Philip Pilkington: The Fear Industry – Austrian School Propaganda and the Gold Market

By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil

When you survey the websites and the pundits of Austrian economics on the internet you tend to get a niggling feeling that they’re trying to sell you something. Of course, every writer is ultimately trying to earn a living but with many Austrians it seems to be a little different. It feels more like many are just churning certain content out in order to flog a certain line which, while certainly not quite mainstream, nevertheless seems geared toward generating if not income then at least traffic. To say that some of this comes across as spam-like would be slightly unfair, but not too unfair. After all, there is a high degree of repetition and the ultimate aim does seem to be to get the punter into the gold market or something similar.

But the sheer scale by which the fear industry has taken off is, to be frank, quite surprising. We have all seen the likes of Peter Schiff as a regular guest on the American business news spouting vague talking points about the impending dollar collapse and gold reaching $5000 an ounce. Is he trying to flog something? Probably, he does run an investment fund after all that seems to take strong and uncompromising positions in gold that have a history of losing investors boatloads of money. But beyond that one gets the impression that he just likes the attention.

The thing that really drove home to me the nature of the fear industry is an advertisement that I recently came across on Craigslist (hat tip Nathan Tankus, click to enlarge).

The advertisement is for a website entitled Economic Collapse News. The site itself is everything we’ve come to expect from such reputable news outlets. At the time of writing this article one of what appeared to be top feature was entitled ‘FEMA Coffins Revealed’. Presumably this was in reference to some sort of conspiracy where the Federal Government is going to set up FEMA camps where they will slaughter large sections of the population. However, when I clicked on the link to find out more about the dreaded FEMA coffins I came to realise that this was just an advertisement for food items that were going to fly off the shelves in the coming economic collapse – food items which I should, it seemed, buy from this website.

The website also contained advertisements for gold and links to Schiff, the Von Mises Institute, Lew Rockwell and Robert Murphy. Basically, this is an “apocalypse-is-coming” site that encourages the reader to stock up on guns, gold and cat food and read out-of-date economics ideas purely for the shock value and to reinforce the reader’s existing belief that collapse is nigh.

But back to our advertisement, for it is this that illustrates just how cynical the industry has become. The reader can peruse the advertisement themselves but I would highlight three dog whistle notes for the would-be writer to be sure to hit.

1. Libertarian political orientation, “aligned” with the Austrian School.

2. Invocation of certain sources (Schiff, Von Mises Institute etc.).

3. Recommendation of only the Austrian “solution” to the current crisis.

Okay, so the first requirement has two components. One of these is to have a certain political orientation. This doesn’t bother me so much. Certainly, Yves Smith didn’t ask me my political orientation when I started writing for this site – indeed, the issue has never come up – but I think if I had started writing articles championing Big Finance and bashing the unemployed our professional relationship would soon come to an end. This is the case for most media outlets. So, while it is unusual for a certain political orientation to be a requirement in an advertisement, I think we can look beyond this to some extent.

It is the second component of the first requirement that is particularly suspicious: namely, that the potential writer must be “aligned” with the Austrian School. This, it seems to me, indicates that the potential writer should think in a very specific way. This is not something that should ever be asked of a writer. Again, if a writer’s general thinking strays too far from a certain editorial line one can be sympathetic if an editor decided that enough was enough. But to require in an advertisement that the writer have a certain way of thinking appears to me something out of Soviet Russia; a sort of online Pravda.

The second requirement indicates something similar. The potential writer is expected to follow certain leaders in the field. Again there is a strong element of controlling what the potential writer is and is not allowed to say. Sure, in the mainstream media and even to some extent on the internet (Naked Capitalism, in my experience, being one of only a few exceptions) it is expected that a not-so-well-known writer don’t stray too far from the dominant discourse. But again, this advertisement indicates something altogether different. Like a trooper in the army, the writer is told exactly who their generals are to be.

The third requirement is perhaps the most extreme. It can be translated simply as: you must tow the Party Line. The would-be writer is told that there is only one solution to the current crisis and that is the Austrian solution (i.e. to deflate the economy). One suspects that what they mean here is not just that the writer must adhere to this solution but must also advocate singular personal solutions to readers that fit in with the website’s advertisers: that is, that the reader of the site should hoard items that they buy from the online store.

What is so interesting is that the fear industry grows larger and larger at a time when the make-up of their key market – the gold market – has fundamentally altered its composition. Last year the always excellent FT Alphaville ran a piece by the equally excellent Izabella Kaminska about central bank intervention in the gold market. Kaminska showed that in 2011 the central banks (represented in the chart below as the ‘Official Sector’) had increasingly come to prop up the gold market.

Kaminska wrote that were it not for the central banks the gold market would be largely dead because Exchange Traded Funds (ETFs) had begun piling out in 2010 – probably moving toward equities at that time. I would tend to agree with this analysis to some extent, but I’d also point to the growth in the ‘Bar & Coin Investment’ component in those years. This is the precisely the component of the industry that is supported by the Austrian School and the fear industry. As we can see it began to grow substantially in 2011, although again (and rather ironically given the ideology of these people) it would not have been sufficient to hold up the price without central bank intervention.

Here are the latest figures from the World Gold Council together with some of my own projections that show gold demand in 2012 as compared to 2011.

As we can see the bar and coin investment component actually shrank while the ETFs and the central banks picked up some of the slack. This indicates that the fear industry’s most successful year was actually in 2011 and this in turn is reflected in the fact that the gold price reached its record high in the summer of that year as is seen in the graph below.

It would seem that the fear industry is getting a tad overstretched in its propaganda. In addition to the sort of crude advertisements we studied above, which almost certainly indicate that the industry has become hollow to the point of irrelevance, we can also see this in what can only be described as the corruption of commercial radio stations in the United States. This can be heard in the second half of this discussion of the commercial radio scene in the US in which one host refers to the gold aspect of the contemporary scene as “the gold scam situation” (relevant conversation starts around 1.50):

Yes, it would seem that the fear industry has probably stretched itself too thin and it is likely that we saw its peak last year. From here on in it will probably be diminishing returns and we’ll likely hear of more and more scams as people within the industry compete for ever scarcer resources. Meanwhile the likes of Peter Schiff, Alex Jones and the Von Mises crowd will assure their followers that the end game is just around the corner while ever more money accumulates into their own hoards which, need we say, probably do not simply consist of tinned food and semi-automatic assault rifles.

Perhaps Naked Capitalism should get in on the action while we still can. If readers are interested in water filters, maps laying out the FEMA regions across the US and high-calibre ammunition please show your support by emailing us and we might, with Yves’ permission of course, look into setting up an online store. In the meantime, onward to $5000 an ounce for gold!

Print Friendly
Tweet about this on Twitter30Digg thisShare on Reddit0Share on StumbleUpon0Share on Facebook0Share on LinkedIn0Share on Google+0Buffer this pageEmail this to someone

143 comments

  1. 4D

    Off topic I know, but have you seen this put-down of MMT?

    http://www.thomaspalley.com/?p=322

    As I and others have stated here before porbably far less eloquently,

    “MMT over-simplifies the challenges of attaining non-inflationary full employment by ignoring the dilemmas posed by Phillips curve analysis; the dilemmas associated with maintaining real and financial sector stability; and the dilemmas confronting open economies.”

    “Its policy recommendations also rest on over-simplistic analysis that takes little account of political economy difficulties, and its interest rate policy recommendation would likely generate instability.”

    1. Don't Tell Him Pike

      And of course the Phillips Curve ‘trade off’ hasn’t worked inpractice since the opening up of national economies to the international money markets and abandonment of capital controls. There is now simply far too much leakage of capital outside of national borders for the necessary investment required to bring down unemloyment in neoliberl economies like the UK or USA.

    2. Ben Johannson

      Palley’s paper is an excellent demonstration of not understanding one’s subject. MMT deals with everything you quote in detail, but Palley is the one economist on the planet who can’t get past the Phillips Curve.

      The numerous insults toward heterodox economists wasn’t a giant clue for you that this wasn’t an academically rigorous paper?

    3. Nell

      Steve Keen has debunked the use of the Phillips curve by neoclassical economists (as a static inflation-unemployment pair). You can read about it in his book – Debunking Economics. So any argument based on the standard use of the Phillips curve is likely to be flawed.

      1. digi_owl

        It is funny how one argument against said curve is stagflation, when stagflation seems to have come into play when private credit was becoming more available. Banks as intermediaries only, bah…

  2. Chris Engel

    It’s a well known model in financial/economic news industry.

    1) Claim to be Austrian/free-market economist
    2) Perpetually predict economic doom
    3) ???
    4) PROFIT

    $10 an article, 1 article a week, in manhatten? Why do I have a feeling that there’s a lot of unemployed austrian economists out there who will jump at this opportunity…

    1. from Mexico

      Well that certainly is the way Austrians look when viewed through the lens of neoclassical economics, where self-interest explains everything. And even though most ordinary questions that confront us mix ethics with self-interest, I nevertheless believe it is highly reductionist to assert that self-interest explains it all.

      The Austrians fit well within the various primitivist movements that run like a thread through both Classical and Western civilizastions. An early example were the ascetic saints of the late and post-Roman worlds, who have become most fashionable in our university history departments. The attraction of these saints — in their lifetimes and in ours — was and is their rejection of the material values of their own societies, and our world, which is yet more materialistic and ‘corrupt.’

      Later examples are the Cathari, Waldensians, Humiliati and the Franciscans. The most zealous advocates of poverty and asceticism amongst the Franciscans were the so-called Fraticelli, who Pope John XXII (1249-1344) condemned and hunted down. The Christian life, they argued, was not to be found in papal palaces and curial power but in poverty and asceticism. They argued that to be a Christian one must walk with Christ, retracing the via dolorosa. Francis embodied this dedication to suffering hin his own asceticism (and stigmata) and enshrined it in his famous Rule that imposed austerity and poverty upon his followers.

      The need for austerity and poverty for the primitivists is so great that they invent scarcity of natural resources where none exists. That certainly was true of Ludwig von Mises.

