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The Greatest Lie Ever Told

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September 29, 2010 – Comments (63)

Investors are still the primary allocators of capital in the market economy and the question on nearly every investor's mind is how much of that capital should be allocated to precious metals.  I can't answer this question.  It's up to the individual investor.  I can, however, help you, the investor, understand how we went from a world of gold to a world of monetary chaos.  That's the purpose of this post. 

The Classical Gold Standard

In 1896, prices were lower in American than they had been in 1834, when the United States went back on a 100% gold standard.  The Civil War caused some price distortions through inflation (wars and inflation are inseparable.)  But from 1879, when the U.S. returned to a full gold standard, until 1896, prices fell at 3% annually. Wages, on the other hand, remained flat and in certain cases, even roses.  In fact, wages rose steadily throughout the 1800's.  Imagine the impact this had on the standard of living of poor Americans.  For 18 years, assuming their salaries remained constant, their standard of living rose by 3% annually.  That means that in 1896, the average American worker's standard of living rose by roughly 70% over what he enjoyed in 1879. 

Price-Specie Flow Mechanism

The problem with the gold standard was its inflexibility. This was a problem for governments, not for the people. For the people, the benefit of the gold standard was its inflexibility. Central banks around the world used a pyramid scheme in conjunction with gold.  At the base was a certain amount of gold.  At the top was the created paper money, each with a claim on gold.  If the central banks or the governments wished to increase the amount of money in circulation (inflate), they were restricted by a phemenon known as the price-specie flow mechanism.  I will explain how this works in the comment section if requested.  The end result was gold flowing out of the country at a rapid rate.  To stop this flow, interest rates had to be raised, gold started flowing back in, and inflation was checked.  So the price-specie flow mechanism was a built-in check on inflation.  Economic law tied government's hands.

World War I

Within two weeks of the outbreak of WWI, every belligerent nation went off the gold standard.  Monetary chaos followed.  Inflation ravaged Europe. The United States stayed true to the gold standard for the most part until they entered the war in 1917.  Gold travelled to the U.S. in large quantities during this time, causing a sudden increase in American wealth.  For now, I'll spare you a lecture on modern war and inflation. 

After the war, European nations had great difficulty in returning to the classical gold standard.  The problem wasn't the gold standard.  The problem was that government officials and the central banks refused to face the realities of what they had done.  In 1925, England, for example, tried to repeg the Pound at the old ratio of one pound = 1/4 oz. of gold.  This folly was compounded by the fact that England was already suffering a massive economic recession by that time.  The reality was higher prices and a weaker peg to gold.  But even if England had set the peg to reflect reality, they were still in for economic pain.  Wars aren't free. 

Due to the price-specie flow mechanism, gold was flowing out of England at a rapid rate.  Representatives of the Bank of England met with the Federal Reserve and devised a plan to "save" England from destruction.  Obviously, what England was trying to save itself from was reality.  There is no escaping reality.  The Federal Reserve agreed to raise prices in the United States through inflation (creating money out of thin air,) hoping that this would check the flow of gold from England to America. What followed was the roaring twenties, a stock market bubble, and a crash back to reality.

Monetary Chaos Leads to Political Intervention

In America, reality was wished away by Herbert Hoover. Hoover's role in turning a crash into a Depression can be explained further in the comment section if requested. Hoover's interventionism included public-works projects, expanding government spending to record levels, and forcing businesses to keep wage rates at price levels prevelant during the inflationary boom, instead of allowing businesses to adjust to the new economic reality. 

Every western nation gave up on the classical gold standard by 1936.  They had refused to face economic reality, and if one were to be honest you could say that every politician was attempting to put off paying for the war follies for as long as possible.  In the United States, FDR, after campaigning against Hoover's fiscal irresponsibility, confiscated American gold holdings in 1933.  This effectively ended the gold standard in America, though I argue that the Federal Reserve ended it in 1926 with an act of treason.  Americans were not allowed to own gold, except in their teeth and around their necks, from 1933 to 1976. 

FDR followed up his gold confiscation by repegging the dollar to 1/35th of an ounce of gold, rather than 1/20th.  The purpose of this plan was to make inflation (again, classical definition) easier to implement.  One doesn't have to be an economic genius to realize that you can't cure a disease caused by inflation with more inflation, but that was FDR's plan.

World War II and Bretton Woods

Sadly, Western countries weren't done sending people to the slaughter.  The Great Depression, caused by the monetary chaos of World War I, led desperate people to turn their anger towards someone, they just didn't know who to blame.  Their governments provided a scapegoat. It was everybody else's fault but theirs.

Following another round of needless carnage called World War II, several better-than-thou snakes and scoundrels met at a fancy resort in New Hampshire called Bretton Woods (on stolen taxpayer money, of course).  There, Britian's JM Keynes and America's Harry Dexter White (a Soviet spy) proposed ideas for a stable government-issued currency.  Neither plan was adopted in total.  A compromise worked out by the delegation resulted in the famous Bretton Woods agreement.

The agreement called for each country to hold dollars, rather than gold, as backing for their currency.  America, the largest gold hoarder at the time, would promise to pay gold to any country wishing to exchange dollars. The idea was that this would allow countries to pursue a course of moderate inflation in order to..... that's right, repay war debts.  (I hope you are starting to see that the entire idea of monetary policy is a giant joke intended to allow countries to pursue reckless wars and pass the buck to anyone stupid enough to pay it.)

