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GOLD STANDARDS III

Wednesday, June 5th, 2013

By Mark Rogers

I have discussed in Gold is Money, and the previous Gold Standards I and II the advantages of understanding that gold is not a commodity, that it is money that serves the usual purposes of money, as a store of value and a means of exchange, but with the vital difference that it also serves as a standard unit of measurement. The latter function is owed to its intrinsic qualities.

However, in Paper Money Collapse, Detlev Schlichter expounds Carl Menger’s view that gold, like all other things that people have found a use-value for, can indeed be considered a commodity, at least in historical terms. (I have looked at this book twice before in Gold Money A Currency of the Past and What Are Banks For?)

How does this argument work? Menger, says Schlichter, that “money could only have come into existence as a commodity”. It was not the creation of the State, there were no issuing authorities; money arose from mutual trading activities in which all commodities had a use-value. Without that use-value, no commodity was worth anything. Schlichter explains:

“For something to be used, for the very first time, as a medium of exchange, a point of reference is needed as to what its value in exchange for other goods and services is at that moment. It must have already acquired some value before it is used as money for the first time. That value can only be its use-value as a commodity, as a useful good in its own right. But once a commodity has become an established medium of exchange, its value will no longer be determined by its use-value as a commodity alone but also, and ultimately predominantly, by the demand for its services as money. But only something that has already established a market value as a commodity can make the transition to being a medium of exchange.”

Gold the Supreme Embodiment of Value

This anthropological-historical understanding of the emergence of money puts the market, trading, at the heart of the valuation process. Which, in turn, reminds us that the ultimate source of value, what something is worth, is its value to the parties, few or numerous, who engage in the transaction. So what in turn is required of a monetary medium, a currency, is a value that as far as possible stands outside that arbitrary subjectivity. Money itself, whatever its currency embodiment, is an attempt to render value objective in that the currency can be used in any exchanges, unlike bartering.

So in turn, the more objective the currency can become, the more it can become a standard (and this is where it is easy to see why it therefore becomes a unit of measurement), the more reliable, the more valuable that currency unit becomes.

And again, in turn, it is easy to see why gold quickly established itself as the supreme embodiment of exchange value: “it is no surprise that throughout the ages and through all cultures, whenever people were left to their own devices and free to choose which good should be used as money, they most always came to use precious metals.”

Gold is Money

Historically then we can enlarge Turk’s and Rubino’s contention that gold is not a commodity, not at least a commodity like oil or eggs, by allowing that the currency standard will have had a life as an object with use-value until other properties lead people to realise that it may have a value above its use-value. People have become familiar with these properties until it is singled out in use as being dominated by these properties and becomes money.

And the dominant characteristic of gold is its stability: soon all other characteristics were subordinated to this one, thereby changing not its nature but its purpose.

Of course, gold can be re-commodified as jewellery or ornament, as Jocelyn Burton, gold– and silversmith, demonstrates in her extraordinary work. People will always have these uses for gold, which are not intrinsically opposed to its properties as money: jewellery after all carries a premium and can, somewhat philistinely perhaps, be regarded as a form of storage, but then this form of storage shares with gold coins the property of portability.

And money can be re-subjectivised, in the past by mutilating it, clipping and shaving gold and silver coinage; and in the present of course the rolling of the printing presses with paper money has made money supremely subjective, its value becoming volatile and it storage properties destroyed.

It may be objected that we have little ancient anthropological evidence for this process, but we do not need to rely upon this as merely an explanation of what “must have happened”, we need only look at how those living in a territory with a devalued currency deal with the depredations of their government: in the twentieth century they have singled out dollars. When I asked an acquaintance from Zimbabwe how Zimbabweans coped with all those noughts, he laughed and said: “We just use dollars.”

The idea that money, and gold as money, emerged from the free trades of people going about their ordinary business also helps explain the deep disdain for gold in today’s political establishment: the idea that people are incapable of looking after themselves has become rooted in modern political thinking.

For the raison d’être of these articles on goldcoin.org read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

GOLD STANDARDS II

Monday, June 3rd, 2013

By Mark Rogers

In Gold is Money and Gold Standards I looked at the consequences of accepting that gold is not a commodity but rather money. I suggested in the former article that the confusion between a commodity with a price, and money with an exchange value, was part and parcel of the confusions that arise out of the corruption of money, its worth and functions that result from a command economy and its fiat currency.

Here’s a splendid example of this linguistic confusion, straight from the horse’s mouth; in remarks to the National Economists Club, Washington, D.C. on November 21, 2002, Bernard Bernanke said:

“[T]he U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.” [My emphasis; and I shall be making a longer scrutiny of this talk in a later article.]

Talk of “positive inflation” is irresponsible, but it’s what you get when the printing press or its electronic equivalent is set rolling.

Language and Loans

In “Gold is Money” I went on to examine other possible misuses of language in discussing money and value. I raised the issue of whether it was proper to consider the interest one pays on a loan as being in effect the price of the loan, and whether or not the money constituting the loan is in fact sold to one: if it is, then “price” would seem to be the better way to describe the transaction.

Except that this in turn produces confusion, largely because service professions, such as banks, have come to be described in industrial or retail terms: banks have “products” which they “sell” to “customers”.

But this is nonsense: banks don’t manufacture anything, and do not buy in their “goods” at “wholesale” prices which they then try to “sell” at competitive rates.

Take mortgages: if you have one it is on condition that the bank or building society offers to remove a portion of your income every month over a period of years, and if you fail to fund this activity, your house is taken away from you. This is not a “product”. Why do you think you have got one, though? Because you have been beguiled by a metaphor.

Interest and Prices

I suggested: “In considering how we speak about value and prices and fiat money and borrowing and cheap and dear money, it might concentrate the mind if we did indeed speak of the “cost” of a loan, the “price” the bank charges us for lending, or perhaps selling, to us.”

This thought experiment was intended to throw into relief just how we think about what constitutes monetary transactions: there is an important moral sense in which it would concentrate the mind to think about “costs” if credit is extended for non-productive reasons.

When money is “dear” it is likely that the chief criterion for extending credit will be the purpose to which the loan is to be put. If it is for business expansion, say new plant, or into a new market, then the likelihood that the venture will produce a substantial return on the loan means two things: the loan is more likely to be repaid, and that after the loan is repaid the firm will have made a profit on that loan.