      But is it also true of folks like James Howard Kunstler? It seems necessary to undertake this inquiry if one is to pursue the path of scrupulous honesty, rigorous self-examination of belief and relentless consideration and evaluation of alternative points of view that Thomas Jefferson urged upon his nephew:

      ***beginning of quote***
      [S]hake off all the fears and servile prejudices, under which weak minds are servilely crouched. Fix reason firmly in her seat, and call to her tribunal every fact, every opinion. Question with boldness even the existence of God; because, if there be one, he must more approve of the homage of reason, than that of blindfolded fear…

      — THOMAS JEFFERSON, letter to his nephew Peter Carr, August 10, 1787

      ***end of quote***

      1. Philip Pilkington

        No way! I totally agree. I said something almost identical on a discussion group I’m part of the other day. Here’s the quote:

        The higher level Austrians are incredibly metaphysical and otherworldly when you actually understand what they’re saying. To them, the contemporary world is, by construction, a completely dysfunctional place and only their theories contain any Truth. They are, to put it mildly, the Gnostics of the neoclassical school. And they really are not arguing from the position of a reasonable person. They are all, without fail, what Hegel referred to as Beautiful Souls. That is, the type of people who derive moral superiority from a stance that always considers the material and existing world to be one of Evil and only the ideas contained in their own minds as being manifestations of Good.

        http://en.wikipedia.org/wiki/Gnosticism#Common_characteristics

        “A common characteristic of some of these groups was the teaching that the realisation of Gnosis (esoteric or intuitive knowledge) is the way to salvation of the soul from the material world. They saw the material world as created through an intermediary being (demiurge) rather than directly by God. In most of the systems, this demiurge was seen as imperfect, in others even as evil. Different gnostic schools sometimes identified the demiurge as Adam Kadmon, Ahriman, El, Saklas, Samael, Satan, Yaldabaoth, or Yahweh.”

        The demiurge in the Austrian system is the government/central bank.

        (BTW, I hope people don’t misunderstand me here. I’m not just drawing strained analogies. As Steve Albini once said: “This isn’t some kind of metaphor; Goddamn, this is real!”)

        1. from Mexico

          As Carroll Quigley notes, the belief that regards the world and the flesh as evil and felt that the spirit could acheive full spirituality only by freeing itself from the body, from the world, and from contact with one’s fellow man and that such spiritual achievement was a consequence of the individual’s own activity alone, without cooperation with his fellow men, is something we inherited from late Classical ideology.

          Even though, as both your and my examples illustrate, this neo-Platonic dualism made its way into the ideology of Western Civilization — “was corrupted by,” according to Reinhold Niebuhr — it was not decisive. As Quigley goes on to explain: “Western ideology believes that the material is good and the spiritual is better but that they are not opposed to each other since the material world is necessary for the achievement of the spiritual world.” Here’s how Martin Luther King, Jr. put it:

          ***beginning of quote***
          But in spite of these shortcomings Rauschenbusch had done a great service for the Christian Church by insisting that the gospel deals with the whole man, not only his soul but his body; not only his spiritual well-being but his material well-being. It has been my conviction ever since reading Rauschenbusch that any religion which professes to be concerned about the souls of men and is not concerned about the social and economic conditions that scar the soul, is a spiritually moribund religion only waiting for the day to be buried. It well has been said: “A religion that ends with the individual, ends.”3

          http://mlk-kpp01.stanford.edu/primarydocuments/Vol4/1-Sept-1958_MyPilgrimageToNonviolence.pdf

          ***end of quote***

          1. reify99

            I think that nothing is as monolithic as it is being presented here.
            I haven’t really investigated the Austrian school but I’ve noticed that gold has gone up for 12 years in a row.
            After MF Global I took full distribution of IRAs, in gold shares, and was up 27% after taxes in 2012.
            Not skill.

            I had dinner with Michael Hudson once when he came to visit his friend Gavin’s mother, my piano teacher. He was talking about writing a book about the history of money, going back to the Sumerians, but even then there was a twinkle in his eye. I was thinking about the Liszt Sonata.

            I wish him well but in the division of labor between him and Wm. Black I think it is clear that the beauty of MMT will not be realized unless the playing field is level, free substantially of unpunished fraud. If so, the consensual myth of fiat can continue.
            Bluntly stated the
            barbarism of fraud has revivified the barbarous relic and to rail against this is to make oneself irrelevant.
            Someone will harness this energy and I fervently hope that it is someone of integrity.

            (I don’t believe Goldman Sachs will save the world.)

            Lastly I submit that if you go back far enough in the Abrahamic lineage you reach a time (of the Desert Fathers) where the dualism of Plato had not yet entered. No difference between God within and without, you and me.
            So hard for us to grasp now.
            Regards.

        2. steve from virginia

          Regarding gnostics: a corpse sprawled in the alley or floating in the lake has the bullet of an idealist in him. This is a good reason to give the Austrians of the Mises/Hayek persuasion a wide berth. They are true believers, too much like the Nazis they claim(ed) to oppose.

          Interestingly, their liquidationist approach is lifted intact from Andrew Mellon who offered a working model 10 years in advance of the 1929 crash and his, “Liquidate stocks, liquidate labor, liquidate real estate …” Mellon’s concern as a practical economist (in the Keynesian sense) was the salvage worth of (broken) economic infrastructure, anything above zero was acceptable because the system never provided much in the way of economic benefits, individuals did.

          Mellon could be considered Minsky ahead of finance instability hypothesis and is not really given much credit.

  3. Zog

    I’m always happy to sell my soul but $10 just isn’t enough. You would have to write at least 1000 words a day just to feed yourself for Christ’s sake. The Koch brothers are running this sideshow on a shoestring budget.

    1. ScottS

      It does beg the question why they aren’t being paid in gold shavings. Perhaps it’s an enticement to truly convince everyone of deflationary policies’ positive qualities — that one day $10/article might be worth something!

  4. AbyNormal

    Your Illusions Value Me

    my Growth is caved in Greed

    Unearthed by your Bones

    Polished with your Blood

    Traded on your Fears

    i am Not your Commodity

    your Owners never Own me

    my Weight is your Burden

    my Dust will not Nourish you

    liquefy me you’ll Dehydrate

    i will Embalm you in Madness

    i am the Executioners Witness

    my Master is your Desperation

    i am Gold.

    (probably a good thing i don’t weave for food)

  5. skippy

    A seller – needs – a buyer… GLD is a manufactured illusion not unlike diamonds {thanks to De beers monopoly).

    Skippy… in a survival situation I would rather have an ignition source than a kilo of GLD, better yet, some intelligent people around me.

    PS. I pick Philip et al… the Austrians can pour gold in each others mouths…

    1. Andrew not the Saint

      Well, the Austrian gold-trumpeting philosophy is certainly self-serving: they are stocking up gold now and hope that by preaching that gold will make a huge comeback to the world monetary stage they will achieve a pretty massive profit and become the new banker class. A very noble motive indeed.

      This is definitely not going to happen of course. Not that I argue with one of their premises – that the economy will collapse – but I’ve yet to see one example of a collapsing economy where people reverted to using gold as a daily currency. There just simply isn’t enough of it to facilitate trade, at a reasonable cost. Silver? Likewise – give me one example, just one example of where it happened.

      What we should be looking at are countries like Cuba, the Soviet Union, Argentina and Greece (in a year or 2) and using those as models of the upcoming monetary systems. A mixture of dodgy government currencies, private/local currencies, barter, favours/gifts etc.

      Nevertheless, one thing is true – gold will always be a pretty good thing to save for citical situations due to its portability. If I were to lose my shirt and had to become a refugee, the one thing that I would stick up my rear end would be a couple of gold coins. Not sure how many would fit though, but that’s perhaps a topic for a separate discussion.

      1. Can't Help It

        In a profit motivated world, you want to stock up on stocks, bonds, tulips, etc which you think will increase in value and sell them to the greater fool. Why is this behavior unacceptable in gold?

      2. Can't Help It

        Another thing. Who can say for a certainty that gold will not return to the monetary stage? At the end of the day, it’s a numbers game. How many people think it has value? Asians certainly do and certainly some Americans as well, not to mention some Europeans, etc.

        All of the people here can debate on MMT, Keynesian, etc, but the common man in the street does not understand nor care about those theories. Again at the end of the day, they’ll simply look for a medium of exchange and gold certainly had played that role in the past.

        Disclaimer: I am not a gold bug, but extreme position (e.g. “definitely”) always bothers me.

        1. Andrew not the Saint

          Fair enough, I’ll retract my “definitely” remark. But I’m still yet to see an example of gold being used heavily for monetary transactions during a collapsing economy. As a long-term store of wealth – it’s a different story, and I also wouldn’t discount being used for monetary purposes in some countries in the far future… but who will survive to see that future is anyone’s guess.

          1. F. Beard

            As a long-term store of wealth – it’s a different story

            Not really. Those who bought gold at $800/oz around 1980 saw it go to $260/oz over 20 years. And that’s despite price inflation in the dollar over that period!

          2. skippy

            @Baazza,

            Zimbabwee is what occurs when you give the commonwealth the finger and stiff legacy bondholders. Everything else is a reflection of that act.

          3. Baazza

            Was simply giving Andrew not he saint an example as he’d never seen one. The causes for the collapse are irrelevant. The video shows that gold is now widely used as a medium of exchange in an entire country.

    2. jake chase

      As between the gold bugs and the neoclassical economists, the gold bugs have the advantage of at least being occasionally right. Their ideas were bunk in 1979, but large fortunes were made by following them. In 2009, huge profits were made on the shares of ASA, a gold mining ETF.

      Gold is just another financial asset, the value of which depends upon crowd psychology. Please explain what makes it different from the shares of Apple.

      As for the predictions of collapse, the apocolyptians misunderstand the form collapse is likely to take. IMHO, we may well have 30-40% unemployment during the next ten years, but we will also still have the NFL and the NBA, and boobs continuing to prattle about share prices on CNBC.

      And, of course, if military force is required to keep order, that would be an employment plus, wouldn’t it?

      1. Thisson

        This Austrian bashing is tiresome. The Austrians correctly point out that the cause of economic busts is the expansion of credit past the event horizon where debt service costs exceed the marginal productivity of debt-based investments.

        Gold’s value is that it is the best thing to use for money. To paint Austrian’s as a gold-worshipping cult is quite silly. You can argue about their solution being deflationary, but I don’t see how that is any more preposterous than the Keynesian solution of inflation. In fact, Inflation and Deflation are two sides of the same coin whereby purchasing power decreases. The fundamental difference is in the allocation of the loss of purchasing power occasioned by choosing one over another.

        1. F. Beard

          Gold’s value is that it is the best thing to use for money. Thisson

          Wrong. But hey it’s your right to be wrong wrt personal decisions however you can forget about government ratifying your poor judgement by giving privileged status to gold.

          And ethically speaking, inexpensive fiat is the ONLY choice for government money.

