|
Religion,
the drug of exploited masses?
All power-structures in human society face the
problem of keeping the majority of population both in relative poverty and in
dutiful submissiveness, so that the power-elite could enjoy relative
affluence undisturbed by popular unrest. Karl Marx suggested that capitalist
society has solved this problem by calling upon religion to promise people
rich rewards in the transcendental world as compensation for deprivations in
this valley of wailing, provided only that they are borne with peaceful
resignation. As there is no way to assess scientifically the validity of its
teachings, the claims of religion can never be
proved or disproved. Concerning the genuineness of its promises, to the
faithful no proof is necessary and, to the non-believer, no proof is
sufficient.
Be that as it may, Marxist anti-religious propaganda
had one undesirable side effect for the power-elite. From now on it has to
call upon science, rather than religion, to deliver the promise to the masses
that would keep them satisfied with their lot. Clearly, in this case, there
are scientific methods available to test the validity of claims with which a
restless population can be kept at bay. While reward for meekness may not be
postponed to the after-life, it may still be removed sufficiently in time so
that the ultimate validity of the promise cannot be tested, at least not in
one’s lifetime.
The enfant terrible of Soviet
biology
An outstanding example of this was the demand of the
Soviet government under Stalin upon biology to disown classical genetics, and
to deliver pseudo-scientific principles to the effect that it is possible to
transmit acquired traits biologically, along with inherited ones, perhaps not
to the next, but certainly to some other future
generation. The Soviet regime needed to propagate this fable in order to keep
a nearly starving population in check with promises of fabulous increases in
agricultural productivity and abundance of food production at some
unspecified future date. Soviet propagandists found a willing collaborator in
the person of Trofim Denisovich Lysenko (born in Karlovka, Ukraine,
in 1898), the enfant terrible of Soviet genetics. On the basis of a
borrowed discovery that the phases of plant growth can be accelerated by
small doses of low temperature, Lysenko built up a quasi-scientific creed,
combining Darwinism with the Michurinian thesis that heredity can be changed
by good husbandry. However, this effort was more in line with Marxism than
with genuine scientific theorizing. Failing to obtain scientific recognition
and pre-eminence in the usual manner Lysenko, with the approval of the
Communist Party, declared that the accepted Mendelian theory of genetics was
in error. Outstanding Soviet scientists who resisted Lysenko’s methods
and theories were banished or, worse still, sent to the Gulag never to be
heard from again. In 1949 Lysenko was awarded the Order of Lenin as well as
the Stalin Prize for his book Agrobiology published a year earlier. With
the rise of Khruschev and his agricultural policies Lysenko faded from the
limelight, but was reinstated in 1958. Finally he resigned from the
presidency of the Academy
of Agricultural Sciences,
of which he was in charge between 1938 and 1956, then again between 1958 and
1962, on grounds of ill health. In 1965, after Khrushchev’s downfall,
Lysenko was also relieved of his post as head of the Institute of Genetics.
Our term "lysenkoism" will refer to the
servile, not to say obsequious attitude of scientists ready to cave in to the
demands of the powers-that-be, even at the price of betraying the integrity
of their own discipline. Under lysenkoism scientists are intimidated and
forced to profess and propagate tenets that they would reject on purely
scientific grounds. It is generally assumed that lysenkoism is possible only
under a regime of brutal dictatorship. Scientists, at least when it comes to
their confirmed scientific beliefs, have the probity of obeying incorruptible
standards. They will not adopt a hidden agenda, nor will they knowingly abet
misinformation or expound false theories in the hope of official approbation
and personal glory. They are supposed to abhor pusillanimous or sycophantic
behavior.
"Why, that’s plain
stealing, isn’t it, Mr. President?"
It was thought that the freedom of expression for
the individual guaranteed by the American Constitution would prevent
lysenkoism from spreading to the United States. Sadly, this
hasn’t been the case. As the American government repudiated its
domestic gold obligations in 1933 and, again, its foreign gold obligations in
1971, new generations of economists were all too eager to comply with the
request to justify the breach of faith or, to put the matter somewhat less
charitably, to find excuses for the government to have declared bankruptcy
fraudulently. I use the adjective "fraudulent" advisedly. In both
1933 and 1971 the American government had ample gold resources to meet its
obligations, as later auctions of U.S. Treasury gold would convincingly
demonstrate. When asked by Franklin D. Roosevelt of his opinion regarding the
matter, the great blind senator from Oklahoma, Thomas P. Gore, replied:
"Why, that’s just plain stealing, isn’t it, Mr.
