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When Money Fails by Gary North
By: Pinochet88 Date: April 17, 2016, 11:42 pm
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Το χάρτινο
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τυπώνουν τα
Κράτη είναι
το χρήμα που
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και
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την
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των
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από τα Κράτη.
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Καπιταλιστ_
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χρήμα, το
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Θεού θα
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ειρήνη και
την
ελευθερία!
[hr]
When Money Fails
Gary North - April 16, 2016
Printer-Friendly Format
Money seldom fails, but occasionally, it does. It failed in
Germany and Austria 1921-23. It failed in Hungary after World
War II. It failed in Zimbabwe in 2008-9, when the rest of the
world was in a recession.
Here is a famous case of the failure of money:
And there was no bread in all the land; for the famine was
very sore, so that the land of Egypt and all the land of Canaan
fainted by reason of the famine. And Joseph gathered up all the
money that was found in the land of Egypt, and in the land of
Canaan, for the com which they bought: and Joseph brought the
money into Pharaoh's house. And when money failed in the land of
Egypt, and in the land of Canaan, all the Egyptians came unto
Joseph, and said, Give us bread: for why should we die in thy
presence? for the money faileth. And Joseph said, Give your
cattle; and I will give you for your cattle, if money fail. And
they brought their cattle unto Joseph: and Joseph gave them
bread in exchange for horses, and for the flocks, and for the
cattle of the herds, and for the asses: and he fed them with
bread for all their cattle for that year. When that year was
ended, they came unto him the second year, and said unto him, We
will not hide it from my lord, how that our money is spent; my
lord also hath our herds of cattle; there is not ought left in
the sight of my lord, but our bodies, and our lands (Gen.
47:13-18).
The old money in Egypt had failed. There was now a new money:
grain. It had the characteristic features of money. It was
divisible, portable, easily recognized, and had high market
value in relation to volume and weight. In normal times, grain
lacks this fourth feature. But in a famine, it temporarily gains
it. This is why, during famines, grain is money. This is why
those who possess it wind up wealthy, assuming they are not
killed.
"You can't eat gold." I used to hear that one from people who
ridiculed the gold standard. But this is not a good argument
against gold. It is an argument in favor of food. Not only can't
you eat gold, you can't paper money and plastic credit cards,
either. When food is short, money is no longer valuable in
comparison to food. Money cannot sustain life. Food can. The
forecasts of the Egyptians had been incorrect. They had kept
their money rather than buying up food the previous season to
store it. Joseph's forecast had been correct. This put him in
charge of Egypt's future.
But what if the Egyptians had heard about Joseph's dream and
interpretation? What if all of them had believed the story?
Their money would have failed the previous year. Had they all
gone out to buy up the crop, they would have found that their
competitive bids raised the price of grain. This price increase
would not have been so radical as it was the following year,
when there was a drastic reduction of the grain supply, but it
would have been sufficient to turn grain into money.
TOP OF THE MARKET
This should warn us: not everyone can get out of a market at its
top. The reason why it is at the top is because the amount
offered for sale at yesterday's price today exceeds the quantity
demanded at yesterday's price. If sellers want out, they must
sell at less than yesterday's price. If they all want out today
and nobody wants to buy, the price falls to zero. The market
ceases to exist.
Because we rarely see the future in the same way at the same
time, markets do not fall to zero very often. But in the text,
we have a case where large numbers of people did see the future
in the same way at the same time. They all tried to get out of
the old market - the market for money -- at the same time. Thus,
the old money failed. What had been money the previous year
ceased to function as money.
When such events as these take place, unprecedented social
change is close at hand. When the value of money fails, the
previous social consensus has also failed. The value of money is
based on consensus. The public normally predicts the future as
follows: "Tomorrow will be pretty much what today is." Most of
the time, such a prediction is correct. But when it isn't, the
members of the society find that their dreams and schemes have
turned to dust. They seek someone to blame. It they blame
themselves, they are ripe for repentance. If they blame their
leaders, society is ripe for a revolution.
Consider the 1920's. The "roaring twenties" roared with
self-confidence in the victorious Allied nations. People turned
to third-hand interpretations of Freud to justify their sexual
infidelity. They dreamed of wealth for all as the stock market
went ever higher after 1921. A few people watched with
fascination as Germany and Austria destroyed their currencies in
a wave of inflation, 1920-23. But then it was back to normal in
both nations, and loans went from the booming Allied economies
to the defeated ones.