          1. Thisson

            I completely disagree, as did the founders, who enshrined specie as the legal currency of the land in drafting the constitution. Gold is the best thing to use for money because, among other things, whoever controls the printing of fiat money cannot arbitrarily dilute the purchasing power of savers. Moreover, Gold forces international trade to be self-regulating. Fiat is the antithesis of an ethical currency. It is highly immoral.

        2. TSchmidt

          While it may be tiresome, it is necessary to debate them anywhere and everywhere because they seem to be influencing a lot of lay people, a sort of Austrian Army, as PP’s article points out with the advert. I get in debates all of the time with them, and interestingly one did say something like, “I used to think like you, until I came to a higher understanding.” It’s ironic that they call Keynesianism a religion…

  6. Can't Help It

    Gold or no gold is going to be very interesting. The Chinese, Russians and Indians are loading up on gold. I wonder whether in the future there will be 2 or more monetary systems in the world.

    1. skippy

      Hedging a bet…

      Meaning

      To avoid committing oneself; to leave a means of retreat open.

      Origin

      Hedge has been used as a verb in English since at least the 16th century, with the meaning of ‘equivocate; avoid commitment’. An example of this comes in Shakespeare’s Merry Wives of Windsor, 1600:

      I, I, I myself sometimes, leaving the fear of God on the left hand and hiding mine honour in my necessity, am fain to shuffle, to hedge and to lurch.

      It began to be used in relation to financial transactions, in which a loan was secured by including it in a larger loan, in the early 17th century. Initially, the phrase associated with this form of hedging was ‘hedging one’s debts’, for example, John Donne’s Letters to Sir Henry Goodyere, circa 1620:

      “You think that you have Hedged in that Debt by a greater, by your Letter in Verse.”

      ‘Hedging one’s bets’ was coined later in that century. It referred to the laying off of a bet by taking out smaller bets with other lenders. The purpose of this was to avoid being unable to pay out on the original larger bet. The phrase was first used by George Villiers, the 2nd Duke of Buckingham, in his satirical play The Rehearsal, 1672:

      “Now, Criticks, do your worst, that here are met; For, like a Rook, I have hedg’d in my Bet.”

      Skippy…. does that help?

        1. skippy

          I did not assume the position of author and as you have done so blithely… Google the text.

          One hand clapping for your cleverness, that is in support of an accusatory accusation of impropriety? Yet does it put any meat on the bones of this post or the resulting comments? Nay..

          Fíréan… just person… sincere person.

          Skippy… maybe you should own that moniker and delve into the conversation and not make groundless assertions.

          1. AbyNormal

            maybe the Fíréan deserves a break on this subject
            according to his link post yesterday…he maps mines

            admittedly, im a wee bit bias…”my two favorite colors of the rainbow are gold and leprechaun”

          2. Fíréan

            Personnal attacks, though becoming a more recent feature here, bother me not, criticism of postings part of the course, and I do not use google.

            Excuse me if i stood out of line to the heirarchy of the blog.

          3. skippy

            I give credit to the original authors, not the regurgitators.

            “Excuse me if i stood out of line to the hierarchy of the blog” – Fíréan

            Skippy… more baseless assertions

  7. The Dork of Cork.

    The rise of Gold is a Euro thingy.

    Here is a strange one from a strange lecture in Ireland yesterday

    http://www.centralbank.ie/press-area/speeches/Documents/Prof%20Harold%20James%20Whitaker%20Lecture%20Address.pdf

    “1. Currency Innovation
    In 1992-3, the EMS crises almost destroyed the path to the Euro, but the crisis was resolved by instituting greater flexibility: through wider (15 percent) margins in the exchange rate bands. The modern equivalent to the band widening of 1993 would be keeping the Euro for all members of the Eurozone but also allowing some of them (in principle all of them) to issue – if they needed it – national currencies. The countries that did that would find that their new currencies immediately trading at what would probably be a heavy discount. California adopted a similar approach at the height of the recent financial crisis, issuing IOUs when faced by the impossibility of access to funding. The success of stabilization efforts could then be read off from the price of the new currency. If the objectives were met, and fiscal stabilization occurred and growth resumed, the discount would disappear. In the same way, after 1993, in a good policy setting, the French franc initially diverged from its old level the band but then converged back within the band. Such a course would not require the redenomination of bank assets or liabilities, and hence would not be subject to the multiple legal challenges that a more radical alternative would encounter. There would also be the possibility that the convergence did not occur. The two parallel currencies could then coexist for a very much longer time period. This is not a novel thought. It was one of the possibilities that was raised in the discussions on monetary union in the early 1990s, that there might be a common currency but not necessarily a single currency.”

    Dork :
    Question
    If people get paid in devalued state money how can bank “assets” such as mortgages be kept inflated in Euros ?

    I don’t think 1993 is a good example as French banks assets were in denominated in Francs back then.

    The above just illustrates the divorce of banks from the state (and state money) in Europe.

    The only bank asset that I can see inflating is possibly Gold as it is useless and has zero input costs other then storage unlike houses and other good stuff.

    The case for Gold is that the bank “assets” are worthless
    These assets are just a conduit for fossil fuel flows…….i.e. they are not intrinsic wealth.

    Gold will merely capture this useless flow as it is useless but seen as money.

    1. skippy

      A store of fear… methinks… yet whom will parlay… the BRICKS know… its a game… of confidence… regardless of objects fetishization.

      Skippy… who will trust whom… when they all lie?

      1. Philip Pilkington

        The central banks were buying it as a hedge against their own QE programs, I think. I know, this is pretty hilarious, but remember that there’s always a few inflation hawks with pull on central bank committees.

        The rise of gold since 2008 is quite clearly being driven by the fear industry. The figures are crystal clear on this. And its running out of steam. Unless something happens that leads to the paranoids buying gold again — like, say, another major financial crisis — it isn’t going anywhere.

        I’m not saying that this can’t happen. But I wouldn’t try to make investments based on this. It’s an impossible call.

        The gold bugs have pretty much lucked out since 2008. But I don’t see any evidence that this can continue. I got an email from a fairly well-known financial journalist today who sent me a screenshot of their inbox filled with nonsense “analysis” from the gold crowd. The journalist totally agreed that they’re getting desperate.

        So, that’s the state of the gold market right now. I’m not syaing that this can’t change — anything can happen, unlike the gold bugs, I know that the future is not knowable. But judging on the current trajectory the market is a dead duck. Its either going to stagnate, go into decline or crash. The fascinating thing is that to a much greater extent than in other markets an entire industry has built up around it. Where will they go? Who knows? Maybe they’ll finally get around to building those perpetual motion machines they’re always going on about…

        1. Andrew not the Saint

          I’m thinking quite differently – that the Grand Collapse is not only coming (due to a combination of economical, energy and environmental factors), but that it will be so severe that the last thing on most people’s minds will be a rare, shiny yellow metal.

          Do feel free to call me a pessimist, I’d be quite happy to wear that badge.

        2. The Dork of Cork.

          @Phil
          State money is junior to international bank credit money in Euroland.

          Where else can the surplus go ?
          It cannot go into other bank assets ……….people cannot afford to buy stuff with input costs.

          Euroland = rise of Gold
          No Euroland = crash of Gold prices.

        3. redleg

          I view the precious metals as a speculative investment against a shortage of collateral rather than inflation.
          As I see things, once private debt starts defaulting in bulk the lack of unencumbered collateral should cause things like gold, silver, etc. to spike.
          I may be wrong, but there is more than one scenario (inflation) where PM’s increase in price.

          I have a number of mine resource evaluations under my belt, and the current spot prices are making marginal plays (w/ rights acquired via credit) attractive. So beware of the hype and understand that the PM and mining sectors are bets, not sound investments.
          (this is not intended to be investment advice, just my opinion)

        4. Thisson

          It’s not “luck” that the gold market has gone up since 2008. Gold’s value is inversely correlated to interest rates. I don’t know how you can have a reasoned discussion of gold fundamentals without addressing the relationship between gold and interest rates.

          I’m no gold bug, but how can you say the rise in gold is unsustainable? Look all around you. None of the public economic policies being implemented these days are sustainable! The “paranoid” have every reason to be concerned as we witness the dysfunction in DC.

        5. skippy

          The funny thing – is – most people don’t own gold save for a few trinkets or as a very small percentage of their total investment strategy… save… for a very small group of people… that sit and stare at it… hoping… it will ***explode*** in value… doing nothing.

          Skippy… sure is funny… eh… can’t make this shit up… believers – fanatics of all stripes… have cost this world more than… any other feature of it.

          1. Baazza

            Ooops…sorry…just search google news for currency war and you’ll see the articles, the link didnt copy across properly.

        6. Baazza

          There are signs that the (G8 or G20…dunno which as I’m not very up on this stuff) pact against currency debasement has already weakening considerably. Here are some articles from WaPo, CNBC, Morgan Stanley, WSJ and the Atlantic…and these are just in the last 24 hours.

          My friend thinks further movement into a full blown currency war would be really good for gold, but I don’t know enough about it to say.

          I’ve been trying to learn more about Risk partiy investing pioneered at Bridgewater…and the boss there (can’t remember his name) says gold has its place in a risk balanced portfolio. TBH, I’m getting close to caving in and allocating 10% to gold.

          What do you think of this as an investment strategy?

          https://www.google.co.th/search?hl=en&gl=uk&tbm=nws&q=currency+war&oq=currency+war&gs_l=news-cc.12..43j43i400.1707.3238.0.5464.12.5.0.6.6.0.166.600.1j4.5.0…0.0…1ac.1.k7gla0JWdqg

  8. F. Beard

    1. Libertarian political orientation, “aligned” with the Austrian School. Philip P

    One cannot be a “true” (spare me the “true Scotsman” spiel, please) libertarian and be for a government enforced or backed gold standard since such a standard co-opts the taxation authority and power of government for private interests (gold owners, gold miners, money hoarders, usurers, etc.)

    1. F. Beard

      In fact, the ONLY ethical government money form is inexpensive fiat but you’ll never hear an Austrian concede that.

      1. F. Beard

        That’s impossible under a government enforced or backed gold standard since gold is granted special privileges over other potential private money forms.

        1. skippy

          Again… SCOTUS = $ = one vote… by fiat or commodity backed currency = private sector dominance in governance. Its about the projection of power and not the object used.

          Skippy… you conflate the issue via dogma.

  9. JGordon

    Funny. All I have to do to find a boatload of paper bugs who are trying to making money via lies and fraud (by misrepresenting how great things are in paper-bug lang) is tune into CNBC. Austrians don’t have any exclusive on shysters, and in fact the most common and well known shysters are paper bugs featured in the MSM these days. So don’t go throwing stones when you live in a glass house you know.

