Archive for October, 2012


Wednesday, October 31st, 2012

By Mark Rogers

A discussion of Gold: Adjusting for Zero by Daniel Brebner and Xiao Fu, Deutsche Bank, London, 18 September 2012

2008 did not just happen. The financial squalor of recent years is the culmination of several long-standing factors, the most important being cultural, the “group think” of the Keynesian consensus. To begin with the analysts’ conclusions: while their report explains that a return to the gold standard is feasible, they are not sanguine that it will happen:

“The world economy has, over the past century, morphed into a highly integrated, government dominated system guided by conventional wisdom (group think). The self-reliant individualism of the free market has been left behind in favour of a ‘new age’ of coddled consumerism. Culturally this represents a very powerful force … one which minimises creative options/solutions to economic impasses.” (p. 16)

“Many economists shudder at the notion of a gold standard; this is understandable given the school of thought to which most adhere: Keynesian or Keynesian derivative.” (p. 14)

High on the list of Keynes groupies who are in powerful positions is Ben Bernanke, Chairman of the Federal Reserve: it would take a conversion of Damascene proportions to get him to change his view of gold, and where he leads, many other central bankers and finance ministers willingly follow.

The authors of the report are therefore to be congratulated for their sombre realism in discussing this issue.

Zeroing in

As we approach Keynes’s ideal of 0% interest rates, “[m]oral hazard continues to be encouraged … The financial system in fact remains oriented to encourage further leverage and risk-taking.” This has an important consequence that goes a long way to explaining the crises that engulf us: investment is made simpler “in the sense that one only needs to look to what is ‘easiest’ rather than what is ‘right’.” If probity is at a discount, and an extravagant one at that, then why should politicians and policy makers even care about the consequences of their decisions? The Libor scandal (here and here), for instance, is an almost inevitable consequence of such moral insouciance.

A pertinent consequence for investors of quantitative easing is, as the report points out, the increasing price of gold. This is in fact simply another version of Gresham’s Law: as bad “eased” money increases so true value is driven into gold, forcing its price upwards given its relative scarcity. This is not to say that quantitative easing is good for gold, that is, easing does not contradict their assertion that a return to the gold standard is desirable given that this would prevent any such easing. It is simply a recognition of the fact that bad money always has this consequence: a return to the gold standard would be a restraint, allowing money to have a secure measure of value and preventing the arbitrary manufacture of money that destroys value.

Human Effort

The most remarkable aspect of this report is not the advocacy of a return to the gold standard – after all others are making the same case. What is interesting is the space the authors devote to the fons et origo of value: human effort. They devote two and a half pages (9-11) of what is after all a very short analysis to this concept and make this extremely important point: “if capital is stored effort, then debt is borrowed effort: either someone else’s or your own estimated future output.” The effect of exceptionally low interest rates is therefore to devalue your future effort by selling it to yourself, if you borrow, at a discount.

It is in this context that a return to the gold standard must be judged as essential: the moral hazard that the authors identify as being at the heart of the crisis cannot be allowed to continue.

The full report is available here.


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


Wednesday, October 24th, 2012

JOCELYN BURTON is an award winning Silversmith specialising in Gold, Silver & Bronze. In 1969 she opened her studio at 50c Red Lion Street, Holborn, London WD1, where she has lived and worked ever since. The first major retrospective of more than 40 years of her work was held at Bentley & Skinner, 55 Piccadilly, London W1, from 14th November to 8th December 2012. The exhibition went well and served to bring her name and her work before a new audience.

In her own words:

‘I hope that my work embodies the best of old and new. I have welcomed technical innovation, but bow to traditional techniques and conventions where they are necessary for the strength, integrity, and quality of a piece. The press have often commented on the exuberance of my subject matter. The world is my oyster in the sense that I am fascinated by the beauty and complexity of nature. I revel in the challenge of large scale work and the opportunity to make extravagant and even opulent pieces, but there is always room for humour and even a touch of irony. I pay great attention to detail, often incorporating precious and semi-precious stones and finely chased figurative decoration. Overall, I strive for timelessness and boldness of concept and form.’

In 1974 Jocelyn Burton become one of the first skilled female Freemen at the Worshipful Company of Goldsmiths, at which time she also became a Freeman of the City of London. Her work can be found in many notable institutions including the Victoria &Albert Museum, St Paul’s Cathedral, Goldsmiths’ Hall, 10 Downing Street, York Minster, the Fitzwilliam Museum  and the palace of the Ruler of Dubai Sheikh Mohammed Al Maktoum of Dubai.

