In March, I flew for the first time since the start of Covid health theater. I was invited to speak at the Austrian Economics Research Conference in Auburn, AL. My talk covered Jimi Hendrix, and an infamous bridge collapse. In other words, I discussed my theory of interest and prices.

At the end of November, I flew to London for two weeks of business meetings. This was my first international trip since the Covid lockdown. I offer three comments. One, the UK government forces you to get a Covid test to visit the country and the US government forces you to get another test to be allowed to board a flight back home. Yes, even US citizens. No, I do not think this is constitutional (but who cares about that old document).

Two, by the way, having a stick jammed up your nose is an unpleasant experience.

Three, there is a difference in the UK and US cultures, when it comes to responding to government mandates for vaccines and masks. The US is populated by the descendants of people who risked their lives, rather than bow to kings. We still have that attitude. In the US, people break into two camps. Both are passionate, but on opposite sides.

One side is against mandates. If it helps fight mandates, they will attack the Covid vaccine, vaccines as such, pharmaceuticals in general, and even the germ theory of disease and medical science. The other side is against Covid. If it helps fight the virus, they will attack your right to control what you put in your body, your right to be on US soil, and even individual rights in general.

Both sides are vocal and tireless. And yes, I am being charitable to both sides.

In the UK, it seemed to me that the people are more accustomed to pervasive government. For example, all real controversy of their socialized medicine scheme ended decades ago. Even successful and wealthy entrepreneurs will defend the National Health Service to the death. Brits, much more than Americans, are told “stand here, don’t stand there.” So being told “wear this,” is just another rule, added to a long list of rules. Compliance, whether paying a BBC tax on your TV, or wearing a mask, is part of the bureaucracy mindset. In the UK, I saw no heated emotions about mask mandates. Not even directed towards the mask refuseniks who flouted the rule with which everyone else was complying. Compared to the Portlanders I saw, when I visited Oregon in October, it’s day and night.

The British gave us Americans many things: common law, language, and lots of great music. I hope that we Americans can give them one thing in return: the fighting spirit to push back on government overreach.

***

It was a great year for my company, Monetary Metals. We grew gold under management, we hired some talented and passionate people, we developed steady flow of lease deals. The first gold bond in 87 years matured, and investors were repaid their principal plus interest. As of year’s end, we are raising equity capital to scale.

My last company, DiamondWare, had a very cool technology. It was disruptive and could change communications (and now, 13 years after I sold the company, major companies are promoting 3D voice technology). But if there was a challenge, it was that it was hard to talk about in a way that people could understand. Even CTO’s of technology companies often did not get it.

What I love about Monetary Metals is that it is not hard to explain. We pay interest on gold. There, now you know what we do. We do it by leasing or lending the gold to productive businesses. There, now you know how we do it. Easier to explain means it takes less time trying to educate prospective customers. DiamondWare could have been a billion-dollar business. Monetary Metals can be many millions of ounces.

DiamondWare was making the world a better place. There was a big contrast between the low-fidelity monaural audio of conventional phone calls, vs. the popular conception of communications in the future thanks to science fiction. Or even a contrast to the rising quality of video that existed at the time. 3D allowed for new paradigms, which is why Nortel acquired it.

Monetary Metals is making the world a better place, by giving disenfranchised savers a better choice. Conventional banks offer basically zero. Or else people can speculate on whatever asset. From real estate to virtual tokens, maybe they can make big capital gains. Or maybe they lose their capital. People need to earn interest on their savings. Civilization depends on entrepreneurs borrowing to finance the production of all the goods which we now enjoy.

Today, this finance is not working for the savers. And bitcoin does not fix this, as it does not finance anything productive (even crypto companies borrow dollars when they need growth capital). So productive enterprise has no choice but to use dollars. And then they are in the position of having to work harder and harder, to produce more and more, to sell to raise dollars to service their mounting debts.

Monetary Metals is serving gold businesses, while we serve gold savers (silver too). As more people come to grips with the impossibility of saving in dollars, we look forward to serving them with their newly acquired gold savings as well.

I can’t imagine anything else I’d rather be doing.

***

I don’t watch much TV (other than Lord of the Rings once a year, this year in 4K HDR—wow what a difference both 4K and HDR make, the images are more detailed, more beautiful, and also much brighter and much darker!) But when I do, it’s often a documentary on science or history. One show was about an old Nazi underground airplane factory.

As the Allies gained air superiority over Germany, they could bomb anything they wanted. Such as factories making munitions. So the Nazis tried to build them underground. These projects took time to build. The Allies watched them divert massive resources away from fighting. Once the Nazis completed construction, then the Allies bombed these sites into ruin.

Hitler had to know, long before D-Day, that the war was lost. Not only could the Allies work their way through the Nazi targets, but the Nazis would never be able to build anything that required large-scale factories.

It was all over, but the dying.

