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Will the history of fiat money repeat itself?
10:26p ET Thursday, December 28, 2006
Dear Friend of GATA and Gold:
There doesn't seem to be much news on the metals front tonight but some fascinating history can be a lot more useful than news, and there's a wonderful piece of it at GoldSeek -- an essay by Shannara Johnson of Doug Casey's International Speculator about the fiat money disaster in revolutionary France. Johnson's essay draws on the classic book "Fiat Money Inflation in France" by Andrew Dickson White and it suggests many parallels to today's international financial situation.
Johnson's essay is titled "Fiat Money: History Repeats Itself," and you can find it here:
Maybe the big difference with today is that the Age of Enlightenment did not invent derivatives to soak up inflation with. Can derivatives soak it all up forever, or will our own age eventually discover that it too wasn't so enlightened after all?
Derivatives have preserved the illusion of infinite money and thus infinite power for governments and the financial elites, diverting inflationary, speculative, and investment demand away from real things and into paper. But eventually real things run out, as seems to be happening now in many respects.
In theory fiat money CAN work, and indeed it HAS worked for 35 or 70 years or so, depending on exactly how you want to do the chronology. But fiat money requires something of human nature -- the virtue of restraint.
Not everyone involved with GATA is an ideologue or an advocate of returning to a gold standard. If we had been around in the United States in 1896 some of us would have voted for Bryan and bimetallism. Not all of us like the idea that economic growth necessarily should be a function of the amount of metal that can be dug out of the ground.
But it is getting harder to deny that such a system comes closer to reality than the current system of determining the money supply through the political influence of special interests -- a system in which there now is really NO control over the money supply and one imperial power plunders the world.
That the central banks have been so desperate to stamp out free markets in the precious metals and now, it seems, to stamp out free markets in all basic commodities and even bonds and equities as well suggests that free markets may be the best antidote to power madness, the best guarantors of civilization and prosperity. (And the purpose of anti-trust law is to preserve free markets, markets in which no one gets too big.)
But will free markets break out before commodities run out and working people are burned out?
Judging from the little restraint in government and financial circles lately, one might have to guess to the contrary and thus to risk sounding like an apocalyptic reactionary.
In addition to the brotherhood of man and fair dealing everywhere, we would like some wonderful capital gains on our metal and our mining shares, and would like NOT to have to spend those gains on guns, ammunition, freeze-dried food, and ventilation equipment. A way must be found to bring down the money power without bringing everything else down with it. That would really be a happy new year -- what GATA wishes its wonderful friends around the world.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
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