Tag Archives: gold

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Arizona Challenges the Fed’s Money Monopoly – Article by Ron Paul

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Categories: Economics, Politics, Tags: , , , , , , , , , , , , , , , ,

The New Renaissance HatRon Paul
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History shows that, if individuals have the freedom to choose what to use as money, they will likely opt for gold or silver.

Of course, modern politicians and their Keynesian enablers despise the gold or silver standard. This is because linking a currency to a precious metal limits the ability of central banks to finance the growth of the welfare-warfare state via the inflation tax. This forces politicians to finance big government much more with direct means of taxation.

Despite the hostility toward gold from modern politicians, gold played a role in US monetary policy for sixty years after the creation of the Federal Reserve. Then, in 1971, as concerns over the US government’s increasing deficits led many foreign governments to convert their holdings of US dollars to gold, President Nixon closed the gold window, creating America’s first purely fiat currency.

America’s 46-year experiment in fiat currency has gone exactly as followers of the Austrian school predicted: a continuing decline in the dollar’s purchasing power accompanied by a decline in the standard of living of middle- and working-class Americans, a series of Federal Reserve-created booms followed by increasingly severe busts, and an explosive growth in federal-government spending. Federal Reserve policies are also behind much of the increase in income inequality.

Since the 2008 Fed-created economic meltdown, more Americans have become aware of the Federal Reserve’s responsibility for America’s economic problems. This growing anti-Fed sentiment is one of the key factors behind the liberty movement’s growth and represents the most serious challenge to the Fed’s legitimacy in its history. This movement has made “Audit the Fed” into a major national issue that is now closer than ever to being signed into law.

Audit the Fed is not the only focus of the growing anti-Fed movement. For example, this Wednesday the Arizona Senate Finance and Rules Committees will consider legislation (HB 2014) officially defining gold, silver, and other precious metals as legal tender. The bill also exempts transactions in precious metals from state capital-gains taxes, thus ensuring that people are not punished by the taxman for rejecting Federal Reserve notes in favor of gold or silver. Since inflation increases the value of precious metals, these taxes give the federal government one more way to profit from the Federal Reserve’s currency debasement.

HB 2014 is a very important and timely piece of legislation. The Federal Reserve’s failure to reignite the economy with record-low interest rates since the last crash is a sign that we may soon see the dollar’s collapse. It is therefore imperative that the law protect people’s right to use alternatives to what may soon be virtually worthless Federal Reserve notes.

Passage of HB 2014 would also send a message to Congress and the Trump administration that the anti-Fed movement is growing in influence. Thus, passage of this bill will not just strengthen movements in other states to pass similar legislation; it will also help build support for the Audit the Fed bill and legislation repealing federal legal tender laws.

This Wednesday I will be in Arizona to help rally support for HB 2014, speaking on behalf of the bill before the Arizona Senate Finance Committee at 9:00 a.m. I will also be speaking at a rally at noon at the Arizona state capitol. I hope every supporter of sound money in the Phoenix area joins me to show their support for ending the Fed’s money monopoly.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

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Alan Greenspan Admits Ron Paul Was Right About Gold – Article by Ryan McMaken

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Categories: Economics, History, Tags: , , , , , , , , , , , , , , , , , , ,

The New Renaissance Hat
Ryan McMaken
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In the next issue of The Austrian, David Gordon reviews Sebatian Mallaby’s new book, The Man Who Knew, about the career of Alan Greenspan. Mallaby points out that prior to his career at the Fed, Greenspan exhibited a keen understanding of the gold standard and how free markets work. In spite of this contradiction, Mallaby takes a rather benign view toward Greenspan.

However, in his review, Gordon asks the obvious question: If Greenspan knew all this so well, isn’t it all the more worthy of condemnation that Greenspan then abandoned these ideas so readily to advance his career?

Perhaps not surprisingly, now that his career at the Fed has ended, Old Greenspan — the one who defends free markets — has now returned.

This reversion to his former self has been going on for several years, and Greenspan reiterates this fact yet again in a recent interview with Gold Investor magazine. Greenspan is now a fount of sound historical information about the historical gold standard:

I view gold as the primary global currency. It is the only currency, along with silver, that does not require a counterparty signature. Gold, however, has always been far more valuable per ounce than silver. No one refuses gold as payment to discharge an obligation. Credit instruments and fiat currency depend on the credit worthiness of a counterparty. Gold, along with silver, is one of the only currencies that has an intrinsic value. It has always been that way. No one questions its value, and it has always been a valuable commodity, first coined in Asia Minor in 600 BC.

The gold standard was operating at its peak in the late 19th and early 20th centuries, a period of extraordinary global prosperity, characterised by firming productivity growth and very little inflation.

But today, there is a widespread view that the 19th century gold standard didn’t work. I think that’s like wearing the wrong size shoes and saying the shoes are uncomfortable! It wasn’t the gold standard that failed; it was politics. World War I disabled the fixed exchange rate parities and no country wanted to be exposed to the humiliation of having a lesser exchange rate against the US dollar than itenjoyed in 1913.

Britain, for example, chose to return to the gold standard in 1925 at the same exchange rate it had in 1913 relative to the US dollar (US$4.86 per pound sterling). That was a monumental error by Winston Churchill, then Chancellor of the Exchequer. It induced a severe deflation for Britain in the late 1920s, and the Bank of England had to default in 1931. It wasn’t the gold standard that wasn’t functioning; it was these pre-war parities that didn’t work. All wanted to return to pre-war exchange rate parities, which, given the different degree of war and economic destruction from country to country, rendered this desire, in general, wholly unrealistic.

Today, going back on to the gold standard would be perceived as an act of desperation. But if the gold standard were in place today we would not have reached the situation in which we now find ourselves.

Greenspan then says nice things about Paul Volcker’s high-interest-rate policy:

Paul Volcker was brought in as chairman of the Federal Reserve, and he raised the Federal Fund rate to 20% to stem the erosion [of the dollar’s value during the inflationary 1970s]. It was a very destabilising period and by far the most effective monetary policy in the history of the Federal Reserve. I hope that we don’t have to repeat that exercise to stabilise the system. But it remains an open question.

