It All Went Wrong When We Left the Gold Standard
Lawson, Dominic, The Independent (London, England)
My nearby market town of Lewes has started issuing its own pound notes: Tom Paine's portrait is on one side, Lewes Castle on the other. The Bullion Vault, a London gold broker, reports "phenomenal interest" in its product. The multi-millionaire media magnate Felix Dennis tells the FT that he has followed the instructions of his financial adviser to "buy gold. Physical bits, small bits, so when you need to get a sandwich you can take it down the shop and take 300 sandwiches away; God help me, in a vault here in London, I have huge quantities of small bits of gold."
We should not assume from this that the pound sterling is about to go the way of the Zimbabwean dollar. Lewes has ever been a contrary place; the Bullion Vault is obviously talking up its own business; Felix Dennis is highly impulsive.
Yet these are also straws in the wind, or rather a howling gale. When Governments spend vast sums of money to shore up the banking system, you just know that it would be all too convenient for it to let inflation erode the national debt incurred in the process. Even before these gigantic expenditures, Britain's true level of national debt, according to the economist Liam Halligan - the Government won't give the real figure including off-balance sheet liabilities - is over 1,300bn. This is equivalent to 50,000 per household. Perhaps Gordon Brown might call it "Imprudence with a purpose" - he dumped Prudence some time ago, although he kept on telling everyone that they were still an item.
In America, the situation is much the same, only, as you would expect, bigger. Last Saturday, the digital display in New York showing the current level of national debt did not have enough digits to show the real number, after it breached the $10 trillion mark ($10,150,603,734,720 to be precise). Per American household this works out as $86,023 (49,747); so Mr Brown, in this respect at least, is in no position to lecture George W Bush on economics.
There is, however, a small band of men and women - long insulted as fanatics or even fantasists by the political mainstream - who can now say: "We told you so." I am not referring to the Communist Party of Great Britain (Marxist-Leninist). No, I'm talking about the followers of the great Austrian economist Ludwig von Mises (1881- 1973). In his 1912 work, The Theory of Money and Credit, Mises declared that the corruption and distortion of money by the state and bankers, usually to pay for wars, was the principal cause both of inflation and - to coin a phrase - boom and bust.
As the chief economic advisor to the Austrian government in the 1920s, Mises put his theories into practice and slowed down inflation in his native country (which, as a Jew, he later fled). He used his "cycle" theory to forecast that the "New Era" of apparently permanent prosperity in the 1920s was illusory, and that it would end in runs on banks and depression: The Wall Street crash of 1929 was exactly what Mises had predicted.
Mises believed that any currency which was not backed by gold was powerless to resist the depredations of governments and bankers addicted to the possibilities of limitless credit. Until the past few weeks, this has been seen as a bizarrely old-fashioned and eccentric outlook; but I would not be surprised if many young people - who have hitherto been …
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Publication information: Article title: It All Went Wrong When We Left the Gold Standard. Contributors: Lawson, Dominic - Author. Newspaper title: The Independent (London, England). Publication date: October 14, 2008. Page number: 26. © 2009 The Independent - London. Provided by ProQuest LLC. All Rights Reserved.
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