“Over the course of 600 years, five dynasties had implemented paper money and all five made frequent use of the printing press to solve problems. Economic catastrophe and political chaos inevitably followed. Time and again officials looked to paper money for instant liquidity and the immediate transfer of wealth. But its ostensible virtue could not withstand its tragic legacy: those who held it as a store of value found that in time all they held were worthless pieces of paper.”
Ralph T. Foster ‘Fiat Paper Money – The History and Evolution of our Currency’
(About ten years ago, I walked into Mr Foster’s precious metals shop in the US and introduced myself. He invited me out the back where we chatted. At one point a customer entered the front and he left to serve him – and left me surrounded by his gold. It was a memorable statement of trust between two humans and I treasure the memory.)
The people worst hit, always, by paper pseudo-money, are working people and pensioners. Of what importance are wage rises when they are denominated in paper that is constantly devalued? Of what gain is it to working people when a paper wage which will buy X amount of goods is increased in terms of numbers, but then buys less than X amount of goods? Where is the fairness in having a pension that loses all purchasing power? Where is the justice in a person playing by the rules all their life, only to have the rules changed at the last moment leaving them destitute?
Using pieces of paper that are adorned with numbers, but that are not redeemable for gold, is like asking a malaria patient to swallow a piece of paper with ‘quinine’ written on it. There is no possibility of the paper performing the role of real medicine.
With paper money, it is the working people and pensioners who lose, and have lost, for generation after generation. There is a reason for this. It is not because in the eyes of governments they are ‘easy meat’ – the path of least resistance, though that is true, it is because that is the way the paper money system is structured.
Union leaders who do not understand money are doomed to lead an ever more impoverished membership and witness ever-rising unemployment. This is not necessarily because they don’t care, but because they fail to comprehend the forces in play against them.
Pension funds are currently invested in assets denominated in paper money. One of the first casualties of the collapse will be pension funds. There is no justice or morality under a paper money system, particularly when it collapses. The politicians, bankers and financiers, the major beneficiaries of paper money, have investment advisers who, at the last moment, will steer their clientele into the safe haven of gold and silver. That process has already started. The working people do not have access to such advice. It is not available from their unions and how many working people have the time to study economics or can afford competent investment advisers?
After just over 100 years of the latest experiment in paper money, the divergence in the western world between the ‘haves’ and the ‘have-nots’ has never been more visible and obvious. It will continue to get worse until the system collapses. The people with the most to gain from the gold standard are working people and pensioners.
The people who create the wealth in our societies are not the paper-shuffling bankers and financiers. They no more create wealth than does the office clerk at the back of the service station. It is the entrepreneur, the manager and the mechanics of the business who make the money; the clerk in the back office just notes the amounts in neat little columns. The bankers and financiers are the office clerks who note down the money made; they play no significant part in making it.
Real wealth is created by real production performed by real and valuable people. Only the utilization of gold and silver, real money, ensures that those working people gain and get to keep what is rightfully theirs. Paper money robs them of everything. From the beginning to the end of their working lives, and into their retirement years, they are buffeted by the cruel illusion of a money that promises all and delivers little to nothing. The harder and longer the hours they work, the more people in the family are forced to join the workforce. The larger the numbers become on their pay cheques, the more difficult it becomes for families to pay the bills. The more they strive to achieve their financial independence the more they fall into personal debt. Simultaneously, they become ever more shackled to the systemic debts of profligate governments.
The Paper Money Experiment – Part 2
“Mere quotations of figures will not make clear the increased share of the national wealth which now finds its way into the pockets of the working classes, because of the unprecedented cheapness of all the necessaries and many of the luxuries of life (intoxicants alone excepted) has raised the buying power of wages in a degree which cannot be estimated.”
Sir Herbert Maxwell Bart MP 1897
From 1717, England used gold in its monetary system. With the exception of the Napoleonic wars and a brief period just after, it continued to utilize gold until 1914. By the end of the 19th century the fifty most industrialised and prosperous countries in the world had done the same. Why did those other countries follow England’s lead?