Ultimately, though, Greenspan claims that central-bank policy can be employed to largely imitate a gold standard:

When I was Chair of the Federal Reserve I used to testify before US Congressman Ron Paul, who was a very strong advocate of gold. We had some interesting discussions. I told him that US monetary policy tried to follow signals that a gold standard would have created. That is sound monetary policy even with a fiat currency. In that regard, I told him that even if we had gone back to the gold standard, policy would not have changed all that much.

This is a rather strange claim, however. It is impossible to know what signals a gold standard “would have” created in the absence of the current system of fiat currencies. It is, of course, impossible to recreate the global economy under a gold standard in an economy and guess how the system might be imitated in real life. This final explanation appears to be more the sort of thing that Greenspan tells himself so he can reconcile his behavior at the fed with what he knows about gold and markets.

Nor does this really address Ron Paul’s concerns, expressed for years, toward Greenspan and his successors. Even if monetary policymakers were attempting to somehow replicate a gold-standard environment, Paul’s criticism was always that the outcome of the current monetary regime can be shown to be dangerous for a variety of reasons. Among these problems are enormous debt loads and stagnating real incomes due to inflation. Moreover, thanks to Cantillon effects, monetarily-induced inflation has the worst impact on lower-income households.

Even Greenspan admits this is the case with debt: “We would never have reached this position of extreme indebtedness were we on the gold standard, because the gold standard is a way of ensuring that fiscal policy never gets out of line.”

Certainly, debt loads have taken off since Nixon closed the gold window in 1971, breaking the last link with gold:

Ryan W. McMaken is the editor of Mises Daily and The Free Market. He has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre. 

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

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The Fallacy of “Buy Land — They’re Not Making Any More” – Article by Peter St. Onge

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Categories: Economics, Tags: , , , , , , , , , , , , , ,

The New Renaissance Hat
Peter St. Onge
September 21, 2015
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“Buy land — they’re not making any more!” is an old investing chestnut, and a common sense one to boot. Economically, it’s also completely false.

As counterintuitive as it may seem, we make land all the time. It just doesn’t look like land.

Why? Because land’s value doesn’t come from its ability to cover up the naked earth. Land’s value comes from its economic usefulness. From the value of things that can be done using that land (Rothbard’s “marginal revenue product” of the land). And that value is, indeed, changing all the time. Economically, from a price perspective, then, we make land all the time.

Step back a moment and ask why land has value anyway. Why do people want land? Well, obviously, because you can put stuff there — including yourself — plus buildings, swimming pools, and factories.

Now, anybody who’s visited West Texas knows there is plenty of building space in the world. You could drive for hours and meet nobody. There’s lots of space for that factory of yours. But it’s not really space itself that makes land valuable. It’s location. As in, there’s only so much room in Manhattan. Or Central London.

Once again, though, it’s not the actual space that matters. It’s the access. Put a strip mall on Manhattan surrounded by crocodile-filled moats and snipers and it will have low value. The value is in access. So Manhattan is valuable because it’s easy to get to other parts of Manhattan. And it’s easy for other people to get to you. Customers, partners, and friends can all easily visit you if your apartment or office is in Manhattan, moatless and sniperless.

So if it’s the access that matters, are they making new access? Of course. They’re doing it all the time.

New highways, new exits, new streets, mass transit, pedestrian malls are being regularly constructed. These all effectively “make new land” because they offer access to existing space. They turn relatively “dead zones” into “useful zones,” or new land.

What are some of the meta-trends on land as investment, then?

First: roads. This was a bigger value-driver a generation ago in the US, as new roads made the suburbs more accessible, helping to drain many cities even as US population grew. Outside the US (Mexico, Thailand, Russia), new roads are still a big deal, and even in the US, new highways can reshape values — draining old neighborhoods and building value in new ones. The decline of cities like Baltimore or Detroit are partly thanks to those beautiful roads that redistribute access to the suburbs.

Second: population. In the US “rust belt” of declining manufacturing, many regions have dropped in price simply because people are leaving. Detroit homes for $100 is emblematic, although of course there are also political reasons some cities are so cheap — in particular, taxes and crime.

And that brings us to politics. Real estate can be cheapened shockingly quickly by taxes and crime, and those traditional drivers have been joined in recent decades by environmental politics.

Environmentalists, by taking land off the market, effectively squeeze the remaining accessible locations, driving up the price. Regions like Seattle or San Francisco are poster children of this environmental squeeze, with modest homes even in remote suburbs costing upward of a million dollars. On the other extreme, cities like Dallas or Houston have kept prices down despite exploding populations by allowing farmland to be converted to residential, commercial, or industrial use.

Beyond the access and political angles, land is also vulnerable to “network effects.” In other words, the neighbors matter. Gentrification or urban decay can be hard to predict. Even in a compact city with rising population like Washington, DC, it can be hard to predict where the middle class or rich want to colonize, and where they want to flee.

There are clues, of course — in large US cities, gays moving into a neighborhood, new coffee shops or art galleries are some leading indicators that property prices might swing up. But gentrification has it’s own mind; even in a booming city it might go into some other neighborhood. New York’s Harlem or Silicon Valley’s East Palo Alto are two very accessible locations with low prices because of perceptions of the neighbors.

So, while they’re not “making” land, they are constantly making things that affect land price: access, regulations, changing neighbors. These are the kinds of factors that make land valuable, not it’s ability to cover the earth.

And so land comes back to earth, joining boring old commodities like wheat or copper. Just as vulnerable to changing supply and demand factors.

And if you are looking for something they’re not “making more of?” Well, gold does come close – hence its appeal. They do mine new gold all the time, but the costs are high enough that gold is a very “inelastic” commodity. It comes close to “they’re not making more.”

Beyond that? Develop your ultimate resource: yourself.

Peter St. Onge is an assistant professor at Taiwan’s Fengjia University College of Business. He blogs at Profits of Chaos.
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This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

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Golden Whorl – Fractal Art by Wendy Stolyarov

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Categories: Art, Mathematics, Tags: , , , , , , , , , ,

Golden Whorl I - by Wendy Stolyarov

Golden Whorl – by Wendy Stolyarov

Note: Left-click on this image to get a full view of this digital work of fractal art.