  10. Jim Haygood

    ‘The third requirement is perhaps the most extreme. It can be translated simply as: you must tow the Party Line.’

    Towing is hard work.

    I can’t be arsed to do more than ‘toe’ it.

    1. diptherio

      “Hey you! Grab the end of our party line and drag that thing over here by the pool. There’s a good lad…here’s your ten spot.”

      hehehe, nice catch.

  11. Mcmike

    The centre cannot hold. Seem to me most people on this site hold that sentiment to some degree.

    One could do worse than spending money on some canned beans and construction fasteners. To a point. For example, one could find themselves on the muppet end of a Goldman deal.

    Then again, My grandpaw got snookered back when the Hunts made their move. I have a couple precious baubles that are that’s left of his bath.

    Surveying the media, advertising, economics, and government it strikes me that fear is the only industry we have.

    1. diptherio

      It seems to me that the urge to hoard at all stems from a fear and distrust of ones fellow men and women. When the center does, eventually, fall asunder, it won’t be canned food and ten-penny nails that get you through, it will be your relationships with those around you. We’ve all been brain-washed by centuries of social contract theory into thinking that without a centralized, all-powerful government to keep people in check, everyone will revert to a “state of nature, red in tooth and claw” and all that. What a bunch of BS.

      The facts of the matter are that people are naturally social. In the absence of authoritarian structures, what one has is not a situation of “all against all,” where the one with the biggest stash of ammo and potted meat wins out, but rather a situation of “all together now,” where people naturally help one another out because that’s how people are. The point of view that says that we need a strong authority figure to make it safe (and even possible) for us to live in close proximity with others, is a bizzarely slanderous one for a human being to hold, since it essentially says that they themselves cannot be trusted to not wantonly rape and pillage their neighbors absent some strong countervailing authority.

      I don’t hoard (despite fearing/hoping for the coming collapse) because I trust my fellow humans. Anyone who was involved with an Occupy camp may well have been surprised (like I was) to see how well and how easily and quickly people were able to spontaneously work together to solve communal problems. As one of our houseless Occupiers said one night, as a few of us were keeping the watch, “We’re practicing for the apocalypse right now. Pretty soon, everybody’s gonna have to figure out the stuff we’ve been figurin’ out.”

      1. McMike

        I have a complicated relationship with the collapse meme. I do think hoarding is in fact a rational response to loss of control and disengagement from one’s food supply and from one’s community, and resulting dependence on central authority to stay alive even a week.

        We lack the ability to provide for our family outside the fuedal system, so we hoard. Really just a reasonable hedge in the face of the fuedal system sending signals of its fragility.

        I also agree with you that human networks will be more valuable than stockpiles of canned peaches and ammo. The food and ammo makes you a target of mobs and mobsters, and ties you down. We all know how seiges of castles usually work out. Ask the Branch Davidians or the Weaver’s.

        That said, I do think it is pudent to keep a couple weeks of food around, and the ability to stay warm.

        The Mormons have it right because they advocate not just food hoarding, but also building a strong community. Come the collpase, I am heading straight to Utah in my new undies and coffee withdrawal symptoms.

        Truth is, the best survival asset is flexibility. We are not just social creatures, we are nomadic. When the going gets rought for a weekend, we hole up in a cave. When the whole place goes to hell, we pick up and move to greener pastures.

        1. Susan the other

          It’s funny how the Mormons take so much flack for being radical. They are actually very responsible and conservative managers of the state of Utah. It was a little bizarre that they made gold and silver legal tender but they didn’t mint any Utah coins. And nobody even noticed. I haven’t seen a single person use a gold coin. Nobody’s cash register has that much change. I think they just wanted everybody to bring their stash to Utah banks. Maybe since polygamy lost its allure. Remember: Gold, women and sheep.

          1. McMike

            Utah has its share of Tea Partier fruitcakes.

            Polygamy never had an allure to me. One wife is enough.

            Mistresses, on the other hand… [ah, bonjour madamoiselle]

        1. McMike

          No, the natural response to asteroids is to run around in circles screaming and send Bruce Willis into space.

  12. SebastianM

    You continue to purposefully portray Austrian economic theory as being equivalent to Austrian linked pundits. Clearly not the same thing

    Austrian linked financial advisors natuarlly advocate real assets (from whose sale they very much intend to profit). Very much like Keynesian mainstream economists who write client research reports for Goldman Sachs touting stocks based on “monetary policy”. They are both “talking their book”. See any real difference?

    Most of what investment bank mainstream economists write is plain out sale advertisements for their banks. Yet somehow you neglect to mention this?

    As to the economic doom part. If you have lived in any country outside of the United States, you have probably experienced at least one major financial crisis in your lifetime. Those crises were in effect collapses of the local fiat currency system (since they were local they were of course more manageable).

    For Latin Americans the purchase of hard assets is a no-brainer. We do not even discuss that the idea has merit. Every voting age Latin American living today has experienced the effects of at least one monetary collapse.

    And by the way, it is not really a doomsday scenario as Keynesians like to point out. Monetary collapses are very painful, but things eventually straighten out because the factors of production are generally unaffected. The problem with Keynesians is that they want painless solutions. In the process of delaying deleveraging, they only continue to make the impending correction larger and more painful.

    1. Philip Pilkington

      “Austrian linked financial advisors natuarlly advocate real assets (from whose sale they very much intend to profit). Very much like Keynesian mainstream economists who write client research reports for Goldman Sachs touting stocks based on “monetary policy”. They are both “talking their book”. See any real difference?”

      Yeah, I do see a very real difference. And so do Goldman Sachs who are, truth be told, rather good at what they do. One group actually know what’s going on — whether we like them or not, they really are quite good at what they do. The other group are a pack of cranks who rip people off by pandering to their emotions.

      1. Daniel From Paris

        “Goldman Sachs who are, truth be told, rather good at what they do”

        We have no doubt they are quite good at what they do, i-e taking advantage of the monstruous asymetries that the current system does create.

    2. F. Beard

      The problem with Keynesians is that they want painless solutions.

      The problem with the Austrians is they want unnecessarily painful and unjust solutions when a distribution of fiat plus a ban on further counterfeiting (so-called “credit creation”) by the banks is all that is really needed.

      1. McMike

        Not true. Austrians also think everyone should take a brisk walk every day, followed by a dunk in cold water, and then a coffee enema.

        1. Detroit Dan

          That makes perfect sense!

          Just like the fact the Austrians want us to take our pain now in the form of mass unemployment, rather than have a bit of inflationary pain for those hoarding the despised dollar. For those in favor of taking the pain, why is deflation superior to inflation?

  13. Daniel From Paris

    “For Latin Americans the purchase of hard assets is a no-brainer. We do not even discuss that the idea has merit. Every voting age Latin American living today has experienced the effects of at least one monetary collapse.

    And by the way, it is not really a doomsday scenario as Keynesians like to point out. Monetary collapses are very painful, but things eventually straighten out because the factors of production are generally unaffected. The problem with Keynesians is that they want painless solutions. In the process of delaying deleveraging, they only continue to make the impending correction larger and more painful.”

    + 1

    This MMT take is made by economists working in a Sterling pound and/or USD based environment.

    Their understanding of the situation is certainly as “biased” as the one of a person originating from say, Asi, Africa ou South America (and a significant part of Europe by the way).

    Their “trust industry” is certainly way bigger than our essentially soho-based “fear industry”. Wonder why it is prospering. Hence this post, among others, that most of us take as a reward.

  14. jsmith

    It literally is quite amazing how the brainwashed peons of America have so internalized the messages of their masters.

    Far from attempting to want to bond together with their fellow human beings who inhabit the same socioeconomic strata and fight against their oppressors, these Austrian effheads and their ilk live in and help spread constant states of fear, paranoia and greed by which instead of initiating movements through which they could use their only natural advantage – i.e., sheer numbers – against the fascist neoliberal onslaught, these boobs (un?)wittingly further help their overlords in dividing/atomizing the populace as a whole.

    Not content in having been manipulated like children into hating their fellow citizens of different races, genders and religions, today’s fascist stooge/Austrian now further attempts to splinter what remains of society by dividing it between those who can afford to horde physical metal, weapons and supplies and those who can’t.

    Attend a labor rally/strike/protest?

    F*ck that, I’m too busy building a “liberty” shelter out of American Frickin’ Eagles, man!!!

    Instead of having the satisfaction of watching a bunch of blacks being whipped on yon’ plantation as in the past or seeing today’s illegals being hunted down on TV won’t it be fun in the future to see your liberal|socialist|Keynesian|welfare queen|(insert epithet here) neighbors slowly starve to death while you shoo them away from your “freedom garden” with an AR-15?

    Kewel!!

    Gee, and you’d think that being so paranoid and constantly suspicious that these aholes would maybe pause when slurping the savory sh!te there masters serve them up day in day out, huh?

    Golly, the crap they’re serving us on the sh!tbox everday sure seems to resonate with me, huh?

    I mean, it’s funny how the fascist dominated MSM would glorify gun nuts, gold bugs, survival freaks etc when those are the very things that I – stupid f*cking sh!thead that I am – think will help protect me from the fascist dominated gubernment, huh?

    It’s like what they’re telling me to do is right in my lizard-brained wheelhouse or something, huh?

    Why would they be helpin’ little old paranoid me?

    (doodadoo)

    Never mind.

    Slurp slurp slurp slurp.

  15. Paul W

    So what’s a lifetime saver to do? I don’t want to leave my money in the bank as even the canadian banks are corrupt. I can’t sit on cash as it’s being devalued daily by inflation, with no signs of the money creation stopping. I’m certainly not going into the stock market which is highly manipulated. The Austrians suggest physical gold and silver. Do the Keynesians have a better suggestion? I’ve never seen one at this site.

    I guess the issue is that my problem is one few people have. 90% of canadians live in debt. Protecting their savings is the least of their worries. I suppose that is why NC has never properly addressed my problem. The Austrians do address it. They may be wrong but, at least, their arguments make sense to me. I’m quite happy to switch back to the Keynesians as soon as you people present a narrative I’m comfortable with believing in. Saying: “don’t buy gold it’s going to collapse” doesn’t do me much good. Just as this site’s pointing out the corruption and fraud, though enlightening and appreciated, does little to change things for the better and gets rather depressing after a while.

