Pipeline Sabotage and the Assassination of Archduke Ferdinand

 

In the course of history there sometimes occurs events that are monumentally important yet were hardly noticed by much of the world at the time. The assassination of Archduke Ferdinand in Sarajevo in 1914 went almost un-noticed at the time, yet it started a war that killed millions of people and ended four empires within four years--the Ottoman Empire, the German Empire, the Austro-Hungarian Empire, and the Russian Empire. Eventually even the British Empire succumbed.

 

The sabotage and what now appears to be the irreparable destruction of the Nord Stream Pipelines has every indication of being such an event.

 

The Attack Upon the Pipelines Is an Attack Upon Germany

 

The American political establishment has been railing against the pipelines for years, claiming that Germany will become so dependent upon Russian natural gas that it will be easily blackmailed in the future to do Russia's bidding or suffer a cutoff of natural gas. This is ludicrous from the start, because Germany can prevent this contingency by diversifying its energy sources. The fact that Germany has not chosen to do so is an indication that its leaders do not view a cutoff of Russian gas as credible. Is Germany wrong? Perhaps. But Germany is a sovereign country with its own constituency to which its political leaders must pander. The Green energy movement, which opposes nuclear, coal, and even natural gas exploitation on German soil is supported by a substantial segment of the German people and cannot be ignored by its political leaders. Some American leaders, such as California Governor Gavin Newsom, are building careers by following the same political winds. Since German industry and the comfort of the German people are dependent upon Russian natural gas, the attack upon the pipeline is an attack upon Germany itself.

 

Cui Bono?

 

Asking "Who Benefits" suggests that those responsible for a certain event are those most likely to gain from it. Logically there are only three possible culprits to the attacks. (The difficulty of the attacks rules out terrorist organizations, I think.) That leaves Germany itself, Russia, or the United States. Germany probably has the capability and, of course, access to the pipelines, but no motive to destroy it. Sure, Germany may shun Russian gas now, but why destroy something that it may desire in the future under a more favorable geopolitical climate? As for the Russians, could there be some deep geopolitical game to destroy the pipelines that took years to build and cost eleven billion dollars? After all, if Russia wanted to shut off gas to Germany, all it had to do was stop the flow at its end. That leaves the US.

 

Occam's Razor is a principle that "The simplest explanation is preferable to one that is more complex." America has been opposed to the pipelines long before the Ukrainian war. See here, here, and here. Watch this video clip of an exchange between Senator Ron Johnson and Russophobe State Department official Victoria Nuland, starting at the 2:52 mark. In separate public statements, President Biden and Ms Nuland said respectively that "there would no longer be a Nord Stream 2" and "Nord Stream 2 will not go forward". Furthermore, America is an exporter of liquefied natural gas to Europe. Russia claims that American gas costs 30% to 40% higher. As for deeper, geopolitical reasons to destroy the pipeline, it is entirely possible that America does not want peace in Europe. It may not want actual war, but it's actions indicate that it wants a permanent, armed presence in Europe and needs a reason to keep the NATO nations tied to its apron strings. If Russia is just another commercial nation, vying for natural gas contracts in Europe, who needs the American military? Thus, the incessant vilification of the pipelines.

 

The Lessons from Sarajevo

 

Getting back to the lesson to be derived from the assassination of Archduke Ferdinand, let us consider consequences of sabotaging the Nord Stream Pipelines between Russia and Germany. Eventually the culprits will be identified. I highly doubt that placing the blame on anyone except America is feasible. There is no motive for those who had access and capability, and there is no access and capability to those who might have motive (such as terrorist organizations). That leaves America. America may deny involvement, but Occam's Razor tells us otherwise. That means that America attacked either Russia, Germany, or both. The legal issue is irrelevant. If Russia feels that America attacked its property, we may see a tit-for-tat escalation similar to what happened in Europe a month after the assassination of Archduke Ferdinand. If Germany feels that its sovereignty was violated and its industry and people permanently harmed, it will break with America, leave NATO, and most likely take all of Europe with it. Who knows what the repercussions will be around the world, especially as our other allies see us in an entirely new light. Furthermore, our enemies will be emboldened to exploit our perfidy to the political maximum.