And then it clicked for me. You don’t become a mass-murderous dictator out of love for the people of the country under your fist. It’s not merely that the dictator hates the ostensible enemy. He hates his own people—whom he kills in large numbers. He kills them to make them obey, to stay in power. And he kills them in making them kill the enemy.

Hitler and his generals knew that by continuing to fight past the point of hopelessness, that not only would more British military personnel get killed, and more British civilians. He also had to know that more German soldiers would die, and more German civilians. And he decided to keep fighting, knowing he would kill more of his own people, and still inevitably lose.

This is something to keep in mind, as we see populists and wannabe dictators rise today. They don’t just hate whatever group they use as a scapegoat. They will harm and kill their own people. It brings a new light to the idea of the collective, of the concept of a dictator’s own people. It’s own as in ownership. Not any kind of love, brotherhood, common interest, or solidarity.

***

There is something I had to make my peace with. Otherwise, I could not go on with what I do. And that is that I may be alone in my anger at injustice in the monetary realm. I have to able to be comfortable with being alone in this fight.

I am happy to be alone, if necessary, in being angered by the sentiment expressed in this little exchange which I shall quote from Twitter, below. The people involved in this would, no doubt, claim to support sound money. I am left thinking, “you say that word sound, I do not think that that word means what you think that it means.” (Due apologies to the Inigo Montoya).

Describing postwar inflation, someone said:

“…inflation served an important function in those circumstances. There was a huge overhang of excess cash accumulated during WW2 with few goods available to spend on. Inflation was an effective method of mopping up the excess cash.”

Let’s take this apart. By inflation, of course, he means the diminishing value of everyone’s savings. That prices go up, and in their view, this means that the value of money goes down. This inflicts harm on everyone. But not evenhandedly. Those who borrowed are beneficiaries (in the short-term way that anyone ever benefits from free goodies that he did not earn, which are taken from someone else). But those who prudently saved are robbed.

Talk about perverse incentives sorry, er, umm… by rewarding borrowing over saving, the central planners can encourage consumption and business expansion, and to make the economy grow!

Next, we get to the problematic concept of excess. Cash saved is deemed to be excess. What does that even mean? With something like eating, there is a clear definition: when you gain weight in the form of fat. And this is measured relative to the ideal amount for the long-term health of the body. But with cash savings, it is meaningless to declare it to be excess.

Also note that someone has to be empowered to Decide that you have too much cash. So this nonsense term serves to carry the baggage of a central planner. A technocrat who gets to sit there, and judge your bank balance with respect to a magic formula or political expediency. Speaking of baggage, the word overhang serves only to carry more baggage. Like your cash is some kind of Sword of Damocles, hanging over someone’s head—the head of the body economic?

Cash is, somehow, a threat. And therefore this Decider, this central planner, has to mop it up! This rubbish term smuggles the idea that your cash is their mess. Messes need to be cleaned up, do they not?

All it needs to be hammered into the mind of the victim is an appeal to the public interest. This is not your interest. It is not the interest of those who have savings that the Deciders have deemed to be excess. It is the interest of no one, just the nameless public as a faceless collective. And in the name of this alleged interest of no one in particular, the government is to mop up your cash. That is, loot your savings. And notice how the term mop up is a very vague, approximate understanding of what happened. It serves to conceal the truth.

Don’t object, this cash was excess anyways, so they Decided that you didn’t need it.

Yes, I am seriously pissed-off! And let me tell you what I really think.

I think that economic arguments need to be addressed with economic arguments. I can and do discuss capital accumulation, incentives, and the other topics relevant to this idea of deliberate devaluation. Without economic argument, one concedes to the dirigistes that central planning is practical, that it works, that it achieves—or at least in theory could achieve—its stated objective.

But in addition, one has a moral obligation to make the moral argument as I just did. We need to show a clear picture of what this is. The language offered by our would-be central planners is antiseptic, and often abstract or academic. By stripping away the mealy-mouthed phraseology, by not letting them frame the issue in terms of generic aggregate statistics, by objecting to the vague hand-waving of the public interest, we can help people see what it really means.

Mopping up the excess cash is a sloppy word soup. Each word is designed to deceive. And as a phrase, it means, can only mean, one thing. Looting. They want to loot you. Yes, even the otherwise-free-marketers who can explain what’s wrong with minimum wage laws, why we should not restrict imports, how rent control causes housing shortages, and why healthcare regulation reduces quality and increases costs. Even these folks, when they speak of mopping up your savings, mean what they say. They know what it means, even while carefully picking words that misdirect you.

What is in need of mopping up, is the central planning school and its propaganda. It is long past time to stop the central planning apologia.

***

I make no predictions in my annual Reflections essay (I save those for the Monetary Metals Gold Outlook, the 2022 edition is coming soon). However, I’d like to express a few hopes.