Bretton Woods was doomed from the start.  People will trust their governments, even when it becomes obvious that the government is full of crap.  Other governments however, knowing how full of crap they are, have no such delusions.  The French, perhaps more aware of their own crap than anyone else, were beginning to balk at this arrangement by the mid 1950's.  The Germans were wising up too.  It turns out, it's easier to bribe a German than a Frenchman (who would've guessed?)

Here's what happened. At first, everything was going along smooth.  All parties played the charade and no one cared much that America was slightly inflating their currency.  But instead of gold flowing out of America, as the price-specie flow mechanism would indicate, dollars were flowing out of America. 

When LBJ took over and decided America could afford a war on just about everything he didn't like (and if there was one thing LBJ couldn't stand, it was something he didn't like), America started inflating the currency at a rapid pace.  But it was exporting its inflation to Europe.  Europeans, with dollars backing their currency, were paying high prices because of LBJ's policy of "guns and butter."  Europeans paid for the Vietnam War.  I'm sure they're very happy about that.  When the Germans protested the inflationary policies of DC, they were told in polite terms that it might be necessary to withdraw America's defense shield.  The French, however, couldn't care less.  They knew America was attempting to run a "deficit without tears."  In other words, they were passing the buck for the war to anyone stupid enough to pay it.

The Breakdown of Bretton Woods

Meanwhile, gold was being traded in open markets in Zurich and London.  Whenever gold rose about $35/oz., European governments had to sell gold on the market to drive the price back down.  The US government alternated between bribing Europearns and threatening gold producing countries, particularly in Africa, to slow production.  (Don't you dare make money at our expense!)  But doom was around the corner.  In 1971, with countries lining up behind the French to redeem their gold, Nixon closed the gold window, essentially declaring bankruptcy and telling Europe, sorry but you won't be paid back for our military follies you financed.  Haha, suckers!

The Short Lived Reign of the Keynesians

Enter the witch doctors. The Keynesians took over, despite being unable to determine the root cause of the world's monetary problems. The Keynesians wanted a world currency, with some gold backing that would allow a range of manipulation as needed.  But their reign was cut short when America suffered from nasty inflation and unemployment (a combination known as stagflation), during the 1970's.  The Keynesians had said that stagflation was impossible.  They went back to their hole.

Next!

The Short Lived Reign of the Monetarists

The Monetarists rose to prominence in the 1980s.  They wanted a free floating exchange between government paper currencies, with absolutely no gold backing.  They figured that if one country inflated, the drop in its exchange rate would force them to raise interest rates and bring inflation back in line.  Unfortunately, they didn't say what would happen if every country inflated.  This is when world-wide inflation really took off.

Next!

If Neither Theory Works, Let's Combine Them

The 1990's saw the rise of the hyphenated economist.  Everyone was a neo-this or a post-neo-modern-that.  Keynesians bought the line from the monetarists that the Great Depression was caused by deflation.  Monetarists accepted that some government spending might be needed to help stimulate a depressed economy.

We ended up with the worst of two worlds.  Now every modern nation is inflating their currency and spending borrowed money.  Predictably, we've crashed again, and crashed hard.  So the same old story goes. Governments around the world are scrambling to figure out who they can pass the buck to.  There has to be someone out there, some total patsy, willing to eat the debts we've accrued.

The Greatest Lie Ever Told

So what's the greatest lie ever told?  It's the lie that places the blame on the Great Depression and the monetary chaos that has followed on anyone or anything besides the governments that caused it. These are not market failures.  The booms and busts, the economic distortions, the inflation, the increasing destruction of the middle class, the robbing of savings, the increasing poverty, the rise of big business and big government, the death of liberty.  All of these things are the result of governemnts refusal to accept economic reality.

Keep that in mind, as well as the events that brought us here, as you ponder how much capital you want to allocate to precious metals.  Governments around the world are looking for a patsy.  They can't pass the buck to you if you've already turned it in for gold.

David in Qatar

 

63 Comments – Post Your Own

#1) On September 29, 2010 at 1:13 PM, MoneyWorksforMe (< 20) wrote:

Excellent post! I really enjoyed this!

+1 

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#2) On September 29, 2010 at 1:21 PM, XMFSinchiruna (27.49) wrote:

A wonderfully graceful synopsis ... bravo!

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#3) On September 29, 2010 at 1:35 PM, whereaminow (20.41) wrote:

MoneyWorksforMe and TMFSinchiruna,

Thanks for the kind words! Glad you enjoyed it.

(I swear I'm working on the typos... why can't I catch my own mistakes when I proofread?)

David in Qatar

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#4) On September 29, 2010 at 1:54 PM, dbjella (< 20) wrote:

I hope this gets more recs and comments than your spam email. 

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#5) On September 29, 2010 at 1:56 PM, whereaminow (20.41) wrote:

dbjella,

Me too!

David in Qatar

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#6) On September 29, 2010 at 2:25 PM, mtf00l (45.82) wrote:

Would you consider Gold a buy at $1310 an ounce?

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#7) On September 29, 2010 at 2:29 PM, whereaminow (20.41) wrote:

mtf00l,

Yes. Personally, I won't stop buying gold (and silver) until monetary chaos ends, no matter the price.