When England backed its currency with gold it attracted capital, expertise and technology from all over the world. It was the use of honest money that facilitated the Industrial Revolution and England’s emergence as the world’s then dominant power*.
* The patent laws were also a factor in this, though a much lesser factor. Without the surplus wealth and investment made possible by gold there would have been little to patent.
“…the Industrial Revolution introduced the concept of the constructive creation of new wealth (mass production of the free market) as opposed to the destructive confiscation of old wealth (war and empire of The State). Superior methods of production started to take over from superior military might as the engine for growth and prosperity. The industrialisation of society called for, and the generated wealth allowed, the construction of infrastructure and mass communication, which then facilitated the creation of further wealth.
“That new wealth was gradually dispersed throughout society to the point where any who cared to could participate in the creation of not only a new situation for themselves, but a true new order whereby opportunity was no longer the prerogative of the ruling classes.”**
** Sam Mathid
Arthur Toynbee, the 19th century economic historian and social reformer, estimated that under the gold standard in the UK, by 1875 the working classes had amassed savings of £130,000,000. In light of the situation that existed just 100 years before, when most of these people had never seen a pound let alone owned one, this is an astonishing figure… but only for those who do not comprehend the blessings of real money.
“…in those thirty years (1851-1881) the wage-earning class had increased in number from 26,000,000 to 30,000,000 or 16 per cent; while the wages paid to them had increased by nearly 100 per cent. In fact the income of the working classes in 1881 was about equal to that of the whole nation in 1851, with largely increased purchasing power, owing to reduction in prices”.
W.H. Mallock, in an extensive analysis of British wages.
Not only were wages going up*** whilst prices were falling, the hours worked to produce those increased wages were also falling. The concept of leisure time for working people first became a reality in the 19th century, as did the existence of a middleclass.
*** Real wages doubled between 1860 and 1890 – Brook and Watkins
Real money creates real wealth. The other countries followed England’s lead and also backed their currencies with gold for the simple reason that the people demanded it. They could not commercially compete with England without gold in circulation.
In the 100 years that followed the conclusion of the Napoleonic War in 1815, there were less wars than in any other century in recorded history****. Karl Polanyi famously referred to this period as the “hundred years peace”. The remaining holdouts of slavery and serfdom were finally abolished throughout the western world and, for the first time in history, working people gained access to home ownership and schooling.
**** ‘The Great Transformation’ – Karl Polanyi
The concept of childhood as a time of learning and play came into being. Money that was a store of stable value allowed people to save, secure in the knowledge that their savings would allow them to retire with dignity when they became too old to work. The greater personal freedom created a rising sense of social awareness and personal responsibility that led to the founding of the first great charities of the world. Organizations such as The Red Cross, The Salvation Army and Dr. Barnado’s Home for orphans came into being under the 19th century gold standard. Compassion was both genuine and voluntary. The productive people who had gained so much from gold gave generously to establish organizations for those less fortunate than themselves.
One hundred and fifty years later it is not easy to understand what revolutionary changes for the better these were. Today, such things are taken for granted. They should not be. In the absence of the use of gold they will disappear as surely as the sun going down is followed by the dark of night. Charities are closing down as their funding dries up*****. Home ownership and secure retirements are starting to disappear. Slavery and ‘bonded labour’ are on the rise again and we live in an age of perpetual war.
***** Seven thousand charities closed their doors in the UK in 2011
After direct gold backing for currencies was abandoned in 1914, more people were killed in wars and from famine than in any other century in human history. Polanyi’s hundred years peace was followed by the hundred years war. The barbarism of the 20th century was brought about by the abandonment of the use of gold as money. Nothing except honest money can constrain the excesses of governments.
“Of all the contrivances of mankind for cheating the laboring classes, none has been more effective than that which deludes them with paper money.”