My first hope, if it wasn’t clear at the start of this essay, is that enough people get mad enough at health theater to effectively call for its end. We need to release the restrictions on social and commercial activities, and we need to do it yesterday.

I understand that zero interest rate policy forces people to speculate, as a surrogate for earning a yield on savings. Regulation cannot stop it, nor economics education, nor volatility. People seek capital gains, when they cannot attain their goals via compound interest. But my second hope, is that a certain kind of smug (pseudo) certainty that is prevalent in the bitcoin community will end. I don’t know whether the price action in 2022 will force this. But I do know that no good comes out of attacking people personally, over a disagreement. I refer to malevolent comments such as “have fun staying poor” and “you’re not gonna make it.” Come on, people. Do you really want to see all the people who didn’t buy bitcoin perish? Would you want to live in that sort of world?

I will have more to say about bitcoin in our annual Gold Outlook Report for 2022.

So called Modern Monetary Theory (which is not modern, does not describe money, and is not a theory) is on the rise. Like Keynesianism before it, it has a certain inevitability. That is, if people accept the ideas of collectivism, of need, of the public interest, and of free mana from Heaven—then MMT is a more consistent set of beliefs and policy recommendations. My third hope is that a proper intellectual opposition develops. And to be clear, advocates of various flavors of Monetarism, the otherwise-free-marketers, are not a proper opposition. They’ve already conceded on collectivism and central planning. Therefore it is inevitable that they will lose, as MMT is a more consistent version of the same basic ideas. I wrote one article to show why MMT is a cargo cult, and plan to write more as time permits.

Finally, I hope that 2022 is a better year than the last two. I hope that my friends have more reasons to be hopeful as we go forward. 2020 brought us to a dark place, with astonishing speed that I could not have imagined beforehand. I hope that we are ready to move forward, to a brighter place. Cheers!

Copyright 2022 by Keith Weiner

Is it a socialist law, when the government tells landlords that they may not evict tenants for nonpayment? In other words, landlords are forced to give free housing to nonpaying squatters. How about when the government taxes every landowner, to give out free education services to every child? Or when the government forces everyone to pay 16% of their income into a scheme that promises to pay them a pension in retirement? There is quite a variety of these programs.

Each may be a small part, but they all implement part of the socialist vision for society. The institution of public schools is not, in itself, full socialism. However, it is a socialist program that is a step in the direction of full socialism.

I often object to these types of wrongful government policies, on grounds that they are socialist. And many times, someone airily waves his hand, and condescendingly accuses me of hyperbole. “Public schools are not North Korea,” they say, as if patiently correcting a child who confuses the concept of horse with saw-horse. That is true, of course, but equally of course, North Korea has public schools. A society with public schools is not necessary full socialism, but a fully socialist society includes public schools among all the socialist programs.

“Anyways,” they say, “this is just caring about people, it isn’t socialism.” Yeah, right. That leads to a question that you can’t usually address in the midst of such a talking-points-past-each-other-argument. What is socialism, anyways?

Socialism is based on the idea that people cannot be trusted to determine their own affairs, by reason. And, therefore, some people must be trusted to rule the affairs of all other people by force. It is when the government controls the means of production, and directs the provision of goods and services by a political process. The government does not care about revenues, costs, or profit. The government is a non-economic actor. This is argued to be a feature, not a bug. And by ignoring such greedy concerns, the government is allegedly able to deliver superior outcomes.

In practice, socialism means either that the government outright owns the means of production, or that it points a gun at the owners of the means of production. The former is the communist flavor of socialism, and the latter is the fascist flavor.

Note that, in fascism, the owners are allowed to make a profit. At least, if they are favored. So they lobby the government constantly. This does not alter the fact that the government is in control, or the fact that its means of control is brute force.

It is impossible for the government to deliver superior outcomes (as I proved in my dissertation). At best, it can squander (much) more resources than people would spend in a free market, to deliver goods that people want. Since it is far easier for most people to understand Bastiat’s “seen” phenomena than his “unseen”, they will say that it works. An example of this is the US Covid vaccination effort. It took a year and a half, and cost uncounted billions more, but the US government vaccinated about as many people for this virus, as get themselves vaccinated for influenza in a typical year.

Often, the government spends (or forces people to spend) resources delivering things that people don’t want. An example of this is the Turtle Tunnel, to let turtles cross Highway 27 in Tallahassee, Florida. More commonly, some people are happy to get a free benefit that other people must pay for, and the latter do not want it. Obamacare comes to mind as an example of this.

Finally, we should not ignore the fact that the government often does not deliver sufficient goods that people do want. Roads and bridges in most major cities come to mind.

The result of socialist policies is that people are impoverished. And the degree of impoverishment is proportional to the degree that socialist policies are imposed. North Korea is the most consistently socialist, and therefore the most miserable (and would be even more so, if not for subsidies from China).

A society can slide towards socialism by degrees. It is not capitalism all the way and only socialism when it finally arrives at North Korea.