David in Qatar

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#8) On September 29, 2010 at 2:37 PM, Dow3000 (< 20) wrote:

You articulate this many times better than I can...so I will print it out and use it. :-)

+1

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#9) On September 29, 2010 at 2:46 PM, whereaminow (20.41) wrote:

Here's one addendum.

Concerning the extreme chaos that followed World War I, it is at least somewhat understandable that European governments did not understand what they had done.

(a) This was the first time a war had been financed completely by creating paper money.  Previous wars had to be financed, at least in part, through taxation.  When the government couldn't tax any more, the armies went home.

(b) Because of this, World War I was much more expensive than any previous war. 

(c) When the war was over, no one had the slightest idea, outside of a few classical economists that no one listened to anyway, how much money had actually been spent, how it would be repaid, or what effect that would have on their economies going forward.

(d) So when these economies weren't returning to their robust levels in the 1920's, the only explanation the Europeans could come up with (well, at least it was the explanation they accepted), was that Germany was dragging their feet in repaying their war debts the Allies saddled them with.  It wasn't inflation or price controls. It was Germany's fault.

So when you look at it from this perspective, it just strikes me as incredible silly and perhaps intentionally facetious that modern day historians would lay the blame for the Great Depression on the gold standard.  Nothing could be further from the truth.  War, central banking, government policy, government reaction.... sure.  The gold standard, no.

David in Qatar

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#10) On September 29, 2010 at 2:49 PM, Acesnyper (< 20) wrote:

David,

While I still am not sold Gold is a great investment, I did greatly enjoy your read.

 You grasp history quite well and bring a great case to make me look back into gold.

 This gives me an idea for a blog in fact. 

 This gets a rec from me. Great read thank you again.

 

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#11) On September 29, 2010 at 2:59 PM, kdakota630 (29.54) wrote:

One of your best blogs, and you've had some pretty good ones already. +1 rec

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#12) On September 29, 2010 at 3:17 PM, whereaminow (20.41) wrote:

Dow3000,

Thanks! And please do. But I also hope you search out my assertions and validate them. You will find they are correct, but that there is much more interesting flavor that you can add. I've only scratched the surface.

Acesnyper,

For gold investment advice, I'd look to people like TMFSinchiruna.  I don't have the time nor the inclination (to quote Colonel Jessup) to trade precious metals in the hopes of making a buck.  I have enough trouble keeping track of my simple portfolio.  But I will save money in gold/silver, rather than dollars.

kdakota630,

Thanks! I'm glad you liked it.

David in Qatar

 

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#13) On September 29, 2010 at 3:31 PM, FreeMarkets (92.31) wrote:

It's too bad you can only rec a post once.  Absolutely wonderful.  Thanks Dave!

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#14) On September 29, 2010 at 3:33 PM, outoffocus (23.08) wrote:

Bravo Dave! I'm sharing this blog on Facebook.

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#15) On September 29, 2010 at 3:54 PM, whereaminow (20.41) wrote:

FreeMarkets and outoffocus,

Thanks for the great compliments!  I have tremendous admiration for your insights as well.

David in Qatar

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#16) On September 29, 2010 at 4:39 PM, blesto (31.81) wrote:

Wow! That's one of the best blogs you've written. As per your addendum;

"(a) This was the first time a war had been financed completely by creating paper money.  Previous wars had to be financed, at least in part, through taxation.  When the government couldn't tax any more, the armies went home."

True, they did that, but wasn't the U.S.Revolutionary war the first to finance with created paper money? Then after all was said and done they used the "classical" gold standard?

If so, it would seem to me that the Europeans were trying to replicate the American's success.

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#17) On September 29, 2010 at 4:51 PM, whereaminow (20.41) wrote:

blesto,

Excellent question!

I'm not an expert on the financing of the Revolutionary War itself.  In point (a), I was referring to every party turning to completely paper financing.  I don't know what vehicle the British used to finance their side of the Revolutionary War. I'll have to look that up.  On the American side, I know the Continental Congress attempted to pay off the war debts by creating money - a mistake that cost Thomas Jefferson his dream of rational anarchy and the Articles of Confederation.  I don't know, but I should look up, how the American militia was financed during the war.

Which sounds like a great blog to write. =D

I'm glad you enjoyed this blog! Thanks for the compliment.

David in Qatar

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#18) On September 29, 2010 at 4:57 PM, goalie37 (90.93) wrote:

I enjoyed the article, but I was really here on Motley Fool looking to see where I could download free NFL games. 

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#19) On September 29, 2010 at 5:00 PM, Option1307 (29.70) wrote:

+1.

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#20) On September 29, 2010 at 5:04 PM, whereaminow (20.41) wrote:

blesto,

I've already found a partial answer to your question.  Although the Continental Congress did not have the power to levy taxes to pay for the war, individual States did.  This was part of a number of... ahem... creative methods of paying for the war, which including confiscating the wealth and property of Loyalists, borrowing from the individual States, and issuing the Continental dollar.

David in Qatar

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#21) On September 29, 2010 at 6:31 PM, FreeMarkets (92.31) wrote:

Lets not forget the phrase used during and after the Revolutionary War "Not worth a Continental!"

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#22) On September 29, 2010 at 8:00 PM, whereaminow (20.41) wrote:

Here's another addendum, a bit more for the soul-searching types.

