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Archive for January, 2013

P. T. BAUER ON PEOPLE, GOVERNMENTS AND MARKETS

Thursday, January 31st, 2013

Some commonly encountered criticisms of the market system ignore the simple fact that market participants are people. Human beings and their arrangements cannot be faultless. It is therefore not surprising that objectionable phenomena are to be found in the market order, including the operation of pressure groups, the contrivance of scarcities, attempts at coercion, and well-authenticated instances of fraud. But even when they are numerous, such phenomena do not serve as a valid basis for replacing the market by a controlled economy. In recent years, detractors of the market order have made much of instances of political pressure, or of fraud by market participants. Would it make for a better society if more people with such habits were in the government sector and thus possessed the coercive power which goes with it?

From Reality and Rhetoric: Studies in the Economics of Development, Harvard University Press, Cambridge, Mass. 1984

“One of the most distinguished development economists in the world, and undoubtedly the foremost conservative one.” Prof. A. K. Sen, New York Review of Books

P. T. Bauer was ennobled as a life peer by Mrs Thatcher in 1982

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 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

GOLDEN NUGGETS: GOLD (ADVICE TO AN UNDERGRADUATE 1952)

Wednesday, January 30th, 2013

An occasional series of curiosities of Gold, its history and ideas about it.

There are two types of gold shares, producers and developers. The former produce gold, the latter do not, but there is essentially no difference between them. What determines their value? The value of gold shares is obviously higher in deflationary times, so at the moment they are at a discount. Their value also depends on the fixed price for gold paid by the U.S.A., the world’s largest purchaser of this commodity. Since no other country can buy gold in large quantities the U.S.A. enjoys a buyer’s market and naturally keeps down the price. But more important to the value of the shares than either of these cosmic revelations, is the fact that almost every gold-producing combine invests much of its capital in other combines and vice versa. This means that the estimated value of the shares of a company depend largely on the values of the shares it holds in other companies, and again vice versa. Thus almost everyone in the S. African gold industry has a vested interest in each other, and once or twice a year all gold shares go up, not because there is any more gold – very often there is no gold at all – but because the moment one share goes up, all the other shares automatically become of a higher market value. In case at this point you feel like Alice in Wonderland, I should hasten to assure you that in fact you are. Moreover, if you are a lucky investor, you will discover one morning that your gold company has not found any gold at all but lots of antimony or coal or something. When you have got over the shock of finding that your money which was consciously and deliberately invested in gold is now invested in antimony, you will have the satisfaction of seeing your share outdistancing every other gold share in the market. All this adds zest to life by introducing the tombola into Threadneedle Street: it is like paying sixpence to enter the Middlesbrough Art Gallery and finding yourself in the Uffizi. Finally, every now and then a scandal breaks, a director is sent to jail, and the gold shares of an important company crash dramatically. This is your great chance; remember there is a limit to the peculatory potential of one man even with a large family. Buy the shares quick and wait – nine time out of ten they will soon start to rise again the moment the judicial managers are appointed.

From Sweet Corn: The Undergraduate’s Guide to the Modern World, edited by Victor Sandelson, Granta, Cambridge 1952

BANKING FAILURES

Tuesday, January 29th, 2013

By Mark Rogers

 Banks are businesses like any other (in principle) but the regulatory frameworks constructed to “oversee” them in fact legislated banks out the consequences of operating in the private sector. The question inevitably arises therefore: what were the kickbacks?

They were obviously not such as obtained in the media, where for decades newspapers have espoused political causes and backed parties and politicians. Yes there were some ultimately certain relations that proved fairly poisonous for democracy – one thinks of Murdoch and Blair for example. The Browne/Balls-Banker axis was more fundamental, more insidious and more toxic than the media-politician axis, if only because the latter was transparent, in the sense that we could see some at least of what was going on and newspapers made no bones about their political stance.

Banks had traditionally been independent of the state (remember: the Bank of England was only nationalized in the late 1940s). The media-state “interface” had always been the more obvious and troublesome one: censorship versus boosterism – no surprise there. Journalists and politicians after all have a lot in common.

In other words, what the LIBOR arrangements, if guessed correctly by The Spectator, amounted to were not merely a conscription of the banks by the state, but the willingness of the former to be so co-opted. So where does that leave Barclay’s decision not the take the Queen’s shilling? And the subsequent vilification of Bob Diamond?

Are bankers inherently dishonest or do politicians persuade, even force, the at least more craven of the bankers to become so?

After all you don’t have much choice after you’ve been nationalized – and the legislation that exempted bankers from the commercial consequences of failure was effectively a form of nationalization.