The problem comes with credit extended for consumption (and under consumption we most definitely must include homes that are not affordable outright): this is wholly an academic affair. Keynesian economists have persuaded governments that consumption equals an expanding economy (and note again the point in Bernanke’s talk that I emphasized: “a determined government can always generate higher spending and hence positive inflation”). But the question needs to be asked: why do economists think that expense means expanse?

Credit lines extended purely for consumption end up damaging economies. In buying things now that one could not afford without the credit does not add to economic activity, it simply stokes up the personal indebtedness of the debtor and increases the book entries on the bank’s accounts. Because the money has to be paid back out of earnings, not production, it increases the likelihood of the debt being unaffordable and ultimately written off.

There is another problem here: credit lines for consumption imply that there is no real criterion: one’s present income hardly counts because it might not be there when the debt has to be repaid. No, the real irresponsibility is that the loan’s the thing, in and of itself, not whether it will be turned to productive purposes – that is used to make something that wasn’t there before. Failing to see that this distinction needs to be made is what makes Bernanke’s remarks so irresponsible.

Perhaps part of the problem lies in the fact that governments themselves do not produce anything: there are some seven million people who work for the British government, on average higher salaries than those in the private sector and with gold plated pensions (insofar as an unfunded liability can be said to be “gold plated” – the latter phrase really means that the government won’t break its promises to look after its own). These people produce nothing.

So while consumers intending to consume above earnings are anxious to find low interest loans to fund extra, unproductive consumption, it might indeed concentrate their minds to talk about prices, because that might put the nature of what they are doing into perspective.

In the serious world of productive business, however, interest is the proper term to use: the bank takes depositors’ funds and lends them at interest to enterprises that have been considered on balance likely to succeed for the purposes of the loan. In 100% reserve banking this process would perhaps be a great deal more transparent. And using gold as the ever-present unit of measurement will tell us what our money is really worth.

For the raison d’être of these articles on goldcoin.org read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

GOLD: WHY NO PRICE RISE COMMENSURATE WITH CENTRAL BANKS’ BUYING?

Monday, May 20th, 2013

By Mark Rogers

At the Money Week annual conference (held at Queen Elizabeth II Conference Centre, Westminster, London, Friday, 17 May, 2013), two of the speakers, Mr Dominic Frisby and Mr Simon Popple were asked the same question: was the drop in the gold price in April manipulated, and if so by whom and why? Both speakers disdained conspiracy theories as the likely answer: nothing but fruitless speculation. Mr Frisby asserted that we deal with the cards as they are on the table. Another question was however a good and intriguing one. Why is the price still down given that central banks have been buying “hand over fist”?

ETFs

As I noted in “Gold in Flux”, the main cause of the drop in price was the sudden dumping of huge quantities of paper gold. If this was because those who held these paper stocks had suddenly come to realise that they were worthless, then this was a rational thing to do, in spite of the fact that it would drive the price of gold down. Indeed, at the conference Mr Frisby pointed out that as long as the next crisis is held at bay, or indeed that the present crisis is bottoming out (he was ruefully cautious as to whether this is indeed what is happening!), then it would be reasonable to say that the current price of gold is a fair one. After all it is still high, in comparative historical terms: in 2009 it was $950 an ounce.

This does not, however, address the possibility that the price of gold has over the last year been too low. I first discussed the possibility in “The Price of Gold”. Why might it be considered that the price has been low? Those wretched ETFs. The swelling mass of ETFs had become so much papier-mâché (literal meaning: chewed paper), clogging the market. This might have had the effect of keeping the price lower than it otherwise would have been. Equally, of course, it could have kept the price artificially high.

As previously mentioned in “The Price of Gold”, the probability that the central banks’ buying of gold has been spurred by Basel III is a reasonable inference, whatever else may have caused it, though of course it does not answer the question about why the price continues low (subject to Mr Frisby’s caveat.) In passing, it is interesting to note that unlike European central banks, China did indeed start compliance with Basel III rules on January 1, 2013, when they ostensibly came into force.

DRAG ON THE PRICE

Now it is entirely plausible that the ETFs continue their drag on the price of gold: ETFs have not been abolished or abandoned, merely that a large quantity have been dumped. And the price of gold therefore inevitably mixes (perhaps confuses is the better word) physical gold and paper gold.

Clif Droke quotes Bill O’Neill, principal with LOGIC Advisors: “The biggest negative continues to be the ETFs. We’ve had steady and constant ETF liquidation,” adding that many suspect the exodus is not over, and continuing: “Further, once major hedge funds rotate away from such an asset, they typically don’t jump right back in anytime soon. The big players are going to be slow coming back into the market.”

Mr Droke comments: “The unspoken reality for gold investors is that the increasing institutional demand for equities is taking the wind out of the sails of the gold market,” and goes on to quote Kitco News on Tuesday, 14 May, 2013: “Continued exchange-traded-fund outflows, strong equities and US dollar gains are limiting the upside for gold, while recently strong physical demand and continued central-bank accommodation are providing support.”

Mr Droke elaborates: “While there has been strong demand for physical bullion since the April lows, especially in Asia, the fact that stocks are garnering an ever-growing share of ‘hot money’ flows while gold is largely ignored by institutional and hedge fund investors isn’t helping the yellow metal’s cause.

“Moreover, as the value of S&P 500 Index increases while gold goes nowhere, it’s causing the relative strength for gold to actually decline. This gives the hedge fund and other sophisticated investors who look at technical indicators one less reason to invest in gold in the near term.

“Kitco reports, ‘A number of observers have cited the rotation into equities as one of the factors prompting an exodus out of gold exchange-traded funds so far this year….’”

This seems to be a very acute analysis of what is happening.

