Modern warfare is highly destructive. A
couple of centuries ago, wars involved fighting between armies; civilians
were spared. Cannons were directed at the opposing army.
Today, war means general destruction;
civilians on the losing side can expect to be plundered, killed or raped.
Cities are targeted for mass destruction. We rode a bus through post-war
Germany in 1948, and recall that the city of Bremen was simply miles of
rubble piled up on either side of a road cleared for traffic.
WW II leveled some cities of Europe in
the countries which were part of the Axis, and killed millions of soldiers
After the war, both the winners and the
losers turned to re-building their countries. The devastated cities began to
heal; new, modern factories were built. People went back to doing what they
had been doing before the war. By 1970, a traveler could hardly tell there
had been such terrible destruction and loss of life just twenty-five years
Now let us consider fiat money and its
At Bretton Woods in 1944 Henry
Morgenthau and Harry Dexter White outmaneuvered John Maynard Keynes, the
British Delegate to the Monetary Conference, and the Conference ended by
accepting the American “diktat” for the post-war monetary
structure of the world: the dollar was to be as good as gold for purposes of
international payments, and the US promised to redeem for gold dollars held
by other national central banks at the rate of one ounce of gold for each $35
dollars tendered for redemption.
This was a structure doomed to failure
from the start, and men such as Jacques Rueff of
France understood this quite clearly.
The US promptly began to abuse its
“exorbitant privilege”, as France’s General de Gaulle
called it, and to send dollars abroad in payment of its trade deficits.
However, the promise of redemption of dollars for gold did act to restrain
somewhat the expansion of credit in the US. There was a general respect for the
dollar and its relative scarcity produced only mild inflations in the
countries that received dollars.
The post-war US ran a mild but constant
fever of credit expansion. In the 60’s, the credit expansion fever
surged to finance the Vietnam war and the loss of US gold in payment of
dollar-redemption accelerated to an unacceptable pace.
Came the fateful day, August 15, 1971,
and the US had to default on its promise to redeem dollars for gold –
it was going to be only a “temporary” suspension, Nixon assured
the American people. Alas, in politics nothing is more permanent than a
temporary measure. The dollar became the full-fledged fiat currency of the
Thus the world entered into the era of
Globalization; torrents of dollars inflated the reserves of the Central Banks
of the world; world trade boomed because trade deficits were now easily
“settled” with fiat dollars.
World trade had heretofore been an
exchange of goods for goods, with gold only moving to settle transitory
differences. That was now not the case: goods were no longer paid for with
goods; in international trade, imported goods were now paid for with exported
goods and with dollars, of which the supply was abundant.
Here we begin to see the effects of fiat
money as the world’s currency.
Cheap goods from the under-developed
countries began to flood the economies of the developed countries, with
insufficient compensating purchases of goods on the part of the
under-developed countries. Industries began to move out of the developed
countries and into the under-developed countries which enjoyed burgeoning
De-industrialization of the West set in
under globalization, which was constantly extolled as the new, modern and
progressive structure of the world’s economy. Old industrial buildings
were transformed into structures harboring cafés, restaurants and art
The de-industrialization was masked with
credit expansion facilitating consumption, not production, which was
un-economic under the globalization scheme. Stagnant or falling wage earnings
were supplemented with easy credit for the masses.
This all happened because the money the
world has been using since 1971 is fiat money, not real money. But still, at
this date, you hear very few voices recognizing this fundamental fact.
Modern war means destruction and death
for masses of people. When WW II was over, the destruction began to heal. The
cities were rebuilt, the survivors went back to what they had been doing when
the war broke out: they returned to earning their livings with work, doing
what they knew how to do. Normality returned, generally speaking.
But consider the effect of fiat money on
the whole world.
The whole productive structure of the
world has been overthrown. The factories that have vanished in the developed
nations cannot be rebuilt. Globalization makes them un-economic.
The apparent prosperity of the developed
nations of the world today has been sustained by credit expansion, not by
savings. The West has been living like an heir to a great fortune, wasting
away its inheritance. It is now bankrupt. The continuance of a whole way of
life is now in danger of collapse, because it is becoming impossible to
expand credit any further. The Chinese are in no better situation: their
supposed prosperity will crumble when the policy of expanding credit in the
West has to come to a halt and the markets which China has supplied fade
The Welfare State, funded with fiat
money, has produced millions upon millions of humans who have grown
accustomed to a good life based on credit and welfare.
After WW II, the people of Europe went
back to doing what they did before the war. Today, to what can the unemployed
of the West return? There is nothing to which they can return, because the
factories are gone. The people of the West have largely forgotten the
accumulated productive know-how that was built up over centuries.
City-dwellers and suburbanites cannot go back to farming, to raising
live-stock, or to the thousand trades and manufactures that used to exist.
And even if they could, they would not do so; the millions of unemployed in
the West are no longer used to working hard to keep body and soul together;
they no longer accept the proposition that life implies struggle.
Fiat money has destroyed
humanity’s normal way of life; a way of life in which men and women
could find their places and were thankful to have them. That old way of life
is gone; the old attitudes toward life and work have been erased.
This is destruction many times worse
than the worst destruction of any war. That is where we are today. This is
what fiat money has brought to the world. Fiat money is the child of the
arrogance of human intellect, which has sought to invalidate the laws of
human nature which have regarded the precious metals as money for thousands of
years, and sought to substitute an intellectual construct for the real thing.
Now we are going
to pay for that
What now? Nobody knows. Unquestionably,
we are headed straight into fearful problems never seen before. At least,
owning physical gold and silver may be help some of us survive.