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Your savings in a safe place

Tuesday, November 26th, 2013

Traditional investments are at risk because they are inextricably linked to the world wide web of paper debt that exists in futures, bonds, hedges and spread bets.

Pension funds, banks, stock markets and even countries are using your investments to pay off their own debts rather than to seek a profit for you.

These paper investments are all at the mercy of the debt cycle and could be lost completely or become worthless at any time. What happens when these massive debts are called in and can’t be repaid ?  This will happen but nobody knows when. How bad will it be ? How long will it last ? Politicians publicly pretend it can’t happen because they couldn’t handle the panic and their main preoccupation is preserving power or surviving their ‘shift’.

Did you know?

- You can still buy a new car today with the same weight of gold as you needed to buy a new car 90 years ago.

- 300 years ago 2 oz of Gold could buy a cow, the same amount as you need today!

- Current devaluations are decreasing your ‘paper’ savings, investments and pension funds

- Since  2000 stock markets have slumped while the price of gold has increased more than 5 times

LinGOLD.com’s commitment to doing things differently is exemplified through its ‘Vera Valor’ gold coin.  The ‘Vera Valor’ is the first ethically produced coin made from “clean extraction” gold, which is 100% traceable from mine-to-mint.

LinGOLD.com’s vault storage facility is based in the highly secured facility of Geneva Freeport and is independently audited to ensure total propriety and counterparty.

investment in lingold

investment in lingold

THE GOLD SPOT: GOLD THE REFERENCE POINT

Tuesday, May 14th, 2013

The Gold Spot is a regular feature in which Mark Rogers excerpts a passage from his reading as the Text for the Day and then comments on it.

Extract from CURRENCY WARS: THE MAKING OF THE NEXT GLOBAL CRISIS by James Rickards, Portfolio/Penguin, New York, 2011

The continuation of the trend toward a diminished role for the dollar in international trade and the reserve balances begs the question of what happens when the dollar is no longer dominant but is just another reserve currency among several others? What is the tipping point for the dollar? […]

Barry Eichengreen is the preeminent scholar on this topic and a leading proponent of the view that a world of multiple reserve currencies awaits […] the plausible and benign conclusion that a world of multiple reserve currencies with no single dominant currency […] this time with the dollar and the euro sharing the spotlight instead of the dollar and sterling. This view also opens the door to further changes over time, with the Chinese yuan eventually joining the dollar and the euro in a coleading role.

What is missing in Eichengreen’s optimistic interpretation is the role of a systemic anchor, such as the dollar or gold. As the dollar and sterling were trading places in the 1920s and 1930s, there was never a time when at least one was not anchored to gold. In effect, the dollar and sterling were substitutable because of their simultaneous equivalence to gold. Devaluations did occur, but after each devaluation the anchor was reset. After Bretton Woods, the anchor consisted of the dollar and gold, and since 1971 the anchor has consisted of the dollar as the leading reserve currency. Yet in the post-war world there has always been a reference point. Never before have multiple paper reserve currencies been used with no single anchor. Consequently, the world […] is a world of reserve currencies adrift. Instead of a single central bank like the Fed abusing its privileges, it will be open season with several central banks invited to do the same at once. In that scenario, there would be no safe harbour reserve currency and markets would be more volatile and unstable.

Comment: It is hard to fathom such an unrealistic expectation of lead currencies, swilling about supporting each other and every other currency, as being somehow optimistic and benign; Rickards is not saying that he thinks they would be by using these terms, he is pointing up the authors of these expectations as hailing them as benign: what could go wrong, we’re all good chaps…aren’t we?

Rickards’s view is of a piece with Gustav Cassel’s point (quoted in Gold on the Outbreak of the Great War), that “the responsibility for the value of the currency, in cases where the gold standard has been abandoned, must exclusively lie with those in whose hands rests this provision of the means of payment.” The point being that this is an astonishing level of trust to put into the institutions of government, not just moral trust, but a trust that the necessary calculations, observations and measurements can be made consistently and continuously to keep things afloat and stable. The euro is a very good object lesson that both these sorts of trust are misplaced, which is putting it mildly…

From an Austrian School point of view, the goodness of the humans in charge is irrelevant: it is the utterly impossible nature of the task that is the stumbling block. But it is just there, of course, that the immoral temptation to swing things to the state’s advantage comes to the fore – again as shown up by the euro.

Where there is no reference point, no anchor, no solution is feasible… which is why we keep getting  more of the failed nostrums. Which leads on to a very interesting observation: why taxes must go up in an economic world divorced from the gold standard.

Politicians are incapable of managing monetary affairs (see the article linked to below on The Mess We’re In: Why Politicians Can’t Fix Financial Crises). The gold standard prevented them by and large from acting on economic hubris. Unconstrained by gold, bewildered by their failures, corrupted by their power, they turn to the one nostrum that lies unfailingly to their hand: taxation. That is why it is found important at times of high and progressive taxation to denounce “avoiders” as selfish cheats who won’t do their bit for their fellow citizens (see my The Moral Dilemma at the Heart of Taxation). So the gold standard not only prevented printing money, it also held down taxation. Another reason to vote for gold!