Another complicating factor is that while central banks are indeed buying up gold, some of the most important are continuing with, or continuing to threaten, more quantitative easing. This is another paradox waiting to be resolved, for as described in the Deutsche Bank, London Head Office analysis “Gold: Adjusting to Zero” (discussed in “Gold and the Keynesian Groupies”) QE pushes the price up, or is there some Mephistophelean spell that negates the gold price when it is central banks which buy it? (See “The Gold Standard: Further Encouragement from Wise Eminences”)

For the raison d’être of these articles on goldcoin.org read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

GOLD DEMONETIZED BY THE JAMAICA AGREEMENT

Friday, May 3rd, 2013

The role of the Dollar in the Bretton Woods Agreement

The decisive change that led to the Jamaica agreement was President Nixon’s suspension on 15 August 1971 of the convertibility of the dollar into gold. Until then this had been the keystone of the financial system created in July 1944, the Bretton Woods Agreement, the chief architects of which had been Lord Keynes (despite his distrust of gold) for the British and Harry Dexter White for the Americans.  On 1 October 1971 the general assembly of the IMF asked the board of trustees to study and propose a comprehensive reform of the international money system.  This would be adopted by member States during a meeting held in Kingston, Jamaica on 7-8 January 1976, and included a set of provisions which put an end to the reign of gold.  The decisions taken focused on two main points:

1. The new exchange rate system

Member countries had to refrain from manipulating their exchange rate for competitive reasons and had to choose between three possibilities:

1. Not to assign parity to their currency which was to float freely on the foreign exchange markets;

2. To fix the value of their currency by pegging it to another currency or a Special Drawing Right* not to gold;

3. To link the value of their currency to one or various other currencies as part of cooperative mechanisms.

2. The role of gold

The solution presented was a compromise between the French argument that pushed for gold to remain part of the organization and running of the international monetary system and the American policy that had for a long time wanted gold to be withdrawn from its supreme position.  The agreement withdrew the status of the IMF and all references to gold and replaced it and its core functions with SDR whose dollar value is posted daily on the IMF website.  The consolation for gold was that central banks were given back the freedom to carry out transactions with metal without restrictions on them or the market.

This desire to remove gold as the standard of parity and to abolish the official price of the metal was completed by abolishing obligatory payments in gold for operations between the IMF and member countries and obliging the IMF to get rid of a third of its gold holdings (50 million ounces) by returning half to member states at the old price ($35 an ounce) and by selling the other half through public auctions.

Again we must add that the abolition of the official price of gold resulted in central banks being able to carry out transactions at a price derived from the market and to reassess metal stocks in their possession (as was very quickly the case with France and Italy).

Even if the United States made it known that they would continue to assess their reserve at the old official price of $ 42.22 an ounce and even if the first auction by the IMF lowered the price of gold on the world markets, at least for short periods, we can say that in the fact the results expected by the American policy and the IMF were a long way from being achieved.  The price of gold and gold itself still remain important elements of a vast political game: all things considered, if gold has survived, it’s because it has not stopped being the official metal that governments didn’t want it to be and wanted to forget.

Today, the dollar struggles and the new gold giants Russia, China and India are all looking in different ways towards gold as the international medium to back commitments or in the long term to oust the dollar as the international reserve currency. Closer to home the crisis that rose to the surface in 2008 has caused us to once again look at the stabilisation that resulted in the Bretton Woods agreement, which collapsed, partially due to economic expansion in excess of the gold standard’s funding abilities on the part of the United States and other member nations.

However, the problems of currency systems not pegged to gold lead to economic problems far worse.

Both France and Britain have envisaged such a stabilization. French President Nicolas Sarkozy and British Prime Minister Gordon Brown were recalling the previous success and called for a “new Bretton Woods” agreement in October 2008. What Sarkozy and Brown envisaged was a new multilateral agreement to stabilize international finance in the 21st century, the way the 1944 conference, which established the International Monetary Fund and the World Bank, stabilized financial relations among countries in the second half of the 20th century. The summit meeting of world leaders held in Washington, D.C., in November 2008 started a process that could lead to such an agreement. What would that take to succeed? What kind of leadership, and what kind of commitment, would be needed? History offers some useful lessons.

On several occasions throughout the Twentieth Century, political leaders in major countries sought international agreements on the global economic or financial architecture. Many of those efforts failed, Bretton Woods being the major exception. The central lesson that emerges from these efforts is that successful reform in response to a crisis requires three ingredients:

1. Effective and legitimate leadership combined with inclusive participation;

2. Clearly stated and broadly shared goals

3. A realistic road map for reaching those goals.

Of these desiderata, only number two, of course, is feasible: many things are easily said and agreed to, goals have a marvelous capacity for being broadly shared – at conferences. While these may be the central lessons learned by advisers and politician, because for such people diplomacy is all (as indeed witness the inability of the eurocrats to get beyond agreements and actually act to solve the eurocrisis); indeed it is possible that diplomacy in itself generates the lack of concerted action because there always has to be something to discuss at the next summit.

Gold the Real Lesson

The most obvious question to arise is: why in Kingston was a decision made to undo the successes of the Bretton Woods system? The immediate answer would probably be that the dollar was able to behave in ways that undermined other nations – but this was entirely because the gold-dollar peg was not a true gold standard even if it seemed to act like one most of the time. Nevertheless, this link did cause imbalances in favour of the United States, which the French, de Gaulle in particular, drew attention to during the sixties.

In spite of the success of Bretton Woods, that success was insufficient to prevent unilateral action by the American government, culminating in Nixon’s decision to abolish what was left of a gold standard in 1971. Henceforth, the goals and achievements of the new system, as much as what was deferred became dependant overtly on the behaviour of the participant countries. New rules in finance can only be devised by those who are the major players in the financial, industrial and emerging markets. Therefore any pretence of stabilizing the world economy was in fact abandoned in favour of powerful nations and cliques, the perfect recipe for currency wars.

In other words the lesson of Bretton Woods which ought to have been learned was that financial stability can only come about with a return to the classical gold standard (1870-1914). Kingston, Jamaica was a staging post on the way to the brink, the edge of which came into sight in 2008.

* The SDR is an international reserve asset, created by the IMF in 1969 to supplement member countries’ official reserves. Its value is based on a basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. With a general SDR allocation that took effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion (equivalent to about $ 321 billion). It should be borne in mind that this is a paper reserve, and for that reason is liable to all the defects of paper money.

This is a revision by Mark Rogers of an article posted earlier on this site by Maurice Hall redacted from L’Or [Gold] by Jules Lepidi and an article by J.M. Boughton (IMF Historian).

For the raison d’être of these articles on goldcoin.org read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

For background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

For a series of articles on the pernicious effects of progressive tax regimes: THE MORAL DILEMMA AT THE HEART OF TAXATION

For a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

GOLD: THE BOOK OF THE MOMENT

Monday, April 29th, 2013

livre3DReview by Mark Rogers

Gold, A Different Point of View by Paul McGowan

With a Preface by Bill Bonner

Published by Ferrington in association with LinGold.com

Following the drop in the price of gold a few weeks ago, record sales of gold coins were reported (see here, and here for a rise in its price). The publication of this little book is therefore timely and pertinent.