I just had a long argument about central planning of the Covid vaccine.

The occasion for this argument is that I drove someone to the other side of Phoenix for a 5:30am appointment. Why 5:30? Because the government is doling out doses ‘round the clock.

I marshalled all the facts. We’re nearly three months in to this exercise in central planning. And even people classified in the first priority group, due to age or medical condition, must wait a month or longer and take whatever time slot may be open such as 5:30. Oh yeah be there 15 minutes ahead of time. Did I mention it’s nearly an hour drive even without traffic at Oh Dark Thirty?

I showed him that we don’t have this problem with flu vaccines. I described how companies like Nintendo can manufacture and distribute tens of millions of units in a short time window for Christmas.

He said that Israel has given the vaccine to over 90% of its population. I said it’s absolutely true that central planners can deliver great outcomes, if you look only at the “seen”. What you must overlook is the “unseen”—the obscene cost. Government bureaucracies can deliver what appears to be the outcome of a free market. But the cost is a hundred times higher. They can squander the wealth that would be enriching the Israel people in 99 other ways—in order to deliver vaccines.

He said now that Biden is in charge, of course it’s not efficient. I said government cannot do what he wants, no matter who is in charge. This is because government does not have any of the incentives, systems, processes, management culture, or other characteristics that make it possible for Pfizer or Nintendo to distribute something quickly and inexpensively.

In Glendale, the government has quite an operation going. There were hundreds of people (maybe more) waving flashlights to each car to direct them to their respective lanes. Then when one lane would move a bit faster, they directed some cars to switch lanes. This was repeated in between each stage, where workers would ask for the appointment-card-holder’s name, date of birth, etc. They’d write something on the windshield, but who knows why because the next station would ask the same questions. With more flashlight wavers directing cars to switch lanes.

I asked if I could get a shot. For a while, people in the same car with an appointment-card-holder were getting vaccinated. But the Coalition of the Concerned or whatever this group calls itself, was outraged—Outraged—that anyone could get vaccinated prior to being assigned a number. So no joy.

The waste of everyone’s time, not to mention the labor of what must be thousands of people working 5 shifts a week, was staggering. Stupefying. But no worries, it’s all free.

I explained to this vaccine-card-holder that the purpose of central planning of vaccine distribution is not efficiency. He could not disagree, having seen a small bit of the inefficiency for himself. I said the purpose is to keep Pfizer from making too much money, and to keep the rich from getting vaccinated too quickly.

After he got his shot, there was more zigzagging in lanes, like the line for Immigration Control at an airport, only with cars and trucks. And more flashlight-waving workers. We then were told that this was intentional, because after the shot they want to make sure the newly-vaccinated have 15 minutes to verify there is no anaphylactic shock. Snaking back and forth in cars, because waiting for shock! A solution only a government planner could concoct.

After that, another worker washed off the numbers on the windshield. And we were free to go.

The newly-vaccinated person in the passenger seat said he was sorry I couldn’t get it too. I said no bread today, comrade. Government rationing turns everyone into supplicants, begging for their supper (and resenting those ahead of them in line, especially when the store runs out).

He saw all of this. And agreed. So it his next reaction was particularly disappointing.

I said we should have a free market in vaccines, and Pfizer (and Moderna and Johnson and Johnson) could produce and sell as much as they want, set their own prices, distribute through whatever channels they want. He reacted to this, “I don’t know about that. We have to make sure that everyone, even the poor, get vaccinated or else this public health problem will persist. If the drug companies made it very expensive, then the poor couldn’t afford it…”

The issue here is not economic. No one thinks that the free market in food has made food so expensive that the poor starve. This guy pointed out that drugs are expensive. But he did not want to hear that the government makes them expensive by its licensing and regulation. He defended that by saying, “well, we have to prevent pharmaceutical companies from selling bad drugs.”

The government controls everyone in the Covid vaccine game. From Pfizer to the medical professionals to the people, everyone is acting under government orders. Pfizer is commanded how much to produce, and when and where to ship how many doses. Providers are directed who to vaccinate (if they get any doses at all, which many aren’t, which is why everyone drives to Glendale to a stadium parking lot to get vaccinates—those lucky few who get a number). People are eventually given a number, a permission slip to get vaccinated, and everyone else is not allowed to get it, even if they could pay. Pfizer is not allowed to sell it to them.

I am told that Pfizer is being allowed to make some money. I don’t know if $20 a dose makes or loses money for them. Maybe. I do know that the rich, the middle class, and the poor are being kept from being vaccinated. Which I am told is to ensure that everyone gets vaccinated.

I just could not get him to question his idea that, well, the government has to step in to ensure the right outcome. At least in certain important things, like the Covid vaccine. Sure, we could risk something unimportant like Mario Bros. to the capabilities of free people in a free market. But not something important like a vaccine!