    I’m a great fan of Chris Hedges, however I don’t read him any more. His writing creates a feeling of helplessness. His non-violent solution is no solution because it will take forever for enough people to support such mass protests. I remember the protests in Toronto and over a thousand false arrests which the police got away with. I also remember the reaction from people at work which was essentially that the troublemakers got what they deserved. Hedges offers a strategy which will never succeed. Like sticking a pin into an elephant. I think our society would be better served with a Charlotte Corday right now.

    With the Austrians it’s pretty simple for me. People like Gerald Celente, Max Keiser and Lew Rockwell speak to the truth about our society. A breath of fresh air after all the establishment media propaganda. The above may not all be Austrians but they are consistent in their calls to buy gold and silver to protect ones savings and also their predictions of an economic collapse. These are two positive positions. The alternative is just to accept this corrupt, morally bankrupt society is here to stay. Our job is to recognize the rot and criticise it, however nothing is going to change. A nihlistic economic collapse, as bad as that would be, does have the prospect of getting rid of our criminal class and eventually starting fresh with something cleaner. Perhaps it won’t be a pure free market tied to the gold standard economy the Austrians hope for. Nevertheless, living in a society which starts a new war every year, I’m willing to run with any hope for change. Chris Hedges, NC and the social democratic left(which I used to be a part of) are not giving me any realistic hope for change.

    If the Austrians are right and I get into gold and silver it protects my savings from being wiped out by inflation or lost due to a bank holiday. If they are wrong I keep working my job, saving each month and no worries. If the Keynesians are correct I lose significantly buying gold and silver but I still have my job in this normal economy so I won’t starve. If they are wrong and their is an economic collapse then I lose just like everyone else.

    All due respect but until NC and its allies present a more compelling argument I’m sticking with the Austrians.

    1. Philip Pilkington

      “Do the Keynesians have a better suggestion? I’ve never seen one at this site.”

      Well, that’s the nub of it, right? Personally I’m not going to go around giving people investment advice. Bad idea. Even the best analysts are wrong a good deal of the time.

      The simple fact is that any time you see people making very public investment advice, they’re almost always trying to sell you something. The gold crowd are doing this. And it is this marketing drive that keeps the gold price high. The gold price has very little to do with inflation or fundamentals and a lot to do with how convincing the fear industry is.

      That is the truth of the matter. What people choose to do with that information is totally up to them.

      1. Paul W

        Sorry I didn’t mean to be so egocentric with my post. I was referring to my personal situation just as a way of illustrating why I switched from the Left to the Austrians on economic matters.

        Now I do take NC’s reason for being to suggest ways to fix our society. This I’d like to see more of from NC and like minded sites. All I find is pointing out crimes, endlessly pointing out crimes, with no real hope matters will change for the better. Consequently I do not view the Austrians as fear mongering when they talk of collapse. I see it as a chance for change. We do need any change we can get.

        I have to respectfully point out that I took the point of your article to be warning people not to buy gold. To my mine that is investment advice, even if it was advice not to invest. It really doesn’t matter what happens to my money. But a society run by criminals where everyone is in debt is unsustainable. This is why I am open to the Austrians belief in an economic collapse. It appears to be the only way forward.

        Thank you for the original article and the reply.

      2. steelhead23

        Yes Phillip, but if I say that a Maple Leaf is worth $1700 and purchase it for that amount, then that is what its value is to me. And, as you know, the market can remain irrational far longer than you can remain solvent. Gold is worth whatever buyers are willing to pay for it.

    2. McMike

      Peacefull, non-violent, persistent, person-by-person change is the only righteous social change that is lasting, because it changes consciousness at a personal experiential level.

      People who follow that path do so knowing that it may require a lifetime of work without benefit, several lifetimes of work perhaps. Those who eventually see the dawn are standing on a legacy of other’s shoulders.

      Hedge’s “hopelessness” you feel is perhaps born from the acceptance of this reality, resignation to the realty of social change, tinged perhaps in his own personal dissapointment, I have no way of knowing. All he can hope to do is change a few minds by talking and engaging. But that is all that he needs to do.

      Remember, our genetic hunting style was like other pack animals, to run game animals into exhaustion. Eventualy, they just lie down.

    3. RanDomino

      The best thing you can do for yourself would be to acquire property, especially investment property. The best thing you could do for society would be to provide seed money for cooperatives.

      The collapsitarians who tell everyone to buy gold are hypocrites, because if a collapse really happens gold and silver will just be shiny rocks. The only asset of any value in a collapse is social organization.

      1. McMike

        “especially investment property”?

        I would think especially property with intrinsic value (i.e farm land and water rights, or prime locations)

        Investment property to my mind means specualtive condos and commerical strip malls. Which will be worth less than nothing in a collapse.

        1. casino implosion

          In a real collapse, any property rights are going by the wayside, unless enforced by the sword. Doesn’t matter what type of property we’re talking about.

    4. Yves Smith Post author

      The idea of saving is based on safety, both that you can protect your assets and that you want to secure your future.

      The basic problem is the universe is bigger than you are and nothing is safe. However, I agree with investment property idea, although you do have an asset diversification issue.

      In general, if your concern is safety, you are NOT out to maximize returns. This is the trap people fall into. A very savvy investor buddy says if you can make 0.5% real returns consistently you are doing well. The MOST important thing is avoiding loss, NOT maximizing gains.

      The next best idea is diversification by asset class. So maybe 40% in an investment property (if you have enough dough) and the rest in a diversified portfolio. And I DON’T mean just stocks and bonds, you should have some commodities and foreign stock and bond market exposure too.

    5. Late to the Party

      Hello,
      Re [Paul W]: what to do with your money…
      You might consider trying to find companies or enterprises that you just happen to like or to believe are worthy for some reason. You have some extra cash sitting around not doing any good? Well, try to find some people who seem to be doing fun things with what they have, and let them have at yours too. … OR, give it away. It sounds like you are a pretty idealistic fellow, so there are bound to be some needy souls out there who you wouldn’t mind unburdening your weighty wallet! To put it another way, you seem to be a bit negative on the way things are; perhaps you think that people are too mean and shrewd (and eventually corrupt)? So? Don’t take advice from the shrewd. Just leave them be, perhaps. Praying the invisible hand will come and wipe these people away? But God already destroyed the earth in a flood. I’m not sure you will get your wish.
      :)

  16. jsmith

    Adding:

    And it’s f*cking disgusting to watch otherwise seemingly intelligent human beings and citizens of the wealthiest country on the face of the planet buy into the the fantasical canard that y’know, Jed, there’s just gonna have to be some pain in our lives now, y’know some tuff austerity and tuff suffering and things that’ll make us tuff men again with tuff little ladies.

    Yup, it’ll be tuff but if there’s one thing those F-150 commercials have taught me is that I’m tuff and so’s my truck and Murica’s always been tuff for tuff people like me.

    People who don’t want tuffness – like our masters remind us every hour of every day – are just not tuff enuff to be real Muricans but tuffness will see us through, God willling.

    Let me translate for you f*cking nimrods:

    You are f*cking insane brainwashed babies whose suckling on the venomous propagandistic teats of your overlords has made you myopic to the point of being socially blind.

    Gee, making it a contest of tuffness, pitting one tuff Murican versus other tuff Muricans wouldn’t be what those elite who have all of the money, power and resources would want would it?

    Jesus Christ you people are f*cking idiots.

  17. Calinvest

    Robert Rubin was on CNBC this morning. He stated again regarding the financial crisis: “Nobody saw it coming.” He’s right up to a point. No mainstream economist saw it coming. But a few Austrian economists did, and Steve Keene, of course. So the Austrian school deserves serious consideration which the main stream economists refuse to give it. Hence spurious pieces like this one that put forward incomplete and unsupported evidence to redicule the Austrian school.

    1. Philip Pilkington

      Two things:

      (1) Almost every post-Keynesian economist saw the crisis coming.

      (2) The Austrians got it completely wrong. They said that when the banks were bailed out and fiscal stimulus was enacted that there would be hyperinflation.

      The Austrians are like a broken clock. They say “crisis” ALL the time without going into specifics and then twice a day they are proved right. Don’t believe the hype. The Austrians are frauds — literally.

      1. Calinvest

        So Robert Robert Rubin is wrong.

        I will expect inflation until the real interest rate is over 0. It could happen, Volker did it in the 80s, but it will cause a hell of a contraction.

      2. The Dork of Cork.

        @Phil

        There is a form of hyperinflation happening…….

        Just because the CBs don’t measure it much does not make it any less real.

        Wage deflation is a form of inflation.
        It just affects different people.

        People are buying less and less stuff.
        Thats inflation baby.

      3. ebear

        “Don’t believe the hype. The Austrians are frauds — literally.”

        Dog-O-Matic pops the dice…..

      4. Democraatus

        “(2) The Austrians got it completely wrong. They said that when the banks were bailed out and fiscal stimulus was enacted that there would be hyperinflation.”

        First of all, you use a big generalisation. I can think of numerous people that *you* would consider Austrian-thinkers that have precisely not predicted hyperinflation.

        Second, seeing a crisis coming is not exactly the same as ‘completely wrong’.

        Third, it is not clear to me whether this piece is a complaint about guys like Schiff who have something to sell and adjust their tune accordingly (could be true) or the Austrian school? If the latter, I have not seen any argument or debate supporting that complaint.

        Fourth, it could also be that your topic is gold. Perhaps I am the only one who has trouble understanding what your piece is all about (using too many words could be considered lazy).

        Fifth, I would love to see you debate someone like Mish or Schlichter.

        Meanwhile, I’ll stay with the proven predictive power of the Austrian school if you don’t mind.

      5. Baazza

        “(1) Almost every post-Keynesian economist saw the crisis coming.”

        Can you give us some names to put to that statement? Wasnt the Queen of England recently told at the LSE that no-one saw it coming?

        “(2) The Austrians got it completely wrong. They said that when the banks were bailed out and fiscal stimulus was enacted that there would be hyperinflation.”

        Mish, Gordon T Long and Steve Keen prove this statement to be wrong.

  18. john bougearel

    There are flaws in Pinkerton’s analysis of gold.
    First, the WGC chart illustrating gold demand by sectors through 2011 fails to recognize the underlying reasons central banks are exponentially accumulating gold as of 2010. Framing their purchases as a ‘prop’ supporting gold prices is not accurate. Central banks are diversifying away from risks they can not decompose owning fiat currencies as part of the composition of their foreign exchange reserves. Plain and simple. Not a ‘prop. The gold market is far from dead as Pinkerton implies.

    Second, etf demand remains a relatively small part of gold demand. By and large, the demand comes from jewelry and bar and coin investment. Folks want to own the physical, not the paper gold, that is a risk preference. Btw, that is what the central banks prefer too, the physical gold. They don’t buy the etfs.