Nazi-style socialism

It needs to be strongly emphasised that when Mr Anthony Blair persuaded the Labour Party to abandon Clause Four, the nationalization of the means of production, in favour of “market forces”, he actually was trading in the Communist version of Socialism for the Nazi version of Socialism which was to leave industrial and commercial productive forces in private hands but surround them with state interference and legislation. This is not market forces.

For a brilliant analysis of the banking problem as caused by the regulatory framework – not, it must be insisted upon, bad or lax regulation but the fact of the regulatory regime existing at all – please read the last of the three links below, and then go out and buy the book!

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 TAX MOAN

Monday, January 28th, 2013

By Mark Rogers

George Osborne, Chancellor of the Exchequer, has started quite a trend; the words “avoidance” and “evasion” are routinely used synonymously by politicians and journalists alike, and have by now mutated amongst the public at large into a general disparagement of those who “don’t pay their taxes” – even when there is no legal requirement to do so!

A case in point. At the local charity shop for which I sort the books, there is a persistent complaint that the charity doesn’t pay taxes on donated goods. This arises in the context of complaints about prices. It is a charity for a UK cause (you wouldn’t catch me supporting with my time the more problematic charities such as Christian Aid and Oxfam) and routinely receives donations of clothes from one or two of the large clothing chains. The obligation on the part of the charity is to sell them for around one-quarter of their retail value.

Even so, customers complain that £50 is too expensive, even though the original mainstream shop price for quality coats, for example, is £200. It doesn’t matter that customers are told they are under no obligation to buy; that they can always go to Primark if they want to pay less; or that the retailers expect their donations to make a proper difference to the charity’s turnover.

Far from accepting that these are reasonable points, the charity is routinely abused for not paying taxes, although not only are charitable donations exempt from tax, tax is recoverable at 25 pence in the pound if donated by a tax-paying donor under the Gift Aid scheme.

Now this is only right and proper: it would be utterly invidious for the state to tax gifts made for relief, especially as many charities, local hospices for example, fill crucial gaps that the unwieldy welfare state is unable to supply.

I even spotted a poster in a remainder bookshop window the other day: “CAN PAY, DO PAY, WE PAY OUR TAXES.” Lewis Carroll in Sylvia and Bruno imagined a protest march in which the burden of the demand was: “Less Bread! More Taxes!”

That could stand as the epitaph for the welfare state!

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

MORTGAGES REPRISED

Sunday, January 27th, 2013

By Mark Rogers

A recent story in the London Evening Standard announced that first time buyers are expected to stump up a £100,000 deposit. Thus, evermore young, first time buyers are being denied their place on the bottom rung of the housing ladder – or that is what at least it is usually called: edge of a bottomless abyss might be more accurate, and something from which they should be glad they have been saved!

A question that might at first blush seem curious: if there is a housing shortage, why are there so many estate agents? There are parts of London where they even cluster together. However, this is easily explained. Many of the properties on offer will not be unlived in – they will be the homes of people wanting to move for the sake of employment or retirement, and perhaps many more will have been put up for sale to realize their value, given that they were bought not merely to be lived in but primarily as an asset. The real explanation of the number of estate agents is that there are few buyers because most people, especially that class of “first time buyers” or rather would-be first time buyers, cannot afford the prices.

Estate agents earn their bread and butter from management fees for lettings: the houses for sale are the window dressing. Which is one among several factors that explain the high cost of housing: fees on sales are adjusted to take account of the length of time the house is on the estate agents’ books.

Another thing that the number of estate agents indicates in economic terms is the relative lack of information in the market: houses are expensive partly because there is no proper market in them, and therefore the information about what houses are worth – their prices – is limited. (See here, here and here for further discussion of the problem of the modern mortgage.)

Nevertheless, the modern fashion is to own – or at least to aspire to own. This is historically unprecedented. Most of the time, most people rented. Families who acquired houses, or who bought plots of land to build their own, usually did so towards the end of the pater familias’s career in upper middle class families who had acquired serious money. The house was then left to the children, so over time the number of people who owned their own homes increased, but slowly.

Why Rent?

Many families rented for their entire lives. And this in turn meant that there was a real market in housing, because renting meant that the market was flexible, price-sensitive and therefore price informative, and, crucially, not sodden with debt, i.e. a mortgage on your future which your income may never catch up with because of inflation.

Properties rented were owned in terms of the Common Law: what you were buying with your weekly or monthly rent was a lease with an almost full entitlement to property rights in respect of the inviolability of your privacy and the contents of the property that you brought into the house: landlords could not, for example, demand unilateral access while the current rent was paid in full, or demand that certain objects not to their taste were excluded. Landlords of course owned the property in the fullest sense of the term given that they had the right to sell it – but even this ultimate test of ownership was circumscribed by the rights of the resident tenants. So for the ultimate owner, the property represented two things: a current income, and a future saving.