An intricate, intertwined, interlocking interplay of light and geometry, created using the program Chaotica.

See the index of Wendy Stolyarov’s art works. 

Visit Wendy Stolyarov’s website and view her art portfolio.

Wendy D. Stolyarov is an accomplished writer, thinker, artist, and graphic designer, who brings her immense talent and capacity for innovation to The Rational Argumentator and the wider movement for the advancement of Reason, Rights, and Progress. Mrs. Stolyarov uses computer technology masterfully to produce precise, realistic, life-affirming art. She has also contributed multiple essays to TRA and designed many of the magazine’s newer logos, including its banner and the New Renaissance top hat. Mrs. Stolyarov is married to G. Stolyarov II, the Editor-in-Chief of The Rational Argumentator and The Progress of Liberty. She is the illustrator for Death is Wrong, the children’s book on indefinite life extension written by Mr. Stolyarov in 2013. 

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Will Seizure of Russian Assets Hasten Dollar Decline? – Article by Ron Paul

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Categories: Economics, Politics, Tags: , , , , , , , , , , , , , , , , ,

The New Renaissance HatRon Paul
June 23, 2015
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While much of the world focused last week on whether or not the Federal Reserve was going to raise interest rates, or whether the Greek debt crisis would bring Europe to a crisis, the Permanent Court of Arbitration in The Hague awarded a $50 billion judgment to shareholders of the former oil company Yukos in their case against the Russian government. The governments of Belgium and France moved immediately to freeze Russian state assets in their countries, naturally provoking the anger of the Russian government.

The timing of these actions is quite curious, coming as the Greek crisis in the EU seems to be reaching a tipping point and Greece, having perhaps abandoned the possibility of rapprochement with Europe, has been making overtures to Russia to help bail it out of its mess. And with the IMF’s recent statement pledging its full and unconditional support to Ukraine, it has become even more clear that the IMF and other major multilateral institutions are not blindly technical organizations, but rather are totally subservient lackeys to the foreign policy agenda emanating from Washington. Toe the DC party line and the internationalists will bail you out regardless of how badly you mess up, but if you even think about talking to Russia you will face serious consequences.

The United States government is desperately trying to cling to the notion of a unipolar world, with the United States at its center dictating foreign affairs and monetary policy while its client states dutifully carry out instructions. But the world order is not unipolar, and the existence of Russia and China is a stark reminder of that. For decades, the United States has benefited as the creator and defender of the world’s reserve currency, the dollar. This has enabled Americans to live beyond their means as foreign goods are imported to the US while increasingly worthless dollars are sent abroad. But is it any wonder after 70-plus years of a depreciating dollar that the rest of the world is rebelling against this massive transfer of wealth?

The Europeans tried to form their own competitor to the dollar, and the resulting euro is collapsing around them as you read this. But the European Union was never considered much of a threat by the United States, existing as it does within Washington’s orbit. Russia and China, on the other hand, pose a far more credible threat to the dollar, as they have both the means and the motivation to form a gold-backed alternative monetary system to compete against the dollar. That is what the US government fears, and that is why President Obama and his Western allies are risking a cataclysmic war by goading Russia with these politically motivated asset seizures. Having run out of carrots, the US is resorting to the stick.

The US government knows that Russia will not blithely accept Washington’s dictates, yet it still reacts like a petulant child flying into a tantrum whenever Russia dares to exert its sovereignty. The existence of a country that won’t kowtow to Washington’s demands is an unforgivable sin, to be punished with economic sanctions, attempting to freeze Russia out of world financial markets; veiled threats to strip Russia’s hosting of the 2018 World Cup; and now the seizure of Russian state assets.

Thus far the Russian response has been incredibly restrained, but that may not last forever. Continued economic pressure from the West may very well necessitate a Sino-Russian monetary arrangement that will eventually dethrone the dollar. The end result of this needless bullying by the United States will hasten the one thing Washington fears the most: a world monetary system in which the US has no say and the dollar is relegated to playing second fiddle.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

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Contrasting the Roles of World-Transforming Business Enterprises in the Novels of Hazlitt, Heinlein, and Istvan – Article by G. Stolyarov II

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Categories: Business, Economics, Fiction, Transhumanism, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The New Renaissance Hat
G. Stolyarov II
December 17, 2014
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Henry Hazlitt’s Time Will Run Back, Robert Heinlein’s Methuselah’s Children, and Zoltan Istvan’s The Transhumanist Wager each portray a different path by which business enterprises can dramatically improve the human condition, catalyzing paradigm shifts in the societies around them. (Follow the hyperlinks above to read my detailed analyses of each novel.) Far from being concerned solely with immediate profits or meeting quarterly earnings goals, the entrepreneurs depicted in these novels endeavor to thrive despite political persecution and manage to escape and overcome outright dystopias.

Among these three novels, Methuselah’s Children shows the tamest business-based route to reform. For centuries the Howard Foundation aims not to transform the broader society, but rather to protect its own beneficiaries and encourage incrementally greater longevity with each subsequent selectively bred generation. The Howard Families adapt to existing legal and cultural climates and prefer keeping a low profile to instigating a revolution. But even their mild outreach to the general public – motivated by the hope for acceptance and the desire to share their knowledge with the world – brings upon them the full force of the supposedly enlightened and rights-respecting society of The Covenant. Rather than fight, the Howard Families choose to escape and pursue their vision of the good life apart from the rest of humanity. Yet the very existence of this remarkable group and its members’ extraordinary lifespans fuels major changes for humanity during the 75 years of the Howard Families’ voyage. By remaining steadfast to its purpose of protecting its members, the Howard Foundation shows humankind that radical life extension is possible, and Ira Howard’s goal is attained for the remainder of humanity, whose pursuit of extended longevity cannot be stopped once society is confronted with its reality.