 

If there is any beneficial consequence to this heinous act, it would be that the American people rid themselves of these interventionist elites who treat the world as toys to be broken with no consequences. As a people we can rid ourselves of the hubris that we are the indispensible nation with a moral right to intervene in the affairs of friends and foes alike. How a nation of 330 million can assume such hubris in a world of almost eight billion people borders on political megalomania. It is past time to face reality.

World Dollar Hegemony Is Ending

 

The end of world dollar hegemony is coming and hardly anyone in government is taking notice or even understands what this means. Since the Bretton Woods Conference in 1944, the dollar has been the only currency accepted throughout the world for settlement of international trade accounts among nations. Prior to 1944, physical gold was used for international settlement. When an exporter in country A sold goods to an importer in country B, country B would pay with its own currency. But country A would have no interest in allowing country B's currency to build up in its vaults beyond an amount required to settle its own importers' needs. Thus country A would demand that country B redeem its own currency in gold. Sometimes country B would ship physical gold to country A. Or perhaps gold held in safekeeping in a third country would be designated as now belonging to country A, a book entry transaction that is more convenient than physical movement.

 

The Bretton Woods Agreement and Its Demise

 

The Bretton Woods Agreement added the dollar as tantamount to physical gold at $35 per ounce. The reason was simple: at the end of World War II the US had accumulated a preponderance of gold, due primarily to its role as the "arsenal of democracy". Thusly, central banks could exchange dollars for settlement rather than moving or re-designating the ownership of physical gold. The weakness of this system was that the world had to trust the US not to create more dollars than it could redeem for gold at $35 per ounce. But central banks always had the option to demand physical gold from the US and hence ensure that their trust in the measure of $35 per ounce was fully supported.

 

After approximately twenty years of this arrangement the market became concerned that the US was not living up to its obligations. The origin of this concern was centered in France. President Charles De Gaulle himself was a firm proponent of the classical gold standard as was his financial advisor Jacques Rueff. Starting in the late 1960's De Gaulle ordered the Bank of France to redeem eighty percent of its vast dollar reserves for gold. Other central banks followed suit, and a typical bank run developed. As US gold reserves reached critically low levels, President Nixon took the US off the gold exchange standard, as the system of central bank redemption was called, in the fall of 1971. It did NOT devalue the dollar to gold, which it could have done, and promise to stop dollar expansion. Instead the US simply ended dollar redemption for gold, allowing the US to create as many fiat dollars as the world market would accept. It turned out that the world market would accept a lot of fiat dollars. One of the reasons was that Saudi Arabia, the world's largest oil producer, agreed to demand payment in dollars for its oil, thus, creating worldwide demand for dollars.

 

The Petrodollar Era Supplants Bretton Woods, But Its End Is Nigh

 

This "petrodollar" arrangement is now breaking down, due to the ever accelerating debasement of the dollar. The cause of the debasement is the unholy alliance of the Federal Reserve, the US central bank, and the US government.  The Federal Reserve prints, out of thin air, all the dollars that the US government needs to maintain its massive and ever increasing spending deficit. The monetization of these deficits has led to a loss of dollar purchasing power at an accelerating rate.

 

The purpose of explaining all this is to give background to the currently developing situation. For almost eighty years the federal government has been able to spend as much as it desired, knowing that the world either would hold its dollars or that the Fed would monetize whatever the market would not accept; i.e., the Fed would buy the government's debt itself and (figuratively) print the money it would give to the Treasury. The Fed would then hold the debt on its own balance sheet. The sheer scale of its intervention is shocking. In 2008 the Fed's balance sheet what slightly under $.880 trillion. Today it is $8.816 trillion. (See this graph from the Fed's own website.)