The great advantage of renting was that the tenant’s obligations were contracted serially under the terms of the lease, which meant that, provided proper notice was given and dilapidations were duly paid for, the owner of the lease, i.e. the tenant, could leave the property at whim or out of the necessity of looking for work.

Leases were therefore one of the engines of a free and flexible economy. And they also have the advantage that they are a regular provider of price information.

One must wonder then if one of the reasons politicians are keen on promoting home ownership is that the modern mortgage is in fact a means of control over the home-owning population without the state actually having to nationalize their property…

In this context it should also be remembered that Victorian prosperity did, as mentioned above, mean a gradual increase in home ownership and homes therefore being left to descendants. However, the invention of inheritance tax in the late nineteenth century combined with modern inflation – which brackets houses into inheritance tax even though the residents’ incomes do not reflect that nominal, inflated value – have, all the while the politicians sing the virtues of home ownership, denied homes to an increasing number of inheritors.

And another problem arises with the so-called “homeless”. There are a lot of vendors of the Big Issue but they are not homeless: their hostel rooms or their flats are provided by the local authority and their rents are paid out as benefits by (and of course to) that same authority. The real homeless, the people who sleep on the streets, are either mentally disabled or young people who have fled home, in many cases state institutions. So once again in an economy dominated by the welfare state, it is all a matter of juggling with words, rather than material fact.

These considerations once again prompt reflections on what it is we really value and how that value is measured: as pointed out here, our money is not really money, and our mortgages are not real mortgages.

And once again, the question arises: when will this house of cards collapse? The eurocrisis is allowed to drift, quantitative easing underpins access to cash while piling up crisis for the next generation, politicians urge the banks to lend, and banks remain free of the consequences of moral hazard…

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

EDMUND BURKE ON THE CULT OF THE STATE

Saturday, January 26th, 2013

They must be worse than blind who cannot see with what undeviating regularity of system, in this and in all cases, they pursue their scheme for the destruction of every independent power … The design is wicked, immoral, impious, oppressive: but it is spirited and daring. It is systematic; it is simple in its principle; it has unity and consistency in perfection. In that country entirely to cut off a branch of commerce, to extinguish a manufacture, to destroy the circulation of money, to violate credit, to suspend the course of agriculture … does not cost them a moment’s anxiety. To them the will, the wish, the want, the liberty, the toil, the blood of individuals is nothing. Individuality is left out of their scheme of Government. The state is all in all.

Letters on the Regicide Directory 1796

Quoted by Christopher Booker and Richard North as the epigraph to their book The Castle of Lies: Why Britain Must Get Out of Europe, Duckworth, London 1996

For an article by Mark Rogers on the cult of the state, click here.

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

HUMAN ACTION AND HUMAN EFFORT

Tuesday, January 22nd, 2013

By Mark Rogers

We have seen how the Deutsche Bank analysts who wrote Gold: Adjusting for Zero made a central place in their discussion for the Misean concept of human effort, and how an inflationary, fiat currency economy naturally destroys the value of effort. While at first glance it might seem odd to find such a discussion in an analysis of the feasibility of a return to the gold standard, it is precisely gold’s potential to act as a restraint on, a chastener of political ambitions, that returns the question of human effort to centre stage.

That is, of course, if you have humans in the first place who make that effort. This is so in both an absolute and a relative sense: there must be living humans capable of effort, and those living humans must want to make that effort.

In his important book America Alone, Mark Steyn analyses the western world’s contemporary woes in terms of demographics and makes the sobering observation that only America is breeding at replacement level. Elsewhere, the Spaniards are amongst the lowest in western Europe and the Russians are on an irrecoverable downward trend.

He squarely puts the blame on the welfare state, that “cosseted consumerism”, as the Deutsche Bank report puts it, that has replaced the individualism of free markets. And more to the point he makes clear what the source of this malaise is:

“Unchecked, government social programs are a security threat because they weaken the ultimate line of defence: the free-born citizen whose responsibilities are not subcontracted to the government.”

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 PRICE OF GOLD

Monday, January 21st, 2013

By Mark Rogers

The other morning a friend of mine who deals in antiques including gold and silver, rang me up to ask me whether I thought the price of gold had bottomed out or would fall further, and when and by how much it would rise.

I reflected that there is simply too much uncertainty about the euro crisis, the motives behind the Deutsche Bundesbank’s recalling of its gold from New York and Paris, and Basel III to be able to say anything about the price except be watchful. Of course there are those who are known to call the shots accurately, but even they cannot be relied upon: past performance is no predicator of future performance.