The issue is not efficiency or economics. It’s not for the sake of convenience or cost. He could see that the government was making a dog’s dinner out of it.

It was just an ineffable feeling, a pre-moral sense that this is Right. And besides, there is a genuine shortage of vaccines, so how else could we get it to those who most need it?

Patrick Horan
Program Manager for Monetary Policy
Mercatus Center
Via Internet

Dear Mr. Horan and Mercatus:

It just came to my attention that on 20 July you wrote an article prompted by the then-upcoming Senate Banking Committee vote on Judy Shelton for a seat on the Board of Governors of the Federal Reserve. You ask the question: Is a Gold Standard Practical Today? The question is more urgent than ever. But your answer does not really answer the question.

The lede of your article asserts without evidence, “Despite the strengths of a gold standard system, there are better alternatives.” And in the first paragraph, you commit a logical fallacy that you reuse later in the article, “…it would be immensely difficult to implement in today’s world of modern central banks.”

You have reversed the cart and the horse. You take central banks as a fact of nature, and ask if the gold standard would fit. Instead, you should ask if central banks fit the needs of market participants in a free society.

The Soviet Union (also Mao’s China, North Korea, Cuba, and Venezuela) have proved that central planning is impossible. Even something as simple as corn. To grow corn, you just plant seeds in fertile soil, and wait. Yet every country that attempted to centrally plan it, has starved.

Economists all know this. Mercatus is articulate when it comes to price-fixing schemes for agricultural commodities, wages, rents, etc. Yet when it comes to money, you say that “there are better alternatives” to a free market.

Here is your next error. “Under a gold standard, a country sets the price of a fixed unit of gold in terms of its own currency…” Actually, in a gold standard, gold is money. Prices are specified in money terms. Money itself does not have a price. To grasp this, think of any of the fundamental units in physics. For example, how many meters long is a meter? To ask what is the price of money, is similarly invalid.

In a free market, there is no doubt that when you deposit money (i.e. gold) in a bank, you have a right to the return of the same amount of money (gold). And it is useful to have a standardized unit of account, so everyone can trade based on the knowledge that a “dollar” is the same amount of gold at Bank A vs at Bank B. This is not a price-fixing scheme, any more than an Internet standard that says long messages should be broken into 256-byte packets is a scheme to limit how much you can say.

Next you object that “exchange rates between countries are fixed.” Let’s drill into this. Suppose one country defines its dollar as 0.05oz gold. And another defines its franc as 0.29g of gold. It is true that people must convert from ounces to grams, to calculate how many francs to a dollar. But this is no problem.

“Most economists, however…” Is appeal to consensus supposed to be a scientific approach? How about appeal to reason?! When the government doles out money to academics, a curious coincidence develops. Most academics promote the party line. I will bet an ounce of fine gold against a soggy dollar bill, that Mercatus has a paper or two in its archive which looks at this kind of bias.

You continue “[economists] are critical of a gold standard precisely because it constrains a central bank’s discretion…” Discretion to do what? To rule. One term for what central banks have done to retirees is “financial repression.” Just ask anyone who is trying to live on his savings, what he thinks of zero interest rate policy.

The government and its cronies love it. Those who speculate on assets, and those whose pay is tied to asset prices such as CEOs and bankers, love it. But there is a lender for every borrower. Those who depend on interest hate it. Keynes called for their euthanasia, and that is what central banks have inflicted.

You continue “…gold standard advocates may believe deflation brought on by a gold standard is desirable…” Speaking of bias, the term brought on carries the baggage of its connotation of being the cause of something bad. Like an illness.

Of course, industry is always becoming more efficient. So if we had a money that was not being debased, prices would fall with the cost of production. In my article for Forbes, I showed that the real resources required to produce a gallon of milk were reduced by about 90% between 1965 and 2012. Isn’t it logical that the price of milk would fall about that same amount?

Yet you use another pejorative term—deflation—to describe this. Improved efficiency and hence prices is not to be feared. Of course, deflation is scary, not because of efficiency improvements, but financial crises. When the banking system is collapsing, and unemployment is skyrocketing, prices fall. The phenomenon of mass credit default should not be confused with the phenomenon of improving productivity. To avoid this confusion, they should not be given the same word.

I wrote for Forbes about the nomination of Janet Yellen as Fed Chair, and outlined her theory of labor:

1. Disgruntled employees don’t work hard, and may even sabotage machinery.
2. So companies must overpay to keep them from slacking.
3. Higher pay per worker means fewer workers, because companies have a finite budget. Yellen concludes—you guessed it:
4. inflation provides corporations with more money to hire more people.

I characterized this as frivolous. But your article follows the same logic, “Since employers generally tend to avoid cutting workers’ wages because wage cuts can hurt worker morale, companies nevertheless will lay off workers…” Yellen and you both use this to support an inflationary central plan imposed by central banks.