The path of incremental and experimental – but principled – reform through the use of business is illustrated in Time Will Run Back. Even though Peter Uldanov does not intend to embark on a capitalist world revolution, he nonetheless achieves this outcome over the course of eight years due to his intellectual honesty, lack of indoctrination, and willingness to consistently follow valid insights to their logical conclusions. Peter discovers the universality of the human drive to start small and, later, large enterprises and produce goods and services that sustain and enhance human well-being. Once Peter begins to undo Wonworld’s climate of perpetual terror and micro-regimentation, his citizens use every iota of freedom to engage in mutually beneficial commerce that allows scarce resources to be devoted to their most highly valued uses. Peter, too, must escape political persecution at the hands of Bolshekov, but, unlike the Howard Families, he does not have the luxury of completely distancing himself from his nemesis. Instead, he must form a competing bulwark against Wonworld’s tyranny and, through the superiority in production that free enterprise makes possible, overthrow the socialist dystopia completely. Where Wonworld experienced a century of technological stagnation, Peter’s Freeworld is able to quickly regain lost ground and experience an acceleration of advancement similar to the one that occurred in the Post-World War II period during which Hazlitt wrote Time Will Run Back. Because human creativity and initiative were liberated through free-market reforms, the novel ends with a promise of open-ended progress and a future of ever-expanding human flourishing.

The most explicitly revolutionary use of business as a transformative tool is found in The Transhumanist Wager. Jethro Knights conceives Transhumania specifically as a haven for technological innovation that would lead to the attainment of indefinite lifespans and rapid, unprecedented progress in every field of science and technology. Transhumania is an incubator for Jethro’s vision of a united transhumanist Earth, ruled by a meritocratic elite and completely guided by the philosophy of Teleological Egocentric Functionalism. Like Lazarus Long and the Howard Families, Jethro finds it necessary to escape wider human society because of political persecution, and, like them, he plans an eventual return. He returns, however, without the intent to re-integrate into human society and pursue what Lazarus Long considers to be a universal human striving for ceaseless improvement. Rather, Jethro considers unaltered humanity to be essentially lost to the reactionary influences of Neo-Luddism, religious fundamentalism, and entrenched political and cronyist special interests. Jethro’s goal in returning to the broader world is a swift occupation and transformation of both the Earth and humankind in Jethro’s image.

Jethro’s path is, in many respects, the opposite of Peter Uldanov’s. Peter begins as an inadvertent world dictator and sequentially relinquishes political power in a well-intentioned, pragmatic desire to foster his subjects’ prosperity. Along the way, Peter discovers the moral principles of the free market and becomes a consistent, rights-respecting minarchist libertarian – a transformation that impels him to relinquish absolute power and seek validation through a free and fair election. Jethro, on the other hand, begins as a private citizen and brilliant entrepreneurial businessman who deliberately implements many free-market incentives but, all along, strives to become the omnipotender – and ends up in the role of world dictator where Peter began. The two men are at polar opposites when it comes to militancy. Peter hesitates even to wage defensive war against Bolshekov and questions the propriety of bringing about the deaths of even those who carry out repeated, failed assassination attempts against him and Adams. Jethro does not hesitate to sweep aside his opposition using massive force – as he does when he obliterates the world’s religious and political monuments in an effort to erase the lingering influence of traditional mindsets and compel all humankind to enter the transhumanist age. Jethro’s war against the world is intended to “shock and awe” governments and populations into unconditional and largely bloodless surrender – but this approach cannot avoid some innocent casualties. Jethro will probably not create Wonworld, because he still understands the role of economic incentives and individual initiative in enabling radical technological progress to come about. However, the benefits of the progress Jethro seeks to cultivate will still be disseminated in a controlled fashion – only to those whom Jethro considers useful to his overall goal of becoming as powerful and advanced as possible. Therefore, Jethro’s global Transhumania will not be Freeworld, either.

All three novels raise important questions for us, as human society in the early 21st century stands on the cusp of major advances in biotechnology, nanotechnology, robotics, artificial intelligence, space travel, and hopefully radical life extension. However, reactionary political and cultural forces continue to inflict massive suffering worldwide through brutal warfare, sweeping surveillance and humiliation of innocent people, policies that instill terror in the name of fighting terror, and labyrinthine obstacles to progress established by protectionist lobbying on behalf of politically connected special interests. Indeed, our status quo resembles the long, tense stagnation against which Jethro revolts to a greater extent than either the largely rights-respecting society of The Covenant or the totalitarian regimentation of Wonworld. But can the way toward a brighter future – paved by the next generation of life-improving technologies – be devised through an approach that does not exhibit Jethro’s militancy or precipitate massive conflict? Time will tell whether humankind will successfully pursue such a peaceful, principled path of radical but universally benevolent advancement. But whatever this path might entail, it is doubtless that the trailblazers on it will be the innovative businessmen and entrepreneurs of the future, without whom the development, preservation, and dissemination of new technologies would not be possible.

References

Hazlitt, Henry. [1966.] 2007. Time Will Run Back. New York: Arlington House. Ludwig von Mises Institute. Available at http://library.freecapitalists.org/books/Henry%20Hazlitt/Time%20Will%20Run%20Back.pdf. Accessed December 13, 2014.

Heinlein, Robert A. [1958] 2005. Revolt in 2100 & Methuselah’s Children. New York: Baen.

Istvan, Zoltan. 2013. The Transhumanist Wager. San Bernardino: Futurity Imagine Media LLC.

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Henry Hazlitt’s “Time Will Run Back”: Unleashing Business to Improve the Human Condition – Article by G. Stolyarov II

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Categories: Economics, Fiction, Tags: , , , , , , , , , , , , , , , , , , , , , , , , , ,

The New Renaissance Hat
G. Stolyarov II
December 13, 2014
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The free-market economist, journalist, and editor Henry Hazlitt wrote his novel The Great Idea in 1951; the book was re-released under the title Time Will Run Back in 1966 in order to emphasize the rediscovery of the lost ideas of free-market capitalism by the novel’s protagonists. In addition to being the most rigorous work of fiction available for the teaching of economic ideas, Time Will Run Back highlights the role of business in taking a society from a condition of destitution, misery, and brutality to one of widespread prosperity, progress, and personal fulfillment.