 

So, what did the federal government do with all that newly printed money? It spent it on war and welfare, of course. Lyndon Johnson's Great Society welfare state is now firmly entrenched and constantly expanding. The American military has intervened in every corner of the world. It seems that all that is necessary for the US to intervene militarily is for some local disputant on the other side of the world, with its own incomprehensible historical animosities, to claim that its neighbor is invading its sovereign territory and/or committing atrocities. The American people are whipped into a frenzy of righteousness and off we go to Timbuktu. The result is thousands of dead, billions squandered, and the local situation even worse than before.

 

All this mayhem could only be funded by worldwide acceptance of the fiat dollar. But much of the world has had enough. There are several organizations that are cooperating to develop an alternative to the dollar for the settlement of international trade. The BRICS, the SCO, and the Eurasian Economic Union have formed a working group to develop a commodity based medium of exchange to replace the dollar as the premier means for the settlement of international trade. Goldmoney's Alasdair Macleod has written extensively about this project. More countries--especially countries currently using the dollar, such as Saudi Arabia--have announced their intensions to join the project. More, many more, will follow Saudi Arabia.

 

How to convey the importance of this development to the general public? It all seems complicated and probably years away. Plus it may not work. That is the purpose of the next part of my article.

 

The Magic Checkbook

 

Let's break this down to the individual level, so that everyone can grasp its full meaning. Let us assume that you were handed a checkbook and told that you could write as many checks as you wished in any amount you desired and, most importantly, no one would refuse to take your check and no one would cash it because the checking account has no money anyway. Whoever receives the check can only pass it along, via ordinary trade, to someone else. First of all, you can see that once this money is created by you, it will never be destroyed. It will continue to grow every time you write a new check. In other words, the money supply will grow according to your propensity to spend. Now let's assume that when given this magic checkbook, you had been a fairly frugal and responsible person. That's one of the reasons that you were given it in the first place. For some time you continued to live frugally, but over the years your self-control breaks down and you start to spend. To placate your conscience you spend some of the money on others; i.e., the poor, the elderly, the disabled, etc. But eventually you succumb to ever increasing DEMANDS for money to compensate the victims of all kinds of disasters. If you don't send money to the suffering masses, you are condemned by all. So you spend. Then you decide that you should spend money on rehabilitating humanity, exploring the solar system, funding higher education. The DEMANDS for money from your magic checkbook grow and grow. If you try to moderate your spending, you threaten to damage your reputation internationally.

 

Things get out of hand. But this isn't the end of the story. The spending from the magic checkbook has created massive price increases and has funded a class of sycophants, deadbeats, and megalomaniacs. A splinter group decides to spurn accepting checks from the magic checkbook and develop a new medium of exchange. It isn't easy, and it takes quite a while. There are advances and retrenchments, but eventually honest money re-emerges. Now more and more people refuse to accept your checks from the magic checkbook.

 

Rise of a Competing Reserve Currency

 

This is where the world is headed, because the US cannot force sovereign nations to accept the dollar, especially if there is another and better choice. The US has not lived up to its responsibility to protect the purchasing power of the dollar via controlling its supply. Lord Acton's warning is as important today as ever; i.e., "Power tends to corrupt, and absolute power corrupts absolutely." The new SCO currency will supplant the dollar as the world's premier reserve currency primarily because it will be backed to a large extent by commodities and it will not be under the control of one sovereign country but a number of sovereign countries, all dedicated to its monetary health in ensuring the free flow of international trade and payments. It will be a loss for the dollar, of course, and for the US, but frankly the world will benefit overall.

The Missing Factor in Liz Truss' Economic Recovery Plan

 

Despite much anticipation the economic recovery plan proposed by Britain's new prime minister, Liz Truss, is missing one key ingredient that will ensure its failure--spending cuts. The new "temporary budget" presented by her Chancellor of the Exchequer, Kwasi Kwarteng, proposed tax cuts and regulatory reform but not spending cuts. According to the Spectator of London on October 12, 2022:

 

"Liz Truss told PMQs there would ‘absolutely’ not be any cuts to public spending. Downing Street clarified that ‘government spending will continue to rise,...

 

This exposes a serious misconception of the real impact of government spending on the economy. Of course, Keynesians see nothing wrong and lots that is right about increasing government spending, especially if the goal is to spur the economy to create more "aggregate demand".