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

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

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

STATE WORSHIP AND THE ANTI-GLOBALIZATION MOVEMENT

Friday, December 28th, 2012

By Mark Rogers

Globalization: what is it but an activity that is as old as civilization – simply a modern name for trade? Joseph Addison’s paean to its virtues stresses the civilizing effect it has, bringing together merchants from every clime and culture, who, in furthering their own mutual interests, enhance everything from landscape to palates to manners and morals.

So why is it scorned and despised by so many, especially in the rich west?

Martin Wolf in “Why Globalization Works” (first referenced here) provides a useful list summarising the attitudes of the anti-globalizers, the first three of which I will deal with in this article. His summary is an accurate one of these views, so equally accurately does he indicate their incoherence.

“The critics make the following more or less specific charges against market-driven globalization.

“It destroys the ability of states to regulate their national economies, raise taxes and spend money on public goods and social welfare.

“In the process, it undermines democracy, imposing in its place the rule of unaccountable bureaucrats, corporations and markets.

“It amounts to an abdication of power by benevolent democratic governments in favour of predatory private corporations.”

Underlying assumptions

The first thing to notice about these attitudes is the underlying assumption that the modern democratic state is benevolent and rational and that its primary function is the regulation of the economy in order to tax the productive and furnish what are laughably known as “public goods and social welfare”.

The second underlying assumption is that modern democracies are accountable, and that it is corporations and markets that somehow are not. On the contrary, the collapse of accountability is manifestly evident in the euro crisis and the concomitant collapse of the European project, yet far from behaving in a responsible, accountable manner, the politicians are desperately trying to cling onto their power and privileges.

In the U.K. we have seen how politicians brazenly justified their expenses, in the process demonstrating their ignorance of the legal system. In one of the more scandalous moments of that preposterous saga, when one of the overtly criminal M.P.s was on trial and facing the prospect of jail if convicted (which he duly was), more than one hundred M.P.s wrote the judge a letter to try and influence the outcome of that trial, pleading with the judge not to sentence him to prison. One simply does not do this to an English common law judge: he duly ignored them, but that it was possible for so large a number of M.P.s to bring themselves to behave in this way shows a sorry disregard for our constitution – but then, at least since the Second World War, that disregard has become increasingly the parliamentarians’ mode of proceeding.

Markets, on the other hand, are engines of accountability, through bankruptcies and competition. That we may not see those who run companies, and anonymity is largely how free societies function, they are nevertheless under the remorseless pressure of their customers and competitors to provide the goods and services desired.

State Worship

The most important thing about these assumptions is that they amount to an unquestioning assumption that the state is the proper director of human affairs, and that ordinary humans are not – the ordinary person is not trusted, and the greater his wealth, the less trustworthy he is deemed. This is a preposterous view, and a dangerous one. I have quoted before Paul Johnson’s dictum that the ability of the state to wreak great evil has been amply proved; whether it is capable of good is open to considerable doubt.

Take two recent stories in the press. I have dealt with the first already in several articles about tax avoidance, the latest twist to which is the transformation of a parliamentary committee, the Public Accounts Committee, which is meant to hold the government to account, the proper function of M.P.s, instead turning on taxpayers and in accusatory mode devising ways to hold the public to account. We had also earlier seen how H.M.R.C. was devising means to use schools to snoop on tax avoiders.

A yet more recent story of the government turning on the people is the revelation this week of a costly scheme to monitor every child taken to an A. & E. Department for signs that its parents are trying to hide evidence that it is being abused. The National Health Service, that is, is being turned into a Stasi-like instrument to intrude into family life. This gross violation of privacy is based on an illusion. After the prominent publicity given to the deaths of battered children such as Jasmine Beckford, Victoria Climbié and Baby P, public inquiries were held. In spite of the detailed evidence in the findings of specific neglect at best, malign acquiescence at worst, combined with ignorance and lack of care, on the part of the social workers, each inquiry came to the same conclusion: that there had not been sufficient sharing of information between the relevant branches of the state.

So now in the fullness of time, some bright spark in the government has seen how the NHS can be turned into an information gathering and disbursing scheme – entirely neglecting two essential facts: the male abusers of infants are not the children’s natural fathers (mothers may hide the evidence of abuse, but this is because they are either mentally deficient, as Baby P’s showed every sign of being, or simply scared) – this is common knowledge, but is routinely overlooked. The second is that a highly abused child is more likely to be imprisoned at home than be taken to hospital. When a social worker did manage to get Jasmine Beckford and her sister into hospital, the police were adamant that they should not be returned. The social worker over-ruled them, and the police acquiesced (why they didn’t take advantage of that hospitalization to arrest the step-father I have never understood).

There is ample evidence that when the state reaches a certain size, and has acquired powers of intrusion into daily life by nationalizing health and education, its functionaries become a coterie, acting in their own interests at the expense literal and figurative of the general public. That the state in this form should be trusted with our welfare is belied by history, the same history that shows the most dangerous religion ever invented is the cult of the state.

Re-inventing the wheel

The present writer indeed agrees with those who object that globalization “destroys the ability of states to regulate their national economies, raise taxes and spend money on public goods and social welfare” and hopes that destruction proceeds apace. To quote the American commentator Michael Ledeen: “Faster please!”