The novel’s hero, Peter Uldanov, is the son of Stalenin, the dictator of Wonworld – a socialist dystopia that, in the year 2100 (282 A.M. – After Marx) spans the entire globe. Peter, raised away from politics by his mother, has not been indoctrinated into Wonworld’s ideology of totalitarian central planning of all aspects of its citizens’ lives. While completely new to politics, Peter is highly intelligent and an accomplished pianist and mathematician. Stalenin is dying and, out of paternal affection, seeks to engineer Peter’s succession. Peter is intellectually honest and is perplexed at the widespread poverty, famines, and shortages of Wonworld, as well as the constant climate of terror in which its subjects live – even though the regime claims to have “liberated” them from oppression by the capitalists of old. Peter attempts to introduce a series of reforms to allow criticism of the government and free elections, but his goal of achieving human liberation fails to take hold so long as the economy remains completely centrally planned. Peter’s nemesis is Stalenin’s second-in-command Bolshekov, who zealously defends the system of command and control while he is the main agent of torture, execution, and mismanagement within it. Peter enlists the assistance of Thomas Jefferson Adams – the third-highest official in Wonworld. Adams is disillusioned with the socialist system and gropes for alternatives but, like Peter, does not have the benefit of the lessons of history – since any works of literature, economics, philosophy, and political theory that disagreed with Marxism-Leninism were purged after Wonworld’s establishment a century earlier. Adams has become cynical by observing decades of attempted “reforms” within Wonworld, which tinkered with specific policies and plans but never challenged the overarching fact of total central planning. Peter, as an outsider with a fresh perspective, is more willing to overhaul the system’s most fundamental features. In the genuine search for greater prosperity and more humane treatment for Wonworld’s population, he begins to dismantle the socialist system piece by piece, at first without even recognizing that this is the effect of his actions.

Much of the novel depicts Peter and Adams groping toward a system of incrementally freer markets and greater individual liberty as they discuss possible reforms and attempt to understand both their direct and secondary, unintended consequences. As a result of their stepwise sequence of liberalizations, Peter and Adams inadvertently rediscover the old system of capitalism that Wonworld sought to stamp out. Adams often acts as a foil to Peter, proposing modified central plans or mixed-economy systems and attempting to posit the arguments made by inflationists and protectionists that emerge as milder obstacles to liberalization once private property, money, and decentralized economic planning by individuals are restored. Peter, however, is sufficiently wise to be able to perceive the secondary consequences of these proposals and to consistently espouse and act in favor of unhampered individual economic liberty.

Peter’s first successful reform is to permit people to exchange ration coupons which they were allocated for various specific commodities. Previously, each citizen of Wonworld received ration coupons that were limited to his personal use, and there was no way to realize any value from coupons for goods that the individual did not wish to personally consume. Initially, the citizens of Wonworld – terrorized for generations – are reluctant to exchange coupons for fear of being tricked into showing disloyalty, but after a few months of encouragement by Peter’s government, exchanges begin to occur:

At first individuals or families merely exchanged ration tickets with other persons or families living in the same room with them. Then in the same house. Then in the same neighborhood or factory. The rates at which the ration tickets exchanged was a matter of special bargaining in each case. They at first revealed no describable pattern whatever. In one tenement or barracks someone would be exchanging, say, one shirt coupon for five bread coupons; next door one shirt coupon might exchange for fifteen bread coupons.

But gradually a distinct pattern began to take form. The man who had exchanged his shirt coupon for five bread coupons would learn that he could have got fifteen bread coupons from someone else; the man who had given up fifteen bread coupons for one shirt coupon would learn that he might have got a shirt coupon for only five bread coupons. So people began to “shop around,” as they called it, each trying to get the highest bid for what he had to offer, each trying to get the greatest number of the coupons he desired for the coupons with which he was willing to part. The result, after a surprisingly short time, was that a uniform rate of exchange prevailed at any given moment between one type of coupon and another. (Hazlitt 1966, 103)

This reform inaugurates a price system, which facilitates rational planning by individuals and the effective allocation of goods to their most highly valued uses. It also leads to the emergence of markets where large volumes of exchanges can take place:

Then another striking thing happened. People had at first shopped around from house to house and street to street, trying to get the best rate in the kind of coupons they valued most for the kind of coupons they valued least. But soon people anxious to trade their coupons took to meeting regularly at certain places where they had previously discovered that they found the most other traders and bidders and could get the best rates in the quickest time. These meeting points, which people took to calling coupon “markets,” tended to become fewer and larger.

Two principal “markets” gradually established themselves in Moscow, one in Engels Square and the other at the foot of Death-to-Trotsky Street. Here large crowds, composed in turn of smaller groups, gathered on the sidewalk and spread into the street. They were made up of shouting and gesticulating persons, each holding up a coupon or sheet of coupons, each asking how much he was bid, say, in beer coupons for his shirt coupon, or offering his shirt coupon for, say, twelve beer coupons, and asking whether he had any takers. (Hazlitt 1966, 103-104)

As markets take hold, professional brokers emerge to handle large numbers of transactions for ordinary people in exchange for a percentage of ration coupons. The brokers quickly become adept at spotting and eliminating discrepancies among exchange rates between any two types of coupons:

Their competitive bids and offers continued until the relationships were ironed out, so that no further profit was possible for anybody as a result of a discrepancy. For the same reason, Peter found, the ratios of exchange in the market at Engels Square were never far out of line for more than a very short period with the ratios of exchange on Death-to-Trotsky Street; for a set of brokers were always running back and forth between the two markets, or sending messengers, and trying to profit from the least discrepancy that arose between the markets in the exchanges or quotations.

A special name—”arbitrage business”—sprang up for this sort of transaction. Its effect was to unify, or to universalize, price relationships among markets between which this freedom of arbitrage existed. (Hazlitt 1966, 105)

By allowing free exchange and permitting private entrepreneurs to take advantage of arbitrage opportunities, Peter enables a solution to emerge for Wonworld’s previously intractable problem of how to make the best use of scarce resources to fulfill as many human needs as possible. Peter recognizes that, even though the adjustments to prices that guide this process of rational resource allocation may appear automatic, they are in fact the effect of the actions of businesspeople seeking to earn a profit:

They took place solely because there was an alert group of people ready to seize upon the slightest discrepancy to make a transaction profitable to themselves. It was precisely the constant alertness and the constant initiative of these specialists that prevented any but the most minute and short-lived discrepancies from occurring. (Hazlitt 1966, 105)

Allowing free exchange of ration tickets leads to the spontaneous emergence of a monetary system as exchange rates begin to be quoted in terms of only a few leading types of coupons and eventually only in terms of cigarette coupons. These are superseded by packages of cigarettes themselves, which are in turn eventually replaced by gold.

