Gold - did you know?

DIVINE VIRTUES



From the writings of King Solomon:

The rich rule over the poor, and the borrower is servant to the lender.

– Proverbs 22:7


Then I said, "Wisdom is better than strength. Nevertheless, the poor man’s wisdom is despised, and his words are not heard.”

– Ecclesiastes 9:16


SAVINGS AND THRIFT

There was once a time of savings and thrift when the moral ethic went something like this: people would Work, Save, and then Spend.

However, things changed somehow to: Borrow, Spend, and Consume.

The word „Thrift‟ means wisdom and caution in the management of money. The word „Savings‟ means accumulating provision for the future.


WHAT HAPPENED

Believe it or not there was a time when people in the developed world actually spent less than they earned and detested credit or borrowing. It was a time when people‟s prosperity in fact followed after what they earned. The old adage was “A fair day‟s pay for a fair day‟s work” or “The laborer is worthy of his wages.” It was a time when people wanted to leave something for their next of kin. It was also a time when these sorts of things were truly important to people. How did easy credit become so predominant in western culture? What happened - could it be linked to the inflation of currency?

gold and silvers role


MODERN ERA

At the beginning of the 20th Century the modern developing world functioned on an International Classic Gold Standard. Gold served as a storehouse of wealth and backing for national currencies. Gold‟s function with this standard kept banks and governments honest by limiting the creation of currency based upon a nation‟s Gold reserves. In effect, by limiting currency creation and not being able to put more Gold into the reserves, which could only be produced by labor, a nation was insured against excessive inflation and easy credit developing within its economy.


THINGS CHANGED

In considering the last few hundred years, the last 100 years ushered in an incredible amount of change to say the least. The first half of the 20th Century was no exception. Just to name a few of the major events, World War One began in 1914, then the collapse of Wall Street ushered in what history calls the Great Depression, which was then followed by World War Two starting in 1938. What a time of crisis. As usual, crisis precedes great change, but at what cost?


TWO STEPS BACK

During World War One nations emptied their Gold vaults and printed currency to finance their war operations. After these events, there was a culmination of different meetings between nations on multiple levels regarding international fiscal policy.


ONE STEP FORWARD

The Genoa Conference was held in Genoa, Italy, in 1922 from April 10 to May 19. At this conference, the representatives of 34 countries convened to speak about monetary economics in the wake of World War One. The purpose was to formulate strategies to rebuild Central and Eastern Europe after the war. Among the plans formulated at the conference was the proposal that central banks make a partial return to the Gold Standard. Central banks wanted a return to a Gold-based economy for easing international trade and facilitating economic stability. However, they wanted a form of Gold Standard that "conserved" Gold stocks meaning that the Gold remained in their vaults, and day-to-day transactions were conducted with the representative paper notes. These paper notes were British Pounds and US Dollars known as hard currency. Hence, the world economic system went from full Gold backing to no Gold backing at all. Then after the Genoa meetings, it went back to a partial Gold backing alongside paper currencies.


TWO STEPS BACK AGAIN

After World War One and the Genoa meeting came the Great Depression followed by World War Two. With World War Two the nations again emptied their Gold vaults and printed currency to finance their war operations.


BRETTON WOODS

In 1944 at the Mount Washington hotel in Bretton Woods, New Hampshire, western nations again gathered to discuss monetary fiscal policy. After the devastation of Europe and especially Great Britain, the British Pound was removed from being the world‟s reserve currency. This then reduced the nation‟s reserves from a tri-backing of Gold, US Dollars and Pounds to a dual backing of Gold and US Dollars.


POWER SHIFT

According to one commentator, one of the reasons for this change was that the US was clearly the most powerful country at the table and so ultimately able to impose its will on the others including a somewhat dismayed, beaten-down Britain. At the time, one senior official at the Bank of England described the deal reached at Bretton Woods as “The greatest blow to Britain next to the war,” largely because it underlined the way in which financial power had moved from the UK to the US.