 

The problem is a complete misunderstanding of the nature of government spending. Here's the key takeaway: Government spending consumes societal resources rather than increasing them.

 

Any supposed increase in economic performance is nothing more than an increase in monetary inflation. Resources that had been directed to satisfying private demand now are satisfying government demand. If these were one and the same--i.e., that government spending was just as effective in meeting private needs as private spending--then logic tells us that there would be no reason for government to increase spending at all. Therefore, government spending pulls resources out of the economy and wastes them to some unknown extent. Overall, the economy retreats in its ability to satisfy real needs.

 

Nobel Laureate Milton Friedman had a wonderful explanation about the difference between government spending your money and you spending your own money. If you spend your own money on yourself, you will spend it wisely. If you spend your own money on someone else, a Christmas present perhaps, you will spend it somewhat less wisely. If you spend someone else's money on yourself, you will spend it even less wisely. If you spend someone else's money on someone else, you really cannot know what other people want and you really don't care how the money is spent. The last is what government does.

 

In his magnum opus Man, Economy and State with Power and Market, Murray N. Rothbard discredits the whole idea that government spending contributes something to satisfying consumer needs. Where does government get this money that it uses to satisfy the needs of "fill in the blank" (the military, welfare recipients, corporate handouts, etc.) if not from the productive economy? On page 940 of the Scholar's Second Edition, Rothbard says that "...we must conclude that the government's productive contribution to the economy is precisely zero." Further down the page he elaborates on this theme by pointing out that "...private consumers would have done something...more productive...". Therefore, "...the government's spending is not simply zero, but negative for it has imposed a loss in productivity upon society."

 

Perhaps using an individual actor's dilemma would be more helpful to understand Rothbard's very important point. Private homes deteriorate over time. They require constant upkeep just to keep them in the same functional condition. Private homes need new roofs every few decades, repainting, re-stuccoing, repairs to the driveway, plumbing, etc. If government raises taxes for any reason the homeowner has fewer resources with which to maintain his property in good condition. If the government prints money instead of raising taxes, the result is approximately the same, because maintenance costs will increase in dollar terms. Economists refer to this phenomenon as "the inflation tax".

 

Conclusion

 

Government spending destroys economies, whether taxes increase or not. It is the spending itself that sucks real, productive resources from the economy. Ms. Truss and her followers will be bitterly disappointed that the British economy does not recover and may actually regress due to their unwillingness to cut spending and their willingness to increase it.

Despite Their Hubris, Monetary Authorities Do Not Have Total Control

 

A new monetary age is coming and sooner than anyone thinks. Since 1971 the world's monetary system has been unanchored from anything of intrinsic value. In the fall of that year President Nixon took the US off what remained of the gold standard, called the gold exchange standard, in which foreign central banks could redeem dollars for America's gold reserves at $35 per ounce. The reason for Nixon's action was simple: the US had cheated. Dollars were supposed to be fully backed by gold, meaning that the US would not print more money than it had the ability to redeem in gold at $35 per ounce. In effect, the US counterfeited its own currency.

 

Ever since 1971 the world has been on a fiat monetary system, allowing the world's central banks to print as much currency as their profligate governments demanded. Today the dollar is worth only two cents of its 1971 gold value. ($35 per ounce of gold in 1971 divided by $1,749 per ounce of gold on August 29, 2022). One thing is certain, with greater and greater government deficits, funded by greater and greater amounts of fiat currency, the dollar will continue to lose purchasing power, perhaps falling to zero.

 

As the US government keeps spending, a milquetoast Fed creates even more dollars in order to prevent interest rates and/or taxes from skyrocketing, which would cause the stock market to implode. The consequences are only just emerging; i.e., higher prices. Nevertheless, we are told that our monetary masters have the authority to force us to use the dollar, despite its steady drop in purchasing power. Nothing can or will be done. The Fed controls the dollar. The Bank of England controls the Pound Sterling. The European Central Bank controls the euro, and so on. Or so it is claimed. But is that really true? It is the hubris of our monetary masters that they have total control over whatever fiat currency is made mandatory.