The power struggle between Peter and Bolshekov escalates until Bolshekov engineers Stalenin’s assassination and seizes power in Wonworld. Peter and Adams flee to North America, assisted by their loyal Air Force, and establish their own country – Freeworld – where Peter’s economic reforms continue. Private ownership of land and capital goods is introduced, and large factories are privatized through the issuance of transferable shares to their workers, entitling them to receive a percentage of the profits from the enterprise. This greatly raises the incentives for production, responsibility, and prudent management of resources, as the newly empowered citizens inform Peter:

When he asked one of these new peasant-proprietors about his changed attitude, his explanation was simple: “The more work I and my family put into the farm, the better off we are. Our work is no longer offset by the laziness and carelessness of others. On the other hand, we can no longer sit back and hope that others will make up for what we fail to do. Everything depends on ourselves.”

Another farmer-owner put it this way: “The greater the crop we raise this year, the better off my family will be. But we also have to think of next year and the year after that, so we can’t take any risk of exhausting the soil. Every improvement I put into the farm, whether into the soil or into the buildings, is mine; I reap the fruits of it. But there is something that to me is more important still. I am building this for my family; I am increasing the security of my family; I will have something fine to turn over to my children after I am gone. I don’t know how I can explain it to you, Your Highness, but since my family has owned this land for itself, and feels secure in its right and title to stay here undisturbed, we feel not only that the farm belongs to us but that we belong to the farm. It is a part of us, and we are a part of it. It works for us, and we work for it. It produces for us, and we produce for it. You may think it is just a thing, but it seems as alive as any of us, and we love it and care for it as if it were a part of ourselves.” (Hazlitt 1966, 131)

The ability of individuals to own and run their business and earn a profit turns Freeworld into an economic powerhouse. Whereas Wonworld had, for a century, remained at the level of technological advancement approximately resembling that of 1918-1938, Freeworld becomes a haven for invention, the benefits of which disseminate rapidly to the population. Freeworld’s development appears to rapidly catch up to the condition of Hazlitt’s 1950s and 1960s America:

Constant and bewildering improvements were being made in household conveniences, in fluorescent lighting, in radiant heating, in air-conditioning, in vacuum cleaners, in clothes-washing machines, in dishwashing machines, in a thousand new structural and decorative materials. Great forward leaps were now taken in radio. There was talk of the development, in the laboratories, of the wireless transmission, not merely of music and voices, but of the living and moving image of objects and people.

Hundreds of new improvements, individually sometimes slight but cumulatively enormous, were being made in all sorts of transportation—in automobiles and railroads, in ships and airplanes. Inventors even talked of a new device to be called “jet-propulsion,” which would not only eliminate propellers but bring speeds rivaling that of sound itself.

In medicine, marvelous new anesthetics and new lifesaving drugs were constantly being discovered …

“In our new economic system, Adams,” said Peter, “we seem to have developed hundreds of thousands of individual centers of initiative which spontaneously co-operate with each other. We have made more material progress in the last four years, more industrial and scientific progress, than Wonworld made in a century.” (Hazlitt 1966, 153)

Instead of dreading work and needing to be terrorized into toil, the people begin to welcome and yearn for productive innovation:

Peter was struck by the startling change that had come over the whole spirit of the people. They worked with an energy and zeal infinitely greater than anything they had shown before. Peter now found people everywhere who regarded their work as a pleasure, a hobby, an exciting adventure. They were constantly thinking of improvements, devising new gadgets, dreaming of new processes that would cut costs of production, or new inventions and new products that consumers might want. (Hazlitt 1966, 139)

Peter explains to Adams that this “is precisely what economic liberty does. It releases human energy” (Hazlitt 1966, 139). Whereas, previously, only the Central Planning Board could decide how to direct resources,

Now everybody can plan. Now everybody is a center of planning. The worker can plan to shift to another employer or another line of production where the rewards are higher. He can plan to train himself in a new skill that pays better. And anybody who can save or borrow capital, or who can get the co-operation of other workers or offer them more attractive terms of employment than before, can start a new enterprise, make a new product, fill a new need. And this puts a quality of adventure and excitement into most people’s lives that was never there before. In Wonworld, in effect, only the Dictator himself could originate or initiate: everybody else simply carried out his orders. But in Freeworld anybody can originate or initiate. And because he can, he does. (Hazlitt 1966, 139)

Hazlitt frequently emphasizes the connection between the economic empowerment that freedom in business offers and the resulting surge in the quality of life and daily experience – a sense of responsibility, opportunity, self-direction, and the ability to chart one’s own future that permeates an economy where individuals are their own economic masters. While under central planning, no progress occurs unless initiated by the exceptionally rare enlightened rulers at the top, in a free market every businessman and worker can be an agent of human progress. Peter observes that a free-market system is meritocratic and tends to reward contributions to human well-being: “Everyone tends to be rewarded by the consumers to the extent that he has contributed to the needs of the consumers. In other words, free competition tends to give to labor what labor creates, to the owners of money and capital goods what their capital creates, and to enterprisers what their co-ordinating function creates” (Hazlitt 1966, 139). Adams responds that, to the extent a free-market system is able to achieve this, “no group would have the right to complain. You would have achieved an economic paradise” (Hazlitt 1966, 139). In a later discussion, Peter notes that the profits realized by businesspeople in a free-market system cannot be maintained on the whole except in a growing economy where consumers are increasingly better off; a free-market system cannot be called a profit system “in a declining or even in a stationary economy. It is, of course, a profit-seeking system” (Hazlitt 1966, 150), but the search for profit in a free economy will only succeed if human needs are fulfilled by the entrepreneur in the process.

