Why Civilized People Buy Gold
Tea Party Economist
by Gary North: Gold
in Your IRA. Not!
"Gold is a
great thing to sew onto your garments if you're a Jewish family in
Vienna in 1939 but civilized people don't buy gold they invest
in productive businesses." ~ Charlie Munger
is Warren Buffett's partner. He is 88 years old. You
can see his remark in this brief extract from an interview on CNBC.
clever. But cleverness can conceal a great deal.
Jews in Vienna
were civilized people. Uncivilized people had been running the government
ever since March 1938. The Nazis were in charge.
facing civilized people who are under the control of uncivilized
people is that they suffer from an illusion. They don't understand
the degree to which the uncivilized people are uncivilized.
have been more specific. The hypothetical Jewish family in question
should have done a lot more than sew gold coins into their clothes
in 1939. The head of the household should have sold his house and
his business. He should have transferred all of the family's assets
to Switzerland, England, or the United States. Then he should have
directed the family to pack their bags and follow their money. After
August 31, 1939, this became illegal. World War II broke out.
have begun the process no later than March 12, 1938, the day Germany's
troops crossed the border. Here's why, according to Wikipedia.
to remaining independent but under considerable pressure from both
Austrian and German Nazis, Austria's Chancellor Kurt Schuschnigg
tried to hold a referendum for a vote on the issue. Although Schuschnigg
expected Austria to vote in favour of maintaining autonomy, a well-planned
coup d'tat by the Austrian Nazi Party of Austria's state institutions
in Vienna took place on 11 March 1938, prior to the referendum,
which they canceled. They transferred power to Germany, and the
Wehrmacht troops entered Austria to enforce the Anschluss. The Nazis
held a plebiscite within the following month, asking the people
to ratify the fait accompli. They claimed to have received 99.7%
of the vote in favor.
THAT GOT OUT IN MARCH 1938
I shall now
tell a story known to a handful of people. It is the story of a
man wise enough to get out: the Vice Mayor of Vienna, a long-term
opponent of the Nazis. His name was Ernst Winter.
On the day
the troops marched in, Winter sat down with his teenage son, Ernest
Florian Winter, and told him that he was leaving. He did not say
where he was going. He told his son to burn all of his papers. His
son said that there was not enough time. His father then revealed
why he was a man of great wisdom.
this is Saturday. No bureaucrats work on Saturday or Sunday, not
even Nazi bureaucrats. They will arrive here on Monday morning.
They will arrest you, but they will not be able to hold you. You
are 14 years old. They will release you soon enough. When they let
you go, you will leave the country. I will contact you later.
They had a
place outside Austria where they had already planned as an escape
exactly as the father described.
I was told
this story in the late 1990s by the son.
The son later
married the daughter of another man who took his family out of Austria:
Col. Von Trapp.
It gets even more interesting. Years later, I asked him how his
father had escaped. He told me that he had headed where the Nazis
would not have thought to look: into Germany. As the troops were
crossing the border into Austria, he headed in the other direction.
He had contacts in Germany who took him in. Then, when the search
for him grew cold, he headed for the agreed-upon destination. The
family wound up in the United States.
Sr. fully understood how uncivilized the Nazis were. He had fought
them politically ever since 1933, when the city of Vienna was in
a civil war. Communists and Nazis shot up Vienna. Both sides were
were Keynesians. Hitler's Minister of Economics, Hjalmar Horace
Greeley Schacht, was the head of the central bank until 1937. He
was a believer in fiat money and government spending, especially
spending on public works projects. He believed this would reduce
unemployment. He was a shovel-ready kind of guy.
military spending. He also opposed persecution of the Jews. He lost
his position in 1937. He remained in Germany. He spent time in a
concentration camp during World War II.
have gotten out in 1933. He surely should have gotten out in 1937.
But he stayed, hoping for the best. The best eluded him.
of Nazi Germany was of a special kind: highly centralized. Keynes
had written this of the German planning system in the Preface to
the 1936 German translation of The
theory of aggregated production, which is the point of the following
book, nevertheless can be much easier adapted to the conditions
of a totalitarian state [eines totalen Staates] than the theory
of production and distribution of a given production put forth under
conditions of free competition and a large degree of laissez-faire.
This is one of the reasons that justifies the fact that I call my
theory a general theory. Since it is based on fewer hypotheses than
the orthodox theory, it can accommodate itself all the easier to
a wider field of varying conditions.
I have, after all, worked it out with a view to the conditions
prevailing in the Anglo-Saxon countries where a large degree of
laissez-faire still prevails, nevertheless it remains applicable
to situations in which state management is more pronounced. For
the theory of psychological laws which bring consumption and saving
into relationship with each other, the influence of loan expenditures
on prices, and real wages, the role played by the rate of interest
all these basic ideas also remain under such conditions
necessary parts of our plan of thought.
that his general theory is in fact a theory of central economic
planning. He saw that it would be easier to apply his theory under
the Nazi economy than under the free market.
The centralization of power in the hands of politicians, central
bankers, and their economic advisors is the characteristic economic
feature of our era. It distinguishes our era from the nineteenth
century, both in theory and in practice. Keynes understood this,
and he railed against the earlier era's economic theory and practices.