    Third, there are further flaws in the interpretation of the gold demand by category looking at 2011-12 y-o-y. First, Pinkerton fails to recognize that 2011 was a peak demand as a result of the credit rating downgrade of the US government in the third quarter of 2011. So, year over year comps in that instance is distorting. Better to compare yoy alongside the 5 year average demand. Moreover, Pinkerton fails to recognize or understand ‘why’ bar and coin investment shrank in 2012. Much of the bar and coin demand comes from India, and India introduced a tax on bar and coin imports in 2012 that is being reintroduced in 2013.

    1. Philip Pilkington

      “Central banks are diversifying away from risks they can not decompose owning fiat currencies as part of the composition of their foreign exchange reserves.”

      Said this in the comments above. Makes no difference.

      “By and large, the demand comes from jewelry and bar and coin investment.”

      That was the point of the article.

      “First, Pinkerton fails to recognize that 2011 was a peak demand as a result of the credit rating downgrade of the US government in the third quarter of 2011.”

      There is absolutely no reason to assume that this is the case. If you have econometric evidence of this send it to Yves and I will address it in a seperate piece. Otherwise this is just an opinion — and a wrong opinion so far as I can see.

      “Much of the bar and coin demand comes from India.”

      Wrong. The Indian demand for gold is mainly for jewellery (shock! for anyone familiar with Indian culture).

      http://www.mineweb.com/mineweb/content/en/mineweb-gold-news?oid=165128&sn=Detail

      http://articles.timesofindia.indiatimes.com/2012-08-18/surat/33261141_1_jewellery-demand-gold-jewellery-diamond-jewellery

      There was some uptick in Indian bar and coin investment, but it doesn’t appear to drive the market. The bulk of India’s gold demand is for jewellery.

      “Pinkerton”

      My name is “Pilkington”. If you didn’t catch that I don’t know why people are supposed to be convinced by your “analysis”.

      1. ebear

        “Wrong. The Indian demand for gold is mainly for jewellery (shock! for anyone familiar with Indian culture).”

        Jewelry in India, as well as most muslim countries is a form of insurance against failure of the marriage contract and as such represents a store of personal wealth. There’s not a woman in India, Pakistan, Bangladesh etc. that doesn’t understand this.

    2. Philip Pilkington

      Regarding India, here you go:

      http://www.goldcoin.net/daily-news-updates/indians-invest-in-gold-coins-over-gold-jewelry/

      “Last year, India was the world’s largest consumer of gold, though it is expected to be overtaken by China this year. Data from the World Gold Council show demand for gold coins surged by 59 percent in the third quarter compared to the same period last year, indicating a decisive shift in Indian investment sentiment. Mehta said the World Gold Council data indicates Indian jewelry demand stood at 136.1 tonnes while bar and coin demand stood at 87 tonnes.”

      87 tonnes is not very much. Oh, and it looks like Indian demand is INCREASING, not decreasing.

  19. Abe, NYC

    I think if the US returns to sustained economic growth it is likely to be accompanied by high inflation. Besides other considerations, this is what happened after every war, and the crisis is comparable to one. Just like in a war, most of the expenditure was wasted rather than put to productive use. How much of this is baked in the price already, is an open question. But the economy has been depressed for years now, it’s not clear what happens before it returns to growth.

    1. Ben Johannson

      Average post-WWII inflation for the U.S. is 3.5%, not what I would call “high”.

      If we experience annual inflation at even that level in the coming years it will be the result of exogenous supply shocks; domestic demand is simply not going to recover sufficiently to drive up prices, not when wages continue to be suppressed and the government’s response is, “live off credit!”

    2. Abe, NYC

      There was high inflation in the years following WW2 (and WW1, and Vietnam although obviously there were other factors as well).

      I agree that it doesn’t look likely that domestic demand will recover anytime soon, but that’s the point: is sustained growth possible without a recovery in demand? And if growth is low, inflation will likely be suppressed as I wrote – unless, indeed, there is an exogenous shock.

      1. Ben Johannson

        I’m not that familiar with events surrounding WWI, but in regards to initial post-WWII inflation there were many variables. An increase in monetary velocity, removal of caps on consumer credit, end of rationing/price controls and an economy at true full employment, with GI’s returning home to spend their pay. From what I can see it was largely AG-driven.

        Can growth be sustained without sufficient aggregate demand? Probably not, which is why policy turned to making credit more freely available after wages stagnated in the late 70’s.

  20. Zeke

    1) Why would the Central Banks purposefully “prop up” the gold industry, when the Gold price has historically been a sign of currency Mismanagement? Especially after 30 years of net gold sales? What changed in 2008-2010?

    2) For a site that prides itself on highlighting frauds within the financial industry (for which I’m thankful), how can you take the chart for gold price at face value, without considering LIBOR manipulation, and the CFTC’s ongoing 4 year investigation (obfuscation) into the Metals market Price Suppression fraud?

    3) Is the first rat off a sinking ship stupid, fearful, or wise? Won’t time tell?

    1. EconCCX

      1) Why would the Central Banks purposefully “prop up” the gold industry, when the Gold price has historically been a sign of currency Mismanagement? @Zeke

      Gold is part of how member banks meet capital requirements. To costlessly influence the price of the small amount on the market is to determine the value of the entire stash. Of course Central Banks will tamp down as well as prop up, the better to maintain confidence in the private debt digits that are our actual media of exchange.

      1. Ben Johannson

        That’s an interesting notion. If it were sustained the Fed would effectively be lowering capital requirements without actually telling anyone.

  21. jpearl

    “The Austrians fit well within the various primitivist movements…”

    “The Austrians are frauds — literally.”

    These are powerful, rational arguments.

  22. steelhead23

    Another excellent essay Phillip. However, I do not believe it is actually gold that the fear-mongers are selling – they are selling hatred. You see, those folks with stockpiles of weapons, food, and God knows what else, hate us (society at large). These folks tend to be libertarian ideologues. But why is there sufficient capital to support these websites and radio stations? Someone(s) is paying for this. Who? Why? Even if we assume that Pete Peterson or David Koch pay for this fear mongering, what’s their game? How do they benefit. The only benefit I can see is misdirection – look at how the gubbermint wants to take yo’ stuff and haul you off to a FEMA camp – while corporate America, hiding behind the bushes, degrades the planet and captures more rents. But this doesn’t seem big enough to warrant the proliferation of talk radio and doomer websites. If this explosion is organic, the answer becomes mass-hysteria and I start wondering if gubbermint is putting something awful in our water.

  23. steve from virginia

    Anyone who has seen their gold investment double and double again over the past few years is not going to agree with your analysis as it narrowly applies to gold.

    Gold is an asset that tends to be held by the wealthy, what this means is that it might not outperform all assets all the time but will do so under certain situation such as current negative real interest rates.

    Gold is a natural resource that is becoming harder and more costly to retrieve, the marginal cost of retrieval of the last ounce sets the price of all the other ounces.

    Gold is is easier and cheaper to store than real estate or crude oil. At the same time it cannot be made to appear or vanish in thin air like a share of stock or some other ‘ownership’ certificate, note, deed or account.

    More …

  24. steve from virginia

    As mentioned, a critical component of gold market since WWII has been central banks: when gold prices decline it generally has been because central banks have been selling bullion. The banks support the market price now.

    The central banks do not adhere to silly von Mises prating, they have their own pragmatic reasons for ‘hoarding’ gold. The banks must be paid attention to! There are reasons why the Deutschebank asked for the return of 674 tons of gold, what these are is hard to say but it isn’t because the German central bankers are Hegelian fools

    More …

  25. steve from virginia

    Biggest problem with gold is its characteristic as some as ‘money’ rather than as an asset. When the costs of obtaining gold in energy and waste are accurately measured as gold’s liability, gold is underwater: the cost to obtain it is greater than the current price.

    What this means is, if gold is money, the cost to obtain it must be accurately and fairly calculated. Likewise, the cost to obtain other goods including resources needed to gain gold must also accurately and fairly calculated. If this is done, our economy would be exposed as unable to afford itself!

    Our economy only affords itself now because the participants lie about the real costs of resources. What meets the costs of resources has been an exponential increase in debt … since the beginning of the industrial revolution.

    The mispricing- and exhaustion of resources is the problem rather than ‘this or that’ economic doctrine, all of which are capital mispricing regimes. Gold money is impossible: for it to be what its promoters claim, it must also be bankrupting.

    This means that the creeping gold-ization of world’s economies — by the backdoor, by central banks and otherwise — is evidence of onrushing system bankruptcy along with ongoing bank runs, unsecured loans by central banks (NGDP targeting), competitive currency depreciation, national insolvencies (Greece, Spain, France, Japan … etc.)

    More …

    1. Calinvest

      Sorry Steve, If the cost to obtain gold exceeded the price, all the gold mines would shut until the price rose to the point the costs and profits are covered. This is Captialism. If you are talking about social and environmental costs, well that’s true of all mined products including oil, coal, uranium, etc.

      1. steve from virginia

        Costs are costs! Who pays? The ‘man behind the tree’ (your grandchildren).

        The entire economy does not make a profit that is our crisis.

        BTW: another word is Bundesbank … I dunno how that one slipped past the censors!

  26. steve from virginia

    Disintegration is coming and no amount of soothing or economic mumbo-jumbo will keep it at bay:

    – Nicole Foss interview by James Howard Kunstler

    – Economic Undertow: “Energy End Game Theory”

    – Slate article, “Myth of Saudi America”

    Sorry, this site does not accept direct links you’ll have to look them up yourselves.

  27. S Roche

    Mr Pilkington,

    Some suggested reading re your Goldman Sachs comment, (which I find offensive, was it meant to be?): Money & Power, William D. Cohan.

    You impart a very limited view of the role of gold in the world’s monetary system, after all, the Washington Agreement on Gold has been extended twice.

    Apart from that, I take it you believe in all the world, there is really not much cause for concern…or fear?

    Considering all that has occurred, and is still playing out, I think this is a rather strange article. It is in line with a general resentment towards gold, and those who advocate its ownership, that I am seeing more frequently. This is to be expected as gold is re-monetised.

    Despite your conclusions, I remain comfortable that the case for gold ownership continues to strengthen. Fortunately, time will tell.