Cultural and esthetic progress, too, are facilitated by the actions of Freeworld’s entrepreneurs. Hazlitt points out that “it was not merely in material progress that Freeworld achieved such amazing triumphs. No less striking were the new dignity and breadth that individual freedom brought about in the whole cultural and spiritual life of the Western Hemisphere” (Hazlitt 1966, 155). By contrast with Wonworld’s regime-monopolized “art” designed to praise the ruling ideology, the outpouring of creativity and variety in Freeworld “showed itself in novels and plays, in criticism and poetry, in painting, sculpture and architecture, in political and economic thinking, in most sciences, in philosophy and religion” (Hazlitt 1966, 155). Even though freedom in artistic production results in catering “to the presumed tastes of a mass public; and the bulk of what was produced was vulgar and cheap” (Hazlitt 1966, 155), there also emerges the opportunity for some artists to pursue lasting greatness:

What counted, as Peter quickly saw, was that each writer and each artist was now liberated from abject subservience to the state, to the political ruling clique. He was now free to select his own public. He did not need to cater to a nebulous “mass demand.” He could, if he wished, write, build, think, compose or paint for a definite cultivated group, or for his fellow specialists, or for a few kindred spirits wherever they could be found. And plays did have a way of finding their own special audience, and periodicals and books of finding their own special readers.

In contrast with the drabness, monotony and dreariness of Wonworld, the cultural and spiritual life of Freeworld was full of infinite variety, flavor, and adventure. (Hazlitt 1966, 155)

The intellectual honesty of Peter Uldanov enables him to transform the role of inadvertent world dictator to that of guardian of individual freedom. Freeworld overcomes Bolshekov’s Wonworld in a largely bloodless military campaign, due to Freeworld’s overwhelming superiority in production and the eagerness of Wonworld’s citizens to throw off Bolshekov’s totalitarian rule. At the novel’s end, Peter decides to hold free elections and subject his own position to the people’s approval. Running against the mixed-economy “Third Way” advocate Wang Ching-li, Peter narrowly wins the election and becomes the first President of Freeworld, even though his preference would be to devote his time to playing Mozart. Peter has the wisdom to unleash the productive forces of free enterprise and then to step aside, except in maintaining a system that punishes aggression, protects private property, and provides a reliable rule of law. The ending of Time Will Run Back is a happy one, but it is made possible by one key tremendously fortunate and unlikely circumstance – the ability of a fundamentally decent person to find himself in a position of vast political power, whose use he deliberately restrains and channels toward liberalization instead of perpetuating the abuses of the old system. Peter is, in effect, a “philosopher-king” who reasons his way toward free-market capitalism, unleashing private business to bring about massive human progress. Without such an individual, Wonworld could have lingered in misery, stagnation, and even decline for centuries. In our world, however, where the vestiges of free enterprise and the history of economic thought are much stronger, we do not need to rediscover sound economic principles from whole cloth, so perhaps existing societies could eventually muddle through toward freer economies, even though no philosopher-kings are to be found. Hazlitt gave us Peter Uldanov’s story to enable us to understand which reforms and institutions can improve the human condition, and which can only degrade it.

Reference

Hazlitt, Henry. [1966.] 2007. Time Will Run Back. New York: Arlington House. Ludwig von Mises Institute. Available at http://library.freecapitalists.org/books/Henry%20Hazlitt/Time%20Will%20Run%20Back.pdf. Accessed December 13, 2014.

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How Wilson and the Fed Extended the Great War – Article by Brendan Brown

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Categories: Economics, History, Tags: , , , , , , , , , , , , , , , ,

The New Renaissance Hat
Brendan Brown
November 9, 2014
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As the world reflects on the incomprehensible horror of the Great War which erupted 100 years ago there is a question which goes unasked in the media coverage. How was there no peace deal between the belligerents in 1915 or at latest 1916 once it became clear to all — especially after the Battle of the Somme — that the conflict had developed into a stalemate and holocaust of youth?

While there had been some early hopes for peace in 1916, they quickly evaporated as it became clear that the British government would not agree to a compromise deal. The political success of those who opposed compromise was based to a considerable degree on the argument that soon the US would enter the conflict on the Entente’s (Britain and France) side.

Although the US had allowed the Entente (but not the Central Powers) to access Wall Street without restriction during the first two years of the war, the historical evidence shows that President Wilson had been inclined to threaten Britain with the ending of its access to vital US market financing for its war effort if it failed to negotiate seriously for peace. But Wilson was dissuaded from urging peace on the negotiators by his political adviser Colonel House.

A less well-known story is the role of the then-newly created Fed (which opened its doors in 1914) and its allies within the Wilson administration in facilitating Entente finance. Two prominent Fed members — Paul Warburg and Adolph Miller — had fought a rear-guard campaign seeking to restrict their new institution from discounting trade bills or buying acceptances (largely financing munitions) issued by the belligerents (in practice, the Entente Powers). But, they had been thwarted by the persistence of the New York Fed chief Benjamin Strong (closely allied to J.P. Morgan and others who were gaining tremendously from arranging loans to France and Britain) and the Treasury Secretary McAdoo, the son-in-law of President Wilson. (McAdoo, whose railroad company had been bailed out personally by J.P. Morgan, was also a voting member of the Federal Reserve Board).

Milton Friedman has argued that the creation of the Federal Reserve made no difference to the US monetary and economic outcomes during the period of neutrality (up until March 1917) or during the US participation in the war (to November 1918). The difference, Friedman contended, came afterward when the Fed allowed rapid monetary growth to continue for a further year. Under the pre-Fed regime, Friedman argues, the US would also have experienced huge inflows of gold during the period of neutrality and under existing procedures (for official US gold purchases), and these would have fueled rapid growth of high-powered money and hence inflation. In the period of war participation, the Treasury would have printed money with or without the Fed (as indeed had occurred during the Civil War).

There are two big caveats to consider about Friedman’s “the Fed made no difference” case. The first is that the administration and Wall Street’s ability to facilitate the flow of finance to the Entente would have been constricted in the absence of backdoor support (via trade acceptances and bills) by the new “creature of Jekyll Island” (the Fed). The second is that both camps within the Fed (Benjamin Strong on the one hand, and Paul Warburg and Adolph Miller on the other) were united in welcoming the accumulation of gold on their new institutions’ balance sheet. They saw this as strengthening the metallic base of the currency (both were concerned that the Fed’s creation should not be the start of a journey toward fiat money) and also as a key factor in their aims to make New York the number-one financial center in the world, displacing London in that role.