I must say something now, not as economist to economist, but as businessman to economist. Before you publish how businesses behave in your imagination, I encourage you to go out and ask a few how they behave in reality. What you said is not just wrong, but obviously wrong. In the economic lockdown following COVID, I’ve lost count of how many businesses I’ve spoken to, or read about, which cut salaries.

You double down on this error, and illustrate the contradiction in Yellen’s and your argument with, “vicious cycle where prices continue to fall as employment levels and demand for goods and services fall.” In the previous sentence, you said this outcome occurs because businesses were reluctant to cut wages. Now you say that employment is falling, glossing over the fact that when joblessness is up, wages on offer go down. Rising unemployment is the same thing as falling wages (at least if there are not laws that attempt to prevent it).

In economics terms, the marginal employer is the employer who hires more workers on a downtick in wages. In business language, every company wants to hire more people, but price matters.

Next you say, “…former Federal Reserve economist David Wilcox argues that a gold standard prevents a central bank from cutting interest rates to make borrowing easier in order to provide stimulus…” This, sir, is a feature not a bug. And how does David Wilcox know what the right price of borrowing is? The same way that Gosplan knew the right price of corn in the Soviet Union.

I am glad you mentioned that there were different kinds of systems, all of which are referred to by the same term “gold standard” (kind of like referring to credit collapse and efficiency gains by the same term “deflation”).

Unfortunately, you add to the confusion by saying that the “purest” gold standard, prior to 1914, “…required no coordination on the part of central banks.” That is an odd way to put it. As well, one might say that “a seller and buyer of corn require no coordination on the part of Gosplan.”

Instead of calling these various different systems, “classical”, “interwar”, and “Bretton Woods” systems, it is more helpful to call them by names that denote their essential characteristics.

Prior to the creation of the Fed in 1913, the US had a gold coin standard (as did much of the world). This means that people had the right to withdraw their gold coin, if they did not like the rate of interest on offer at the banks (or the risk). This is a vital feature! Imagine a restaurant where you had no choice. You must keep paying every day, no matter what kind of slop they slapped onto your tray. I recall the student dining hall back when I was in college. They were exactly like that. Even the cheapest restaurant has to do better, because its customers have a choice.

This right gives teeth to the savers’ time preference. If the interest rate goes below it, they withdraw their gold coins. Which forces the banks to sell assets, causing a drop in the bond price. Which is the same thing as a rise in the interest rate. Free markets have negative feedback loops (the same as I described in the labor market above). But when a central planner takes over, it is like putting a penny in the fusebox. Sure, it may seem convenient that the TV does not shut off when your daughter uses her hair dryer while your son is cutting wood in the garage—until the house catches on fire.

After WWI, the rest of the world switched to a gold bullion standard. This is a very different animal. Sure, the banks still had gold backing. But the people lost the right to redeem their deposits and take gold coins home. Only if one had enough money to withdraw a 400-ounce bar, could one take the gold home. But 400 ounces then, as now, is a large sum of money. Very few individuals had the cash balance to do it. So the system changed character in a number of obvious ways, and many more not so obvious (for example, in Europe they stopped trading in Real Bills).

In the US, we kept to a gold coin standard but after 1913 we had a centrally banked gold standard. The Fed quickly turned to buying government bonds. In so doing, it destabilized the interest rate.

This so-called gold standard was unsustainable. One by one, each country abandoned it. In 1933, President Roosevelt forced US citizens to turn in their gold and made it a crime to own gold. The dollar became irredeemable to Americans, though it was still redeemable to foreign central banks.

At the end of WWII, the US told its allies how the monetary system would work. Other countries were to treat the US dollar as if it were gold. And their own irredeemable currencies would be pegged to the dollar. This was not at all the same as the gold coin standard, where a currency unit was not a price but a standardized deposit. After WWII, there were no gold deposits, only a price-fixing scheme. Like all price-fixing schemes, this one failed.

In 1971, on the advice of Milton Friedman, President Nixon defaulted on the obligation of the US government to redeem dollars presented by foreign governments. Even Keynesian economist Paul Samuelson thought Nixon would just set a higher price of gold. But Friedman urged Nixon to plunge the world into the regime of irredeemable currency, “in which central banks have full control over the stock of money…”

You say that, “Unless we abolish central banks (an unrealistic proposition)…” and then right after that “it seems unlikely that a current-day version of a gold standard would work well.” I think you need to pick which horse you want to ride. Are you saying that it is realpolitik to advocate for central planning because, hey, go with the flow? Or are you saying it is impractical to have a free market, because it won’t work?

You then assert that nominal GDP targeting will work well. I have written before about some of the frivolous ideas behind this idea.

You conclude with, “…nominal GDP targeting is one realistic way to do the sort of rules-based monetary policy that gold standard advocates want…” But earlier you said, “[economists] are critical of a gold standard precisely because it constrains a central bank’s discretion…”

Pick one. Is a central bank better than the gold standard because it gives central planners the discretion which you assert “is important, especially during times of crisis”? Or is a central bank doing nominal GDP targeting just like a gold standard—i.e. constraining the discretion of the central bank, only it’s just more realistic?

