forms of punishment such as
ostracism or worse. At the same time currency manipulators attempt to
persuade the public that they are intelligent and honorable men acting in the
best interest of the nation, and on the basis of latest scientific evidence.
Such people are wined and dined, given prizes and honors, and otherwise
subjected to effusions of praise and appreciation. The media and financial
press cannot find the superlatives to heap upon them. But all the hoopla
won’t change the fact that they are celebrating impostors who pretend
to sew the Emperor’s new clothes, “invisible to all but the
wise”.
Gold,
anathema to Communist creed as well as to fiat money ideology
The United States
is illustrating once more how a nation, when sufficiently inept and presumptious in the area of monetary economics, pursues
the course based on irredeemable credit that ends in distress, tragedy, and
despair. Unless, in the last minute, Western political leaders somehow come
to see the light, and beat the Chinese to it, by opening the Mint to gold
first. Don't ask where the gold will come from. If the Chinese can attract
silver, anathema to their Communist creed, then surely Keynesians and Friedmanites can attract gold, anathema to their fiat
money ideology.
De-industrialization
of the United States
Fiat money has
de-industrialized the United States just as
thoroughly as two world wars and fiat money in their wake had
de-industrialized Germany.
That country had to start capital accumulation from scratch at the end of
World War I, only to waste it all in another futile war which left the
country in ruins, divided, and under enemy occupation. But Germany, at least its
Western part, like the mythological bird Phoenix, rose from her ashes and became the
richest country in Europe
by 1965.
Why
the German economic miracle has forgone the gold coin
According to a
story reported by Newsweek magazine
on November 11, 1957, under the title Gold
for Sale, Dr. Ludwig Erhard, the Minister of Economics in West Germany
in 1947, even contemplated opening the Mint to gold. He reportedly said that
“Germans prefer the clink of shiny gold coins to the prosaic rustle of
paper money”. He desisted for one reason: he would not want to
embarrass the wealthy, powerful U.S.
where gold coins were taboo.
Taking
poorly concealed sips at the bottle of inflation
If the Newsweek story is true, Erhard has
made an historic blunder. The attempt to avoid offending the powerful by
pandering to its weaknesses and lack of respectability is a phenomenon one
sees occasionally in social behavior. Erhard did not want to advertise the
lack of respectability of the occupying power as revealed by its currency
system, by introducing a thoroughly respectable one in West Germany.
He preferred that we continue to regard ourselves as “just as
respectable as the woman across the street” as we slop around in
bedroom slippers, hugging a blousy dressing gown of irredeemable currency around
our flabby figure, hair unkempt, while we continue “taking poorly
concealed sips at the bottle of inflation” ― to paraphrase the
words of Harold Wincott writing in The Financial Times of London (article No Laughing Matter, October 5, 1954.)
Incessant
talk about leadership of the Free World
The officials of
the United States
have been talking incessantly of her responsibility as a leader of the Free
World, and of her unmatched know-how in all fields of human endeavor. Yet
here we are treated to a most humiliating spectre. Germany,
a defeated country with benevolent tolerance in the area of monetary science
makes an inferior choice in reforming its currency system, for fear of
embarrassing the mighty leader who is dissolutely lacking in regard of leadership
in the field of money. So much for leadership of the Free World. So much for
unmatched know-how.
Floating
by sinking
You don’t
need a war on home soil to de-industrialize your country. The United States
has accomplished that feat bit-by-bit since 1971, the apogee of her
industrial power which, not surprisingly, coincided with severing the last
link between the dollar and gold. The most astounding part of it was that
nothing has been done to arrest the decline during all those years. The
warnings of monetary economists have been ignored, even ridiculed. The United States
persisted with the Friedmanite program of
‘floating by sinking’. The dollar has been subjected to
continuous and conscious debasement ever since 1972 in spite of the
obvious damage it was doing to America’s
industrial capital.
Devaluation
of the currency is self-mutilation. Floating is devaluation under a disguise
― as if mutilation piecemeal were less painful. Be that as it may,
Milton Friedman’s recipe for the floating of the dollar has caused the
greatest capital consumption ever recorded by history. It turned Americans
into prisoners of “instant gratification”. The lesson, that once
industrial capital is consumed or otherwise dissipated it is gone and cannot
be replaced by a click of the mouse (as can misused
credit), has been ignored.
It
is not war but declaring gold ‘taboo’ that destroys industrial
capital
The real cause
of de-industrialization of a once flourishing industrial power is not war,
but declaring gold a taboo. Yet, as the example of the German example shows,
the process is not irreversible. With a sound currency backing producers and
savers, the country could re-generate her industrial base. It could regain
its industrial capital. But it takes discipline, cutback on wasteful
consumption, savings ― and, above all, monetary leadership.
It
is still not too late to reverse the train of destruction.
Just
open the U.S.
Mint to gold.
April 1, 2008.
CORRECTION
The date for Session Four
was incorrectly stated in the last announcement. Session Four is planned to
take place in Szombathely,
Hungary
(at the Martineum
Academy
where the first two sessions were held) from July 3 to 6. The subject of the
13-lecture course is The Bond Market
and the Market Process Determining the Rate of Interest (Monetary
Economics 201). For more information please contact GSUL@t-online.hu.
Further announcements will be made on the website www.professorfekete.com.
Antal E. Fekete
Professor, Intermountain Institute of Science
and Applied Mathematics
Missoula,
MT 59806, U.S.A.
DISCLAIMER AND CONFLICTS
THE PUBLICATION OF THIS LETTER IS FOR YOUR INFORMATION AND AMUSEMENT ONLY.
THE AUTHOR IS NOT SOLICITING ANY ACTION BASED UPON IT, NOR IS HE SUGGESTING
THAT IT REPRESENTS, UNDER ANY CIRCUMSTANCES, A RECOMMENDATION TO BUY OR SELL
ANY SECURITY. THE CONTENT OF THIS LETTER IS DERIVED FROM INFORMATION AND
SOURCES BELIEVED TO BE RELIABLE, BUT THE AUTHOR MAKES NO REPRESENTATION THAT
IT IS COMPLETE OR ERROR-FREE, AND IT SHOULD NOT BE RELIED UPON AS SUCH. IT IS
TO BE TAKEN AS THE AUTHORS OPINION AS SHAPED BY HIS EXPERIENCE, RATHER THAN A
STATEMENT OF FACTS. THE AUTHOR MAY HAVE INVESTMENT POSITIONS, LONG OR SHORT,
IN ANY SECURITIES MENTIONED, WHICH MAY BE CHANGED AT ANY TIME FOR ANY REASON.
Copyright
© 2002-2008 by Antal E. Fekete - All rights reserved
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