Joseph Addison was right to see in the mercantile classes of his day the great benefactors of mankind: we in our day have seen the “benevolence” of the state in action, not least in those developing countries the anti-globalizers weep for where state aid has created destitution, and where restoring trade and expanding markets have repaired the ravages of that aid.

Not for the first time in the late twentieth and early twenty first centuries have we been required to re-invent the wheel – under the baleful glare of those who think it shouldn’t have been invented in the first place.

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

PUNISH BENEFIT CHEATS

Sunday, November 4th, 2012

DO DEALS (IF YOU MUST) WITH SO-CALLED TAX EVADERS

By Mark Rogers

After all the froth over tax evasion, in a remarkably short space of time the taxman is doing a deal: “Hundreds of tax evaders … will escape prosecution and keep their identities secret under immunity deals offered by Revenue & Customs,” reported The Times on Friday, 2nd November, in a front page story. The idea is not to waste Court time and further expense if so-called “secret account-holders” simply stump up their taxes and pay penalties. There has already been one prosecution for “serious fraud” and there will be a select few more.

The newspaper also quotes a former taxman who now works for a law firm as saying: “It is those at the lower end of the social scale who go to prison. There is no immunity for benefit cheats.”

In a development in Greece, a journalist who published 2,000 names of Greek “secret account-holders”, which include industrialists, financiers and politicians, was acquitted of breaching privacy laws, after the prosecution offered no witnesses. The journalist Kostas Vaxevanis is quoted, in a separate story on page 8, as suggesting that the list detailed “groups of people stealing from the Greek state”.

The HMRC deals are being offered to those British people who turned up on a list of account holders at a Swiss branch of HSBC, which list was stolen two and a half years ago by an employee of the bank – thus violating bank-client confidentiality – which was given to the then French Finance Minister, Christine Lagarde (now head of the IMF). She in turn gave HMRC 6,000 names of UK citizens (500 of whom have so far been investigated for fraud).

HMRC, Evasion and the Mis-spending of Savings

Before looking at the moral dilemmas of what has recently happened, and in particular the unfortunate view of Mr Vaxevanis, let us look at some of the more straightforward economic practicalities.

HMRC is assuming that the Lagarde list contains people who do not have a cash flow problem i.e., the deals, which as noted save precious court time, are possible because both the tax and the fines are assumed to be achievable. A deal, to work, requires the agreement of both parties as to what is feasible, whereas justice demands that one party has justice visited upon it in the name of the law, as pursued by the aggrieved party.

As it is deals that are being offered, the back taxes and the fines must come out of savings. This gets to the heart of the problem, which is that among the reasons for the evasion in the first place is the perception that the state misapplies resources, and therefore the taxing of successful businessmen is to mis-spend savings which would otherwise have been applied as investments. This is also another reason, of course, for not sending the majority of these so-called evaders to jail: they are after all a productive element in any economy, producing goods, services and jobs. The problem of UK taxpayers’ assets being held abroad is the simple recognition that the tax regime is too onerous in the UK and that government wastes money.

Deals and assets

So there is at least a tacit recognition that these individuals play a productive part in economic life. What is required is the further recognition that when a tax regime becomes too complex, and the welfare state, which inevitably requires big government, is all-pervasive, then the problem is the government, not the so-called evader.

But these deals usher in another confusion. Hitherto, most of the fuss has been about legal tax avoidance (as discussed for example here, Cowboy Accountants – or Lone Rangers?). Now it transpires that the Lagarde list exposes the problem of hidden assets. This is indeed only, from an anti-Keynesian point of view, the reverse side of the problem of the initial evasion, the hidden assets being on the Keynesian view “hoardings”.

This is the operation of Gresham’s Law in the welfare state economy: bad money/bad monetary policy driving out good money, either into Swiss bank accounts, or, as another aspect of the tax furore initiated by the Chancellor revealed, into good works – this was the attempt by the Chancellor to cap charitable giving; this attempt revealed that many rich donors, who use the tax exemption schemes drawn up by HMRC, actually give more to charity than the exemption is worth!

Whistleblowing? Accountability?

The term “whistleblower” entered the political lexicon largely to describe a civil servant who has come across corruption and incompetence in government and decides to risk all by exposing it – the biggest two in the UK in recent years being the utter incompetence of the immigration department and the corruption of the MPs’ expenses scandal.

So why is the private employee of a private institution being called a whistleblower for sneaking on his employer’s clients? The answer lies in the vexing view of Vaxevanis, the Greek journalist who believes that asset hiders are “stealing from the Greek state”.

That is the welfarist assumption in a nutshell: that private citizens’ money actually belongs to the state. However wasteful the state, and however much that waste prompts the operation of Gresham’s Law, those who avoid taxes, in the hope that more productive times might return (after all, with interest rates so low, why invest?), are branded thieves – for hanging on to their own money.

This view of the vexing Vaxevanis reverses the idea of accountability – as I have remarked before, the state needs to be very sure that taxpayers are getting value for money before accusing citizens of being in effect criminals (and see here for further implications for constitutional government).

Real cheats

Which brings us back to the idea that there are two modes of justice: one for the rich, even when they save their money against government waste, incompetence and malfeasance, and another for those poor who cheat on the benefits system. It is however, wholly commensurate with the idea of justice that the latter are punished: they have devised ways to make claims on hardworking taxpayers’ money to steal what does not belong to them. As the actions of HMRC have implicitly acknowledged, all that “evaders” and “hoarders” have done is to hang on to more of what is actually theirs.