This is a pivot. Two mutually-contradictory arguments offered because both seemingly lead to the desired conclusion.

And a central bank that centrally plans based on rules is a false alternative to a central bank that centrally plans based on discretion is a false alternative. The way cherry-flavored cyanide solution is a false alternative to strawberry-flavored cyanide solution.

Martin Luther King said something important:

“Cowardice asks the question – is it safe? Expediency asks the question – is it politic? Vanity asks the question – is it popular? But conscience asks the question – is it right? And there comes a time when one must take a position that is neither safe, nor politic, nor popular; but one must take it BECAUSE it is right.”

You argue that “it would be better for gold standard supporters to avoid ‘making the perfect the enemy of the good’ and pursue more achievable options such as nominal GDP targeting.” This is what Dr. King characterized as expediency.

Your article ended with a call to action. I, the gold standard advocate, should join you in advocacy of a GDP-targeting central bank because it’s politic.

So I end my letter with my own call to action. You, the advocate of a GDP-targeting central bank, should join me in advocacy of a free market in money and credit, because it’s right.

Sincerely,
Keith Weiner, PhD

According to Encyclopaedia Britannica:

“Postmodernism, … a late 20th-century movement characterized by broad skepticism, subjectivism, or relativism; a general suspicion of reason; and an acute sensitivity to the role of ideology in asserting and maintaining political and economic power.”

Its roots go back long before the late 20th century phenomenon. Consider quantum physics. The Copenhagen interpretation (developed in the 1920’s) holds that, “physical systems generally do not have definite properties prior to being measured.” The most infamous and absurd example of this is Schrodinger’s Cat: it is neither alive nor dead until a human consciousness observes the radiation detector. This is obviously “broad skepticism and subjectivism”. And a general suspicion of reason (perhaps less obvious).

Next, consider the historical revisionism of Howard Zinn. His People’s History of the United States began with the belief that there is something wrong with America, going back to prior to its Founding. His scholarship was shoddy, but that is rather the point. He puts the history profession at the service of the Marxist class warfare narrative. History can jettison the fact of what happened, in service to socialist political ends.

Zinn’s effort bore its ultimate fruit in the New York Times so called 1619 Project, which–with rotten scholarship–asserts that slavery is essential to capitalism. Yeah, and war is peace and ignorance is bliss, too.

What other field comes to mind, at the mention of disregarding the facts in service to the goal of political power?

“Each of us has to decide what the right balance is between being effective and being honest,” said global warming activist Stephen Schneider

Yes, I am aware of the supposed nuance of his comments and his stance. But no amount of nuance can defend the false alternative of effectiveness vs. honesty. And no one would dare defend this view (or claim nuance), if not for the pervasive poison of postmodernism.

Postmodernism has also had its impact on the law. In the 17th century, John Locke and others were developing the idea that law does not simply mean whatever the government forces you to do.  Locke said that people have rights such as their life, liberty, and property. Law is supposed to be written to protect these rights, not to give a veneer of respectability to the so called “divine right of kings”, otherwise known as Might Makes Right.

But starting in the late 19th century, this understanding was abandoned. The Sherman Antitrust Act stands as an awful example of a postmodern approach to law. Loosely worded, it makes a crime out of restraint of trade. A proper law written to protect individual rights must be clear, so that everyone can know in advance what is legal and what is illegal. A postmodern law is not intended to protect rights, but to give the government the power to violate someone’s rights.

Unfortunately, the trend accelerated after 1890. People (and the Supreme Court, see the opinions written by Justice Oliver Wendell Holmes) moved away from the principle that the government has enumerated powers, and the concept of individual rights. The Constitution, they said, was a “living, breathing” document. In other words, it means precisely what they want it to mean, subject to change based on convenience.

Today, virtually every productive enterprise is subject to regulation. This means, in practice, that a government agency writes, judges, and enforces a set of broad but not clear laws. Businesses are under a presumption of guilt, and have the burden of proof to show that they are innocent.

Next, let’s look at money. The postmodernists attempt to get away with adulterating and perverting money, to the point where people are forced to use debt as if it were money. This is no random economists’ confusion. It’s done in service to the leviathan state. In the words of Benito Mussolini, “Everything within the state, nothing outside the state, nothing against the state.”

Today, the government has seemingly unlimited capacity to dole out free goodies. The cargo cult of so called “Modern Monetary Theory” pugnaciously asserts that the limit is only when the “bathroom sink overflows”—i.e. when they create too much of this debt-money. So far in response to the coronavirus, the government has bestowed on us $2.8 trillion of loot. This was on top of a baseline budget deficit of $1.7 trillion in the 12 months ending March 21. The US government will likely run a deficit over $6 trillion.