Without those hang-ups it is plausible that the US would have trodden the same path as Switzerland in dealing with the flood of gold from the belligerents and its inflationary potential. That path was the suspension of official gold purchases and effective temporary floating of the gold price. The latter might have slumped to say $10–14 per ounce from the then official level of $21 and correspondingly the dollar (like the Swiss franc) would have surged, while Sterling and the French franc come under intense downward pressure. In effect the Entente Powers would not have been able to finance their war expenditures by dumping gold in the US and having this monetized by the Fed and Treasury — a process which effectively levied an inflation tax on US citizens.

This suspension of gold purchases would have meant a better prospect of there being a gold-standard world being recreated in the ensuing peace. The exhaustion of British gold holdings during the war ruled out the resurrection of Sterling as gold money. Its so-called return to gold in 1925 was in fact a fixed exchange rate link to the US dollar. The US would have been spared much of the cumulative wartime inflation. The Fed would not have been so flush with gold that it could have tolerated the big monetary binge through 1919 before ultimately being forced by a decline in its free gold position to suddenly tighten policy sharply and induce the Great Recession of 1920–21. That episode led on to the Fed focusing during the 1920s on modern monetary management (counter-cyclical policy changes and price stabilization). The consequences of that focus, ultimately fatal to the gold order, were the Great Boom and the Great Depression.

Brendan Brown is an associated scholar of the Mises Institute and is author of Euro Crash: How Asset Price Inflation Destroys the Wealth of Nations and The Global Curse of the Federal Reserve: Manifesto for a Second Monetarist Revolution. See Brendan Brown’s article archives.

This article was published on Mises.org and may be freely distributed, subject to a Creative Commons Attribution United States License, which requires that credit be given to the author.

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Abstract Orderism Fractal 61 – Art by G. Stolyarov II

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Categories: Art, Mathematics, Tags: , , , , , , , , , , , , ,

Abstract Orderism Fractal 60 - by G. Stolyarov II

Abstract Orderism Fractal 61 – by G. Stolyarov II

Note: Left-click on this image to get a full view of this digital work of fractal art.

This fractal consists of spiral upon radiant spiral, spreading forth in glorious illumination.

This digital artwork was created by Mr. Stolyarov in Apophysis, a free program that facilitates deliberate manipulation of randomly generated fractals into intelligible shapes.

This fractal is an extension of Mr. Stolyarov’s artistic style of Abstract Orderism, whose goal is the creation of abstract objects that are appealing by virtue of their geometric intricacy — a demonstration of the order that man can both discover in the universe and bring into existence through his own actions and applications of the laws of nature.

Fractal art is based on the idea of the spontaneous order – which is pivotal in economics, culture, and human civilization itself. Now, using computer technology, spontaneous orders can be harnessed in individual art works as well.

See the index of Mr. Stolyarov’s art works.

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Will the Swiss Vote to Get Their Gold Back? – Article by Ron Paul

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Categories: Politics, Tags: , , , , , , , , , , , , ,

The New Renaissance Hat
Ron Paul
September 14, 2014
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On November 30th, voters in Switzerland will head to the polls to vote in a referendum on gold. On the ballot is a measure to prohibit the Swiss National Bank (SNB) from further gold sales, to repatriate Swiss-owned gold to Switzerland, and to mandate that gold make up at least 20 percent of the SNB’s assets. Arising from popular sentiment similar to movements in the United States, Germany, and the Netherlands, this referendum is an attempt to bring more oversight and accountability to the SNB, Switzerland’s central bank.
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The Swiss referendum is driven by an undercurrent of dissatisfaction with the conduct not only of Swiss monetary policy, but also of Swiss banking policy. Switzerland may be a small nation, but it is a nation proud of its independence and its history of standing up to tyranny. The famous legend of William Tell embodies the essence of the Swiss national character. But no tyrannical regime in history has bullied Switzerland as much as the United States government has in recent years.

The Swiss tradition of bank secrecy is legendary. The reality, however, is that Swiss bank secrecy is dead. Countries such as the United States have been unwilling to keep government spending in check, but they are running out of ways to fund that spending. Further taxation of their populations is politically difficult, massive issuance of government debt has saturated bond markets, and so the easy target is smaller countries such as Switzerland which have gained the reputation of being “tax havens.” Remember that tax haven is just a term for a country that allows people to keep more of their own money than the US or EU does, and doesn’t attempt to plunder either its citizens or its foreign account-holders. But the past several years have seen a concerted attempt by the US and EU to crack down on these smaller countries, using their enormous financial clout to compel them to hand over account details so that they can extract more tax revenue.

The US has used its court system to extort money from Switzerland, fining the US subsidiaries of Swiss banks for allegedly sheltering US taxpayers and allowing them to keep their accounts and earnings hidden from US tax authorities. EU countries such as Germany have even gone so far as to purchase account information stolen from Swiss banks by unscrupulous bank employees. And with the recent implementation of the Foreign Account Tax Compliance Act (FATCA), Swiss banks will now be forced to divulge to the IRS all the information they have about customers liable to pay US taxes.

On the monetary policy front, the SNB sold about 60 percent of Switzerland’s gold reserves during the 2000s. The SNB has also in recent years established a currency peg, with 1.2 Swiss francs equal to one euro. The peg’s effects have already manifested themselves in the form of a growing real estate bubble, as housing prices have risen dangerously. Given the action by the European Central Bank (ECB) to engage in further quantitative easing, the SNB’s continuance of this dangerous and foolhardy policy means that it will continue tying its monetary policy to that of the EU and be forced to import more inflation into Switzerland.

Just like the US and the EU, Switzerland at the federal level is ruled by a group of elites who are more concerned with their own status, well-being, and international reputation than with the good of the country. The gold referendum, if it is successful, will be a slap in the face to those elites. The Swiss people appreciate the work their forefathers put into building up large gold reserves, a respected currency, and a strong, independent banking system. They do not want to see centuries of struggle squandered by a central bank. The results of the November referendum may be a bellwether, indicating just how strong popular movements can be in establishing central bank accountability and returning gold to a monetary role.

Ron Paul, MD, is a former three-time Republican candidate for U. S. President and Congressman from Texas.

This article is reprinted with permission from the Ron Paul Institute for Peace and Prosperity.

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