There may be many people who would like to hold some gold but are dissuaded by the thought of large and expensive ingots. But bullion is not the only way in which to invest in or purchase gold. Yet as the author states: “Gold is not just ingots. The common response to gold is that it is only for the wealthy: those heavy bars, alluring though they may be, are simply unaffordable.”

This book argues that this view of gold is misguided and misinformed: there are affordable routes to investment in gold.

Although short the book contains a wealth of information. There is an introductory chapter giving a brief history of gold’s 6,000 history, which includes its denigration by politicians and academics in the twentieth century; Keynes for example thought it a “barbarian relic”. Proudhon, Marx, Lenin, Hitler all denigrated it, and to this day it troubles the likes of Ben Bernanke and George Soros.

Gold’s function as a stabiliser of value and its use over time as actual currency coin in circulation suggest that gold is today an alternative currency, and this first chapter ends with a comparison of gold with modern economies, noting that the latter are not working, while attempts to remonetize gold are afoot in, for example, Utah.

There is also discussion of the vexed problem of clean extraction with some useful information about the certificating process that reassures investors that their gold has been mined under the highest standards.

Chapter Two, “Gold, the last bastion of individual freedom”, examines the role that gold may play in hedging one’s investment portfolio, as well as its potential as a regulating device, controlling the whims of politicians and central bankers. This chapter contains a concise guide to the problems of paper currency unsecured against tangible value, with the inevitable consequence that savings are eroded and destroyed and more and more paper is required to purchase fewer and fewer goods. In other words, paper currencies are a direct attack on people’s individual control of their lives, rendering it harder and harder for them to provide for themselves, their families and their futures. We have been here so many times in history, with the latest example being the eurocrisis, that it is nothing short of scandalous that the political and academic classes cannot see the lessons to be so plainly learned.

Gold on the other hand “observes a constancy. With one ounce of gold you can almost buy today the same quantity of basic goods as at the time of the Roman Empire or Egyptian civilization. Inder the Pharaoh Tutmosis III, one needed the equivalent of 2 ounces of gold to buy an ox. Today, 2.5 ounces would be needed. Inflation has been rather weak in 4,000 years!”

This is a salutary reminder of gold’s stabilising power, which is just the very thing that the modern politician resents about it.

A strong bullish potential

The importance of gold in the contemporary world is underlined by an examination of those countries which invest heavily in it, both at the national as well as the individual level. Russia, China and India are at the forefront of this investment, with others, such as Vietnam, making significant moves in this direction. There is a useful digest of information about these countries, the role gold has traditionally played in them and how they are managing their portfolios at present. This analysis clearly establishes trends which are not going to vanish: China indeed buys enormous quantities of it, even though she also produces it.

These markets ought to assure the potential gold investor that while prices do indeed fluctuate, bullish potential is always there in gold, and has been for most of human history. Any falls in the market have identifiable causes – for example, the wedding season in India sees a rise in prices. Indeed, this analysis is testimony to the fact that we have had 6,000 years to observe people’s behaviour with gold and make it one of the easiest assets to manage.

An Investment Portfolio

Nevertheless, the author does not argue that gold should be the sole asset in one’s portfolio, far from it. Instead it should be looked on as the preserver of a portfolio’s value, that depending on the scale of one’s other investments a relevant proportion should always be kept in gold to support the rest of the portfolio.

There is a very useful chapter on investments other than gold, such as arable land and forestry, fine art and fine wines. These all have valuable potential (after all, we all need to eat), but each has significant drawbacks which are clearly and carefully spelled out. Gold’s position as being free of such drawbacks means that it is essential to invest in it, as a hedge against the dormant disasters in the rest of one’s investments.

And gold enjoys an enormous potential over any other investment, including in things such as diamonds that might seem to share some of gold’s economic potential. Gold is superbly versatile. Cut a diamond, and much of it is waste; melt an ingot of gold, and you still have the same amount of gold.

Gold Coins

The heart of the book is in its last chapter which really gets down to brass tacks – or gold coins! Coins represent gold at its most versatile, allowing even those who do not have huge fortunes to start saving in gold. While one ingot is beyond the reach of most, a single coin, perhaps purchased at the rate of no more than one a year, is a realistic and feasible option.

The book contains a wealth of information on tax regimes; storage; what to do and what not to do in actually physically handling coins and how to transport them; what to look out for as enhancing a rare numismatic coin’s value and what depletes it – all fascinating information in itself, and eminently practical.

“If we had to state only three reasons to buy: gold is a recognized and accepted safe haven throughout the world, demand from the emerging countries is strong and the total demand over the mid to long term is reliably forecast as being higher than the supply.”

The book is available on Amazon in a Kindle version (price: £5.14). Those readers who would like the printed version, should send a cheque for £12.50 (includes p+p) made out to: Ferrington, and send it to: Ferrington, Bookseller & Publisher, 24 Shipton Street, London E2 7RU. The book is also available as Buy It Now on eBay.

TRADING SUSPICIONS

Wednesday, February 6th, 2013

By Mark Rogers

Currently being played in London is a revival of British dramatist Peter Nichols’s 1977 farce Privates on Parade, which is based on the writer’s own experiences  in the Combined Services Entertainment,  the wartime ENSA (Entertainments National Service Association) in its post-war incarnation, and is set in the Malaya Emergency. The revival has received rave reviews, which are posted in large display outside the theatre.

The Guardian reviewer summarises the politics lying behind the play, which is posed as a question: what was the British Army doing in Malaya anyway? Was it “protecting a corner of the empire from communism, or preserving the commercially vital rubber trade?”

This is the sort of confusion that underpins the anti-globalization view, and, still, today, the subject of communism. In the first place, the Army was putting down an insurrection: that it was a communist one means that it was more than merely a local one. The rubber trade was indeed vital. And given that we know what communists do when they take over an economy, the real answer to that question is: both.

But there is a further moral and intellectual maladjustment lying behind the phrasing, and one that plagued the twentieth century, and which it is still the fashion to indulge in.

Why is it assumed that trade is dishonest and that an economic motive is invariably tacky, devious and immoral? Indeed, the need to dress up the question as implying that the first motive was a cover-up for the latter, implies that so immoral are economic motives that even those who entertain them know that this is the case. But – people need jobs, people need goods (even anti-capitalist cyclists need rubber for their tyres), these are the motives for economic activity from time immemorial, and they are blatantly obvious. Marx it was who began the habit of thinking that economic motives were furtive, but another source of the blame for this type of thinking must be Keynes who had a more aesthetic disdain for economic motives.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

And for a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

DEVELOPMENT: IS IT THE RIGHT WORD?