 

An Idea Whose Time Has Come

 

Victor Hugo wrote that "There is nothing more powerful than an idea whose time has come." In 1971 that idea was Keynesianism. Keynesian monetary theory gave central banks worldwide the philosophical endorsement to print money in order to prevent recessions and to contract money when the economy overheated (prices started to rise). It was oh so technical, modern, and reassuring to the public, who even today venerate our monetary masters at the Fed, the Bank of England, the European Central Bank, the Bank of Japan, etc. But that was then. This is now. Now all is not as it seems. There is a new idea whose time has come. Or, rather, it is an old idea that is making a comeback. That idea is sound, commodity based money that cannot be inflated.

 

Some nations, especially those outside the Western orbit, are starting to realize that their hoards of dollars, received in exchange for valuable goods, are shrinking in purchasing power at a faster and faster rate. The great con has been exposed. Many countries are not happy and want to do something about it. Herein lies a great lesson. The world is a very big place. One can happily live in this world only if he is honest, trustworthy, reliable, friendly, and doesn't meddle in the affairs of others. This lesson applies to nations as well as individuals. But the US has violated these time-honored traditions. It has debauched the dollar, the world's premier reserve currency for settling international trade. It has used the international settlement system (SWIFT) as a weapon to ostracize nations, such as Iran, that it does not like. It has confiscated assets held in the US that belong to others, most recently Russians. As a result, some nations are working to replace the dollar and the US controlled international settlement system with one of their own. It is not an easy task, but, as Victor Hugo pointed out, the idea of sound money and friendly, non-interventionist relations is taking hold and will not be turned back.

 

The Warning Signs of Change Are There to See

 

There are some warning signs. Some members of the Shanghai Cooperation Organization have been working on a new medium of exchange for settling international trade, bypassing the dollar. (See this article and this article) This money will contain a large gold content, making it difficult, if not impossible, to debase. The Russians and the Chinese are involved, of course, which is very important because both of these nations probably hold more actual gold specie than any Western nation, including the US. Significantly Saudi Arabia is considering joining. This is crucial, because since 1971 the Saudis have demanded that payment for oil be made in dollars only, creating the so-called petrodollar market. If the Saudis decided to accept a new SCO currency in addition to the dollar, demand for the dollar would drop. This would signal an end to the dollar as the world's preferred reserve currency and set off seismic financial shocks, especially in the US.

 

But let us not discount the possibility that some currently friendly nation, such as Germany, might not seek an alternative to a steadily shrinking dollar. Currently the euro is legal tender in Germany, but many German economists are not happy with European Central Bank policies. The euro has been inflated as much as the dollar. This is anathema to Germans who understand how their country was destroyed by hyperinflation in the 1920's. Germany's federal government is the most fiscally responsible in the industrialized world. It is ludicrous that Germany's monetary system is run by inflationists at the European Central Bank. Germany needs its own currency. Were it to reinstate the deutschmark, the European Monetary System would collapse, and good riddance to it. Many European nations probably would choose to join a deutschmark zone. In the long run this would be beneficial to strengthening the dollar.

 

International Currency Competition Would Keep the Fed Honest

 

Foreign central banks would not need to hold as many dollars, most of which have been used to buy US Treasury debt. They will flow back into the US, exposing the current system's weakness; i.e., that US price inflation was kept in check only by world demand to hold dollars for international trade purposes. That need will diminish and foreign dollars will start entering the spending stream instead of being held as reserves. To stem the inevitable increase in prices the Fed must allow the interest rate to rise and the federal government must cut spending. Otherwise, the dollar's exchange rate with a new SCO currency or a new deutschmark will fall. The US would be unable to afford necessary imports. To prevent this disaster, the economy must be unshackled from needless regulation, taxes must be cut, the dollar must be made redeemable in gold, and, most importantly the federal government would have to cut spending. Otherwise the economy will not progress. It is important to remember that the federal government is a parasite on the economy. Every dollar that it cuts from its own spending frees resources for the real, private economy.