This of course is the well-known Humean scepticism, that just because something has happened before is no reason for it to happen again. In broad terms, and especially of human behaviour, this is a reasonable position to take, and it is Nassim Nicholas Taleb who has popularised this attitude in financial affairs as “black swan” events, although his own adherence to what in his hands has become a doctrine has practically paralysed him (see the essay on him in Malcolm Gladwell’s What the Dog Saw).

How do we know? Let me give an example that happens to be to hand in Nudge (already mentioned here). In describing the activities of unpractised investors the authors Thaler and Sunstein note: “Their market timing was backward. They were heavily buying stocks when stock prices were high, and then selling stocks when their prices were low.”

Surely, though, this is only knowable with hindsight. At the time they were buying, presumably the investors thought or had been advised that the price was right, i.e. low, in relative terms. When that turned out to be incorrect and the prices fell, they sold, and for an equally valid reason: not to lose too much given that they now had new information.

A Gold Standard?

So where is the price of gold likely to go? One school of thought suggests that the price of gold is artificially low because of the uncertainty created in the market by paper gold, the ETFs that are so abundant – and this is surely likely to be correct. Be that as it may though, what else is going on?

At the end of the Second World War, Germany’s gold was divided into four, with one quarter being held by the Bundesbank, and the other quarters kept in London, New York and Paris. There were two reasons for this: one to have leverage on the Germans doing again what they had twice already done, and, more immediately, to prevent the Soviets from grabbing too much gold should they mount a successful invasion on West Germany.

Two and a half years ago the Bundesbank repatriated the quarter held by the Bank of England; towards the end of last year it made claims for repatriation of its gold in New York and Paris. Why? Well, one reason may well have to do with the very public argument between the Bundesbank and the ECB over the latter’s quantitative easing: the Bundesbank rightly says that QE is damaging any chance of recovery of the euro, and therefore the repatriation of the gold may well have something to do with shoring up the German position should the euro finally collapse. Remember, we noted at Christmas 2011 that Deutsche Marks were in circulation, though certainly no-one knows how many there are. But would it not be a fine irony if Germany were the first to exit the euro, with a Mark backed by gold!

Elsewhere, as Ambrose Evans-Pritchard noted in The Telegraph on 17 January 2013, the buying of gold by central banks presages a return to a gold standard. He is wary about this return, and thinks it will only work as part of a tripartite system underpinning value. Whether the latter can work is very uncertain, as it effectively puts gold in a competitive position rather than an absolute one and therefore gold would surely not operate as a brake on the ambitions of politicians, and thus in effect be no gold standard at all.

However, there is a simpler explanation for these purchases: Basel III. The latter’s revision of gold as a Tier III asset to Tier I was no secret, and so central banks having been asked by the Basel Committee to revise their attitude towards gold have done so in the only proper manner – by buying it. This ought to stimulate the price, but perhaps the reason it has not is that gold buyers and investors are waiting to see just what might happen as a result. The Basel III accords should have come into force on 1 January 2013, although there were several pleas from central banks towards the end of last year for deferment, until next year in some cases. Already the Reserve Bank of India has announced it will not implement Basel III until April at the earliest.

There therefore seems to be a degree of nervousness in relation to gold at present: but it does seem like a good time to buy.

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

AND THE ECONOMIC FORECAST IS…

Wednesday, January 16th, 2013

By Mark Rogers

… predictable.

What leads Chancellors of the Exchequer, and their counterparts in other countries, to make upbeat forecasts of economic recovery, growth and general well-being? After all, compared with the losses sustained by the economy over the financial crisis, any notional “recovery” still leaves the economy lagging behind where it used to be. Nevertheless, these routine, formal, upbeat statements are made, which then are revised downwards in time for the next upbeat statement.

One obvious cause of these statements is the habitual electoral vanity of politicians in a modern democracy. The public, it is presumed, wants good news on the economic front – and so, when making statements that are going to be given prominence by the media, good news is what the public gets. With news coverage at daily saturation given the nature of the contemporary media, such statements are made far more often than they need be – or at all. There is little of course that can be done about this, but one should note that the demand for policy statements comes from the media not the public; the Westminster bubble that is the world inhabited by the self-enclosing group that is the modern politician and his media cohort is largely immune to political actuality nowadays – with one rather hilarious consequence.

In their boon Nudge (Penguin, London 2009), Thaler and Sunstein observe the habit of people to conform to what they expect or understand other people to be doing: if expectations of a certain behaviour are perceived to be low, or indeed people are told that they are low, then most people will, out of inertia, simply comply and thus are status quos maintained.

They comment: “Note to political parties: If you would like to increase turnout [at elections], please do not lament the large numbers of people who fail to vote.”

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