A benefit cheat is breaking the criminal law, a long-sanctioned element of the English Common Law. A tax avoider is simply breaching legislation, often passed in fits of class antagonism “against the rich”, that allows the state to snatch a portion of his wealth, that allows the state to believe that all our incomes belong to it – see the Orwellian notion of “the taxpayer’s allowance”.

This is a morally corrosive view, which leads to constitutional vandalism. That, not tax evasion, is the real problem of our times.

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

IRAN, CHICKENS AND VALUE

Thursday, October 25th, 2012

By Mark Rogers

While the world watches with an alarmed fascination the stasis over the euro; while we doubt our own governments’ predictions of “recovery”, Weimar-style levels of financial woe long ago engulfed Zimbabwe, and are currently engulfing Iran. The rial has lost 80% of its value, most of that loss occurring just in the last few weeks, with a catastrophic plunge at the beginning of this month.

“Chicken has become so scarce that when scant supplies become available they prompt riots. On October 3rd police in Teheran fired tear-gas at people demonstrating over the rial’s collapse. The city’s main bazaar closed because of the impossibility of quoting accurate prices.” (The Economist, October 6th 2012)

Before I discuss what is wrong with that last sentence, here’s a front page headline with its subheading from The Times for today, 25th October 2012:

“Double-dip set Britons back £1,800 every year” and “Economy growing again, Cameron hints to MPs”

How do they know?

The trouble with the sort of hubristic statistics behind that headline is questions such as: by “Britons” do they mean all of us, or just households? If the former, is that just an average for the population, in which case does it exclude children? Those on benefits? The Scots? (In Scotland it was recently computed that 9 out of 10 households are receiving more in benefits than they submit in taxes…)

This is also supposed to be a figure for each year of the double-dip: does it take annual inflation into account? Why is the figure precisely the same for each year? It is not how households reckon their budgets – if they still do…

In other words: how do the authorities know? How is such an exact figure arrived at?

The fallacy lying behind its exactitude is that an averaged abstraction of this kind is impossible to compute by each individual alleged to compose the sample: I cannot look at my income and extrapolate such a figure in terms of how much I was better off over the past few years: I certainly know that I didn’t have £1,800 the year before last which I subsequently did not have the following year.

And why is the Prime Minister “hinting”?  It would be nice to think that this is an acknowledgement of the modesty that ought to be applied to this kind of prophecy, but I somehow doubt it. We live in a world of technical precision-making applied to what can only be generalities. How do they think they know?

Accurate prices?

And that is what is wrong with the sentence in The Economist’s report on Iran.

The bazaar was closed because disputes over prices threatened to spiral out of control: given the colossal collapse in the value of the rial in the previous three days, prices were impossible to assess and agree – remember this is a culture in which open bargaining is likely to take place in bazaars. This serves to throw into relief the whole problem of value (which we have looked at here and here).

There is no such thing as an “accurate” price – that is the scientistic approach of Keynesians and mathematical economists. In my own trade of bookselling, I long ago concluded that there are no such things as fixed prices, there are only sales (I began my career in the London book trade while a form of retail price maintenance, the Net Book Agreement, was still in force – which I never troubled to abide by). More generally, this can be adapted as: there are no prices, only sales – the value that vendor and customer put on an article is an agreement (a price simply encapsulates the terms of agreement), however circuitous the route to that agreement.

In a bazaar or market that route may be fairly direct: haggling. In more sophisticated retail environments the implicit bargain between vendor and customer may be more or less open, for example in the way supermarkets analyse their sales on a micro scale and keep adjusting their prices with price wars, reduced price sales, permanent price reductions, loyalty vouchers, and stocking up on items or withdrawing them, in a never-ending response to the goods that customers are willing to buy and the prices they are willing to pay.

At the extreme end of the conversation is the offer by the vendor – say, filling his window with the latest winning novel of some prize or other – and the simple unspoken refusal of the customer to buy. For example, I never buy the Man Booker prize winner, and, to extrapolate, I don’t smoke, and having recently bought a pint in a pub, something I haven’t done for a long time, I won’t be in a hurry to repeat that contemporary loss-making experience: £4.50 for a pint of lager!

Value not a formula

The vexed question of value, then, is never reducible to a formula, though it may look as if that is what is being done in benign markets with plenty of market flexibility. The formulaic approach leads to horrors such as Prices and Incomes Boards and Trade Unions, which both attempt to stamp their fixed notion of value on the rest of us.

This is one of the important reasons why Hayek’s analysis of price systems as information highways is so valuable: if goods and services never have intrinsic value, in spite of the attempt by the producer to quantify the materials or the time or the education that have gone into production, then value is only what it is agreed to be. Market domination, whether by cartels in the private sector or Trade Unions in the public sector, are attempts to rig or eliminate markets, suppress price information and make more out of the good or service than the customer is truly willing to pay.

The bazaar in Teheran was closed because when there is such a huge degree of uncertainty and widespread loss of confidence in the currency, deals are futile: when the sense of value is eroded, compromise is impossible, and without compromise markets cannot flourish.