Tuesday, February 5th, 2013

By Mark Rogers

Developing economies. Less developed countries. Third world countries. And then of course, developed economies.

But is there not a question being begged by these terms?

Let us look again at what I characterised as Keynes’s self-indictment:

“We take as given the existing skill and quantity of available labour, the existing quality and quantity of available equipment, the existing technique, the degree of competition, the tastes and habits of the consumer, and disutility of different intensities of labour and of the activities of supervision and organization, as well as the social structure.”

I call this a self-indictment because it displays an extraordinary degree of complacency and ignorance about how economies work (see the previous article in which I examine Lord Bauer’s response to the Keynesian approach).

What is fundamentally wrong about the Keynesian starting point is that not only is it not a starting point, it isn’t even an endpoint: this paragraph posits a certain stasis as the foundation of an economy. It is true historically that economies can stagnate and thus civilizations disappear, but any functioning economy, such as those Lord Bauer discovered when he left the academy and looked at what was actually happening in West Africa and Malaya, is dynamic, in short developing.

Looked at from the other end, the idea of “development” as a comparative term also suggests that there is an end result, i.e. something called a “developed economy”. But as we have seen in The Knowledge Economy, the western economies are headed on a path to what we could call “de-development”. With heavy government regulation and intervention, with QE, with the loss of paper trails in, for example, the subprime mortgage crisis, the legal underpinning of a free economy seems to be in freefall. I suppose that is one form of dynamism, but it is not a desirable one.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

And for a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

JOHN MAYNARD KEYNES: A SELF-INDICTMENT

Friday, February 1st, 2013

By Mark Rogers

Keynes described his working assumptions thus:

“We take as given the existing skill and quantity of available labour, the existing quality and quantity of available equipment, the existing technique, the degree of competition, the tastes and habits of the consumer, and disutility of different intensities of labour and of the activities of supervision and organization, as well as the social structure.”

Lord Bauer says of this passage:

“This drastic simplification is doubtfully appropriate even for the analysis of short-term growth in an advanced economy. It is altogether inappropriate to discussion of the long-term progress of less developed countries.” (Reality and Rhetoric, first quoted here.)

It is a sizeable package one is being asked to take for granted; indeed, once all these things have been taken as given, what is there left to explain?!

As a young man, first entering onto the study of development economics, of which he was to become a master and for many years the leading critic of the orthodoxies that prevailed in the academy, Peter Bauer spent many years in West Africa and Malaya (as it then was). His detailed field work made him realise how inadequate the prevailing attitudes were, lacking as they did any substance in actual knowledge of the less developed economies as they actually were. He says:

“I came to this general area through two studies, one of the rubber industry in South-East Asia and the other of the organization of trade in the former British West Africa. I spent more than ten years on these studies during the 1940s and fifties, when I was for substantial periods in each of the two regions. What I saw was starkly at variance with the components of the emerging consensus of mainstream development economics.”

And he explicitly points the finger of blame at Keynes as having, through the “givens” listed above, infected the academic understanding of these matters. What need even to go into the field to study the farmers and traders and politicians and social structures of the ldcs when Keynes so conveniently lets you off the hook of the need for evidence.

Hunter Lewis (first drawn on here and here) points out in his book Where Keynes Went Wrong that Keynes quite explicitly, as it were, provides no evidence for his economic musings and theorizings. What Peter Bauer encountered in the field was the living refutation of the Keynesian approach to economics.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

And for a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

MONEY AND CASH

Monday, January 14th, 2013

By Mark Rogers

If cash is properly regarded as (precious metal) specie – historically speaking, a recent innovation – then, when the Americans abandoned the gold standard in the early seventies, the entire world reverted to a non-cash culture. Given that the dollar was the reserve currency, relied on by other currencies because it was the sole remaining currency tied to gold, it is an important historical consequence of the abandonment of the gold standard that for the first time in history every currency in the world was no longer supported by tangible wealth.

By saying that we are now in a non-cash culture I mean that what is in circulation is merely promissory notes with the distinguishing feature that they cannot be redeemed, merely exchanged….

The worthlessness of such a system (if “system” adequately denotes the present lunacy) is of course underlined by quantitative easing. Q.E. is usually defended on the grounds that it buys time, that it keeps those ATMs whirring. Yet it is well known that Q.E. merely stores up trouble for the future, that it plays havoc with savings and pensions – so for some the future is already here. And indeed, insofar as it plays havoc with savings, it therefore plays havoc with investment.

Given these features of Q.E., far from it being a rational response to financial crisis, one of the causes of any present crisis is in fact the solution to the previous crisis; that is, crises multiply. Is the true Keynesian multiplier effect?

The Anthropology of Money

David Graeber, in Debt: The First 5,000 Years (Melville House, New York 2011) suggests that credit/debt systems are the ancient and persistent form of “money”. But is this really the case? In the absence of money as we now are beginning to understand it [link what is money], is what Graeber describes merely a primitive “pricing system”? But in the absence of money, how does a pricing system work, and does one maintained along the lines suggested eventually collapse? And any form of credit/debt system has to cope with the problem of trust, which matters less in a cash culture, but only one which involves specie and therefore genuine promissory notes.

The questions raised here will be some of the major ones to be explored on this site over the course of the coming year.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

And for a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

THE PERSONAL IS POLITICAL?

Friday, January 11th, 2013

By Mark Rogers

Keynes was notorious for believing that savings, especially in a welfare state, were a form of selfishness. Alan Greenspan, quoted in the previous post, pointed out that: “The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.”

The implications of that last remark are that everyone is depersonalised, for it surely applies to those who wish to be wealthy, to those who wish to fend for themselves whether they are particularly rich or not. People are no longer regarded as autonomous individuals, capable of taking responsibility for themselves and their families and friends. So Greenspan’s insight needs modification: that there be no way for anyone to protect themselves: the wealthy are assaulted in their wallets to subsidise the rest and the rest are subsidised to keep them docile: everyone loses out.

The slogan “the personal is political” is, like so many slogans, not merely obfuscatory – what does it really mean, or rather what purpose does it serve? – but, taken at its ostensible face value, is the opposite of the truth: politics is the impersonal, and the greater the state intrusion into ordinary life, the more impersonal it becomes. Government departments deal with aggregates, and in doing so must strip people of their individuality; the more a person or family relies upon the state, the less they are dealt with individually. It is statistics that are housed not humans, or as Jane Jacobs put it housing is thought of “as a collection of separate file drawers”.