Garet Garett once wrote about America:

"We have crossed the boundary that lies between Republic and Empire. If you ask when, the answer is that you cannot make a single stroke between day and night. The precise moment does not matter."

This is certainly true, but if I could pick one single event that forever marked the turn of America from a land of freedom to a land of statism, it would be World War I.  I believe America would be a richer, freer land had our leaders listened to the people and stayed out of the War.

World War I was a death blow to freedom.  Recall that the most important philosophical argument of the last few centuries is "where do our rights come from?"  The argument in favor of freedom is that rights come from our humanity.  (This is said as "from our creator" by the religious,  and "from our nature" by the secular, but both can be discerned as saying the same thing: because we are human - humans that think, feel, love, hate, and dream - we have rights.) 

The horrors of World War I and the monetary chaos that followed it, turned Western civiliation off to the concept of freedom.  How can humans desire freedom, if humanity is capable of so much horror?

Well, in a time when the context of these events was not properly understood (what common citizen in the West understood that paper money and governments' lust for power had been the devil that made such a horror possible?), it's easy to see why humans turned away from freedom.

And so they turned to the State, barely remembering who ordered the young men to the trenches in the first place.

So I'll leave you with my three favorite anti-war nuggets about that time.  First is a Stanley Kubrick film titled Paths of Glory.  It's a powerful movie about the betrayal of a French colonel by a star-seeking general.  Michael Douglas' father stars in it.  It's one powerful scene after another.  I can't recommend it enough. 

The second is a Randolph Bourne's WWI essay War is the Health of the State.  It remains true, relevant, and powerful 100 years later.  If only my Republican friends could graps Bourne's wisdom, that you can't advocate limited government with one hand and promote war with the other.  They are incompatible ideals.

Finally, Wilfred Owen:

Dulce Et Decorum Est,

Bent double, like old beggars under sacks, 
Knock-kneed, coughing like hags, we cursed through sludge, 
Till on the haunting flares we turned our backs 
And towards our distant rest began to trudge. 
Men marched asleep. Many had lost their boots 
But limped on, blood-shod. All went lame; all blind; 
Drunk with fatigue; deaf even to the hoots 
Of tired, outstripped Five-Nines that dropped behind.

Gas! Gas! Quick, boys! –  An ecstasy of fumbling, 
Fitting the clumsy helmets just in time; 
But someone still was yelling out and stumbling, 
And flound'ring like a man in fire or lime . . . 
Dim, through the misty panes and thick green light, 
As under a green sea, I saw him drowning.
In all my dreams, before my helpless sight, 
He plunges at me, guttering, choking, drowning.

If in some smothering dreams you too could pace 
Behind the wagon that we flung him in, 
And watch the white eyes writhing in his face, 
His hanging face, like a devil's sick of sin; 
If you could hear, at every jolt, the blood 
Come gargling from the froth-corrupted lungs, 
Obscene as cancer, bitter as the cud 
Of vile, incurable sores on innocent tongues, 
My friend, you would not tell with such high zest 
To children ardent for some desperate glory, 
The old Lie; Dulce et Decorum est 
Pro patria mori.

Poem with footnotes here.

(Translation: "It is sweet and fitting to die for one's country.")

David in Qatar

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#23) On September 29, 2010 at 8:14 PM, kdakota630 (29.54) wrote:

whereaminow

Recall that the most important philosophical argument of the last few centuries is "where do our rights come from?"  The argument in favor of freedom is that rights come from our humanity.

This line and what follows it is almost word-for-word an awesome video of Judge Andrew Napolitano in a recent LvMI video on YouTube, although I doubt those words originated from him.

Also, I think you make a very good point about the turning point being WWI, even if that specific event wasn't the catalyst, it is certainly the right time frame with Progressives like Wilson and Teddy Roosevelt in (or vying for) the Presidency.

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#24) On September 29, 2010 at 8:26 PM, whereaminow (20.41) wrote:

kdakota630,

I've seen that video, and it probably stuck in my head. If you have it handy, embed it here if you can.

Thanks,

David in Qatar

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#25) On September 29, 2010 at 8:30 PM, kdakota630 (29.54) wrote:

An awesome video and well worth setting aside an hour to view for those of you who haven't seen it yet.

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#26) On September 29, 2010 at 8:32 PM, starbucks4ever (96.89) wrote:

The trouble with "pro patria mori" is not even so much that it's a lie, but that too many officials intentionally confuse "partia" with "Your Royal Highness".

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#27) On September 29, 2010 at 8:46 PM, whereaminow (20.41) wrote:

kdakota630,

Thanks for posting.  I blog from memory, writing the drafts in my head as I collect information.  I often forget where I heard or read what, and I don't really care too much.  Napolitano's speech was great.  Thanks for helping out.

zloj,

Am I correct in reading that you think the problem is one of human ego - primarliy authoritarian ego, rather than Owen's view that "worship of the homeland" (I can't think of a more descriptive term) is what caused the horros of WWI? 