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

CHANCELLOR FRAU AUSTERITY: HOW MUCH DID YOUR VISIT COST?

Tuesday, October 9th, 2012

By Mark Rogers

There’s austerity and then some. Why did Chancellor Merkel decide to visit Athens? It certainly wasn’t to boost the revenues from tourism.

It is reported that some 7,000 police officers, secret agents, snipers and commandos were deployed against Greek demonstrators who defied bans on entering certain parts of Athens during her seven hour visit. To attempt to contain the demonstrators, some 50,000 of them apparently, tear gas and stun grenades were fired.

All these men and munitions cost money, a lot of it.

So why did the Chancellor try to boost the chances of the bail outs working by paying a very expensive visit to Athens? She knows that neither she nor her country are at all popular in Greece, in spite of the wish of much of the Greek population to stay in the euro, and therefore the Greeks’ ingratitude for the way in which the German government, against its own people’s wishes, has so far been bailing out the Greeks and keeping their decades’ long corrupt and dysfunctional welfare state and civil service going.

As Sky News reports today, 9 October 2012, online: “GSEE and ADEDY, the umbrella labour unions for private and public sector employees, have called for a three-hour strike across the greater Athens area from noon, bringing the country’s already anaemic economy to a fresh standstill.”

Yesterday, The Daily Telegraph reported that “Alexis Tsipras, who leads the opposition Syriza party in Greece, said: ‘She does not come to support Greece, which her policies have brought to the brink. She comes to save the corrupt, disgraced and servile political system. We will give her the welcome she deserves.’”

And what is Alexis Tsipras recommending in place of the “corrupt, disgraced and servile political system”? Why, the hiring of 100,000 more civil servants, free meals for students etc. – in other words more of the same bankrupt welfarist policies that have brought the Greeks to the brink, and which they managed all on their own.

Merkel’s visit belongs in the same category as the activities of those Greek “anarchists” who, in protest at austerity, set fire to a cinema and other private property in Athens: the effect of their actions, just as Chancellor Merkel’s, is to cause the unnecessary spending of more money when there is already no money.

Austerity, anyone, at all?

Well, yes as it happens, and in Greece too, by people who have actually understood what is happening and are quietly re-ordering their lives and, in doing so, are prepared for the worst… we met them 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

THE GOLD STANDARD: FURTHER ENCOURAGEMENT FROM WISE EMINENCES

Sunday, September 30th, 2012

By Mark Rogers

September has been an important month for the Gold Standard. In The Times of London, on Friday 28 September, Lord Rees-Mogg wrote a further analysis of the hazards of paper money. He concluded:

“In any reform of the global system, some measure will have to be used to replan the stabilisation that was provided by the Gold Standard.

“I do not expect governments or central bankers to abandon the ability to issue their own currency. But what governments will not do, private individuals can. If individuals want to protect the purchasing power of their savings, gold can do it; paper will not.”

There are, however, two banks that are taking the ideas of the problems of fiat money and of a return to gold very seriously indeed. Can it be a coincidence that they are both German Banks?

We saw that on the 12th September, the German Constitutional Court gave guarded assent to Germany’s participation in the European Stability Mechanism. This cautious response must be seen in the context of the devastating consequences of fiat money systems.

Six days later, 18th September, the London head office of Deutsche Bank published a Global Markets Research paper by Daniel Brebner and Xiao Fu called Gold: Adjusting For Zero, which makes the case for a return to the gold standard and argues for how it may be done. (I shall be writing about this later.)

On that very same day, Dr Jens Weidmann, President of the Deutsche Bundesbank and Member of the Governing Council of the ECB, made the opening speech at the 18th colloquium of the Institute for Bank-Historical Research (IBF) in Frankfurt. His address is entitled: Money creation and responsibility. It is a short and compelling speech, in which he too analyses the hazards of fiat currencies and does so by recalling the money creation scene in Goethe’s Faust. It is a speech so full of good things that commentary is otiose. I urge readers to click here and read the full text.

THE EUROPEAN STABILITY MECHANISM AND THE GERMAN CONSTITUTIONAL COURT

Wednesday, September 26th, 2012

By Mark Rogers

It was widely reported two weeks ago that the German Constitutional Court had blessed Chancellor Angela Merkel’s baby, whose Herculean task is to save the euro. Germany could ratify the proposal and participate in the European Stability Mechanism.

However, this permission, if that is what really it is, was actually heavily qualified, with three points in particular standing out.

First: Any further amounts in excess of Germany’s already agreed 190 billion euros must have parliamentary approval. That is, the government cannot simply keep pumping money into the mechanism without explicit endorsement by the Bundestag, the German parliament.

Second: In order for this to be possible Germany’s (sole) representative on the ESM must report to the Bundestag – thus breaching the ESM secrecy rule for the members to meet in closed conclave. This is very neat of the judges: to expose yet again the clandestine and unaccountable methods of the EU!

Third:  Perhaps an even tastier judicial morsel: any agreement that Germany has with the ESM must not be in breach of International Law: “No permanent mechanisms may be created under international treaties which are tantamount to accepting liability for decisions by the will of other states, above all if they entail consequences which are hard to calculate.” [Emphasis added.]

Somehow one wonders why the political planners of the EU and the euro didn’t think of that for themselves.