President?" (See: Economics and the Public Welfare by Benjamin M.
Anderson, second edition, 1979, Indianapolis: Liberty Press, p 317.) Roosevelt, using the excuse of the banking emergency,
and appealing to the patriotic feelings of the citizenry, recalled the gold
coins in circulation against payment in Federal Reserve notes. He stressed
that the measure was to be "temporary", and the gold should be
returned to the rightful owners once the emergency has passed. But after the
citizenry complied, Roosevelt cried down the
value of Federal Reserve notes (that is, he wrote up the value of gold in
terms of paper) and nothing further was ever said about returning the gold to
its rightful owners. This, and the later episode of dishonoring gold
obligations under President Nixon in 1971 (also described as
"temporary"), were instances of deliberate sabotage of the gold
standard with the aim of "making America safe for socialism."
Turning stone into bread and water
into wine
The American government was in obvious need of
economic and social theories to justify the chicanery on grounds of
"higher moral imperative". It was necessary to show that the gold
standard was not sabotaged and then forcibly overthrown but it had become
obsolete and collapsed under the weight of its own inner contradictions. Many
economists were anxious to come to the rescue of government in this
face-saving exercise. They concocted theories to the effect that the gold
standard was unworkable anyway. First and foremost among these apologists was
Lord Keynes of Britain.
Later he was followed by Nobel Laureate Milton Friedman of the United States,
to name only the two most prominent.
Keynes built his theory on the notion that the
difference between a liability and an asset becomes academic when related to
the balance sheet of the government. As a consequence, provided that care is
taken not to increase liabilities too greedily, items can be shifted adroitly
from the liability to the asset column, while remaining confident that people
won’t notice the prestidigitation. Thus the debt of the government can
in principle be increased beyond any limit. Moreover, government debt is no
longer a curse. It is a benefit to society, the more the better, as it is the
very asset upon which purchasing media can be built. Keynes was fond of
bragging that his theories can make it possible to turn stone into bread and
water into wine, while the gold standard only gives you bankruptcy,
unemployment, and misery.
It is easy to see through this sophistry. In
reality, government debt is balanced by the power to tax. But as the birth of
the American republic so brilliantly demonstrates, the taxing power of the
government is far from being unlimited. At one point taxpayers will rise and
overthrow the government in protest against unreasonable and unfair taxes. No
less, a durable and stable monetary and payments system cannot be based on
irredeemable currency. Such a currency depreciates year in and year out.
Government doublespeak calls this process "inflation" suggesting
inevitability as if it was caused by continental drift. But after a time
people will refuse to take the depreciating currency in payment for real
goods and services, causing paper money to lose the remainder of its value
abruptly.
The deliberate confusion between assets and
liabilities was followed by other serious obfuscation: the confusion between
wealth and debt, as well as capital and credit. This had a most profound
effect on speculation. The creation of assets, wealth, and capital is subject
to certain limitations by nature, whereas liabilities, debt, and credit can
be churned out at will. Thus the stage is set to the grandiose act of
"abolishing scarcity", and the removal of the limits on speculation
imposed by nature. Today speculation is no longer under the control of the
real economy. Through trading derivatives and other make-believe assets bond
speculators are permitted to rake in gains many times greater than those that
the real economy is able to produce. Speculation addressing risks created by
man, as opposed to risks created by nature, has the tendency to snowball:
speculators pyramid (that is, use their profits to increase their commitments
on the same side of the market). Thereby the economy is turned into a Ponzi-scheme
that is bound to topple. This is the weak point in the Keynesian edifice
causing all the cracks in its foundation.
The
thief trying to get away by crying "thief!"