There is a limit to this. There is a point in any postmodernist deviation from reality, when the consequences hit at high velocity. It’s just that the US government’s capacity to consume our accumulated capital is higher than anyone thought.

And this brings us to epidemiology. What had been an obscure field that studies disease vectors, how now catapulted onto center stage with its call to lockdown the people and shutdown the economy.  So far, in America, over 33 million people have filed for unemployment. And that understates the reality because state unemployment offices are unable to keep up, because some companies keep making payroll out of accumulated capital, because of the 2-month payroll subsidy in the so called CARES Act, etc, and because the self-employed and business owners are generally not eligible to collect an unemployment check.

This stupefying ruin occurred because postmodern epidemiology attempted to find the “balance is between being effective and being honest”. Professor Neil Ferguson published his projections of mass death, based on a pathetic buggy computer model. And, because an early paper claimed that the virus can be transmitted by asymptomatic people. This claim was based on a since-retracted story of a Chinese woman in Germany. She did indeed transmit the virus to a German colleague, but it turns out that she had symptoms. They just did not bother to call her to ask, before going to print with a story that fueled the momentum to lockdown everyone worldwide. They were highly “effective”, if not balanced with honesty.

The government laid waste to the economy and people’s lives because postmodern lawmaking puts the power to lockdown 300 million innocent Americans into the hands of the governors (and postmodern ethics sets up the false alternative of saving lives vs. the economy), who listen to postmodern epidemiologists who rely on postmodern software.

Unfortunately, the people will respond with even more “broad skepticism, subjectivism, or relativism.” All scientists will be lumped together, under a “a general suspicion of reason.” If a proper scientist develops something real (e.g. a vaccine for COVID-19), millions will not avail themselves of it, out of belief in conspiracy theories. This trend, of skepticism towards science as such, began with the postmodern global warming scare (which also featured bogus computer code that the developer refused to publish so the scientific community could review it).

So far, about 20% of the people who had jobs 6 weeks ago, are unemployed. This is in addition to the 96,000,000 who had no job even before the lockdown, but who aren’t counted as being in the workforce.

And the reality is worse than even this, for three reasons. One, unemployment offices are not able to keep up. More people are being added to the rolls who already lost their jobs.

Two, government at all levels has not begun laying off yet (if they ever will). So these people were laid off almost entirely from the productive sector.

Three, many businesses are still paying salaries hoping for a quick resolution. But every day, they drop, depleted of capital. No one knows how many there are, or how many workers still receive paychecks from such businesses.

This is really bad. Really really bad. Worse than 1930’s bad. And it comes at a time of record high leverage. Deleveraging has hardly even begun.

Economics discusses the margin, and the concept of marginal all the time. For example, the marginal worker is the one who loses his job, at a downtick in revenue.

Well, since the government response to the virus, over 26,000,000 people have lost their job.

It is not just one worker who occupied the role of marginal worker. It was over 26M workers (and counting).

The concept of margin also implies the concept of width: how wide is the margin? All those included within this finite space are at risk of loss of their job, business, etc.

And due to a number of factors, including decades of falling interest and margins, with rising net present value of all liabilities including debt and wages, the margin has grown quite wide indeed. And of course a months-long shutdown widens the margin much more than a week-long shutdown.

Perhaps 30% of the US economy (we shall see how big it is) was included in this wide margin. The fallout will be felt for many decades.

I wrote only one paper that was rejected by Professor Antal Fekete. It was nominally about duration mismatch. He asked me to write it as a guide for a course at his New Austrian School of Economics in 2012.

I argued that when banks borrow short to lend long, they harm themselves and their clients. This is in accord with what Fekete taught. However, I made an additional point with which he did not agree. I said that government should not have the power to ban everything that every special science lobbied to prohibit.

Today, the special science most in the public spotlight is epidemiology. Like in economics, controversy sometimes splits epidemiology on certain issues. That does not prevent it from calling for bans on behaviors that epidemiologists don’t like, including those related to the spread of contagious disease.

Little did I know, back in 2012, that this side point to my paper would become so important. Based on the work of certain epidemiologists, the government has shut down our economy.

Unfortunately, the government has taken for itself and the people have willingly given it, a terrible power. Government can now ban all the things. In 2012, I was focused on a potential ban of a banking practice. But I argued that a government which has the power to ban one thing, in fact, has the power to ban all the things. If you doubt me, just ask those who sell food in restaurants, clothing in clothing-only stores, haircuts in salons, and much more.

Today, every practitioner of every special science has taken note.

Whatever the threat of coronavirus may be, history surely teaches us of the dire threat of a government with unlimited power. A government with unlimited power is a totalitarian government. Whatever your view of coronavirus, I hope we can at least agree that government must be limited.

I have never asked anyone to call their legislators or governors, but now I implore you to call and ask them to honor the limits placed on government power by some wise men in 1776.