The idea that owners of wealth should have no way of protecting themselves is overtly clear in the attacks upon individuals who have allegedly avoided paying taxes. Indeed, the entire taxation machinery of the modern Western welfare state is designed to reverse the traditional notion of accountability: it is we the citizens who must be called to account for ourselves, rather than that the state is held accountable to us. One result is the eurocrisis.

At the heart of this enormous problem lies a fallacy that Ronald Reagan drew attention to, and it goes a long way to explaining why crises such as those engulfing Europe are proving so hard to deal with: “If no one among us is capable of governing himself, then who among us has the capacity to govern someone else?”

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

And for a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

2012: Tax, the Euro and the Gold Standard: A Roundup

Monday, January 7th, 2013

By Mark Rogers

Tax

In a move practically designed to prove my assertion that the Inland Revenue is behaving more like the Stasi than a branch of democratic government, it was announced on Friday 4 January that the H.M.R.C. was publishing the names and photographs of some of the worst tax “cheats” of the previous year. Yet the lack of clarity persists: “The Government invested £917m in tackling tax evasion, avoidance and fraud in 2011-12, with an additional £77m planned over the next two years. ‘Most people play by the rules and pay what they owe, but HMRC is cracking down on those who don’t,’ said Exchequer Secretary to the Treasury David Gauke. ‘We hope that publishing these pictures will help get across that it always makes sense to declare all your income, and tax dodgers are simply storing up trouble for the future.’”

While the news report does give details of an overtly criminal gang, the persistence in lumping together criminals on the one hand and dodgers and avoiders on the other is deeply worrying; the latter are people who have committed no crime. Until and unless the law is specifically changed the pursuit of those who legally avoid paying tax is a direct assault of the rule of law. And it will not do to pass legislation criminalising avoidance: avoidance only takes place because the tax code is too large, too multifarious, too unfair and too confiscatory. It would be an even graver assault on the rule of law if criminalising legal behaviour was to be the government and parliament’s preferred option rather than a serious overhaul of the tax code. But then expecting that is like expecting the EU’s commissioners, politicians and bankers to sort out the euro mess.

The Euro

Where is the promised resolution to the Euro crisis, specifically the problems in the first place of Greece? The European Stability Mechanism merely defers the inevitable, but true to form, the EU’s political class is congratulating itself that “something is being done”.

In his book America Alone: The End of the World as We Know It (Regnery Publishing, Inc. Washingto, 2008), Mark Steyn makes the following observation: “The progressive Left can be in favour of Big Government or population control but not both. That mutual incompatibility is about to plunge Europe into societal collapse. There is no precedent in human history for economic growth on declining human capital – and that’s before anyone invented unsustainable welfare states.”

Thus a decline in the European demographic, which was predicated on the welfare state providing for all and giving a better standard of living which in turn is often taken to mean fewer children, is ensuring that the welfare state is collapsing while its beneficiaries demand more – see, for example, the Greek reaction to “austerity”.

But was “Europe” on any of its models ever going to be sustainable? In an interesting article from an old Encounter that I recently picked up, much food for thought suggesting that the answer was no from the beginning is to be found in an article by François Bondy, The Sick Man of Europe is .. Europe (Encounter, Vol. X, No. 6, June 1958). While he is talking about NATO, rather than the emergent political arrangements that would eventually become the EU as we know it, it must be remembered that The Europeans leapt under the NATO nuclear and military umbrella on the specific assumption that the Americans would be footing the bill; this in turn, allowed France to pursue her squalid little colonial war in Algeria, while allowing them all to begin that slide into welfarism, the effects (or rather, defects) of which are now manifest. Bondy says this of the relations that the Europeans and the Americans thought they were entering into at the time:

The truth is that, in essentials, the West Europeans have relied on the United States for their defence, and that N.A.T.O. is the instrument, not of a partnership, but of a receivership.” [My emphasis]

That note of insolvency struck right at the very beginning!

He also goes on to be very prescient about how things would fall out: “A great and present danger would arise out of an unequal division of privileges, responsibilities, and burdens among the European states; this inequality could generate new national hatreds and rivalries, and make of Europe simply a greater Balkans.”

Which is exactly how to describe the quite deliberate plan to bring this state of affairs about through the melding of the “hardcore” euro currency countries into a fiscal “heartland” for the EU. He goes on to ask: “Balkans or Switzerland? Perhaps neither goal is likely to arouse enthusiasm in the citizens of that Europe which discovered the modern world, established it, and ruled it for so long. But Balkanisation will only be the fate of those who are themselves ready for it, and prefer to be a shrunken power rather than a small state.”

And this was said in 1958.

And the gold standard, what has that to do with welfarism?

The Gold Standard

“The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. … The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty understanding the statists’ antagonism toward the gold standard.” (Quoted in, The Coming Collapse of the Dollar and How to Profit from It, James Turn and John Rubino, Doubleday, New York, London etc., 2004)

Well said, that man! But who was that man? No less than Alan Greenspan, whose views clearly cover the span between what he said in 1966 in an essay, “Gold and Economic Freedom”, and his own genial oversight of “an unlimited expansion of credit”, no doubt thinking the while that this was because this had to be done to counter the expansionist ambitions of the welfare statists, but with, inevitably, the same result.

But as a succinct description of what in effect has happened in the banking crisis, his first sentence is spot on, and this may yet be revealed as not only the way the crisis evolved, but of the very motor at the heart of it, the politically expedient manipulation of the LIBOR.

And the future of the gold standard? We shall see if the Utah sound money scheme catches on in other States in the U.S.A. And we shall see if the arguments for its return start stacking up in the minds of those whose minds need to accommodate it. But the really serious question is if Basel III, if, when, implemented does turn out to be a tentative restoration outside the political system, and if indeed it does turn out to be a de facto gold standard, how will the politicians react?

Basel III is difficult to interpret, and so far this year the main news about it is that the Reserve Bank of India has declared that it is to defer implementing it for at least a few months.

How strange it is that the most perceptive remarks about Europe’s decline and the warning about the welfare state’s destruction of wealth should have been made in 1958 and 1966 respectively. History indeed is a gold mine!