Karin Matussek, in an article on Bloomberg, draws out the implications: “Lawmakers must not allow Germany to shoulder an amount it can’t control or that would result in it being unable to determine its political agenda, the court said.”

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 EURO GOES ON – ON AND ON AND ON…

Saturday, August 25th, 2012

By Mark Rogers

Now that the main Olympics are over and the daily newspapers have recovered their normal size and weight, it is possible to see what else is happening in the world. Surprise, surprise… while London was full of sportsmen and women doing their best to out-compete each other to make some sort of achievement, those other Olympians – the gods of the Eurozone – have got precisely nowhere. Which in practical terms means less than nowhere…as we have previously seen here.

The Greek Prime Minister has been smiling his way from Paris to Berlin – but it isn’t going to make much difference. The German government is under huge popular pressure not to make any more concessions to the Greeks, the idea being that as the Greeks have, again, failed to make progress to meet any of the commitments they had already made, where is the logic or reason in renegotiating?

The problem is simple, and is well understood by Chancellor Merkel: the only way in which Greece (and Italy? Spain? Portugal?) can be kept in the euro is by the Eurozone becoming a real fiscal union with Germany permanently underwriting the poorer countries’ debts. But this is completely unacceptable in Germany, and other northern European countries (Austria, the Netherlands and Finland) are equally opposed. Was this one of the original compromises made before the euro was launched? While knowing that the single currency might only succeed if the proper fiscal union was created ab initio, but also knowing that this would have been politically unacceptable, the politicians went ahead with their vanity project knowing that it would be botched…  No wonder they’re desperate to patch it up somehow, but their inability to do so, because of the impossible circumstances they have created, has led to this apparently never-ending stasis…

But perhaps not quite, because from a completely unanticipated direction a break-up of the eurozone may be on the cards sooner than anyone expects, except those who have prepared for it: the Finns.

The current issue of The Economist (August 25, leader) states: “efforts to shore up the euro might be scotched not in Berlin but in another austerity-minded northern capital: Helsinki.”

The Finns have already made contingency plans for the break-up of the euro. On July 6, 2012, the Finnish Finance Minister was quoted in The Daily Telegraph as saying:

“Finland is committed to being a member of the eurozone, and we think that the euro is useful for Finland,” Ms Urpilainen told financial daily Kauppalehti, adding though that “Finland will not hang itself to the euro at any cost and we are prepared for all scenarios”.  She went on: “Collective responsibility for other countries’ debt, economics and risks; this is not what we should be prepared for.”

It is worth keeping in mind that Finland is one of very few EU countries that has managed to maintain its triple-A credit rating; the finance minister therefore speaks with a good deal more authority than most other players in this wretched game: “We are constructive and want to solve the crisis, but not on any terms,” she said [my emphasis].

The Economist goes on to point out that “uniquely, Finland has demanded collateral for its part of Greece’s second bail-out and for the funds it underwrites to support Spain’s crippled banks. If a grand bargain on the mutualisation of debts is ultimately required to keep the euro together, the Finns could block it. A few observers even think a “Fixit” (a Finnish exit from the euro) is more likely than a Grexit.”

This is quite a turn around. It should be remembered that in the 1990s the Finns pulled out of a banking crisis entirely on their own, demanding no assistance from anyone: no wonder they are hostile to bail-outs!

The Economist says that the longer Chancellor Merkel prevaricates, hoping to come up with some grand unifying scheme, the more the cost of bail-outs will increase; but surely the real point is that while prevarication has prevailed, the money itself has run out.

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

GOLD THE CHASTENER

Saturday, July 21st, 2012

By Mark Rogers

Gold provides a unique discipline because it cannot be created by banks. In a gold system, gold is the ultimate regulator.”

William Rees-Mogg makes this observation in his most recent column in The Times, Friday 20 July, 2012. It is such an important observation, that I have added it to my slowly growing arsenal of Maxims.

His article briefly discusses the financial scandals emerging in the City – the Libor crisis, HSBC money-laundering – in the context of two important matters: the wisdom or otherwise of the regulators and what caused the bankers to behave as they did.

The first concern is raised in the context of the forced sale by the Lloyds group of some 600 branches to the Co-operative bank. This sale was foisted on the group by the authorities of the European Union, in the belief that it would enhance competition within the sector, “although it undoubtedly creates another large bank, which may develop new control problems for managers and senior executives”. Was the Co-operative chosen because of some vaguely left-wing worthiness supposedly attaching to it? And if so, will the Co-operative prove more reliable than other banks simply because of it? We shall see.

Rees-Mogg’s second concern involves both bankers and regulators and he makes the inevitable point that both are to blame in varying degrees. It is slowly being acknowledged that the so-called “light-touch regulation” was nothing of the kind: it was wrong-headed, inexperienced and incompetent regulation, intervening in and micromanaging unnecessarily the day-to-day running of the City while ignoring or encouraging many of the things that ultimately blew up – and it may anyway have been politically directed (see here and here).

He certainly has no hesitation in pointing the finger at President Clinton as being the chief architect of the bubbles that burst, entering into an arrangement with Allen Greenspan at the Fed to prevent American markets from falling. “He wanted to live in a continuous boom.” So that’s where Gordon Brown got his ideas about an end to boom and bust from!