In the United States, Darwin reigned triumphant after the
humiliation of fundamentalism at the 1925 Scopes' trial and the
death, five days later, of William Jennings Bryan. There seemed
to be a new era at hand, an era of secular enlightenment,
miraculous technology, and economic growth. Freed from the "old
superstition," men ate, drank, and made merry. "Come ye, say
they, l will fetch wine, and we will fill ourselves with strong
drink; and to morrow shall be as this day, and much more
abundant" (Isa. 56:12).
The dream ended miserably: the Great Depression, the rise of
Hitler, the rise of the welfare state, and World War II. A new
god was proclaimed: the god of central planning. This god had
been worshiped by a handful of disciples from the 1880's, but
now it was placed on the throne, all over the world. Men
proclaimed the wisdom of the scientific elite, who would use
force to redistribute the world's wealth. There would be wealth
for all.
In 1929, everyone could not get out of the stock market all at
once. A lot of them tried in October. The market had been
booming since the end of the recession in 1921 . By 1929, men
had forgotten that there are business cycles in life. In 1931,
Viking published a little anthology of the optimistic forecasts
regarding the economy and the market. The book had a typical
American title, Oh, Yeah? In 1931 , the worst was yet to come.
In 1929, it was the top of the market: for stocks and for the
older American tradition of rugged individualism. Of course,
that tradition had been under assault ever since the Civil War
(1861-65). In Great Britain, it had been under assault since at
least the mid-1870's. In Germany, rugged individualism had no
tradition. The welfare state in 1929 was about to become the new
ideology. The state would soon use coercion on an unprecedented
scale in order to "save capitalism from itself," as the slogan
went.
When men of acknowledged intelligence universally proclaim that
autonomous man's latest way of salvation is permanently
enthroned, start looking for a convenient exit. You are close to
the top of another market.
IT BEGAN IN 1694
In 1694, the British government chartered a privately owned bank
to serve the nation as a central bank: the Bank of England. This
privately owned institution would henceforth possess an
attribute of political sovereignty normally reserved to civil
government: the right to create money. This institution was
unique in western history. It would possess the right to issue
currency and credit based on reserves of government debt. The
Bank of England became the model for all future central banks.
At first, it was the only one. It had gained its authority over
money by means of a promise: to buy the British government's
debt. The bank promised to make a market for British securities.
In return, the bank would possess authority over the issuing of
credit. It was a cozy arrangement and very profitable to the
bank's closed group of investors.
In this century, the Bank of England's model has spread to every
industrial nation and most of the others. Every nation has its
supposedly politically independent central bank. The
justification of this independence is that central bankers will
not be tempted to heed the politicians' call for inflated money.
There is a major problem with this argument: central banks and
commercial banks profit from issuing fiat money. The twentieth
century was the age of inflation. It was the century of central
banking.
THE NWO'S GOAL: A SINGLE CURRENCY
The New World Order jas always wanted a central currency. It is
basic to a central state.
The euro is the best they could get. This does not bode well for
the NWO.
The eurozone has a single currency. The eurozone nations have
agreed to collect taxes in the euro.
In theory, the euro could be tied to gold. The European Central
Bank would then establish complete convertibility of the euro
into gold at a fixed legal ratio. "Bring x number of euros units
to your local bank, and you will be given a stated amount of
gold." Other central banks could do the same.
But central bankers don't want this. Neither do civil
governments. A gold coin standard reduces the authority of
bankers and politicians to create money and spend it into
circulation without gaining new deposits (banks) or raising
taxes. A gold coin standard forces them all to get out of the
money-creation business. They can no longer manipulate the
economy by creating fiat money. This reduces their power, or, as
they prefer to put it, their flexibility. It places a golden
chain on bankers and governments, and they deeply resent this
restriction.
What central bankers want is flexibility and permanence at the
same time. They want control over the domestic money supply, yet
they want their currencies to stay in circulation at a fixed
ratio with the others. They always prefer to inflate, but they
can't all agree on the proper rate of inflation. They want to be
as God, creating wealth by the fiat power of their collective
word. But central bankers have a problem: they do not trust
other central bankers. Also, they do not trust the politicians.
And the politicians do not trust them.
