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can be saved from self-mutilation By Antal E Fekete
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".
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.
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 that 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.
According to a story reported by Newsweek
magazine on November 11, 1957, under the title
"Gold for Sale", Ludwig Erhard, the Minister of
Economics in West Germany in 1947, 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 US where gold coins were taboo.
If the Newsweek story is true, Erhard 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 (in his article "No
Laughing Matter", October 5, 1954.)
United
States officials have been talking incessantly of
the country's 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.
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.
The real cause
of de-industrialization of a once-flourishing
industrial power is not war, but declaring gold a
taboo. Yet, as 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 US Mint to gold.
Antal E Fekete has since 2001
been consulting professor at Sapientia University,
Cluj-Napoca, Romania. In 1996 Professor Fekete won
the first prize in the International Currency
Essay contest sponsored by Bank Lips Ltd of
Switzerland. He also runs the Gold Standard
University.
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