The earlier era had promoted the international gold standard, free
trade, low taxes, and limited government. By 1936, Keynes rejected
all of this. He believed in planning by experts like himself.
of the Nazis, such as economists Ludwig von Mises, Wilhelm Röpke,
and F. A. Hayek, were hostile to Keynes. They recognized that the
Nazis' fiat money, central planning, fiscal deficits, and price
controls were all part of a worldwide movement away from the nineteenth
century's concept of free markets. The Keynesians demanded the substitution
of expert economic planners for the decentralized planning that
is characteristic of the free market.
The post-World War II era brought the triumph of Keynesianism in
the West. Keynesianism is still dominant in academia and in central
banking. Nowhere is this more clear than on the campus of Princeton
University. Princeton gave us two representative figures: Ben Bernanke,
who is now chairman of the Federal Reserve's Board of Governors,
and Paul Krugman, who won the Nobel Prize in 2008 the year
the recession escalated and who writes a blog for The
New York Times. These men are the leading spokesman for Keynesianism
in the American intelligentsia.
DOER AND THE THINKER
a textbook on economics. It is Keynesian. He has timidly condemned
federal deficits, but he has not called on Congress to balance the
budget too soon, meaning anytime soon.
Reserve has supplied the raw materials of Keynesianism: fiat money.
The monetary base in 2008 was $900 billion. Today, it is $2.9 trillion.
This was the largest expansion of the monetary base in peacetime
In the meantime,
Congress has legislated annual deficits in the $1.2 trillion range.
This pattern shows no sign of decline. These are the largest deficits
in peacetime U.S. history.
in mind, consider Krugman's
assessment of the current economy, as of May 3, 2012.
with utter nonsense nonsense beyond the fringe.
however, the Republican Party is dominated by doctrines formerly
on the political fringe. Friedman called for monetary flexibility;
today, much of the G.O.P. is fanatically devoted to the gold standard.
N. Gregory Mankiw of Harvard University, a Romney economic adviser,
once dismissed those claiming that tax cuts pay for themselves as
"charlatans and cranks"; today, that notion is very close to being
official Republican doctrine.
The full gold
standard has not been advocated by any national Republican politician
over the last 40 years, other than Ron Paul. Krugman is either lying
for rhetorical purposes or else he is hypnotized by paranoia over
what Ron Paul stands for. In either case, no one should trust him.
Note: he calls
the current economy a depression. This, you understand, is four
and a half years after the National Bureau of Economic Research
dates the origin: December 2007. This is over three years after
Obama was inaugurated.
us to the question of what it will take to end this depression we're
pundits assert that the U.S. economy has big structural problems
that will prevent any quick recovery. All the evidence, however,
points to a simple lack of demand, which could and should be cured
very quickly through a combination of fiscal and monetary stimulus.
I see. It's
a "simple lack of demand." There really is nothing to solving this
problem. It "could and should be cured very quickly through a combination
of fiscal and monetary stimulus." That's all it would take? Why
didn't Congress and the Federal Reserve take these steps in 2009
and 2010? Pelosi's House and then Reid's Senate had the votes. Democrats
had majorities. They controlled the White House. They passed a $787
billion stimulus package. Meanwhile, the FED more than doubled the
monetary base. But, no, it is the Republicans' fault. They did it.
the real structural problem is in our political system, which has
been warped and paralyzed by the power of a small, wealthy minority.
And the key to economic recovery lies in finding a way to get past
that minority's malign influence.
You see, despite
the fact that the Congress was in the hands of the Democrats, 2009-2011,
and despite the fact that Obama swept the Presidential election, the
Republicans were the cause of the problem.
partisanship: The Congressional scholars Thomas Mann and Norman
Ornstein have been making waves with a new book acknowledging a
truth that, until now, was unmentionable in polite circles. They
say our political dysfunction is largely because of the transformation
of the Republican Party into an extremist force that is "dismissive
of the legitimacy of its political opposition." You can't get cooperation
to serve the national interest when one side of the divide sees
no distinction between the national interest and its own partisan
did not seek bipartisanship in 2009-2011. They rammed Obamacare
through, despite the votes of Republicans.
had backed Henry Paulson and Bernanke in October of 2008, voting
for the big bank bailout that the voters overwhelmingly opposed.
They lost in November as a result of backlash against this bailout.
who has taken a leave of absence from Princeton to serve with the
FED for a decade, emerges with clean hands. Krugman lets him off
with nary a word of criticism. Somehow, the FED has not done all
it could to overcome "this depression we're in." The reason is Republican
partisanship. And here I imagined that the Federal Reserve System
is independent of politics, as well as being run by professional
economists, most of whom are Keynesians.
Munger thinks that gentlemen should buy profitable companies, not
gold. But he fails to realize that the economy is being managed
at the top by people who are not reliable. It is being run by Congress,
the executive bureaucracy, and the Federal Reserve System. It is
being run by men who share the views of Keynes, namely, that the
gold standard is a barbarous relic and that politicians and bureaucrats
and central bankers are the people who should set policies under
which companies become profitable.
Men who shared
these economic views deficits, regulation, and fiat money
ran Austria in 1939. They had been running Germany since
1933. Some of us see that the present economic system cannot be
trusted. So, we get out our sewing gear and start to work.
people should buy gold when uncivilized people are in charge. They
should also buy it when civilized people in power adopt the economic
policies of uncivilized people.
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2012 Gary North
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