(Not judging what is right or wrong, just interested to hear more)

David in Qatar

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#28) On September 29, 2010 at 9:08 PM, starbucks4ever (96.89) wrote:

Authoritarian ego was certainly the main cause of WW1. Worship of homeland had nothing to with it because nothing was threatening the homelands of its main participants - England, Germany, France, Italy, Japan, USA, Austria, Turkey, and Russia. The one country that had a patriotic motive to be in the war was Belgium. The other one was Serbia. Everyone else was fighting for some imperialist crap - colonies, containment of competing powers, control of the Bosphorus, loyalty to an allied Kaiser, Emperor or Sultan, etc. The Marxists of course tried to explain it with their vulgar materialism, but that's not a satisfactory explanation because WW1 was bad business, it would fail every feasibility study.

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#29) On September 29, 2010 at 9:18 PM, whereaminow (20.41) wrote:

LOL, ok zloj, I don't think I'm qualified (or even desire) to dispute your assertion.  The Brits were rather notorious in their WWI propaganda and I think Owen is referring to their propaganda as a lie.  My assumption is that he'd agree with you (and Bourne would curse the intellectual class for feeding and justifying authoritarian ego!)

Daivd in Qatar

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#30) On September 29, 2010 at 11:38 PM, devoish (98.31) wrote:

Amazing.

it is almost like you believe things like the erie canal, the panama canal, and the transcontinental railroad did not contribute to lower costs in the 1800s. Or land grabs, and oil power. Or electricity.

Nope - prosperity (such as it was) was all about being on a gold standard.

42 recs from people who really aren't thinking about what you are telling them.

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#31) On September 30, 2010 at 12:25 AM, whereaminow (20.41) wrote:

The internal improvement projects were so successful that four states altered their constitutions forever banning them.

As Carter Goodrich wrote, “In Ohio, as in other states, revulsion followed the early enthusiasm” for government subsidies. There was so much waste and corruption that Ohio “stood as one of the chief examples of the revulsion of feeling against governmental promotion of internal improvement.” 

More here.

Now, as far as it being "all about the gold standard."  Where did I say that?  The gold standard checked inflation, checked abuses of government power.  Checked, but did not prevent, as the Indians can attest (or would, if the US government hadn't killed them all in the name of transcontinental railroad subsidies for Republican Party cronies.)  

Prices fall as a natural outgrowth of increased productivity brought about in a era of freely competitive enterprise with property rights, and a market supplied commodity money.

Of the 40+ people that rec'd this post, I suspect 75% already know this, having studied economic theory similar to that which I propose.  The others, perhaps, enjoyed the historical perspective and the discussion.

But it's to each their own why they found it interesting, and I would not wish to insult my readers' intelligence by assuming they accept whatever I say without critical thought.

David in Qatar 

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#32) On September 30, 2010 at 9:04 AM, ChrisGraley (29.70) wrote:

He's now up to 56 recs and those recs are probably are probably the only people that truly did think about it.

This a brilliant post David!

devoish, I strongly suggest you look at the video that kdakota posted as well.

It's time that you understand the results of unrestrained government.

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#33) On September 30, 2010 at 9:17 AM, drgroup (69.10) wrote:

Bravo... nice work. Excellent piece.

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#34) On September 30, 2010 at 9:51 AM, binve (< 20) wrote:

David,

Great post!!! Sorry I am late to the thread. I completely agree. I wrote some similar thoughts (nowhere this well thought out) here: The Matter of Deficits, Sovereign Default, and Modern Mon......

So now I need to back up for just a minute and address the The Federal Reserve Act. The idea of founding the Federal Reserve back in 1913 was to address the "booms and busts" that occurred under the gold standard. The idea being that the Federal Reserve could manage the money supply, expand and contract it somewhat around the gold standard to even out the boom/bust cycle [rant alert! I need to interject in my own thought because even though this whole idea sounds nice, neat and smart in theory, the fact of the matter is that booms and bust did *NOT* happen because of the gold standard, but because of deficit spending / bond issuance by not adhering to a gold standard. The boom/bust cycle is primarily driven by excess government indebtedness, which eventually migrates to the private sector leverage, which begets speculation. The formation of the Federal Reserve is simply the 'fix' to a misdiagnosed problem. end rant]. So they had a very specific function and mandate under a gold standard (and we can argue endlessly whether this is good or not), but they have no true mandate under a 100% fiat standard. I will finish this train of thought up in a minute.

Everybody bemoans the gold standard as being 'inflexible'. They say that is the problem. Yet the real problem was not the gold standard itself, the problem was bond issuances trying to get around the gold standard. That is where *all* speculative money comes from. This is not a monetary problem, it is a fiscal planning / political problem. But nobody likes to admit that, so they just blame it on a 'barbarous relic'

Great post my man!!..

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#35) On September 30, 2010 at 10:52 AM, whereaminow (20.41) wrote:

ChrisGraley, drgroup, and binve,

You guys are the best!  Thanks for the kind words. 

To all who have flattered me today with your rec's and kind words (I am truly surprised at the level of enthusiasm for this post, but maybe I should let that go),

It is so often that one points to a problem and then reflexively asks the government to fix it.  What they should ask is, 'did government cause this problem in the first place?'  I stand before you, unashamed and free to make up my own mind, and say, "Usually, they did!" 

People are free to reject my interpretation as incorrect, but they must consider it, since the act of rejecting it requires it to be studied and understood otherwise you would not know what you are rejecting!

Therefore, I can only say in response to those who doubt that you take the time to discern the meaning of my writings, that I demand that you do.  Otherwise I would be saying that you are not sovereign over your own mind.  You are. I am. He is.

