Gold Standard – And The End Of Individualism

The social phenomenon of the extraordinary growth of the Western administrative state, which started in the early 1930s, applied not only to the US, but to all Western countries. Presumably, the phenomenon is a by-product of industrialisation and the economic and cultural success of liberal...

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Gold Standard growth of the state

In the year 1900 the United States government taxed and consumed 3 % of the nation’s gross domestic product (GDP). By 2021 the government’s expenditure had reached over 42 % of GDP.

In 1900, the reason that the rudimentary state existed was solely to serve the interests of the free individual citizens of the North American liberal democracy. These citizens organised and undertook virtually every aspect of life themselves. By 2021, however, the bureaucratic state, expanding under its inherent impetus,  had come to regulate and increasingly control nearly every aspect of the once-free and independent citizens’ lives. Over the period, democratic sovereignty (power) had  gradually migrated from the individual citizens to the state itself.

The social phenomenon of the extraordinary growth of the Western administrative state, which started in the early 1930s, applied not only to the US, but to all Western countries. Presumably, the phenomenon is a by-product of industrialisation and the economic and cultural success of liberal democracy.  The consequential and gradual loss of our individual freedom and independence can be expected to only intensify over time.

While the most important step in this demeaning process took place in the late 20th century, culminating in the greatest financial fraud in history, the process itself had started some time before.

Money, the means of exchange and the store of value that humans have consistently selected since about 500 BC to facilitate their economic activity, has always consisted primarily of gold (and also silver and copper). These commodities have over the ages and for very good reasons, uniquely been selected by every successive generation to function as money. They have also always been perceived as  belonging to society as a whole, and not  to the rulers. Although the rulers at times stamped the coins, and then reissued them, using the gold and silver that passed through their hands as tax to do so, money was always understood to be the people’s.

Paper money had been in use (in China) since the 13th century, and had found wide acceptance in Europe by the 19thcentury. This very convenient paper money was, however, always backed by gold, in order for it to have any  value, and without which it would have been worthless. Obviously, no rational person would accept an unbacked piece of paper from a stranger as having value. Paper bank notes were printed and issued by private or state banks, but always with the guarantee that they were redeemable in gold to the equivalent value of the banknote. And it was, of course, only the threat of the ever-possible redemption by the public of their gold coins that prevented the banks from printing and issuing as much paper money as they wished.

The natural, necessary, and entirely rational link between money and gold constituted what came eventually to be known as the International Gold Standard, lasting in one form or the other from about 500 BC to 1971. In periods of economic crisis, such as after the  two World wars and during the Great Depression, some countries went off the gold standard briefly, but had always of necessity returned to it, in order to regain financial credibility. During these bleak periods they invariably printed far more currency than they should have, so igniting inflation.

Then, after 2500 years of humanity perceiving money fundamentally as gold, this perception was suddenly and arbitrarily changed, virtually overnight. On August 15, 1971, President Nixon of the United States took the extraordinary and highly questionable step of ignoring 2500 years of human wisdom and practice, and cutting the  legal link between gold and the United States dollar, the world’s reserve currency. This he did  simply in response to the outflow of gold from the United States Treasury at the time, ironically caused by the U.S. Federal Reserve Bank’s earlier excessive printing of dollars during the Vietnam War and President Johnson’s Great Society programme. In terms of the recent Gold Exchange Standard established in 1944 at Bretton Woods, all other currencies had been taken off the direct gold standard and were instead pegged to gold indirectly through their exchange value relative to the gold-backed dollar. Nixon, for entirely parochial reasons, thus effectively ended the 2500-year-old International Gold Standard for the entire world.

Every generation across 2500 years of history had utilised gold as its financial store of value, for two very good reasons –  1.) it possessed inherent qualities that caused all humans across time to value it highly, and 2.) humans generally, and politicians particularly, were not perceived to be inherently honest. What superior insight and knowledge in these respects, one wonders, did ‘Tricky Dick’ Nixon and his financial advisors possess that humankind had hitherto lacked?

From August 1971, money, previously gold, or gold-backed banknotes, and owned by the people as a whole in the West, was henceforth to consist of paper i.o.u.s issued and owned by the government. These would duly be registered on the government’s balance sheet as liabilities, and known as fiat currency. In effect, the world’s  governments, led by the United States, had in history’s greatest act of financial fraud, blatantly stolen the people’s gold, which remained sequestered in the central and commercial banks’ vaults, and substituted it with pieces of fundamentally worthless paper. This criminal act was accompanied by the absurd claim that the state’s ability to tax the very same people whose money they had stolen, ensured that the new fiat currency would be as sound a store of value as gold – even while the state was legally free to print as much currency as it wished!. And, astonishingly, incredibly, the people and the economists who advised them, by and large docilely accepted both the state’s theft and its blatant sophistry.

Although officially it was only in August 1971 that the people’s money was stolen, the central and commercial banks had long been accumulating the people’s gold by discouraging or refusing its redemption in exchange for the paper notes that they had issued. Gradually over the centuries,  gold  had thus migrated from private hands into the banks’ vaults. The 19th century Bullion Exchange Act was an example of this practice, allowing the redemption of only large 400-ounce gold bars. Effectively, this measure permitted only the wealthy  to redeem their gold. Furthermore, in 1933 President Roosevelt prohibited the private ownership of gold outright in the United States, compelling all citizens to sell their gold to the government. (He shortly thereafter compounded the theft by officially increasing the price of gold by over 69 %.) The United States government itself, however, despite denying its citizens the right to own gold, remained itself on a quasi-gold standard. In 1939 the British government similarly compelled its citizens to sell their gold to the state.

As soon as the restraining link between gold and the number of banknotes that the governments could safely print had been cut in August 1971, governments  were free to print as much of their own currency as they felt that they could get away with without completely destroying its value. This, of course, was their principal objective in cutting the link, and inflation started rising all over the world as the politicians scurried to buy their way to power with the plentiful new, unbacked fiat currency.

When the people lost control of their money they simultaneously lost control of their economy. Free of the restraint that the gold/money nexus had imposed on its freedom to print currency, the bureaucratic state embarked on a monetary policy based on the simplistic belief that the economy could be positively controlled through manipulating the money supply and interest rates. Market-related interest rates had been the most important prices in the real economy, being the price of money  itself. These were now being artificially determined and generally suppressed by the state. This facilitated and encouraged the financial move from a highly productive industrial economy to a service economy, and ever-increasing financialization and securitisation. Wealth flowed upwards to the wealthy abnormally. These factors have all lead to a vast increase in liquidity and debt, both private and public. Much of this is highly unlikely to ever be paid back. Economically, the future has been rendered ominous, as we slide towards the possibility of central bank digital currencies.

The industrial revolution benefited humanity in many ways. It  also, however, gave rise to the bureaucratic state. While the bureaucratic state has also conferred some benefits on us, its nature and its fundamental needs as an organism conflict directly with ours as human beings. For example, where as a species we need individual freedom, independence, and diversity to prosper, the bureaucratic state requires the conformity, compliance, and unquestioning obedience of its clients. The elimination of monetary gold was therefore a necessary step if the bureaucratic state was ever to succeed in overriding the liberal individualism upon which western civilization had been founded.

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