Bad Day for the WSJHoward S. Katz A recurrent theme in my articles has been that our current economic system is intended to steal your wealth and that a vast amount of information being taught as economics is intended to justify this stealing and to trick you into falling for its program. As with any misinformation, one must make a distinction between a deliberate lie and an honest mistake. As I have studied this, it is clear to me that, at the very top, it is deliberate. For example, John Maynard Keynes was a deliberate fraud. He did not believe Keynesian economics. It was a useful tool toward his goal of attracting the bankers to support him and his followers. Keynes was a confidence man; our current economic system is a confidence game, and the intent is to steal the wealth of all the marks. As an astute speculator, you cannot afford to let this happen to you. You must see reality as it is. I have been arguing that an updated version of this lie was unleashed on the public in September 2008. It caused the sell-off in commodities of the 2nd half of 2008 and the smaller sell-off of the first half of 2010. This is the idea which we must confront directly, and Wednesday’s Wall Street Journal (once more) brought it forcefully to our attention in a front page article: Speaking of a discussion of Federal Reserve policy Jon Hilsenrath says:
This concept, that a massive, broad drop in prices across the economy can come out of nowhere, that it cannot be predicted in advance, and that it is a bad thing for most of the people in the country, is very widespread. You will read it in almost every newspaper and news magazine in the country (and the world). It is taken for granted, and today it is not debated. And yet it is embarrassingly, incredibly, humiliatingly wrong. This is an important concept for you to understand. You seek knowledge of economics. You start by turning to the institutions generally respected in the field. And what you are treated to is a confused mish-mash of gobble-de-gook more to be expected of a medieval witch hunter than a modern, scientific person. For example, let us consider “broad drop[s] in prices across the [American] economy.” Over the past two centuries, there have been 3 of them. And there is a 4th case which might be considered such a drop (depending on exactly where in America one lived). None of these cases was difficult to predict. They were all caused by a reduction in the money supply. In 3 of the 4 cases the broad drop in prices was preceded by a broad rise in prices, itself caused by a suspension of the gold/silver standard and the massive printing of paper money. These were the rise in prices associated with WWI, the rise associated with the Civil War and the rise associated with the War of 1812. During the War of 1812 New England was opposed to the war, and the New England banks refused to create money and lend to the Government, but banks in the central and southern states did create money. Consequently, prices rose in the central and southern states but not in New England. In 1815, Daniel Webster, the Senator from New Hampshire at that time, reported that the money circulating in Washington, D.C. was worth 75¢ (in terms of a one dollar silver coin) while the money circulating in Boston, MA was worth $1.00. That is, prices in Washington, D.C. had risen by 33% from 1811. In other parts of the country, the price level varied directly with the degree to which the banks supported the war and printed money to lend to the Government. The case of the War of 1812 makes it clear that the rise in prices due to the printing of money was in fact a going down of money, not (as was widely debated at the time) a going up of goods. Hence it was called a depreciation of the currency, not an inflation of goods. This terminology was changed after the Civil War so that the bankers could convince people that goods were going up for reasons that had nothing to do with the quantity of money. This is why I never speak of an inflation (which means a going up of goods) except in quotation marks. After the war ended, there was a “broad drop in prices” in the central and southern states but not in New England. This is the 4th case above. The other 3 broad drops were as follows:
Does this mean that there have been no depressions in American economic history? No, there have been at least 3. Remember, a depression is a period when the large majority of the people in a society become poorer. These are the Civil War, WWI and WWII. And there was probably a minor depression in the central and southern states during the War of 1812. (It is almost certain that there was another depression during the Revolutionary War; however, here I am only considering the period starting with the adoption of the Constitution.) We have just seen that the vast majority of the people in America were wealthier during the early 1930s. But fast forward a decade and look at events. In the early 1940s, no one could buy either a new house or a new car. They were not being made. Gasoline was rationed to 3 gallons a week. Butter, eggs and meat were also rationed. Would anyone in his right mind call this prosperity? Actually the establishment economists called this a boom, but it is not possible that they were in their right minds. If you simply realize what a war is, a war is destruction. For example, in WWII, a Nazi U-boat torpedoes an American freighter. Then the U.S. Air Force levels a German city. Back and forth. The result is massive destruction of wealth on both sides. Hawks will claim that the victor can steal enough wealth from the loser to make the war pay off for him, but a close study of history reveals that this is a romantic fantasy. For example, the British Empire, the greatest in world history, was created because Britain recognized that people had rights, and other countries wanted to be under Britain because they wanted rights too. So they put up only token resistance, and this was their way of joining the British. (When Britain gave up her rights and adopted the welfare state between WWI and WWII, she soon lost her empire.) The same thing happened in WWI and the Civil War. WWI is a good example because the central powers (Germany and Austria) had more rights than the eastern ally (Russia) but less rights than the western allies (Britain, France and the U.S.). As a result, they won the eastern front and lost the western front. But what about the central establishment argument, that the 1930s must have been a depression because of the high unemployment? The answer is that the high unemployment was caused by the sharp decline in prices, which caused wages to decline more slowly than prices, thus leading to a rise in real wages. Thus all of the employed working people (the vast majority) were better off. Furthermore, from 1930-33, there was a 30% rise in the value of the money, and this led to (approximately) a 30% rise in everyone’s savings. Every working man saw a 30% rise in real savings over this period. On balance, the working class was much better off, and Wall Street and the banks were much worse off. Of course, it was easy to see this from the big drop in the stock market and corporate profits. And what is the bottom line for the astute speculator from all this economics and history? Mr. Hilsenrath continues:
In words of one syllable, the Wall Street Journal wants “inflation.” That is why it is urging the Fed to print money. Indeed, they did precisely this to introduce the 21st century. At that time, their Op-Ed page was screaming “deflation, deflation, deflation.” What was the result? The Fed created a large increase in the money supply, and this led to one of the greatest commodity price increases in history (as well as the early century housing bubble). Indeed, prices have not declined in America since 1955. And right in the middle of all this screaming of “deflation” the business executives of the Journal raised its news stand price from $1.50 to $2.00. Of course, if there really was going to be a “broad drop in prices” this increase would have priced the Journal out of the market and led to heavy losses for the paper. THE BUSINESS EXECUTIVES OF THE JOURNAL DID NOT BELIEVE WHAT THE PAPER WAS WRITING IN ITS PAGES. Then, dear reader, why should you believe it? Printing money does not create wealth. If it did, then why not legalize counterfeiting? Is there is single country in world history where this theory has worked? Not a chance. In your face, Jon Hilsenrath. In your face. ### Jul 19, 2010 Howard S. Katz holds a BA in mathematics from Harvard University. He became interested in Austrian economics and started a successful investment newsletter, The Speculator which focused on gold and gold stocks. He is a lifelong advocate of gold and gold stock investing. Later, he published The Gunslinger for investors interested in gold and gold stocks. In addition, Mr. Katz authored three books on gold, the gold standard and money in politics: "The Paper Aristocracy", "The Warmongers" and the soon to be published "Wolf in Sheep's Clothing". He was involved in the Objectivist movement in New York in the 1960s and was an early member of New York's Free Libertarian Party. Mr. Katz is a contributing author to The Ludwig von Mises Institute where his writings appear along with those of contemporaries Llewellyn H. Rockwell, Jr., Murry Rothbard and Robert Murphy, among others. He has been interviewed on numerous radio programs. He is currently Chief Investment Officer, editor and publisher of the gold and gold stock investment newsletter, The One-handed Economist. |