The long bull market at the end of the 1990s was the result, because Greenspan refused to let the market self-correct and, “in the absence of gold, the Fed faced no ultimate discipline”.

It is the fundamental point that Rees-Mogg goes on to make about gold that is the most fascinating aspect of his discussion. Gold, he maintains, imposed discipline on the banks for over three hundred years.

It may well be that it is this that leads many modern economists (together with their devotion to Keynes) to despise gold. After all, we may all get into a lather over misbehaving bankers – but they certainly prevent economics from becoming the dismal science. How much less exciting is the talk of discipline… Not for nothing did Keynes despise traditional morality, and was himself a notorious gambler!

“Keynes, the Cambridge wizard, cannot be a substitute for the discipline that has gone with gold.”

Unfortunately Rees-Mogg, in spite of knowing that gold, as well as being a discipline against incautious bankers, also “gave money its sense of reality”, ends his important article on a note of pessimism: he believes that such was the manner of the going of gold that the gold standard can never return – but see The Gold Standard Returns for a contrary view, and one, moreover, that goes into some detail as to how it may indeed make a return.

Savings from 1912 to 2012

Wednesday, July 18th, 2012

Bank Notes or Gold Coins?

A little morality tale from France about fiat money versus true value

By Bé Habba

This article is translated from the French original by Bé Habba who is a contributor to the French site Forum-Gold.fr

On June 24, 1912, a good-natured workman named Anatole puts aside the sum of 100 Francs, for his descendants. He is paid 5 Francs per day for 10 hours work, as typesetter at a printing works. It is a good wage, as many people earn less: a carpenter or a labourer earns 3 Francs per day, a dressmaker earns 2 Francs and a farmhand earns 1.5 Francs.

One kg of bread is worth 0.40 Francs. His 100 Francs thus amount to 20 days’ wages or 250kg of bread. Putting aside one day’s pay per month, he had to save-up for over a year and a half (20 months) to amass his 100 Francs.

To save it, he has three options:

- bank notes, for example 2 “pink and blue” 50 Franc bank notes

- silver coins, for example 20 “Ecu” 5 Franc coins, that is to say 500g of silver with a purity of 900/1,000.

- gold coins, for example 5 “Napoleon” 20 Franc coins, that is to say 32.25g of gold with a purity of 900/1,000.

As a typesetter, he is fascinated by the latest 100 Franc note issued by the Banque de France, designed by Luc-Olivier Merson. It is the very first polychrome bank note to be put into circulation. Compared to the old monochrome bank notes in black, blue, purple or the blue and pink bicolour notes, what an innovation! He therefore definitely decides to opt for modernity and places this brand-new bank note under his bed-sheets.

During the inter-war period, the “Merson” 100 Franc bank note remains under the sheets, but it loses value as inflation is significant. To catch up with inflation, Poincaré suddenly devalues the Franc under the law of June 25, 1928, which reduces its value, measured in gold, five-fold: the Franc is now worth 65.5 mg of gold with a purity of 900/1000.

The previous value of the Franc, known as the ‘Germinal’ Franc, had been defined by the 1795 Convention and then by the law of 7 Germinal year XI (March 27, 1803). The Germinal Franc was worth 5g with a purity of silver of nine tenths or 322.58mg with nine tenths gold (that is to say a gold/silver ratio of 15.5). This is why the 20 Franc gold coin weighed 0.32258 x 20 = 6.4516g from the revolution up to the 1928 devaluation.

Thus in 1928, silver and gold coins, whose values as noble metals became five times greater than their face value, are demonetized and withdrawn from circulation (or hoarded). But bank notes remain valid, and Anatole leaves his 100 Franc “Merson” under his bed-sheets.

 In October 1936, the Franc is further devalued and it is decided that henceforth it can fluctuate between 43mg and 49mg of gold with a purity of 900/1,000. Then in early 1939, following a new devaluation, the value in gold is set at 27.5mg with a purity of 900/1,000.

During the phoney war, the fall continues, and in February 1940 the Franc is only worth 23.34mg of gold with a purity of 900/1,000 (that is to say 21mg of fine gold).

During the liberation, the situation becomes somewhat chaotic. Pre-war bank notes, notes issued by the French State and notes issued by the Americans are used concurrently. On June 4, 1945, all notes of a value equal to or higher than 50 Francs are withdrawn from circulation. This massive exchange for reserve denominations of 300 and 5000 Francs, was carried out in 12 days throughout the whole of France. Later, when the new “Jeune paysan” 100 Franc bank notes were printed, the son of Anatole obtained one which he once again placed under the bed-sheets.

Post-war, inflation starts-up again, and the purchasing power of the 100 Franc bank note crashes. Two new devaluations took place in 1945 and 1949.

Returned to power in 1958, General de Gaulle announces the creation of a “re-valued Franc” which he entrusts to his Minister of Finance, Antoine Pinay and the economist Jacques Rueff. On December 27, 1958, an order establishes the “new Franc” equivalent to 100 old Francs. As the old Franc was worth 1.8mg of fine gold at that time (33 times less than the Poincaré Franc of 1928, and 12 times less than in 1940), the new Franc is thus worth 180mg of fine gold.