Jocelyn Burton’s commissions are many and varied and include pieces for:

The Worshipful Company of Clothworkers
The Worshipful Company of Fishmongers
The Worshipful Company of Goldsmiths
The Worshipful Company of Haberdashers
The Worshipful Company of Painter Stainers
The Worshipful Company of Vintners

She has also executed commissions for the Royal Families and Nobility of these shores and others.

The beauty and complexity of the natural world as understood through human initiative and creative appreciation are the hallmarks of Jocelyn Burton’s work, a marvellous blend of flora and fauna with man-made objects that reveals a close observer and a technically supreme craftswoman. The sureness of her grasp of theme and technique ensure that her work endures.

For her online exhibition/catalogue go to:


Friday, October 12th, 2012

By Mark Rogers

Keynes believed that a “scientific” approach to the study of economics would replace the classical morality that he so much loathed: “I believe … the right solution will involve intellectual and scientific elements which must be above the heads of the vast mass of more or less illiterate voters.”

The adoption of the pose of science would go a long way to explaining why Keynes was accepted as the economic guru of a technological age, and why Hayek has been ignored (see the discussion here).

After all, we have had “scientific socialism” handed down from Marx and Engels, Lenin, Stalin and Mao, to the likes of Ralph Miliband (father of the Labour Party double act of recent years) and his cohorts at the London School of Economics. Hayek resolutely punctured the pretensions of “scientism”, as he preferred to call the illegitimate borrowing of the methods of the hard sciences by the humanities.

Hunter Lewis in his splendid Where Keynes Went Wrong (first referred to here) occasionally makes fun of what he calls Keynes’s satirical burlesques, Keynes’s only half-jesting suggestions as to how to make an economy function. One of the most famous is his recommendation that the government fill old bottles with money and bury them. This comes as a conclusion to other ways that might be envisaged of using up the “glut” of savings that he saw as “impoverishing” an economy.

We could create enough unemployment to render people incapable of saving. Millionaires might build huge mansions to live in and mausoleums to preserve them after life, or even build cathedrals and endow monasteries; we could hope for a war or two, or a natural disaster to “increase wealth”, as he madly puts it, by depleting savings.

And then this moment of inspiration: governments

“could fill old bottles with bank notes, bury them at suitable depths in disused coal mines which are then filled … with town rubbish, and leave it to private enterprise to dig the notes up again.” Of course, governments would be “more sensible to build houses … but digging up bank notes is not so different from ‘gold mining’ and would equally serve as a way to consume excessive savings.”

Now why is gold mining, the real thing, wholly different from a Nazi-style make-work programme? Because it requires investment and effort to extract the metal from the earth’s crust, it not having been craftily, and indeed somewhat pointlessly, planted there in the first place. And why investment and effort? To ensure that the mines are genuine and have sufficient gold in them to reward the effort.

And Mr Lewis makes this crucial point:

“The comparison of buried paper money to gold is rather a joke on Keynes. His advice to print more and more money has, over the years, resulted in a rapidly depreciating currency. It will be recalled that the dollar, since the formation of the Federal Reserve in 1913, has lost over 95% of its purchasing power. By contrast, gold has kept its purchasing power, and become an investment refuge for those who wonder what governments, inspired by Keynes, will do next.”

The problem with Keynes is not that he was clever – he was – but that he appeared to think that cleverness was a virtue. Cleverness is not a virtue, it is a faculty. We may be intelligent enough to distinguish vice from virtue; we may be clever enough to engage in obfuscation and pretend that a vice (quantitative easing) is a virtue. Indeed, we may even be too clever and actually believe that a vice has been transformed into a virtue – as Alan Greenspan, Ben Bernanke, George Osborne and Sir Melvyn King all appear to have done – overcoming both moral sense and intelligence.

And this is the heart of the problem: intelligent men have been lured into folly by the frivolities of Keynes – to say that this is outrageous wouldn’t get us anywhere, as I suspect that the camper side of Keynes would have made him take delight in being called outrageous. But, “scientific” or otherwise, this is not an economic policy.


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


Monday, October 8th, 2012

By Mark Rogers

Keynes and the Keynesians suffer from many delusions, but perhaps the most important is the belief that excess printing of money (quantitative easing), the injection of extra money into an economy, is the same thing as traditional savings.