Friedman argued that it is a fatal shortcoming of
the gold standard that it makes the currency out of an expensive commodity
that could be replaced by credits created virtually at no cost. No sooner is
the gold standard established than the movement to dilute it with paper
credits is afoot. To Friedman’s mind this is as plausible as the human
impulse to make labor-saving devices. When this movement reaches maturity and
the payments system becomes saturated with credit substitutes, the gold
standard must of necessity collapse. Friedman’s sophistry is no less
disingenuous than that of Keynes. In reality, the creation of credit is
subject to real and strict limitations, in particular, redemption in specie
upon maturity which, in the case of sight liabilities, is redemption on
demand. But if the banks are allowed to obstruct the free flow of gold, and
if the government is protecting the banks with privileges and exemptions from
the effects of contract law, then trouble lies ahead. If double standards in
contract law whereby banks failing to deliver on their promises to pay gold
are routinely let off the hook with impunity through "bank
holidays", "standstill agreements", and similar devices while
all other firms stand to be liquidated by their creditors when they fail to
deliver on their contractual obligations, then collapse of the gold standard
in due course is indeed to be expected. However, this is not a fault of the
gold standard, but that of the banks and the government. Here we have the
textbook example of the thief trying to get away by crying "thief!"
Buying shares at infinite P/E ratio
Recently the phrase "tainted research" has
gained currency. It was introduced by journalists referring to the practice
of a bank falsifying the results of in-house research in order to promote a
stock which the bank is about to dump. The glowing reports of analysts should
help the bank get rid of assets turned sour without losses. Another instance
is related to IPO’s. Banks are supposed to nurse along baby companies
before their shares can be traded publicly in the stock exchanges. This
involves investing the banks’ own funds in the shares (called
underwriting) and then offering them to the public (IPO = initial public
offering). In a bull market people expect IPO shares to increase greatly in
price, and they are eager to buy the banks’ offering. They would buy
them even if the company has never turned a profit and has zero earnings
(thus infinite P/E ratio), because people have confidence in the integrity of
the banks, in their in-house research and underwriting experience. When the
new dot-com shares were listed on the NASDAQ, the banks made huge amounts of
money, while investors ended up holding the bag. Logically, they should have
bought shares in the expectation of increasing P/E ratio, but tainted
research led them to buy shares at infinite P/E ratio, only to see them to
collapse to zero.
Whoever pays the piper will call
the tunes
The phrase "tainted research" is new, but
the practice is as old as governments. We have seen that the United States
used tainted research to justify the overthrow the Constitutional monetary
order in 1933. Economic theories concocted by Keynes and Friedman were
promoted, and earlier theories of money and credit were unceremoniously
discarded. The Federal Reserve System has been hiring economists not so much
to gather and sort statistical data, but to develop new economic theories
justifying irredeemable currency, synthetic credit, and central bank
intervention in the markets. All this research is tainted. The
Constitution still prohibits the use of irredeemable currency and synthetic
credit. Apparently, Federal Reserve officials are not too confident that
their theories could stand up in the light and heat of debate on changing the
Constitution in order to justify the monopoly and unlimited power given to
the banking cartel.
Equally tainted is research financed through
government grants. Here the adage applies that whoever pays the piper will
call the tunes. The tunes of the government are seductive, like the songs of
the sirens, promising eternal bliss in exchange for freedom. There is a great
conflict of interest here. The government is sponsoring research in order to
justify the removal of limitations restricting its own power.
Prostitution of the universities
It is to the eternal shame of this age that our
great universities have prostituted themselves to the government and the
banks in pursuit of research funds. The universities gave up their most
precious asset, independence, in exchange for money. They will probably never
again be able to act as a free agent. Lysenko-types have taken over at the
helm. They decide priorities, hiring and admission policy, set the agenda, to
please the Leviathan. They even politicize course offering, sanctioning the
introduction of gay and lesbian studies, for example. They are in favor of
unionizing faculty, thus reducing professors from the status of a trustee to
that of a hired hand. The larger issue motivating these changes seems to be
the desire to let the government and its agencies wrest the direction of
higher education away from the community of scholars. The net result is a
great deterioration of standards. Students are kept in ignorance as the study
of the classical languages and literature, undiluted mathematics, true
economics, and un-doctored history is moved to the back burner.