David in Qatar

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#36) On September 30, 2010 at 11:07 AM, Seansonfire (38.49) wrote:

"There has to be someone out there, some total patsy, willing to eat the debts we've accrued."

Answer: China.

There is always someone to buy your bulls**t if you package it the right way.

America is not great because we are free and just, America is great because we package our bulls**t better than anyone else.

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#37) On September 30, 2010 at 11:14 AM, starbucks4ever (96.89) wrote:

"America is not great because we are free and just, America is great because we package our bulls**t better than anyone else.'

This is true, of course, but it's not the whole truth. I am planning a blog on this topic. 

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#38) On September 30, 2010 at 11:48 AM, mtf00l (45.82) wrote:

If the hypothesis is that government = error how does a sovereign institute a government that governs, for lack of a better term, correctly?

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#39) On September 30, 2010 at 11:59 AM, whereaminow (20.41) wrote:

mtf00l,

It depends on what you mean by a 'sovereign.'  Are you sovereign?  Am I?  Or are we referring to some type of Authority, i.e an organization that has a comparative advantage in violence? 

If your question were an easy one to answer, every country on the planet would be blessed with wise, just rulers that respected the individual's supramecy over the State.

So, it appears this is the hardest question to answer.

David in Qatar

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#40) On September 30, 2010 at 12:31 PM, devoish (98.31) wrote:

 Now, as far as it being "all about the gold standard."  Where did I say that?

In this paragraph, where your histeria lesson credits the gold standard while completely ignoring everything else that happened leadiing up to and during this time period. Including the end of the seccesionary war, and the vanquishing of Native American governments.

 In 1896, prices were lower in American than they had been in 1834, when the United States went back on a 100% gold standard.  The Civil War caused some price distortions through inflation (wars and inflation are inseparable.)  But from 1879, when the U.S. returned to a full gold standard, until 1896, prices fell at 3% annually. Wages, on the other hand, remained flat and in certain cases, even roses.  In fact, wages rose steadily throughout the 1800's.  Imagine the impact this had on the standard of living of poor Americans.  For 18 years, assuming their salaries remained constant, their standard of living rose by 3% annually.  That means that in 1896, the average American worker's standard of living rose by roughly 70% over what he enjoyed in 1879. 

Prices fall as a natural outgrowth of increased productivity brought about in a era of freely competitive enterprise with property rights, and a market supplied commodity money.

I am sorry, did prices fall in an era of "freely competitive enterprise" or and era of Government funded infrastructure building and territorial expansion?

You say that the gold standard "checked abuses of power" and simultaneously offer me a link to supposed abuses of power by Governments in building out infrastructure during the time we were on the gold standard. If so the gold standard failed miserably to do what you suggest it will.

Your thoughs are almost universally self contradicting.

Of course prices went down in the late 1800s. Vanquished native populations left their land to farmers who represented half the nations population. Government subsidized railroads and roads made bringing the goods to market cheaper, and tools and equipment back cheaper also. The Erie canal was a success, the canals that lost money for their investors still got partially built and used. Discovery of coal and oil in the Appalachias ushered in the industrial revolution. Import tarrifs funded the Federal Government and still you say, living standards went up.

The "Gold standard" had almost no impact. And if you want to argue that it did you should remember the discovery of gold in California, the Dakotas, Colorado, in fact almost every State and Territory in the Nation had new discoveries of gold during the 1800s. Effectively printing money and handing it to many of the poorest Americans - those with only a shovel and squatters rights to land. Or handing out free land to eventually sell, or farm for the income they could get from it.

Gold did not matter, without the political decision of Governments being willing to trade gold for paper. Any metal could substitute for gold as a basis for valuing paper money against. As could sea shells, corn husks, population, or average number of years of retirement. And years of retirement is something most of the people I talk to value far more than the stocks or gold they are going to trade away to get.

But hey, sorry if i am forcing you think outside your box.

 

 

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#41) On September 30, 2010 at 1:11 PM, whereaminow (20.41) wrote:

You are free to interpret the history of the 1800's as you choose.  I do take into consideration the govenrment subsidies that produced the Robber Barons (political entreprenuers).  I determine, quite clearly, that if James Hill can build a transcontinetal railroad with no subsidies and can transport goods and people across America at a fraction of the cost of govenrment subsidized railroad ventures, it's quite probable that subsidies for internal improvements were unnecessary (as well as the carnage to the Indians they caused), and possibly detrimental to the wealth of the nation. 

But I'm sure you already know about the distinction between political entrepreneurs (Robber Barons) and market entrepreneurs, and can easily explain to me why the Robber Barons were the reason prices fell, and not men like James Hill, competing freely with property rights and sound money.

Like I said, you are free to think as you wish.  I make no claim on your mind or your labor. 

I have never advocated anything as a panacea.  If you inferred otherwise, the onus is on you.

As for the supposed increase in the amount of gold in America, the truth is that from 1879-1896 the gold stock actually fell, albeit slightly. 

Again, you are free to think in a box, outside of a box, or while wearing a box.  I sometimes put a box on my head when I was younger (drinking games, of course.)  I am not interested in what box I should be thinking (according to you), whether it's sides are parallelograms or rhombi.

I merely attempt to interpret historical events do determine the root cause of human's successes and failures. In this endeavor, I have found that when humans are free from coercion they chose natural money, natural rights, and an ordered society.  When they are coerced by an outside agency they are forced to use fiat money, to compete for their 'rights' (privileges, disguised as rights), and society becomes chaotic and violent.