In order to prepare for the Maastrict Treaty-mandated changeover
to the Euro, the commercial banks' teams of mainframe computer
programmers were assigned a monumental task: to create an
exchange rate program that will enable banks to operate as if
there were only one currency when there were 17.
The European governments have an agenda: the creation of the
first stage of a one world order. They will not be thwarted,
they insist. A unified currency system is the mark of the new
inter-European political sovereignty. Nothing is going to be
allowed to delay the arrival of this new sovereign agent. If
computer code will not permit this, then too bad for computer
code.
The arrogance of man is in the stratosphere. Not since the Tower
of Babel have we seen such an overestimation of man's abilities.
The results will be similar. The Tower of Brussels will not be
finished. (I wrote this section in 1997.)
POLYTHEISM AND THE DIVISION OF LABOR
We have arrived at a uniquely vulnerable point in history. I
believe that it is the most vulnerable point in man's history.
Man today believes in man. While representatives in the West
acknowledge the importance of religion as social cement that
keeps citizens obedient, they do not acknowledge the authority
of God's law. There is no agreed-upon moral framework because
there is no agreed-upon theological framework. There is no
acknowledged god who issues his law by fiat.
Society has adopted certain economic rules of the game, but
these are pragmatic. They are not grounded in either theology or
metaphysics. Darwinism has spray painted the supernatural realm
with red paint and then has issued red sunglasses to everyone
attending the public schools, the entertainment complexes, and
almost all accredited institutions of higher learning. "You
don't see anything, do you? Of course not."
This has led society into a trap. We have relied on experts to
frame the moral questions, but they have done so in terms of
Darwinism. We have believed that economics is morally neutral --
a matter of pragmatism ~ yet the only morality accepted by
secular free market economists is the gospel of market
efficiency. Efficiency is the triumphant god of our age,
especially now that the god of socialist ownership has gone
through bankruptcy.
But, to paraphrase Forrest Gump's mother, efficiency is as
efficiency does. Efficiency under one set of conditions may not
be efficiency in another set of conditions. What worked
yesterday may not work tomorrow. This is the law of Darwinism --
the only law of Darwinism. There is always the possibility of a
random mutant gene or a shift in the environment. Change the
environment, and you change the balance of nature. A new species
may prove uniquely equipped to survive in this new environment.
Are social Darwinists looking for a random, mutant factor? One
has been scheduled: the Millennium Bug. Do they seek evidence of
a changed environment? One seems to be imminent: the collapse of
fractional reserve banking. The rules of the game -- competition
-- are about to change. As surely as the rules of grammar
changed at the Tower of Babel, so are the rules of economic
efficiency about to change in the near future.
A WARNING IN 1942
Wilhelm Röpke was not the most technically competent free market
economist of our time, but he was the most accurate one. He was
the one economist in the free market tradition who has
forthrightly acknowledged that social theory is broader than
economic theory. Economics is a subset of social theory, not the
other way around. Röpke spent a great deal of time thinking
about the moral foundations of the modem social order.
Adam Smith's Wealth of Nations (1776) began with a description
of the output of a skilled pin maker, a traditional craftsman.
Such a man could produce a dozen pins a day. But with machinery,
a group of men could turn out thousands of pins. The difference
is the division of labor.
The division of labor has made the West the wealthiest society
in man's history. But to achieve this wealth, Röpke warned, we
have surrendered our lives to the good judgment of others. He
wrote this warning in 1942. He was living in Switzerland. He was
a marked man. His books had been suppressed by the Nazis. If the
Nazis invaded and defeated the Swiss defensive forces, he might
not survive. Meanwhile, the pre-war division of labor had been
disrupted by the advent of the war. The division of labor had
contracted. This put men's way of life at risk.
He began his analysis with society. "We saw that an intensive
economic intercourse, which involves a wide scale of division of
labour and a high degree of mutual dependence of individuals, is
possible only under a number of conditions, which all fall under
the head of 'socio-political' integration. It is this latter
which, in the last resort, sets the limits to the extent and
degree of economic integration. There must be a framework of
institutions and of a strong legal order, and behind them, there
must be a generally observed and undisputed code of moral norms
and principles of behaviour." This is not a technical issue; it
is a moral issue. The division of labor did not increase in the
West apart from the West's social and moral order.