The separation of the government and academia is
scarcely less important than that of the state and church. They both act to
prevent the concentration and abuse of power.
Propping up wealth-destroying
schemes
The most pernicious instance of tainted research is
that offered in support of the preposterous thesis, by now firmly planted at
the foundation of monetary policy, that deliberate currency debasement can
make the export industry prosper and the trade deficit shrink. If this theory
were true, then countries should reduce the value of their currencies to zero
and give away their products to foreigners free of charge. But let us dig a
little deeper and expose the sophistry involved. Suppose that the country is
on the gold standard and has tried everything to improve its export business,
but the best it could manage to bring in is $9 in revenue for every $10 in
expenditure. In other words, the export industry is not a business but a
wealth-destroying scheme. It needs to be dismantled, and its capital ought to
be deployed elsewhere. But wait, Keynesian sophists come to the rescue. Scrap
the gold standard, and debase the currency sufficiently to make the export
industry profitable. As you are now paying labor in debased dollars, your
expenditures will go down and, lo and behold, the money-losing export
industry is turned into profitable business.
As can be seen, this is just a trick based on the
manipulation of the accounting unit. Nothing in the real economy has been
changed to make the enterprise profitable. Incidentally, this also reveals
why gold must go. As an accounting unit, gold is incorruptible, the only one
as such. Gold tells as it is. Honest book-keeping standards and gold are
inseparable. The trouble is that politicians of the new deal, and of the new
world order, could not live with an incorruptible book-keeping standard.
In the wake of the recent accounting scandals the
search is on to find the small-time crooks in the accounting departments
responsible for the embezzlements. The search is in vain. When the accounting
unit is open to manipulation at the highest level, then a breeding ground for
crooks at the lowest is most prolific, and balance sheets are hardly worth
the paper on which they are printed.
"Yes, we at the FED can,
strangely enough, create deflation, even with fiat currencies"
Mr. Alan Greenspan understands gold. (Neither
Keynes, nor Friedman really understood it.) Many decades ago he wrote papers
describing how the gold standard had been sabotaged and then discarded
because it was an obstacle in the way of disenfranchising the saving and
producing public. Recently he confirmed that he stood by every word he has
ever written on the conflict between gold and fiat money. On May 21, 2003, Mr.
Greenspan in a testimony before the banking committee of the U.S. House of
Representatives had this to say in answering the question of Rep. Paul Ryan
on deflation:
"With the elimination of the gold
standard in the 1930's and the development essentially of world-wide fiat
currencies, almost no economist believed that you could create deflation with
fiat currencies because the supply of those currencies, by definition, comes
from government fiat. We went through most of the post World War II period
with the expectation that fiat currencies were essentially inflation-ridden
and that the major focus of central banks was to suppress inflation. The
notion that deflation could emerge just never entered our minds until the
Japanese demonstrated to us otherwise."
"As a consequence of that, not having had
any experience in the modern world with dealing with deflation under fiat
currencies, our knowledge-base was virtually non-existent, in the sense that
we know how to deal with inflation."
"Inflation, obviously, is something that
for half a century we have been struggling with. We know how to suppress it.
We know the consequences of suppressing it. We know the impact of various
monetary policy decisions on the levels of output growth and of unemployment.
So we are familiar with the mechanism. It’s not that we can very easily
and automatically just suppress inflation; it has been a struggle of very
great dimensions for most central banks in the world. What’s happened
now is that since I guess the middle of the 1990's we’re beginning to
see that it is possible for deflation to coexist with a fiat currency and, in
a way, it is, I suspect, credit to central banks, which essentially have
restrained the expansion of credit enough that many aspects of the gold
standard, which induced deflationary patterns in past periods, had been
replicated in our monetary system and that, frankly, is quite good. We at the
Federal Reserve recognize that deflation is a possibility. Indeed, we now
have been putting very significant resources in trying to understand, without
actually seeing it happen, what this phenomenon is all about. We cannot say
that in the market place there is a severe increasing concern of deflation. Indeed,
the various expectations of price by both business and consumers has been
relatively flat for recent years... so this is not something which the
markets are beginning to sense that it is about to erupt and something which
we must address."