Before puncturing this delusion, it should be noted that Keynes was an enemy of traditional savings, of saving at all! Keynes is not only deluded but also muddled, perhaps intentionally in order to throw his reader off guard – this sort of posturing is prevalent in his writings.

Hunter Lewis in his magnificent Where Keynes Went Wrong and Why World Governments Keep Creating Inflation, Bubbles and Busts (Axios Press, available here or here), comments on this proposition that increasing the money supply by printing money is a form of saving:

“Money created by the government is not savings; it destroys savings. … The word savings describes money that has been earned, and having been earned, is not spent but rather is set aside for emergency or investment use.”

He goes on to point out that over time the extra money pumped into the economy will result in either overt or opaque inflation which “will ultimately erode the purchasing power of traditional savings and ruin the saver, especially the small saver.”

Keynes is not only wrong to say that printing money is in fact another version of savings; it is astonishing that he thought he could say this, illogical and downright mendacious as it is, a mere trifling with words. The mendacity is compounded by the fact that encouraging the printing of excess money actually destroys the real wealth of those who have saved.

It was perhaps the perception of the immorality of the Keynesian “solutions” to economic crises that prompted this sarcastic denunciation by Malcolm Bryan, president of the Federal Reserve Bank of Atlanta, 1957:

 If a policy of active or permissive inflation is to be a fact … we should have the decency to say to the money saver, “Hold still, Little Fish! All we intend to do is to gut you.”

Hunter Lewis’s book is inspired by and indebted to Henry Hazlitt, the brilliant American economist who minutely dissected Keynes’s General Theory in The Failure of the “New Economics”, and author of the inspirational Economics in One Lesson. Rather than follow Hazlitt in unravelling every last absurdity of Keynes (that job having already been done so thoroughly by Hazlitt there is, of course, little point in repeating the exercise: Hazlitt is inimitable), Lewis chooses a few big themes, all of them directly relevant to our present crisis, and pins Keynes down on them, thus demonstrating both how the crisis we are in came about, and why governments and economists are so signally failing to do anything about it.

The book is at first sight somewhat eccentrically laid out, with propositions and comments in bold, and paragraphs of analysis interspersed with a line containing a single word or phrase quoted from Keynes to drive home the point that he really did say what he did (if you go to the second availability link given above you will be able to open the book and see the page layout). However, once I had really got into the excellent text, it suddenly dawned on me that not only is this format helpful in clarifying the points at issue – and many of them are of the highest absurdity: Keynes was not a clear or logical thinker, perhaps not a thinker at all – but that this format also represents what the author wants to do to Keynes: chop him up into little pieces!

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


Sunday, October 7th, 2012

By Mark Rogers

The Euro: How to be Muddled

A short Reuter’s report of October 5th gives the gist of an article (published on Saturday 6th October in the Rheinische Post) by the head of the European Stability Mechanism, Klaus Regling. Perhaps unwittingly, its brief precis of Herr Regling’s concerns manages to encapsulate the extraordinary mixture of muddle and mendacity that occupy centre stage in trying to avoid the obvious when it comes to dealing with the euro crisis.

Herr Regling’s “biggest worry” concerns the problem that “some crisis-stricken countries do not have the political power to persevere with their painful but effective reform programs until the end”.

Muddle Number One: given that it is thought – in this case, with justice – that countries like Greece do not possess this political will, how can it be said, as they have not as of yet persisted until the end and indeed, in his opinion, cannot do so, that their reform programmes are “effective”. That would, by definition, only be apparent at “the end” and “the end” is presumably defined as arriving at a point where the reforms appear to have worked.

Herr Regling’s next item of concern is that a Greek exit would be the most costly solution.

Muddle Number Two: if he is right about the paralysis of political will, then the “costliness” or otherwise of a Greek exit is irrelevant: it would be the right, indeed, the only solution. What of course in this context is meant by “costly” is that once one country has pulled out of the euro (and remember, it might be Finland, a country that is not crisis-stricken), others would inevitably follow; “costly” in this sense is to be understood as: embarrassing to the projectors of the euro…

“He also said the euro zone’s crisis strategy was working better than many people acknowledged and that the region was more than halfway through national structural adjustments.”

Muddle Number Three: this is the usual habit of lying which is always fallen back on: having asserted that there is little to no political power to persevere to the end with “effective” but unworkable solutions, it is then announced that the solutions are working after all, and the only problem is that the critics of this whole boiling are not “acknowledging” that everything is in fact hunky-dory – or will be, perhaps, one day, if only everyone would stop complaining…

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



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