As James Grant, publisher of The Interest Rate Observer points out, we are on a “Ph D Standard” – and the Ph Ds are taking the world down with their theories. I suspect that if these Ph Ds were injected with a “truth serum”, they would confess that they don’t actually believe their theories, but that for personal reasons, they prefer not to question them publicly.
To conclude, I present “Prologue for Our Times” which I have written for a Spanish translation of Andrew Dickson White’s masterpiece, “Fiat Money Inflation in France”.
* * * * *Whoever wishes to understand what is taking place in the world today would do well to read this small but highly important book, which we have translated into Spanish: “Fiat Money Inflation in France”, by Andrew Dickson White, a former President of Cornell University, at one time in the diplomatic service of the United States, a student of economic and social affairs and author of numerous books. This book was first published in 1896, and reprinted in 1933.
This book places before us a microcosm of our present world.
What happened in Revolutionary France in the years 1790 to 1797 is precisely what is taking place in the whole world in 2011. The world is living in a process of monetary degeneration which began, explicitly, with the outbreak of World War I in 1914, though its origin lay in a series of previous financial malpractices dating back years before World War I; the disastrous conclusion of that process is approaching.
The fiat money inflation in France, whose birth and death took place in the short span of seven years, originated in a typically “revolutionary” idea held by the French lawmakers of the period: that human intelligence can dispense with the permanent and immutable laws that govern human action and can substitute them with schemes devised by the intellect, in order to achieve prosperity in the short term without the bothersome need to exercise the “bourgeois” virtues of savings, honest work, prudence and patience.
The lawmakers, impatient to resolve the problem of economic malaise which the Revolution itself had caused, decided to take a short-cut to stimulate the economy. Faced with popular unrest which cried out that “There is no money!” they proposed to remedy the supposed lack of money (a mere symptom) by creating money out of nothing.
Deaf to the warnings of men with financial experience, they confirmed to one another the supposed validity of their fallacious reasoning; convincing themselves of the viability of their monetary scheme, the lawmakers carried forward a project based on fiat money – money irredeemable in gold or silver.
In spite of the negative results which this policy soon produced – a steadily falling purchasing power of this fiat money, reflected in the rising prices of all goods - they insisted on pressing forward on this mistaken road and attributed the bad results to everything but their policy of inflation with fictitious money. That invariable law of finance with regard to fiat money, the law of the acceleration in the issue of fiat money and its concomitant accelerated depreciation, took possession of the French legislature.
Seven years later, France was totally ruined. Manufacturing had closed down. Unemployment was pervasive and consequently the stagnating salaries for labor brought enormous hardship for the poor, amid rising prices of food, clothing and fuel. Unemployment was only relieved by the military drafts which sent millions of Frenchmen to their deaths in the foreign wars. Morals suffered a precipitous decline. All business activity became a game of chance. Speculation enriched unscrupulous men and at the same time swept the poorer classes of the population into misery. Famine forced the government to dole out bread to the population.
What is perhaps most noteworthy in this fateful French experiment is that not one of those responsible for the disaster ever acknowledged having been mistaken. What took place in France, under the régime of fiat money, is precisely what is happening in our world today. The same phenomena observed in France in the 18th century can be seen all over the world, today.
Those responsible for the huge world crisis of the present time insist on continuing down the path that led to this disaster. Not one of those responsible is willing to recognize that they have all been mistaken. They insist, as did the French revolutionaries, on applying greater doses of fiat money: if enough money is created, they say, the problems of the crisis will be resolved.
The destruction of France took only seven years. The same policy that destroyed France now operates around the world. Therefore, the moral and economic destruction has taken longer, since the whole world is the theatre of this tragedy, and not only one country.
The fatal outcome of this experiment with fiat money will arrive, sooner or later; it will have worldwide effects and it will take a century, at least, for the world to regain economic health.
And when this tragic conclusion shall have arrived, the readers of this little book may be quite sure that not one of those responsible for the catastrophe will ever admit that he had been mistaken.