"Nonetheless, even though we perceive the
risks as minor, the potential consequences are very substantial and could be
quite negative. So we have created fairly significant resources to try to
address this problem, increasing our knowledge of what actually happens,
what’s the process and what tools are necessary to fend it off. I think
we have made very substantial progress in that intellectual endeavor. We do,
obviously, have the problem that we never dealt with it before. We know as a
consequence that when we don’t deal with something, we have a large
element of uncertainty which strangely we do not have with the implementation
of policies against inflation because we’ve dealt with it over so many
decades. We believe that because in the current environment the cost of
taking out insurance against deflation is so low that we can aggressively
attack some of the underlying forces, which are essentially weak demand. And,
indeed, we’ve done that since we started a very aggressive easing in
monetary policy in early 2001... So long as the costs of engaging
disinflation are so low, we have moved fairly considerably, and... we
recognized this not as an imminent, dangerous threat to the United States but
a threat that, even though minor, is sufficiently large that it does require
very close scrutiny and maybe, maybe, action on the part of the central
bank."
Traitor to science
In spite of Mr. Greenspan patting himself on the
back for his success in replicating many aspects of the gold standard, the
record of the fiat money experiment in the United States could hardly be
more miserable, and it threatens to become abysmal. Rather than admitting
that research at the FED has been tainted, Mr. Greenspan is promising more of
the same. He would not delegate the research on deflation to independent
scholars. He would reserve the right to himself to act as the defense
attorney, the prosecutor, and the trial judge, all in one person, at the
court case where charges against the FED are heard. The charge is that the
FED is directly responsible for the chill-fever economy and the
inflation-deflation cycle caused by the mishandling of the issuance of money.
Mr. Greenspan stoops so low as to repeat the claims
of Keynes that the gold standard is "deflation-prone" and
"contractionist". He would not recommend that the U.S. House of
Representatives, in whose sole competence the matter falls, return the
country to a Constitutional metallic monetary standard in view of the fact
that it was scrapped as a result of a terrible mistake.
Mr. Greenspan could have been the savior of the
nation from the slavery of fiat money. Instead, he leads the world up the
garden path into economic disaster. Now he wants to go on wielding unlimited
power, to print unlimited amounts of money and to spring it on the economy,
allegedly to protect us against deflation which his own policies have brought
about.
Mr. Greenspan richly deserves the third place in the
Hall of Fame of Lysenkoism, right after Keynes and Friedman. In the fullness
of time the three of them will go down in ignominy, as has Lysenko before
them for being one of the most contemptible figures of the twentieth century:
traitor to science.
May 31, 2003
Dr.
Antal E. Fekete
Note. I would like to
call the reader’s attention to my earlier writings in which I warn that
it is not the gold standard but, rather, the sabotaging of it, that is
responsible for the inflation-deflation cycle by inducing huge oscillating
money-flows back and forth between the commodity and the bond markets. The
result is deflation or inflation according as these flows, amplified by speculation, spill over in the bond market or in the
commodity market. Central bank intervention is counter-productive and makes
matters worse. In particular, in a deflation, as new money is being injected
into the system to bolster "weak demand", it will refuse to flow
uphill to the commodity market as intended. Instead, it will flow downhill to
the bond market where the fun is as bond speculators run riot. The central
bank can create as much fiat money as it wants, but will have no control over
it once it has entered circulation. It is up to the speculators. Misguided
Keynesian monetary policy could land the country in a depression by providing
funds for bond speculators who will then use them to drive interest rates
down to zero; alternatively, it could trigger runaway inflation by
frightening speculators out of their long positions in bonds. It is not
possible to predict scientifically which way the cat will jump. The most
amazing thing about tainted research is that it dare not touch the subject of
bond speculation upon which our economic destiny turns. The archive of my
earlier writings can be found on the website: www.goldisfreedom.com. In
particular, see:
The Economic Consequences of Mr.
Greenspan (July 19, 2001)
Japan’s Finest Hour (January
16, 2002)
Revisionist View of the Great
Depression, Part I-II (March, 2002)
The Wrecker’s Ball of
Swinging Interest Rates (August 26, 2002)
The Central Banker as the
Quartermaster-General of Deflation (January 1, 2003)
|
|