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Summary
The World's developing financial crisis is totally inter-connected with a
crisis of monetary theory and until we change how money works we will
change nothing. What is required is a return to a solid monetary standard
that is also a return to a more moral standard, which protects real work
and long-term monetary value.
By its nature even though this gold standard had a flow of credit it had a
natural restraint which does not exist under the paper tender mechanism.
Under the rules of automatism the business community that was guilty of
over-creation of paper money would be penalised with a loss of gold.
Gold would start to flow out of the business community leading to a
tightening of money supply and causing a rise in price until the rules of
balanced budgets and sound finance were observed again. Gold acted as a
natural curb and there was no need for central banks.
Under the legal tender paper system there are no automatic constraints in
the amount of money that can be issued. More paper means more
inflation thus is explained the contemporary curse of spiralling modern
inflation. A modern industrial society cannot be maintained without a
sound accounting unit with which to calculate long-term depreciating
schedules and set long-term contracts of all kinds. In particular a society
needs to be able to adequately record savings, life insurance policies and
pension funds in real rather than fictitious values. The tremendous capital
investments required for a modern industrial nation cannot be maintained,
replaced and renewed without correct instead of false accounting.
Management in terms of constantly inflating paper tender units has
become a moving fiction incapable of providing "value" information
essential to the operation of large-scale and long-lasting enterprises. In
essence a solid money system is also a solid moral standard protecting
and defining real value in real independent units.
Now many would contend that legal tender performs the first two
functions adequately but when we truthfully consider the third function,
that of storing value, we must surely admit that as a system legal tender it
is fatally flawed. This observation is proved by the fact that since the
introduction of the Federal Reserve in the U.S. in 1913 the dollar has lost
over 90% of its purchasing value. For pension funds this situation is
terminal for when long bonds reach maturity their nominal "unit" value is
repaid by the borrower, normally the Government. However the real
purchasing value being repaid is marginal due to destructive reality of
paper inflation. In the long-term this situation leads to the ruin of "assets"
held for pensioners and retirees and ultimately undermines the very
economic basis of a nation.
Apart from removing free market control of interest rates, the destruction
of the gold standard had a disastrous effect on worldwide employment.
The unprecedented unemployment that started in the 1930's and which is
still very much with us but for the fig leaf of the welfare state (that pays
workers not to work and farmers not to farm) was a delayed consequence
of the legal tender legislation of 1909. Since the wage fund of the workers
in the consumer goods sector was financed by the bill market, and no
other way of financing it was available, massive unemployment
threatened the globe. This event had been foreseen by German economist
Heinrich Rittershausen. His prediction came true in the 1930's when up to
half of the work force was idled. Economists failed to diagnose the
problem correctly and America tried to solve the problem with "New
Deal Socialism". Conditions for full employment in the world will not
return until the wage fund has been re-established through the
rehabilitation of a new gold standard cum real bills; however researching
the question is forbidden. Young economists are brainwashed by the
Keynesian and Friedmanite orthodoxy into thinking that the regime of
irredeemable currency represents a great advance over "obsolete" metallic
monetary standards.
Sources:
3. Ferdinand Lips
Gold Wars
www.fame.org, New York, NY, USA.
www.wealthbuilder.ie 2007
(C) www.wealthbuilder.ie
Published in Financial Sense Online 2007