 

The long, steady march of the dollar to complete loss of purchasing power would be arrested. This is good news for Americans and all other holders of dollar reserves. What the public calls "inflation" would moderate. There would be a reassessment of US economic policy. For example, the green energy movement would be over. Wind and solar infrastructure would revert to niche markets at best. They were never capable of meeting America's energy needs. International interventionism would be over. The American people would finally see the full monetary cost of America's wars, which would  have to be supported by higher taxes. Reality would reassert itself. All this is very good news for the future of America, which henceforth must live within its own means and behave honorably with the world. I see nothing wrong with that prospect. The important point is that the current monetary expansion eventually will come to an end, one way or another. Various economists like Frederick Hayek and Herb Stein have said in one form or another: that which cannot go on forever will not go on forever. The sooner the US ends its monetary expansion of the dollar, the shorter will be the necessary period of economic adjustment.

 

Mandatory Vaccines vs. Logic and Kantian Ethics

 

The case in favor of mandatory vaccines rests upon faulty logic and violates ethical principles. A vaccinated person protects himself to the extent of the vaccine's capability, which may be close to one hundred percent, as in the case of polio and small pox vaccines, or much less, as in the case of the Covid 19 vaccines. One may take the vaccine and enjoy its full protection even if one is the only person so vaccinated. If everyone else takes the vaccine, one's protection is NOT increased. And if everyone else refuses to take the vaccine, one's protection is not diminished.

 

So, why insist that "society" must be allowed to force you to take a vaccine? If you refuse to take it, you are not a threat to anyone who does take it. And those like you who refuse to take it assume the risk.

 

One argument is that the more people who take the vaccine, the less chance the disease has to spread and, it is hoped, will die out before it has a chance to mutate to something else for which the current vaccine will not provide protection. This is what the epidemiologists call "herd immunity".

 

Kant's Humanity Principle

 

The problem with this argument is that it violates Emmanuel Kant's "Humanity Principle"; i.e., that man is an end in himself and may not be used solely as a means to some other end. The advocates of mandatory vaccine want to force individuals, against their will, to take a vaccine in order to protect unknown and perhaps nonexistent others for something that may or may not happen. Not only is this very thin soup indeed, and smacks of totalitarianism, but is a clear violation of Kantian ethics.

 

So, what's so important about Kantian ethics? Well, we see the problem all around us. It is so ubiquitous that that we take it for granted. The state has expanded from one organized for the  protection of life, liberty, and property to one of coercion to attain societal engineering on both a domestic and international scale. I refer to the warfare/welfare state. On the thinnest of pretenses man becomes cannon fodder for continuous wars, not to protect our lives, liberty, and property in the present, but as preventive wars to stop some supposed attack in the future. If we don't stop those terrible "fill-in-the-blank" over there, they will be at our doorstep as sure as night follows day, say the warmongers.

 

Domestically we are used to pursue a theoretical ideal called the welfare state, where our property is confiscated in ever increasing amounts in order to uplift others. Most often the failure of these programs becomes prima facie reason to expand them, never to end them. The welfare state has pushed aside voluntary private charities and benevolent associations, who must continually show their financial supporters that they are effective and efficient in order to retain their voluntary funding. Such organizations do not violate Kantian ethics. Not so with government welfare, where the public are used as means and not ends.

 

The mandatory vaccinations are both illogical and ethical failures. But they are just one manifestation of a wide problem.

Diversity, Equity, and Inclusion Goals Are Illogical and Harmful

 

Does society really need and can it benefit from goals designed to achieve statistical "Diversity, Equity, and Inclusion" metrics? The answer, of course, is "no" on both counts; i.e., society neither needs these goals and cannot benefit from attempting to achieve these goals. There are two illogical assumptions embedded in the DEI movement.

 

Illogic assumption number one: If superficial characteristics really are meaningless, then those individuals who possess these characteristics do not need goals for them in order to be fully included in society. For example, I am certain that a person's eye color has no bearing upon one's ability to function fully in society; therefore, there is no need for a goal to ensure that individuals with all possible eye coloring are represented on an equitable basis in whatever enterprise is being measured. The same undoubtedly is true for height, hair color, and other random characteristics of birth.