I know, of course, that you disagree. 

Are you familiar with the Milgram experment?

David in Qatar

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#42) On September 30, 2010 at 1:12 PM, 4everlost (29.36) wrote:

David,

I just gave you rec #67 - wow - what a great post.  I can't add much that hasn't already been said in the comments.  Your thoughts are exceptionally well crafted and written here.  Thanks!

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#43) On September 30, 2010 at 1:33 PM, whereaminow (20.41) wrote:

4everlost,

Thanks man!  I fear I've set the bar too high now!

David in Qatar

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#44) On September 30, 2010 at 4:08 PM, devoish (98.31) wrote:

I have found that when humans are free from coercion they chose natural money, natural rights, and an ordered society

 No two of you even agree with each other where an ordered society begins or ends, or what natural rights are. Meaningless slogans for sheep.

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#45) On September 30, 2010 at 4:47 PM, whereaminow (20.41) wrote:

There is not even agreement on what arguing is. =D 

If that's too much for you to handle, I'm sorry.  There is no Orthodox Line of libertarianism. There can't be. In general, there is a general agreement about the way libertarians should approach society, about what is right and wrong, etc.  But we still argue about theory, causality, policy, etc., etc., endlessly.  It's absolutely fascinating when you take it in.  It stands in stark contrast to the history of Theory, where an Orthodox Line gets handed down and all other voices get squashed.

Sheep don't debate among themselves. 

Have you looked up the Milgram experiment yet? 

David in Qatar 

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#46) On September 30, 2010 at 5:26 PM, devoish (98.31) wrote:

So how did the gold standard in Europe do at keeping governments in check prior to the discovery of the new world, or in the middle east?

Did not do crap then either.

Please continue. The experiment requires that you continue. It is absolutely essential that you continue. You have no other choice, you must go on.

That is a phenomenal social experiment.

 Since Reagan, Americans have been verbally prodded to support corporate interests ("trust the financial experts - private companys are more efficient - taxes are bad - free markets are good - public works are a waste - )" and knock elected officials, ( career politicians - idiot of the day - thieves - can't make it in the real world - taxes are stealing)  and since that time Americans have dropped support for their unions, consistantly berated elected representation, while their living standards have declined and their debt has grown.

Shocking, isn't it.

But it is not the left that brought us here.

 

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#47) On September 30, 2010 at 5:57 PM, whereaminow (20.41) wrote:

In Flatland, how does "a Square" comprehend his contact with the Sphere?

Our questions require depth in which the answers are rarely clear, not 
A. RIght
B. Wrong.

But you do not respond in kind.  I don't care what Reagan said.

In this particular post, I only care in interpreting how the world went from a gold standard to a world of monetary chaos, and how this impacted the events of the 20th century.

As always, you are free to formulate your own opinion.  As is everybody else here.

I'm glad you brushed up on Milgram.  I will be workinig that in at some level in the near future, and I hope to hear from you.

David in Qatar

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#48) On September 30, 2010 at 6:02 PM, PSU69 (90.67) wrote:

I added a rec for you David.  This discussion is both interesting and provocative.  My Dad won his Silver Star in the D-Day invasion and dedicated four years in Europe during the war.  He returned to create me.  His POV on the war was we had to be there.  He witnessed unbelievable horror and abuse by the Nazis.  Sadly, too many humans have a default setting to greed.  They steal art, wealth, property, whatever.  They invent a lot of fancy words to defend their land grabs or oil grabs.  Like the American Indians, many have lost their freedom.  I applaud those who serve in government positions trying to manage the process of helping society thrive.  Personally, I prefer the private sector helping others thrive (and my team manages to do ok along the way).  Gold?  I think many other choices offer a far better upside.

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#49) On September 30, 2010 at 6:24 PM, whereaminow (20.41) wrote:

PSU69,

Thank you. The phrase "both interesting and provocative" means a lot to me. That's what the intersection of theory and history should be all about. 

Somewhat similar family story (but different war).  Maybe a good read for another time.  Thanks for sharing yours.  I do appreciate it.

David in Qatar

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#50) On September 30, 2010 at 7:18 PM, devoish (98.31) wrote:

In this particular post, I only care in interpreting how the world went from a gold standard to a world of monetary chaos, and how this impacted the events of the 20th century.

I prefer to think about how the world went from world of gold backed chaos to one of a monetary calm and back to one of monetary chaos.

But its your post, your flock, and your box to put whatever into it you want, and leave out of it whatever you choose. It is not my box though, and I see past the narrow views you need to stop at and do not mind showing you the gaps.

There is only one law of economics and that is supply and demand. Everything else is politics.

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#51) On September 30, 2010 at 7:33 PM, kdakota630 (29.54) wrote:

whereaminow

Happy to be part of the flock.

Baa.

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#52) On September 30, 2010 at 7:34 PM, whereaminow (20.41) wrote:

your flock

Last time I checked, I do not jump into my pants.