It is the moral and legal order that protects us. "In this way,
it is possible to have a society in which all its members may
feel sheltered in an atmosphere of mutual confidence, security
and continuity. Only in this way is it possible to reduce and
make bearable the enormous risks involved in the high degree of
dependence, which is inevitably connected with the division of
labour" (p. 72). What did he mean, "enormous risks"? These are
the risks of interdependence. If the legal framework that
supports the free market should fail, men's lives would be
placed at risk.
THE BLIND LEADING THE BLIND
Men have delegated to others the task of producing the goods
that sustain life. These others have in turn delegated much of
their assignments to mysterious machines. Very few people can
understand the languages that run computers.
Autonomous man now regards himself as a colossus striding across
history. But he is dependent. He is totally dependent on
information- above all, information regarding prices. If the
pricing information of a generation disappears in one night,
what then? He is blind. And the noise that will arise when man
is blind will deafen him, too.
Noise. We cannot imagine the noise. When checks no longer are
made out properly, when bank wire transfers cannot be trusted,
when commands no longer can be followed as issued, everyone will
pick up his telephone to call someone in charge of his account.
Everything you buy is denominated in terms of money. A price is
the product of billions of competitive bids overtime. These bids
have given us information on the value of almost everything. The
array of prices for all the components of an entire civilization
is based on the fractional reserve banking system. What happens
if there is a run on the banks?
The price of every item you buy will change dramatically. It
will fall like a stone, possibly to zero, it the government
refuses to intervene. But if neither the government or the
central bank creates paper money to meet demand for cash, then
prices will skyrocket, at least for a time. Paper money is no
answer. How can you buy anything with paper money if you must
mail the money? You can't trust the recipient. We are back to
Röpke's warning about moral order and the division of labor. You
can buy across borders or even across the state only because the
recipient trusts your bank's promise to pay money. What if your
bank is empty?
If this takes place, if you can't buy an item on a face-to-face
basis, you can't buy at all. Neither can anyone else. The house
of cards collapses. The base of this house of cards is the moral
and legal order. The second floor is the price system and all
the information that it conveys. This house of cards supports
the entire social order. It has been building up since 1913 (the
Federal Reserve System).
"What's it worth to you?" This seemingly innocuous question
keeps the world alive today. We can normally provide fast
answers. We look at the price tag, consider our financial
situation, and we tell him: "Not as much as you're asking." We
make decisions, day by day, because we have a good idea of what
anything that might be offered for sale to us is worth to us.
This will end in the Alzheimer's economy.
"What's it worth to you?" That is what Joseph asked the people
of Egypt. Their answer was simple: their very lives. It was
therefore worth their freedom. They sold themselves into bondage
to the Pharaoh.
I, PENCIL
Back in 1957, Leonard E. Read wrote what became a classic essay,
"I, Pencil." What a wonderful tool a pencil is. It struck Read
that he had no idea how a pencil is made. He called a man who
was in charge of pencil manufacturing. That man did not know,
either. His company bought all the components, but he had no
idea how those components were made. Read pushed it out even
father. How does anyone know how to make the machines that make
the components? And the machines that make the machines? On and
on it went. Conclusion: nobody knows how to make a pencil. No
one knows how to make a pencil, yet a pencil is so common as to
be cheap - hardly worth thinking about.
Then how can such a miracle as a pencil be? Because of the,
division of labor and the freedom we have to make contracts with
each other. Multiply Read's example across the array of foods we
buy and tools we use to remain productive. Some four decades
ago, I had to take a required class in electric shop. I remember
a question that some would-be clever student asked the teacher.
"How does a TV work?" The man's answer matched the seriousness
of the question: "You flip a switch."
What would happen if all the switches failed to work as
predicted? A collapse of the West. What if only 1% failed to
work as predicted? How many switches do we rely on to keep us
alive and our systems operating'! The cascade of failures
created by a mere 1% failure could be enough to shut down system
after system, at which time, none of the switches will work.
What would a pencil be worth to you if you could never buy
another one?
CONCLUSION
The free market can keep money from failing in most scenarios.
But in a true disaster -- nuclear war or a pandemic caused by
biological warfare -- our money could fail. The division of
labor could collapse. This is why maintaining peace is crucial.
Our money really could fail. Our goal should be to have that
kind of money which will not fail. But maintain peace is basic
to maintaining money. We tend to forget this. We assume that
peace is somehow free of charge. It isn't. There is no such
thing as a free peace.
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