Page 1 of 2 SPEAKING FREELY They dare not speak its name
By Antal E Fekete
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I am forced to announce that after November, Gold Standard University Live will
fold tent as its sponsor, Sprott Asset Management, Inc, has withdrawn its
financial support in spite of an increase on average of 50% since the inaugural
session in February, 2007. Eric Sprott said in his letter that "we weren't
attracting enough interest to justify that ongoing expenditure".
To give you an idea of the odds I am facing, let me quote from the article in
Wikipedia (June 9, 2008) captioned under my name: "It should be noted that
mainstream economic theorists criticize gold standard-oriented monetary
economists and monetary reformers
such as Professor Fekete as 'fringe' or 'amateur' economists, not worthy of
serious study. Professor Fekete has never held a teaching position in the
economics department of any prominent university."
A deep, searing corruption
Pre-1936 theorists of the gold standard are likewise dismissed by the
mainstream as "not worthy of serious study". I am proud that I have tried to
continue that tradition in the footsteps of giants like Adam Smith, Carl
Menger, Bohm-Bawerk, Ludwig von Mises, Frank Fetter, Benjamin Anderson, among
others.
Monetary scientist Walter E Spahr, chairman of the Department of Economics at
New York University from 1927 to 1956, wrote in The Commercial and Financial
Chronicle on March 20, 1947:
A deep, searing corruption has afflicted
monetary science. It may require many years of painful effort to overcome this
disease if, indeed, it can be combated successfully. The well-being of our
nation has been undermined by this affliction ...
When gold payments were suspended in 1933 and we embarked upon a sea of managed
currency, a very large number of professors and organizations [a list was
appended] urged a prompt return to a gold standard. The question arises what
has become of those voices. Were they in error then? Did those 710 economists
know so little about monetary principles in 1933 that they could not, a short
time later, defend their earlier position? Or were they simply corrupted by a
political movement which they found it inexpedient to oppose?
There appears to be no valid defense that can be offered for men who pretend to
be scientists but who adjust their so-called principles in accordance with
changing political tides. A very great number of those who pass themselves off
as monetary economists either have not understood the lessons of the past or
have been willing to junk them, in the interest of expediency, for such
personal gains as they may have supposed they might realize ...
One representative of the mainstream, Professor Jeff Frieden of Harvard, says
that "the topic of the gold standard has received massive attention from
scholars since the 1980s - from Barry Eichengreen to Ben Bernanke with hundreds
in between - and a serious analysis of its implications requires a serious
engagement with the existing scholarly literature."
I have studied most of that literature and I have not been able to find one
iota connecting our crisis-ridden monetary system to the forcible removal of
gold from it. Rather, the gold standard is portrayed as an anachronistic
monetary regime, the removal of which was due to popular demand.
Moral considerations, sanctity of contracts, the honor of the government, the
opprobrium of declaring bankruptcy fraudulently, the question of tormenting
widows and orphans did not enter into it. Nor did long-term economic
considerations such as the ticking time-bomb of capital destruction.
The question is never raised how well the gold standard succeeded as the
protector of savings, as the instrument of capital accumulation and, above all,
as the stabilizer of the interest rate structure. A facade is maintained that
the mainstream has provided a reasonably complete and balanced view of the gold
standard, past and future, but that is outright mendacious.
The existing literature is in fact a stumbling block in the way of impartial
inquiry. It is dedicated to the maintenance of the status-quo, the perpetuation
of an immoral and dysfunctional monetary regime: that of irredeemable currency.
This led me to found Gold Standard University Live, which is free to challenge
the Keynesian and Friedmanite orthodoxy.
Let me mention just two broad areas of inquiry that have been overlooked by
others, but which we have planned to tackle:
Gold and the theory of interest. The latter cannot be understood without
the former. We have to incorporate the theory of hoarding into the theory of
interest. We have to study the problem of capital destruction in the wake of
gyrating interest rates, the main consequence of ousting gold from the monetary
system.
Gold and the theory of speculation. To understand the causes of the
Great Depression we must understand speculation. The theory of speculation
covers such topics as arbitrage, futures trading, basis (especially gold and
silver basis), contango, backwardation, short squeeze and corner. Speculation
is virtually ignored by conventional economic theory. The hurly-burly on the
floor of the exchanges apparently does not reach the ears of inhabitants of the
ivory tower.
Once these two gaps are filled, it becomes clear that the gold standard is
naturally ordained as the only system that can stabilize interest and foreign
exchange rates. By contrast, the regime of irredeemable currency has been
inflicted upon the people through fraud and chicanery. Its foundation is no
firmer than the gullibility of people who are, for the time being, willing to
exchange real goods and real services for irredeemable promises to pay. But as
the prices of crude oil and various foodstuffs convincingly show, there are
definite limits to gullibility.
The claim of John Maynard Keynes parroted by most mainstream economists, that
the Great Depression was due to the "contractionist tendencies of the gold
standard", is untenable. Just the opposite is true. Here is what happened.
In 1933, the forcible removal of gold signaled to bond speculators that the one
and only competition to government bonds had been knocked out. They were quick
to realize that their chance to bid bond prices sky high had come. The result
was continually falling interest rates, causing widespread capital destruction
as well as falling prices. Producers were bankrupted en masse. Economists have
never bothered to study the untoward consequences of the forcible removal of
gold, even though common sense would suggest that it cannot be done with
impunity.
A careful and impartial examination of the record shows that the scuttling of
the gold standard, as advocated by Keynes, was the main cause of the Great
Depression and, unless it is rehabilitated with all deliberate speed, a new
depression may be waiting in the wings.
Theory of speculation
Speculation is man's main tool to deal with risks and future uncertainties.
Mainstream economics fails to make a distinction between risks created by
nature and risks created by man. This distinction is fundamental. Speculation
can effectively confront the former, while it will only aggravate the latter.
Risks created by man include risks involved in foreign exchange and interest
rate fluctuations. They are certainly not created by nature, witness the fact
that such risks are non-existent under a gold standard. Clearly, they were
created by governments while abandoning the gold standard.
It is untenable to assume that, under the regime of irredeemable currency,
speculation will tame the fluctuations in foreign exchange and interest rates.
Just the opposite is true. Futures markets make them even less stable and more
volatile. It is not
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