by Ralph Benko, Contributing Author: Well, first of all, to put things into perspective, the whole world’s GDP last year was, per the World Bank, around $88 trillion. So $100 trillion, if US dollars, would be more than the whole world’s annual income.
The 2008 Zimbabwean dollar? Not so much.
I have — on my refrigerator — a Zimbabwean $100 trillion note. It was worth, in its day, about 40 cents US.
Per
The Great American Coin Company:
Throughout the late 90’s and the 2000’s, inflation began to spin out of control in Zimbabwe, causing the country to issue larger and larger bank notes, culminating the trillion dollar notes minted in 2008. According to the Cato Journal, inflation reached an estimated peak of 6.5 sextillion percent in mid-November 2008, representing a complete and utter collapse of the Zimbabwe Dollar.That said, the headline here toys with poetic license. While Zimbabwe’s $100T bills can be found on
Etsy in new condition for under $2 uncirculated versions can be found on
numismatic sites for as much as $82.75. Either way, that’s quite the discount from a year’s world GDP. What happened? (And could it happen here?)
John Maynard Keynes, a conservative bête noire, wrote in the book that made him the world’s first celebrity economist,
The Economic Consequences of the Peace:
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.“Debauch” is another word for “debase.” Both carry the connotation of “corrupt.” Keynes, of course, was anticipating the Weimar hyperinflation taht presaged the rise of the Nazis.
Let us emphasize: Keynes concluded that “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
He echoes what Copernicus said 400 years previously in his essay
On The Minting of Money. (Note, I served as lead co-editor for
Laissez Faire Books of the definitive modern translation.)
ALTHOUGH THERE ARE COUNTLESS MALADIES that are forever causing the decline of kingdoms, princedoms, and republics, the following four (in my judgment) are the most serious: civil discord, a high death rate, sterility of the soil, and the debasement of coinage. The first three are so obvious that everybody recognizes the damage they cause; but the fourth one, which has to do with money, is noticed by only a few very thoughtful people, since it does not operate all at once and at a single blow, but gradually overthrows governments, and in a hidden, insidious way.Its translator Prof. Gerald Malsbary observed:
NICOLAS COPERNICUS … treatise On the Minting of Money (Monetae Cudendae Ratio), was first printed in 1826, three hundred years after its composition in 1525–1526. At the time, the semi-autonomous ecclesiastical region between Poland and Prussia where he lived (Varmia) was undergoing a political and economic metamorphosis, and his judgment and expertise (a fruit of the best late Scholastic and Humanist learning) was summoned by the Prussian and Polish governments to help stabilize an inflated currency. Was his insight into monetary matters as revolutionary as his astronomy?Today, academic economists are as dogmatically hostile to the gold standards as their predecessors were attached to it. This matters.
Keynes (again) in his
General Theory of Unemployment, Interest, and Money wrote that as a policy matter:
[T]he ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. … But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.Will the dollar increase or decrease in value along per the dictates of the current occupant of the White House? Hard to predict the whims of the current or a future president. Imagine what would happen to the economy if a president could pressure the National Institute of Standards and Technology to manipulate the definition of the inch or the ounce the way the president pressures the chair of the Fed.
Bridges and skyscrapers would collapse as flamboyantly as does our economy and our financial markets. Not good.
The stability of the buying power of gold, and gold-defined and convertible currencies, by contrast has proven to be excellent. This case was famously made by the late Prof. Roy Jastram in The Golden Constant. As Jill Leyland, Economics Consultant, wrote of this book in issue 56 of The London Bullion Market Association’s publication
The Alchemist, in October 2009:
Why does gold have this power of broadly holding its purchasing power over the centuries and what lessons can, or cannot, be drawn for present times?
…
Gold has a strong and deep emotional pull on human sentiment. But deep emotion does not always lend itself to rigorous thought. The richness, depth and complexity of gold’s long history can make a long and difficult study but historical perspective can be a major influence in individuals’ attitudes towards the yellow metal. So the combination of intellectual rigour in Jastram’s approach, his historical analysis and the way he wrote in both a scholarly and entertaining fashion (this is not a dry academic tome) is what makes his work so important for the gold industry.Why does gold have this power of broadly holding its purchasing power over the centuries and what lessons can, or cannot, be drawn for present times?
…
Gold has a strong and deep emotional pull on human sentiment. But deep emotion does not always lend itself to rigorous thought. The richness, depth and complexity of gold’s long history can make a long and difficult study but historical perspective can be a major influence in individuals’ attitudes towards the yellow metal. So the combination of intellectual rigour in Jastram’s approach, his historical analysis and the way he wrote in both a scholarly and entertaining fashion (this is not a dry academic tome) is what makes his work so important for the gold industry.
Fed Chair Paul Volcker, tightening money, vanquished inflation almost 40 years ago. It hasn’t recurred. Will the ambitious (some would say promiscuous) “QE Infinity” of the current Fed, applied, under White House pressure cause inflation to return?
As quantum physicist Niels Bohr once quoted an old Danish proverb, “Prediction is difficult, especially about the future.” A number of eminent economists and economic policy observers
predicted incipient inflation from the Fed’s original quantitative easing: “The planned asset purchases risk currency debasement and inflation….”
Such debasement and inflation did not, of course, ensue. Perhaps the Fed’s new QE is appropriately fighting incipient deflation. The spot price of gold does not suggest inflation on the horizon. That said, whether or not the monetary authorities are flirting with inflation — or even, like Zimbabwe (and more recently Venezuela) hyperinflation the current ad hoc monetary system, per the Bank of England’s 2011
Financial Stability Paper №13, has been accompanied by more and more virulent monetary and financial crises than the gold standard experienced over centuries.
Time to make the dollar as good as gold.
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Ralph Benko is Chairman, The Capitalist League and contributor to the ARRA News Service.
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