The old coins and bank notes remain valid for some time but the amounts written on them are henceforth worth cents rather than Francs. Anatole’s grandson thus exchanges the “Jeune Paysan” bank note of 100 old Francs which his father bequeathed him, for a brand-new “Semeuse” 1 Franc coin made of nickel. He finds the new coin to be very pretty and shiny. He places it under the bed-sheets.

The value of the new Franc is slightly devalued in 1969 and is worth 160mg of gold. Later the gold standard is abandoned and even prohibited under the Kingston Agreement of 1976.

During the period from the 1970s to 1990s, inflation is still occurring and several additional devaluations take place. In the year 2000, the “Semeuse” 1 Franc coin is still legal tender.

Finally, after 17 devaluations of the Franc during the 20th century, we reach the major revolution with the switch to the Euro: the coins and bank notes are put into circulation on January 1, 2002. The French have 6 months to exchange their Francs at any bank, and a further 3 years for coins and 10 years for bank notes issued by the Banque de France.

In January 2002, Anatole’s great-grandson removes the “Semeuse” 1 Franc coin from under the bed-sheets and exchanges it for Euros: one 10 cent coin, and one 5 cent coin. He again places the 2 coins under the bed-sheets.

And then, on June 24, 2012, Anatole’s great-grandson, who is now 60 years old, feels that the anniversary is an appropriate time and says to his son:

“Pierre, I must tell you something.  Exactly one century ago, your great-great-grandfather Anatole put 100 Francs aside. At the time, that was a significant sum. Each of his descendants carefully preserved this sum and it was handed-down from generation to generation, in the form of bank notes and then coins, through two world wars and several changes of currency. Today, I solemnly give to you the equivalent of the original 100 Francs: 15 Euro cents. It is up to you to preserve them and to pass them on to your eldest, to continue the family tradition.”

“But Dad, what do you want me to do with 15 cents? I can’t even buy a quarter of a loaf of bread! With that, I can barely get 40g of bread!”

EPILOGUE

Today in 2012, Pierre, a workman on the minimum-wage, earns 50 Euros per day for 7 hours work. He earns 1100 Euros per month for 22 days work.

One kg of bread costs 4 Euros, and to buy 250kg one would need 1,000 Euros. By putting aside 1 day’s wages per month, like his great-great-grandfather Anatole, he will need to save-up for 20 months.

However, if his ancestor had saved his 100 Francs in 20 “Ecu” 5 Franc silver coins, he would have approximately 340 Euros, instead of 15 cents. With that, he could buy 85 kg of bread.

But if his ancestor had saved his 100 Francs in 5 “Napoleon” 20 Franc gold  coins he would have approximately 1,300 Euros! That amounts to 26 day’s wages, and over 2 years of savings (26 months). With this, he could buy 325kg of bread…

DEBT AND DEMOCRACY

Wednesday, May 23rd, 2012

By Mark Rogers

Having looked at the recent elections in France and Greece (here and here), and raised questions about the political outcomes and their effect on the euro and the EU as a whole, it would be pertinent to ask what part democracy based on universal suffrage plays in economic decline.

To blame the economic consequences of the euro and the welfare state solely on politicians would be mistaken. After all, the electorate votes, and therefore must take some responsibility for putting into effect the policies for which they vote. Even if the mismanagement and over-reach of government cannot be directly laid at the feet of electorates, the general tendency of what their votes tell the politicians what it is they, the voters, want is certainly something for which voters are culpable.

The current decrying of “austerity” is a measure of this, a considerable proportion of the French and Greek electorates voting for “anti-austerity” measures. There is much confusion as to what “austerity” is in practice: a sharp analysis by Peter Martino on the Gatestone Institute’s website makes this very clear.

The irony is that the thrust of austerity is correctly understood – and rejected by very large numbers of people in Europe. The measures themselves, as Mr Martino points out, are anything but austere. In making the reduction of deficits through increased taxation the focus of policy is only to reward profligate governments and encourage the failure to think through what is actually happening, as I have frequently pointed out.

When Mrs Thatcher was campaigning for election in the late seventies, she was much abused for using homely analogies about domestic housekeeping. Her ever-so-sophisticated critics chortled at her supposed naivety in not realising that a state is not like a household, so her constant invocations of the housewife who cannot spend if her purse is empty were mocked as exposing a shallow, as well as, somehow, a nasty mind.

Well indeed, a state is not like a household in this sense: it takes real statesmanship and foresight to run a state as if it is a household. Politicians who decide that, given that a state is not a household, they are therefore licensed to make free with the state’s economy will soon learn Mrs Thatcher’s lesson – that is, if they are disposed to learn…

The Greeks are going back to the polling booths in June, but it is not likely that the new votes will change much: what needs to change is the electorates’ attitude to the boondoggles of European policy. Doubtless there are many Greeks, as there are many voters throughout Europe who do not bother to vote, which in itself is a vote of a sort. One must hope that a sufficient number of them are like the Greeks in this story, who, having taken the measure of the disaster, have quietly foreseen that there are no easy solutions and have therefore set up alternative currencies and friendly associations to make ends meet.

Greece is commonly referred to as the birthplace of democracy; democracy has over the centuries come to be defined in many different ways, so much so that it is pertinent to ask: were the ancient Greeks democrats? And is democracy the same as freedom? To be continued….