David in Qatar

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#53) On September 30, 2010 at 7:35 PM, whereaminow (20.41) wrote:

OK, maybe for kdakota630 I do, LMAO

David in Qatar

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#54) On October 05, 2010 at 3:34 PM, tfirst (28.98) wrote:

The whole problem behind all of this is the Fed....check out zeitguist on you tube or check out the real American empire. Confessions of an economic hitman and you'll quickly understand what is really going on..what is still going on and why we fight the wars we do. This is all about natural resouces and corruption, thats all. Great writing David, just take it the next step farther and see what the real truth is. This isn't about good or bad, it's about economic slavery.

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#55) On October 07, 2010 at 11:30 PM, whereaminow (20.41) wrote:

devoish,

I want you to answer this very simple question.  Don't hide behind sarcasm, accusations of propaganda, or attempt to bring in outside factors beyond the parameter of the question.  (In other words, don't duck it.)  Please just step up and answer the question:

If production increases while the amount of currency remains stable, what happens to the general price level?

Does it go up?  Does it go down?  Does it stay the same?

David in Qatar

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#56) On October 08, 2010 at 7:09 AM, devoish (98.31) wrote:

Don't hide behind sarcasm, accusations of propaganda, or attempt to bring in outside factors beyond the parameter of the question.  (In other words, don't duck it.)  Please just step up and answer the question: - Hopelesslylost

Hoplesslylost, I just don't want to be boring, or misleading so I will try to declare my sarcasm and accusations of propaganda rather than "hide behind them".

It is a pretty small, narrowly defined box you are thinking inside there (relevant sarcasm). Attempting to restrict a discussion that tightly is a tool of the propagandist (accusation).

Let's play.

Down.

Assuming - an unlimited or increasing supply of natural resources to support increased production without upward price pressure.

Assuming - production outpaces demand.

Assuming - No interest on borrowing to increase production.

Lots and lots of assumptions.

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#57) On October 08, 2010 at 8:52 AM, whereaminow (20.41) wrote:

No Devoish.

Make no assumptions. Do not hide behind sarcasm.

Here, let me help. Pretend I'm the Democratic Party Chairman.

Now, just answer the question.

Do not assume an unlimited or increasing supply of natural resources.

Do not assume production outpaces demand.

Do not assume no interest on borrowing.

In fact assume the opposite.

Let's make it simpler.

If you have 3 apples in an economic system with 3 units of currency, how much does each apple cost? What happens if you find a fourth apple?  Now how much does each apple cost?

Nothing else has changed. Nothing. No changes. No assumptions. No propaganda. Nothing. Stop hiding behind your intolerance of my viewpoints. Just answer the question. 

David in Qatar 

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#58) On October 08, 2010 at 9:51 AM, TheBlindCat (30.58) wrote:

Very interesting discussion. 

It is very tempting to ignore the million things that contradict one's preferred "ideology" and focus like a laser on the one thing that backs up your argument, ignoring the fact that coincidence is not causality.

Devoish, I fear you are wasting your time, you are better off trying to convince the true believer that all the world's fossils were NOT laid out, in the strata we find them in, by the great flood.

Or that light that (should) take millions of years to reach us, actually only came into existence, a mere 6000 years ago, despite the tortuous mathematical gyrations that would now be required of us to explain even the most commonplace workings of modern appliances.

As difficult as it may be for you (Devoish) to believe, intelligent people the world over, rationalize away the improbable and even the impossible on a daily basis. A interesting point in case, weekly and sometimes daily acts of "canabalism" the world over by decent, God-fearing Christians.

I have seen groups of people defend, with religious furvor, their prefered data format for passing information across the internet, never admitting that each had pros and cons depending upon the requirements.

 No, you can pile a mountain of evidence on the scale, but one feather will always outweigh the heaviest mass for the true believer.

The Blind Cat

 

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#59) On October 08, 2010 at 8:24 PM, devoish (98.31) wrote:

If you have 3 apples in an economic system with 3 units of currency, how much does each apple cost? What happens if you find a fourth apple?  Now how much does each apple cost?

Nothing else has changed. Nothing. No changes. No assumptions. No propaganda. Nothing. Stop hiding behind your intolerance of my viewpoints. Just answer the question. 

How many buyers? Does each one have one of the units of currency? Does the person with the apples have all the currency too? If i have one currency do I also have a job and get more currency? If it is ok to postulate finding a fourth apple is it ok to postulate finding a fifth, possibly even a whole forest of trees perhaps?

I really suck at this game, don't I.

Hey! Maybe I am the one that likes freedom, and you are the one that likes confining rules and restricting thought?

 

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#60) On October 08, 2010 at 9:10 PM, whereaminow (20.41) wrote:

Thanks for the discussion devoish

David in Qatar 

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#61) On October 27, 2010 at 5:53 PM, mtf00l (45.82) wrote:

In the words of philosophers of our time...

"The beat goes on,... the beat goes on,..."

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#62) On October 28, 2010 at 5:25 PM, ReverendMoon (< 20) wrote:

Just joined. 

If you want to learn about money you should read this from

The Banking Law Journal, May 1913.
By A. Mitchell Innes

http://moslereconomics.com/mandatory-readings/what-is-money/

Maybe you have already.  Maybe you disagree with Mosler and the MMT folks but, this article was written by someone else and he's right about money.  Look forward to learning what you think. 

Cheers!

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#63) On October 28, 2010 at 5:36 PM, ReverendMoon (< 20) wrote:

Sorry wrong blog post.  I'll put my previous comment where it was meant to go on the " It smells..." post

Though, I don't think its completely off topic. 

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