  28. mac

    There is a guy who rambles endlessly on “mish’s” blog about robots, maybe he would take the $10 or a robot part. “Alstrynomics”

  29. name

    Wow. I come here to get the opposite of the ZH slant, but wtf if this? And a pro goldman sachs comment too?!
    I also don’t have the time or patience for libertarian bullshit, but this is no good. Not all ‘gold bugs’ are libertarians. What about GATA and their work? LIBOR happened. Gold is being manipulated. Lower. And it is not being done by the powerless libertarian fear-based minority. It is being done by the central banks/govs of the world, prob. w/ the help of ur friends at goldmansucks…

  30. Jim

    A few brief comments referring to the gnosticism discussion above:

    Aren’t the rationalists like the gnostics–preoccupied with certainty?

    Gnosticism tends toward a remodeling of God to make him answerable to human need.

    Isn’t almost all of modern politics heavily gnostic in character?

    And doesn’t penetrating such secret knowledge (whether it is the truth about our monetary system or the truth about the nature of God)often lead to assigning a God-like role to those who have attained such gnosis and serves as well as a demarcation between the initiated elite and the uninitiated masses?

    1. duggie73

      The certainty in modern politics is that there’s a belief in a top down dominance hierarchy created by the markets- the belief is that this was created by a benevolent invisible-handed architect rather than a malevolent demiurge.

      The perspective that “moving up in society” is an absurd concept doesn’t ever seem to occur to anyone involved in mainstream political discourse.

      The arguments are virtually only about how high you can put yourself and conversely how low others should be.

      Money comes from the top of the hierarchy and is designed to serve those at the top of the hierarchy. It’s a sellers’ market.

      Money could be created by a community as an enabler for it to make things for itself, with a limited lifespan so little or no hierarchy emerges.

      It probably won’t happen though, largely because feminists have been sold on the idea that they’re too fat.

      As Phil says, this is not a metaphor.

    2. from Mexico

      @ Jim

      Aren’t the rationalists like the gnostics–preoccupied with certainty?

      I don’t know about “the rationalists,” because rationalism has many different meanings, but rationalism as defined and practiced by Pythagoras, Plato, Descartes and Newton most definitely was preoccupied with certainty.

      In both the late Classical and Modernist worlds, rationalism was an ideology crafted to lend moral and intellectual legitimacy to the social order, in the case of Pythagoras and Plato a slave society, and in the case of Descartes and Newton our current highly stratified and hierarchical society.

      For a great deconsruction of Modernism and the rationalist ideology that informs it, you might want to take a look at Stephen Toulmin’s Cosmopolis: The Hidden Agenda of Modernity.

      Gnosticism tends toward a remodeling of God to make him answerable to human need.

      Isn’t almost all of modern politics heavily gnostic in character?

      Haven’t you heard? God is dead. It was a slow process that began in the 16th century, but by the late 19th it was a done deal and Nietzsche could declare with some confidence that “God is dead.” So in modern politics God has ostensibly been eliminated from the traditional relationship between God, nature and man. Now it’s all about remodelling nature to make it answerable to human need, and as Michael Allen Gillespie puts it in The Theological Origins of Modernity: “Divine or at least quasi-divine powers reemerge although always in disguise. Nature is an embodied rational will; the social world is governed by an ‘invisible hand’ that almost miraculously produces a rational distribution of goods and services; and history is the progressive development of humanity toward perfection.”

      And doesn’t penetrating such secret knowledge (whether it is the truth about our monetary system or the truth about the nature of God)often lead to assigning a God-like role to those who have attained such gnosis and serves as well as a demarcation between the initiated elite and the uninitiated masses?

      That certainly seems to have been the pattern, doesn’t it? The entire discipline of economics, for instance — and this is true all the way from 18th-century classicism to 19th-century Marxism to 20th- and 21st-century neoclassicism — has been nothing more than an exercise in trying to pass off moral judgments as if they were “scientific.”

      But, as Susan Neiman asserts, and I very much agree,

      ***beginning of quote***
      moral principles are never true. Truth is a matter of the way the world is; morality is a matter of the way the world ought to be. The distinction between is and ought, this book [Kant’s Critique of Practical Reason] will argue, is the most important one we ever draw. It structures our experience in ways even deeper than the way experience comes structured into causes and effects. If morality is never a matter of fact, trying to convince moral skeptics with objective proofs is worse than senseless. Nor should we be urged to live rightly because it’s in our self-interest to do so. Such arguments leave us helpless whenever morality and self-interest part company; in the times when they don’t, we don’t need morality to move us.

      http://www.einsteinforum.de/fileadmin/einsteinforum/downloads/victims_neiman.pdf

      ***end of quote***

      Einstein said the same thing when he asserted that: “While it is true that science, to the extent of its grasp of causative connections, may reach important conclusions as to the compatibility and incompatibility of goals and evaluations, the independent and fundamental definitions regarding goals and values remain beyond science’s reach.”

      Daniel Yankelovich’s Coming to Public Judgment: Making Democracy Work in a Complex World explores a praxis based upon the philosophy of Neiman, Kant, and Einstein. Deciding values, ethics, politics, and life philosophies — “setting up goals and passing statements of value” which “transcend” science’s domain, as Einstein put it — should be left to the public. Once these have been delineated, then the experts can use their expert knowledge to follow through on them.

      But, as Yanelvich goes on to explain, the danger

      ***beginning of quote***
      lies in the eroding ability of the American public to participate in the political decisions that affect their lives. The fateful decisions are made in Washington, in corporate boardrooms, on Wall Street, in state legislatures, and in city halls. They are shaped by economic experts, military experts, scientific experts, trade experts, PR experts, media experts. Less and less are they shaped by the public…

      When formulating important national policies, it would never even occur to most policy makers to consult average citizens…

      In recent years my work has made me conscious of the enormity of the gap that separates the public from the experts. As an interpreter of public opinion, I serve as a go-between for the two worlds of public opinion and expert policy making. Each year the distance between the two worlds grows greater…

      Often, without realizing it, [the experts] fail to distinguish their own value judgments from their technical expertise…

      If the experts overreach themselves and further usurp the public’s legitimate role, we will have the formal trappings of democracy without the substance, and everyone will suffer. If the public dominates and pushes the experts out of the picture altogether, we will have demagoguery or disaster or both. A better balance of power and influence is needed, with each side performing its function in sympathy and support of the other…

      If the experts grow too bold, the electorate will express itself in populist fury and launch another episode of native know-nothingness. (Anti-intellecutalism runs like a thread through American history.) In political life, abuse breeds abuse, and if the problem is permitted to fester, the backlash is likely to prove worse than the disease…

      To resolve the expert-public gap, two things must happen. The first is that the public’s freedom to contribute to self-governance must be stengthened and built up. Second, expert resistance to having this happen must be reduced. To understand the second, I will need to describe the sources of resistance that are rooted in a phenomenon I call the Culture of Technical Control.
      ***end of quote***

      If I’m not mistaken, your assessment is that the MMTers subscribe to this “Culture of Technical Control.” My position — regardless of what other people have falsely claimed my position to be — is that I don’t know. I’m a skeptic. The jury is still out. But important questions need to be asked of the MMTers, and honest answers given.

      1. from Mexico

        I think it’s also worth pointing out that Einstein was not only an intellecutal giant, but a moral giant as well.

        This is quite a rare combination, something George Orwell concluded after observing how easily the leading intellectuals and artists in the UK were converted to Fascism in the pre-WWII era.

        There seems to be an inverse correlation between intellectual prowess and morality: the smarter a person is, the more likely that person is to be immoral.

  31. Keynesian

    I think this precious metals issue is being over simplified. First, the popular gold/silver mania starts about Nov. 16, 2010 after an interview of investment adviser Michael Krieger by Max Keiser. (https://www.youtube.com/watch?v=EjIWH7CSP8U )
    It turns out that Krieger claims to be an “Austrian” economist. This isn’t unusual because most investment advisors are brainwashed by “Free-Market” ideology otherwise they don’t get into these big vestments house like Goldman Sachs, JP Morgan, and Lehman Brothers. We can thank the universities for this hegemony of economic ideology. It annoys the hell out of me, but if you deal with market analysts that is what you find like it or not. This doesn’t mean that their day to day market calls are all wrong. They may call themselves “Austrian” but it doesn’t mean they are consistent and that their market calls are actually derived from Austrian economic theory just because they say they are. Also, there is some real disagreement among the so-called Austrian economist. Economist Steve Keen is particularly hard on the Austrians. Max Keiser has problems with the Von Mises school of Austrian economist and even predicted that The Von Mises Institute would not last more than six months. In fact, one Austrian economist Dr. Sandeep Jaitly appeared on Max Keiser’s program (http://maxkeiser.com/2012/08/26/there-place-lenin-austrian-school-economist-appearing-on-max-keiser-show-forced-to-resign/ ) and said, “Mises made mistakes.” Dr. Jaitly was promptly forced to resign from the Gold Standard Institute by president, Keith Weiner. (http://dailycapitalist.com/2012/04/16/keith-weiner-to-head-gold-standard-institute-usa/ )
    Max Keiser has called the Von Mises Institute as dangerous ideologies, fake Libertarians, and wacko Ayn Randian Objectivists (see video at 2 minutes).(http://maxkeiser.com/2012/09/02/bill-still-talks-gold-standard-sovereign-money-max-keiser-von-mises/#comments )
    Max Keiser was backed by Bill Still, author of “The Money Masters” and noted that von Mises was supported by the Rockefellers.
    (http://www.youtube.com/watch?v=HfpO-WBz_mw )
    There are two groups advocating precious metals: those that want gold as an inflation hedge (incompetence hedge by betting against the debt), and those Austrian ideologues that want an international gold standard. I personally think switching to a gold standard would be a total economic disaster like it was after WWI when Churchill put the UK back on the gold standard in 1925. The “Austrians” ideologues in America are Balkanized into the strangest groups of whackos you could ever find.

    But many financial advisors agree that the market are corrupt and manipulated—especially the silver and gold markets. These ideologically force fed Austrians have been burned by high frequency trading, nake short selling, and out right fraud. They are Austrians that have been mugged by Wall Street. That is why they are so interesting. They claim a free market is the answer, but at the same time want government to arrest the manipulators. They can only express their disappointment in Austrian terms and blame “Keynesianism.”

    What they don’t do is make the distinction between Keynesian economic “principles” and Keynesian economic “policies.” The Wall Street elites have developed a “sado-Keynesianism” to fund colonial wars, bailout investment bank fraud, debase the currency, and use debt loading to impoverish the middle-class. The elites then turn around and blame it all on “Keynesianism” by screaming about the “debt” and present “Free-Market” ideology to further deregulate the financial industry enabling further looting. This propaganda cycle has worked successfully for them.