For more on tax go to: STARBUCKS AND ALL THAT TAX, which also contains a link to a brief summary of my arguments and a link to all the previous articles on tax.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

And for a review of one of the most important books on the financial crisis published last year: THE MESS WE’RE IN: WHY POLITICIANS CAN’T FIX FINANCIAL CRISES

PAUL SAMUELSON ON SELF-INTEREST

Friday, December 14th, 2012

By Mark Rogers

In Paul Samuelson on the Trouble with Economies, I suggested that Samuelson’s understanding of self-interest was bizarre; this is what he said:

“The self-interest that the early economists counted on as a balance leads, in a modern economy, to collusion among the self-interested groups.”

It is a little difficult to fathom quite what Samuelson understands either by self-interest or what he thought the “early economists” meant by it on the basis of this assertion. After all, Adam Smith’s description is unambiguous – that it is not from any eleemosynary impulse that the baker and the butcher put bread and meat on our tables, but the pursuit of their self-interest. That self-interest is coterminous with providing customers with what they want, just as the self-interest in appeasing our and our families’ hunger leads us to pay the baker’s and the butcher’s prices: mutual benefit naturally flows from the self-interest on both sides.

And nor was Smith blind to the fact that those in business enter into collusions that may not be in the public interest; he was quite clear that whenever two or three are met together, they conspire, for example, to force prices up. This was the basis of his criticism of the medieval guild system. But such conspiracies in a free economy are by their nature limited; in such an unchecked economy they may cancel each other out. It is precisely in an economic system based on Keynesian arrangements, with the government being a central and distorting player in and above the market, that “collusion among the self-interested groups” becomes more widespread and entrenched, and therefore morally and economically damaging.

The extremes of this entrenchment are discussed in Hunter Lewis’s Where Keynes Went Wrong (discussed here and here), where he points out that when an industry or service is top-heavy with regulation, those who are regulated gradually subsume the regulators and co-opt the regulations to suit their own purposes, which is what happened with the banking crisis, and in an earlier epoch with the Trade Unions – indeed, in the latter case, the politicians simply threw in the towel. In The Mess We’re In this problem of banking regulation is dealt with in an illuminating way, as discussed in my review. It is almost inevitable that this should happen as businessmen actually understand economic realities in ways that most academics and civil servants are incapable of, an elementary point that ought to have sounded the alarm over regulation.

Calvin Coolidge in his Autobiography affirmed that nine-tenths of those who called on the President at the White House “want something they ought not to have. If you keep dead still they will run out in three or four minutes.” (Quoted in Paul Johnson, A History of the Modern World from 1917 to the 1980s.) Would that the political classes on both sides of the Atlantic study the Coolidge presidential style, to our profit…

Perhaps Samuelson’s puzzlement is that a Keynesian system was meant to sweep away the habits of the period in which the early economists wrote, self-interest, collusion and all. But how on earth is it possible to believe that, with the government being courted on all sides, collusion should somehow fade away? This is just one of the many ways in which a Keynesian lens distorts the observation of what is actually taking place, in both an unregulated economy as well as a Keynesian one; the latter distorts information in such a manner that even the Keynesians themselves cannot read it!

Artistic Integrity?

A useful way of looking at Keynesian economics is as a branch of aesthetics, a subject to which I shall return. It was aesthetic distaste, after all, that inspired Keynes against the “early economists”, as I pointed out here. He inveighed against them thus: “When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years.”

During the Thatcher years this disapproval of “self-interest” induced a very peculiar species of posturing amongst the aesthetes. In his book The Strange Death of Tory England (Penguin Books, London, 2005), Geoffrey Wheatcroft dissects this disdain.

“The novelist John Fowles complained about ‘the self-centred notions of the new conservatism’. He was shocked by ‘this rightward and selfward tendency in most of the electorate since the 1950s’, a cult of personal advantage made worse now by ‘the ethos of the grocer’s daughter’.” These sentiments were generally echoed and endorsed by the artistic elite throughout the 1980s; for the novelist and playwright Michael Frayn the free trade Tories were “barbarians”; the philosopher A. J. Ayer voted for the SDP on the grounds that they were not “philistines”, and the novelist Julian Barnes echoed Fowles in thinking that Thatcher’s achievement had been “the legitimization of self-interest as a public and private virtue”.

How amiable, then, of these people to claim to have political motives loftier than “the ethos of the grocer’s daughter”. Wheatcroft quotes the composer Sir Michael Tippett on his voting intentions: “As an artist I’m impelled to vote Labour, since it’s the only party committed to doubling the arts budget.” And actor Antony Sher: “As a member of the arts [sic] I am heartened by [Labour’s] pledge to double the arts budget.”

Perhaps artistic self-interest takes place on a more exalted plane than the base motives of those who merely wish to feed their children.

What these variously fatuous “members of the arts” fail to see, or perhaps wilfully ignore, is that state subsidy of the arts inevitably means a very obviously self-interested transfer of wealth from the poor to the rich, another of those moral grotesqueries of the Keynesian and welfare state.  (It should be remembered that Keynes was Chairman of the Arts Council, overseeing such transfers.) Not only are they driven by self-indulgence but also by self-interest – but then, as the “early economists” and the Austrian School understood, we are all driven by self-interest, it cannot be otherwise.

The plea is often made that human life is more than just survival, that we are cultural and intellectual beings with other than literal hungers to assuage. I agree – it is hardly difficult to do so, the facts being what they are – but not by taking the bread out of the mouths of our children.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

PAUL SAMUELSON ON THE TROUBLE WITH ECONOMIES

Tuesday, December 11th, 2012

By Mark Rogers

Hagiography

“Rare is the opportunity to see, much less own, an original. Economics by Paul Samuelson is the classic textbook that gave birth to modern economics, and sold millions of copies in more than 40 languages. Now, in this unique and carefully crafted reproduction edition, Samuelson’s original words, text, and layout are recreated from the original classic edition. More than just a historical curiosity, however, this book’s power to explain economics to both the expert and the novice shines on every page. As fascinating now as when they were first published in 1948, the wisdom and applicability of Samuelson’s words remain vital in today’s turbulent economic world.”

(Publisher’s description on Amazon for new edition (1998) of the 1948 edition, McGraw-Hill

“Samuelson’s text was first published in 1948, and it immediately became the authority for the principles of economics courses. The book continues to be the standard bearer for principles courses, and this revision continues to be a clear , accurate, and interesting introduction to modern economic principles. Bill Nordhaus is now the primary author of this text, and he has revised the book to be as current and relevant as ever.”