 

Ah, but you may say, the very fact that people with noticeable characteristics are in fact underrepresented in desirable societal classes is prima facie evidence that dark forces are at work. And here we have the crux of the matter; i.e., that government coercion is needed to defeat these dark forces.

 

That claim leads us to illogic assumption number two: If superficial characteristics are meaningless, then those enterprises who discriminate based upon these meaningless characteristics will fail. Those who discriminate AGAINST people with certain personal characteristics discriminate in FAVOR of lesser talented people who do not possess these characteristics. The iron rule is that discrimination always has a flip side. If an enterprise refuses to include people with brown eyes, then it must discriminate in favor of lesser talented people with blue, green, or grey eyes. Since the pool of talented people is roughly the same for brown eyed people, then very talented brown eyed people will outperform their lesser talented blue, green, and grey eyed competitors. In an open society with free entry for competition, the cream will always rise to the top.

 

In conclusion, discrimination based on superficial characteristics, if it really does exist, is self-correcting in a free labor market. Any perceived statistical aberrations are meaningless or there are other explanations at work. Insisting on fighting unnecessary battles are extremely harmful to society for the simple reason that there is nothing that society can do. DEI warriors will be persecuting the innocent, exactly the type of injustice they wish to stop. My advice is this: Instead of searching for dragons to slay, just mind your own business and set a good example. You will be happier and you will accomplish more good for yourself and the society around you.

 

Sound Money Can Prevent What Representative Democracy Does Not

 

One of the arrogances of "Western" nations is that our way of life and our liberties are protected by periodic elections as required by constitutions, written (America) or not (Great Britain), containing bills of rights, etc. The people rule, it is claimed, and we get exactly what we want, even if those in the minority are unhappy with the result. Minorities can always become tomorrow's majority and institute alternative policies. Therefore, Western nations really cannot get into too much trouble, since everyone wants peace, freedom, and prosperity, even if we disagree on the proper route to take to get there.

 

But what if I told you that there was a fatal flaw embedded in the very structure of Western nations that undermined this view? What if we common citizens can vote, change leaders, change parties, and it's all meaningless? A good argument can be made that Ludwig von Mises believed exactly that and warned nations repeatedly in book after book to eliminate this fatal flaw or suffer complete societal collapse. Mises knew this could happen, because he had seen it happen first hand. He pleaded with the elected leaders of Austria, his beloved homeland, to take action in order to prevent what had happened in Weimar Germany.

                                                                                                                                                                            

The Cause of Societal Collapse in Weimar Republic Germany

 

What happened in Weimar Germany--a real republic with democratic elections, by the way--was a test case that should not be ignored. The collapse of the German Weimar Republic led directly to the rise of National Socialism. The cause was unsound money; i.e., money printed (literally at the time) in such quantities that the Papiermark became worthless. Society was thrown into chaos. Germany had lost two million men in World War I out of a total population of sixty-eight million. The nation was one of widows, orphans, and the aged almost entirely dependent upon what savings they had accumulated. These savings became worthless. Widows became prostitutes, children became thieves, and aged parents committed suicide. One of the best descriptions of this disaster is Adam Fergusson's When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany. The book is not for the squeamish.

 

Mises wrote repeatedly that unsound money was just as important, perhaps more important, that the trappings of popular government. Perhaps his best known quote is found on page 455 in The Theory of Money and Credit:

 

"It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bill of rights."

 

Notice that Mises does not qualify the kind of governments that may succumb to the despotism of money printing. This is very important. All governments, democratic republics or totalitarian states, are susceptible to the despotism of money printing. Mises returns to this subject time and time again. Here is just one quote from Economic Policy, page 65.

 

"The gold standard has one tremendous virtue: the quantity of the money supply, under the gold standard, is independent of the policies of governments and political parties. This is its main advantage. It is a form of protection against spendthrift governments."