    The current hyping of precious metals like gold and silver has a number of motivations:
    1. Frustration with manipulated markets by independent financial advisors that are being pushed out of the markets.
    2. The desire to buy gold and silver to hurt JP Morgan’s short positions in the paper ETF gold and silver market which they are price suppressing. This has been an issue for over 10 years in the commodities market but publized by Max Keiser in the last two years.
    3. Gold and silver have increase in price since 2001 and some persons have already profited from this rise so it isn’t just speculation that the price will increase—it already has. The question is how much higher will the metals go.
    4. Traditional market analysis shows that silver is undervalued by manipulation, mining practices, and industrial consumption of silver.
    5. Also, nations like Brazil, Iran, China, Russia, are moving away from the US dollar as the reserve currency to protect their wealth and turning to gold to opt-out of the American Empire waging wars on debt.

    It has only been after November 2010 there has been a bandwagon effect when the hustlers, coin collectors, gold bugs, YouTube seven-day wonders, and wackco Austrian economists started coming out of the wood work. There are all kind of reasons that people want to buy and sell gold, many of which are unsound, but that does not mean there are no good reasons to have some metals as an inflation hedge.

    The gold standard has not always been a Keynesian vs. Austrian issue–or even a Left vs. Right issue. The famous economist Karl Polanyi noted in his book, “ The Great Transformation: The Political and Economic Origins of Our Time” wrote of the gold standard during the mid 1800s and noted that both Left and Right political groups favored the gold standard at on time.

    [quote]Belief in the gold standard was the faith of the age. With some it was a naïve, with some a critical, with others a satanistic creed implying acceptance in the flesh and rejection in the spirit. Yet the belief itself was the same, namely, that banknotes have value because they represent gold. Whether the gold itself has value for the reason that it embodies labor, as the socialists held, or for the reason that it is useful and scarce, as the orthodox doctrine ran, made for once no difference. The war between heaven and hell ignored the money issue, leaving capitalists and socialists miraculously united. Where Ricardo and Marx were at one, the nineteenth century knew not doubt. Bismarck and Lassalle, John Stuart Mill and Henry George, Philip Snowden and Calvin Coolidge, Mises and Trotsky equally accepted the faith. Karl Marx had gone to great pains to show up Proudhon’s utopian labor notes (which were to replace currency) as based on self-delusion; and Das Kapital implied the commodity theory of money, in its Ricardian form. The Russian Bolshevik Sokolnikoff was the first postwar statesman to restore the value of his country’s currency in terms of gold; the German Social Democrat Hilferding imperilled his party by his staunch advocacy of sound currency principles; the Austrian Social Democrat Otto Bauer supported the monetary principles underlying the restoration of the krone attempted by his bitter opponent, Seipel; the English Socialist, Philip Snowden, turned against Labour when he believed the pound sterling not to be safe at their hands; and the Duce had the gold value of the lira at 90 carved in stone, and pledged himself to die in its defense. It would be hard to find any divergence between utterances of Hoover and Lenin, Churchill and Mussolini, on this point. Indeed, the essentiality of the gold standard to the functioning of the international economic system of the time was the one and only tenet common to men of all nations and all classes, religious denominations, and social philosophies. It was the invisible reality to which the will to live could cling, when mankind braced itself to the task of restoring its crumbling existence.

    Polanyi, Karl, The Great Transformation: The Political and Economic Origins of Our Time (pp. 26-27). Beacon Press. Kindle Edition.[/quote]

    This does not mean a gold standard would solve today’s economic problems. Polanyi goes on to say that the gold standard contributed to two horrific wars. Economist Fred Block summarizes Polanyi’s thesis of the consequences of the gold standard.

    [quote]Polanyi argues that the utopianism of the market liberals led them to invent the gold standard as a mechanism that would bring a borderless world of growing prosperity. Instead, the relentless shocks of the gold standard forced nations to consolidate themselves around heightened national and then imperial boundaries. The gold standard continued to exert disciplinary pressure on nations, but its functioning was effectively undermined by the rise of various forms of protectionism, from tariff barriers to empires. And yet even when this entire contradictory system came crashing down with the First World War, the gold standard was so taken for granted that statesmen mobilized to restore it. The whole drama was tragically played out again in the 1920s and 1930s, as nations were forced to choose between protecting the exchange rate and protecting their citizens. It was out of this stalemate that fascism emerged. In Polanyi’s view the fascist impulse—to protect society from the market by sacrificing human freedom—was universal, but local contingencies determined where fascist regimes were successful in taking power.

    Polanyi, Karl, The Great Transformation: The Political and Economic Origins of Our Time . Beacon Press. Kindle Loc: 539.[/quote]

    1. Detroit Dan

      Excellent stuff, Keynesian! I particularly liked the Polyani quote on the universal acceptance of the gold standard back in the 19th century…

  32. Bob Roddis

    1. As someone who has followed the Austrian School for 40 years, I have never yet come across single anti-Austrian* who had the slightest familiarity with basic Austrian concepts, much less an ability to apply them to real world situations as one might expect from a critic of the analysis.

    http://mises.org/media/2773

    2. I have no idea what Mr. Pilkington has hiding in his head, but after listening to his podcast interview twice, there is no evidence that he has the slightest familiarity with basic Austrian concepts, especially the core concept of economic calculation and the “problem of knowledge”.

    http://fromalpha2omega.podomatic.com/

    3. It is very important to determine if people who claim to be libertarians and Austrians really are. Many conservatives claim to be for “small government”, then vote to abolish the Bill of Rights except for the 2nd Amendment. It makes sense to determine in advance if the person claiming to be a libertarian really wants Cheney, Dubya and Obama tried and convicted for war crimes and torture and won’t go all Neo-Con at the drop of a hat.

    Since Mr. Pilkington himself does not seem to comprehend the essence of the libertarian prohibition on fraud and the initiation of force or the Austrian concept of economic calculation (and this is a general problem), you might begin to appreciate our efforts at seeking out those rare people who understand these concepts and believe in them.

    *except for maybe 2 or 3 former quasi-libertarians, but certainly no one on the left

    1. Keynesian

      Roddis wrote…
      [quote] As someone who has followed the Austrian School for 40 years, I have never yet come across single anti-Austrian* who had the slightest familiarity with basic Austrian concepts, much less an ability to apply them to real world situations as one might expect from a critic of the analysis.[/quote]

      It turns out the both von Hayek and Milton Friedman didn’t understand understand Austrian concepts either.
      Hayek attempted to write his own book in response to Keynes’ “The General Theory” entitled, “The Theory of Capital” published in 1941. However, Hayek wrote about his own book, “it very gradually dawned on me”32 that “the thing’s become so damned complicated it’s almost impossible to follow it.”33 (Ibid., p. 183). Milton Friedman agreed and wrote, “I think his capital theory book is unreadable.” (Nicholas Wapshott, Keynes Hayek: The Clash that Defined Modern Economics, p. 29.)

  33. Bob Roddis

    And before you go running off at the mouth on topics you don’t understand, try listening to the great Scott Horton interview Will Grigg.

    http://scotthorton.org/2013/02/06/2513-will-grigg/

    Will Grigg, blogger and author of Liberty in Eclipse, discusses the life and death of ex-Navy SEAL sniper Chris Kyle; doubts about the bravery and heroism of soldiers in a war of occupation; Ron Paul’s controversial tweet (he who lives by the sword dies by the sword) on Kyle’s death; why many conservative Christians revere authoritarian government violence instead of the teachings of Christ; how WWII ushered in a new era of state-worship for Americans; and how guilt contributes to PTSD.

  34. Septeus7

    Hi, Bob Roddis, it’s nice to see that you’ve finally decided to visit Naked Capitalism where libertarianism comes to die.

    You’ll meet real anarchist who’ll rip your Neo-confederate Ron Paul loving butt a new one.

    Quote: “Since Mr. Pilkington himself does not seem to comprehend the essence of the libertarian prohibition on fraud and the initiation of force…”

    Really? Here’s a quote from the the Austrian economist Hans-Hermann Hoppe: “A member of the human race who is completely incapable of understanding the higher productivity of labor performed under a division of labor based on private property is not properly speaking a person… but falls instead into the same moral category as an animal – of either the harmless sort (to be domesticated and employed as a producer or consumer good, or to be enjoyed as a “free good”) or the wild and dangerous one (to be fought as a pest).”

    Isn’t the implication that we sub-person anti-propertarian as being “pests” ought to fought i.e. the use forced is to be initiated against folk like me and Hugh who believe that the absolute property rights doctrine is imperialist.

    Do you believe that you can fight “without” aggression?

    So Bob are you for aggression against us “pests”?

    1. Bob Roddis

      I’m not a big fan of Mr. Hoppe. I would also note that I see no problem with misanthropes adopting the non-aggression principle. I also fail to see how Mr. Hoppe’s apparent misanthropy is relevant to Mr. Pilkington’s lack of knowledge or understanding of the non-aggression principle or the Austrian School.

      1. Skippy

        Bob the *non aggression principle*… once unpacked quite clearly reads…. *keeping labor bovine*.

        SKippy… FYI Austrian economics is probably the most aggressive social compact ever devised in history… the business cycle theory alone denotes death… not only to humans, but, the planet its self.

        PS. Austrian economics = Biblical economics… 5000 years of fail… yet the breathers still cling to armchair thunkit.

        1. Bob Roddis

          I suppose you think that you hurt my feelings by implying that your side spouts nothing but unintelligible and hysterical gibberish such as your little tantrum.

          And I bet you all listened to the Scott Horton/Will Grigg interview by now, right?

          1. Skippy

            No… I’m intellectually insulted by the gibberish the Austrian school of economics peddles, to uninformed minds, like a pedophile handing out sticky candy to underage kids.

            And to be quite honest… there is nothing this ideology has to offer, rejigger, word salad reorganize via various priests, when the fundamental foundational axioms are completely entrenched in the ignorance of the past.

            Skippy… Personally, if I was to have only two choices, Marxism or libertarian theology… well comrade… I pick all of us over a few BSD billionaires – running the show – for – their – desires.

            http://www.nakedcapitalism.com/2011/12/journey-into-a-libertarian-future-part-v-%E2%80%93-dark-realities.html

            http://www.nakedcapitalism.com/2011/12/journey-into-a-libertarian-future-part-vi-%E2%80%93-certainty.html

            http://www.nakedcapitalism.com/2013/01/the-origins-of-neoliberalism-part-iv-a-map-of-hayeks-delusion.html#comment-1058112

Comments are closed.