(Publisher’s webpage for the 2010 edition.)

“It is difficult to exaggerate the world-wide impact of Mr Samuelson’s Economics.”

(The Economist)

Samuelson’s textbook has been one of the most influential sources of Keynesian ideas ever since it was first published.

Samuelson meets “Adam Smith”

George J. W. Goodman writing under the pseudonym “Adam Smith” published Paper Money in 1982 (Macdonald & Co. (Publishers) Ltd, London & Sydney). Amongst many other activities business as well as journalistic and academic, by the time he published this book he had been serving on the Advisory Council of the Economics Department of Princeton University.

Paper Money is an investigation of the financial crises of the 1970s and their unravelling. It is also an attempt to discover why so much of the economic orthodoxy was unable to explain what was happening or offer cures and preventatives. This may sound familiar.

Chapter 2, “Why Not Call Up the Economists?”, is his account of some of the economists he paid visits to in order to answer that question. He interviewed Paul Samuelson, and posed the question: “Is Keynes really dead?”

Samuelson’s answer somehow seems to encapsulate the air of unreality fostered by Keynes and the Keynesians:

“The fact is that what we’ve got, a Keynesian economy, is economically stable. It’s just politically unstable. The self-interest that the early economists counted on as a balance leads, in a modern economy, to collusion among the self-interested groups.” He further conjectures: “The malaise just isn’t in the figures. Something else must be going on.” Though what, he didn’t know. (That “just” is an emphasiser, he doesn’t mean that the malaise is elsewhere too; he means that the “malaise” (whatever he means by that – the general sense of economic disorder that is somehow not disorder?) isn’t recorded in the figures at all.

“Adam Smith’s” gloss:

“We have an economic system that works, except for the people in it? But the people are in it.”

Samuelson’s bizarre understanding of self-interest will be the starting point for further discussion…

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

THOUGHTS IN SEASON

Tuesday, November 27th, 2012

By Mark Rogers

Stating what ought to be the obvious

As long as governments are producing money out of thin air, what is called quantitative easing, the financial crisis has not ended. It can only be “eased” for the present working generation insofar as we can continue to withdraw money from our bank accounts – perhaps I should say currency notes, because they are not really money. But by wiping billions off pension funds, and ensuring ever mounting debt, retired people will be impoverished and our children will struggle to pay off the debts incurred today.

Once the world’s money was taken off the gold standard, the coins and notes in circulation became, effectively, a form of credit. So borrowing is taking out credit on credit.

As long as most houses are bought with a mortgage the housing bubble has not ended. We have discussed here, here and here, why the modern mortgage is not a mortgage – it is indeed the most spectacular form of the above type of borrowing.

So that is two important assumptions about how our economy works that are false: money is not money and mortgages are not mortgages. No wonder we lurch from crisis to crisis, from promise of recovery to disappointment of that promise. If politicians and bankers are conjuring with illusions, what price the promises?

Money isn’t money

An obvious riposte to this assertion is that if we agree that something is money, then surely it is… This assumes that the only thing needed to underpin monetary value is trust. But that trust is so easy to abuse: quantitative easing is the result of that abuse. Besides it is generally thought that politicians are not trustworthy, so a contradiction lies at the heart of our assumptions about how modern politics works. I frequently ask people whether they trust politicians, and the answer is invariably, no. Why, then, do we allow politicians to run our healthcare and the education of our children, let alone dictate the money supply?

We cannot simply say that anything we choose to be money is money: it has to have a value. Given that money is: a store of value, a unit of exchange, and a commodity in itself, while value in the market place is nothing more than an agreement, money must, in spite of the first and third aspects and because of all three, be more than an agreement. Which is why a return to the gold standard is essential.

Any more bubbles?

One that grows larger and larger and larger, driven by national and local government policy, is: education. The mania for driving teenagers into tertiary education may be seen as the inevitable consequence of, amongst other things, Harold Wilson’s decision to lower the age of majority to 18. This was done to capture the vote of ignorance for the illusory promises of socialism. However, it now causes a problem for the unemployment statistics, so to disguise the fact, more and more youngsters are persuaded to go to university. A means to this end is grade inflation at every level of education: the easier it is to pass exams, the easier it is to qualify for university entrance.

This, though, has the further consequence that many, many graduates cannot find work at their supposed degree level. In turn, this leads to the expansion of local and national bureaucracies as make-work is invented to take up these over-qualified graduates. Job markets become distorted by “degrees” in hair-dressing and the like, which used to be taught on the job. Apprentice masters have been replaced by academics.

A novel solution to this problem of the education bubble has been suggested to me. That school-leavers from the age of 16 should be incentivised to work, even start their own businesses, by being kept out of the tax system until they are 26. This would include not having to pay business rates. That is, 10 years to qualify in the real commercial world, and learning through trial and error how businesses function and prosper. It would also help to destroy the benefits system.

Readers curious as to why articles of this nature should be appearing on a gold investment website should read: GOLDCOIN.ORG: MIXING POLITICS AND NUMISMATICS

And for background on the writer: CONFESSIONS OF A LAW AND ORDER ANARCHIST

THE MORAL DILEMMA AT THE HEART OF TAXATION

Friday, November 9th, 2012

By Mark Rogers

Why is it anyone’s public duty, the richer they are, to assist the government in squandering their own money?

In low tax regimes, charitable giving is at a premium.

And yes, there is an equation there.

These contentions fundamentally summarise the argument  made on this site on the pernicious and avoidable effects of high tax regimes and big government welfare states. These articles are (in order of composition):

Diddling While Taxes Burn

Tax: After the Diddlers the Dodgers

Tax, Debt and the Price of Welfare Democracy

Jimmy Carr and His Terrible Error

Cowboy Accountants – Or Lone Rangers?

Punish Benefit Cheats

Starbucks and All That Tax

The Tax Moan

For a look at a very low tax regime, read Confessions of a Law and Order Anarchist, which also contains reflections on the present writer’s political and moral convictions as a consequence of his having spent his childhood and youth in Hong Kong.

And for a long review of an important book on the financial crisis, please read: The Mess We’re In.

FRANCAIS ESPANOL ITALIANO CHINESE

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"For a mountaineer, the important things are the effort, the posture and the muscles. The rope that holds him serves no purpose when everything works but it gives him a sense of security. In the same way, all gold does is ensure confidence; it's a safe haven."