 

A Budding Alternative to the Fiat Dollar

 

Iran, of all nations, recently accepted as a member of the Shanghai Cooperation Organization, has proposed that the organization establish a new currency in order to bypass the dollar for settling trade among its members. Alasdair Macleod has studied this process and written two learned articles, here and here, which refer to their progress. The key points:

 

"The Eurasian Economic Union (EAEU), consisting mainly of a central Asian subset of the Shanghai Cooperation Organisation (SCO) has announced plans for a trade settlement currency backed by a mixture of commodities and the currencies of member states."

 

"...a successful EAEU trade settlement currency can be extended from EAEU nations to both those in the wider SCO and the BRICS members not in the SCO. It could also be an acceptable replacement of the petrodollar for oil export payments to the Middle East."

 

 

The SCO members are negotiating over the new currency's structure, but the important point is that it will have a very large commodity-based component, including gold. The SCO's understanding of money is more in line with that of Ludwig von Mises, who defined money as the following on page 425 of his magnum opus Human Action:

 

"Under the gold standard gold is money and money is gold."

 

Sound Money Prevents War

 

Top among the most important reasons for sound money is that it militates against unnecessary wars. Wars are tremendously expensive, of course, and usually are undertaken only as a last resort or as a purely defensive action. But unsound money makes it appear, for awhile anyway, as if war is cost free. The US is the poster child for entering wars not as a last resort but for other reasons. When Eisenhower left office in early 1961, the US dollar was, well, as sound as a dollar. Eight years later, after Lyndon Johnson's "Guns and Butter" policy, the dollar's value was under threat, as the US's dwindling gold reserve amply illustrated. Two and a half years later, rather than end the Vietnam War and other Johnson-era welfare programs, Richard Nixon ended gold redemption by our trading partners. The war continued to its ignominious end. Had he done his duty the US would have remained on the gold standard and avoided other failed military adventures, a list so long that it is embarrassing to list them all.

 

Which Works Better--Gold or Representative Democracy?

 

In other words, gold would have done its primary duty; i.e., make the real cost of government spending perfectly clear so that people, through their elected representatives, can decide the extent of government spending. Instead, the complete absence of any kind of objective barometer of the real cost of government merely encouraged US neoconservatives to search the world for dragons to slay and, if dragons were hard to find, to convince the people that the dragons existed in places very far away--Libya, Iraq, Syria, Somalia, Afghanistan, Ukraine...have I missed any?--and were a threat to our way of life. Few, if any, of these failed adventures would have been undertaken had the US been on an enforceable gold standard.

 

Representative democracy is important, yes, but it does not prevent societal collapse from fiscal and monetary irresponsibility. Whereas, a gold standard dollar quickly shows the true cost of government and can prevent most follies. To put it bluntly, there are thousands of mothers who today would have their sons by their sides rather than a gold star in their windows.

 

But wait! There's more!, as the late night TV salesmen of tchotchkes for the gullible used to say. Printing money out of thin air causes multiple adverse effects, but most are delayed somewhat. Higher prices. The Boom/Bust Credit Cycle. Resource misallocation. Plus many more, and all leading to a lower standard of living. But a sound money standard reveals the sacrifices that the public must make to fund more government spending. Taxes must be raised, borrowing increased, or other programs defunded. These adverse consequences happen almost immediately and are visible to all. If the public thinks that the war or other spending program is necessary, then the government will get its approval. But, really!, how many ordinary people can even find the location on a map of our many wars of the last sixty years or understand and support boondoggle spending programs that never die and, most often, get increased funding?

 

The worst spending programs in the past few years were the so-called "stimulus checks". Even died-in-the-wool big spenders would question the rationale of taxing the public in order to send them checks, minus the government's bureaucratic handling fee, of course. Ladies and gentlemen, this makes no sense and under a sound money environment would never happen. Yet our federal government sent out three of them! And now our rulers are trying to convince us that increasing the money supply to fund all these fiascos had nothing to do with higher prices and shortages. Sure. But then again, those late night TV salesmen like Ron Popeil sold lots of Vegematics!