SHORT-LIVED

A famous economist said, "In the long run, we are all dead." While he may be dead now, his philosophy and economics are alive and well having ruled much of the last century from the grave. It would have been more accurate for him to have said, "In the long run, we are all broke."


KEYNESIAN REVOLUTION

Without question Lord John Maynard Keynes was the most influential economist of the 20th Century. His work, now dubbed the Keynesian Revolution, swept through the academic, economic and political establishments and culminated in his The General Theory of Employment, Interest and Money in 1936. It has been said that Keynes was to economics what Darwin was to science. His work and philosophy completely dominated the Bretton Woods conference in 1944 that brought about the establishment of the International Monetary Fund, the World Bank. Bretton Woods heralded the beginning of the unrivalled supremacy of the United States in the global economy with its Dollar being instituted as the reserve currency of the world.


LIVE FOR THE DAY

According to Keynes‟ biographer, Robert Skidelsky, “He was completely committed to rational justification of a re-arrangement of values.” Economist Joseph Schumpeter observed the connection between Keynes‟ childless and essentially short-lived philosophy of life when he said, “For a person committed to homosexuality, who is without descendants, there is little for them to focus the future on.”

Keynes is well remembered for his statement, “In the long run, we are all dead.” Biographer Skidelsky said Keynes had a life-long bias against long-term thinking. In an essay sarcastically entitled Possibilities For Our Grandchildren, he said, “An individual‟s concern for the future is a disgusting morbidity, and semi-criminal and semi-pathological.” Henry Hazlitt summarized Keynes General Theory as a “trans-valuation of all values. The greatest virtue is consumption, extravagance and improvidence.”


1901 to 1944

In basic terms, nations‟ reserves were watered down from a full 100% Gold backing to now approximately 50% Gold backing with the other 50% being US Dollars. This watering down made inflation of the US Dollar easier, because the reserve (Gold) that notes were issued against was effectively halved therefore setting in motion the capability to double the currency issuance. It basically gave the United States an open checkbook to create money therefore being able to buy assets from all over the world for many decades to come.


1944 to 1971

Keynesian theory economics of borrow, spend and consume has without a doubt lived on with the last remnant of Gold finally being removed as backing for the world‟s reserve currency in 1971 by the Nixon administration of the United States. The open checkbook from this point on literally entered a period of no limits. A situation many around the globe are becoming more and more aware of is that daily the US Dollar is systematically devaluing against true value, „Gold.‟


KEYNESIAN INFECTION

Without question John Maynard Keynes‟ shallow philosophy economics was greeted with acceptance in more than just the academic establishments. Embraced by social designers and politicians, Keynesian theory of expandable money supply and spending and consumption has deeply permeated every aspect of our society in the 64 years since his death.

At a time when most people still called Gold “The Precious Metal,” it was John Maynard Keynes who coined the phrase describing Gold as “The Barbarous Relic.” He was a man who lived for the day and had no recompense for the future - how could he? His lifestyle and philosophy towards future generations simply prohibited such thinking, nor would such an individual be inclined to care.


TODAY

The world today has massive inflation, out of control debt, and wildly fluctuating wealth values along with a series of perplexing issues. Living for the day might be justifiable in certain areas, but not all. Getting away from accepting reward for an equal portion of a day‟s work, to savings and then spending is having dire consequences. The world is now without a doubt showing that such fiscal irresponsibility over many decades is catching those who are unknowledgeable of the higher virtues off guard.


DIVINE VIRTUE

History teaches us secularly and theologically that to know virtues such as wisdom and caution in the management of money and accumulating provision for the future is of great value.

The greatest advice is Savings, Thrift, and Financial Prudence.


How much better to get wisdom than Gold! And to get understanding is to be chosen rather than Silver.

– Proverbs 16:16


Until next time,
Simon Heaps






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