The True Gold Standard (Second Edition)
"... a war of silver against all the States of Europe. He has already conquered Spain, Germany, Italy, and England, which he has thrown into very great poverty and destitution, and has grown rich from their spoils...."
-- Jean-Baptiste Colbert to Louis XIV
Jean-Baptiste Colbert, the finance minister to Louis XIV, the "Sun King" was a monstrous financial dictator who contributed to, and arguably brought, the ruin of France by his oppressive policies. Many of his foolish policies, sadly enough, still find advocates among modern politicians.
Colbert, from the portrait displayed at
Musée de la Compagnie des Indes in Port-Louis
His policies are aptly described in Wikipedia as:
The state, through Colbert's dirigiste policies, fostered manufacturing enterprises in a wide variety of fields. The authorities established new industries, protected inventors, invited in workmen from foreign countries, and prohibited French workmen from emigrating. To maintain the character of French goods in foreign markets, as well as to afford a guarantee to the home consumer, Colbert had the quality and measure of each article fixed by law, punishing breaches of the regulations by public exposure of the delinquent and by destruction of the goods concerned, and, on the third offense, by the pillory. But whatever advantage resulted from this rule, the disadvantages it entailed more than outweighed them. Colbert prohibited the production of qualities which would have suited many purposes of consumption, and the odious supervision which became necessary involved great waste of time and a stereotyped regularity which resisted all improvements. Other parts of Colbert's schemes have met with less equivocal condemnation. By his firm maintenance of the corporation system, each industry remained in the hands of certain privileged bourgeois; in this way, too, the system greatly discouraged improvement; while the lower classes found opportunities of advancement closed. With regard to international commerce Colbert suffered equally from lack of foresight: the tariffs he devised protected commerce to an extreme, and under his tutelage enforcement of trade and quality restrictions was draconian. He did, however, wisely consult the interests of internal commerce. ... The narrowness and rigidity of the government regulations significantly contributed to this collapse, as well as the failure of the colonies, upon which Colbert had bestowed a great deal of energy and political capital.
In Linguistic Capital, the thoughtful student Graham Jones presents a fascinating extract from great French postmodernist philosopher Jean-Francois Lyotard, entitled "Lyotard on the Merchantilism of the Gold Standard."
[Lyotard initially quotes the following letter from Colbert to Louis XIV, which he takes as representative of the ‘merchantilism’ of the gold standard (Libidinal Economy, pp. 188-9). Paragraph breaks have been added.]
…The good state of Your Majesty’s finances and the augmentation of his revenues consists in increasing by all available means the amount of silver converted into money which is continually circulating in the realm, and in keeping in the provinces the exact proportion of this money that they require…augmenting the silver in public commerce by drawing it from the countries from whence it comes, retaining it within the realm by preventing it from leaving, and by giving men the means to draw a profit from it.
Since the greatness and strength of the State and the Magnificence of the King are composed from these three points, the expenditures for which great revenues provide the opportunity render State and King all the greater, because they deplete the revenues of all neighbouring States at the same time. In view of the fact of having just one constant quantity of silver circulating in all Europe, augmented from time to time by that which comes from the West Indies, it is certain and demonstrable that if there are only 150 million pounds of silver in public circulation, one can only succeed in augmenting it by 20, 30, and 50 millions at the same time as one removes the same quantity from neighbouring States….
I entreat Your Majesty to permit me to tell him that since he took on the administration of finances, he has undertaken a war of silver against all the States of Europe. He has already conquered Spain, Germany, Italy, and England, which he has thrown into very great poverty and destitution, and has grown rich from their spoils, which have given him the means to perform such great things as he has done in the past and still does every day. Only Holland still remains fighting with great forces: her northern trade…and that in the East Indies…that in the Levant…that in the West Indies…her factories, her trade in Cadiz, Guinea and an infinity of others in which all her strength consists and resides. Your Majesty has formed companies which, like armies, attack them on all fronts….
The factories, the canal for the transnavigation of seas and so many other new developments as Your Majesty has created, are so many reserve corps which Your Majesty created and drew out of nothing in order better to perform their duty in this war…. The sensible fruit of the success of all these things would be that by drawing, by means of trade, a very great quantity of silver into his realm, not only would he soon manage to reestablish those proportions which must exist between the silver in currency in trade, and the taxations which are paid by the people, but he could even augment each of them, in such a way that his revenues would increase and he would put his peoples in a powerful position to assist him more considerably in the event of war or some other necessity….
[Lyotard later comments (pp. 191-2):]
“[T]he quantity of metallic money which is ‘circulating in all Europe’ being constant, and this gold being wealth itself, in order that the king grow richer he must seize the maximum of this gold. This is to condemn the partner to die, in the long or short term. It is to count the time of trade not up to infinity, but by limiting it to the moment when all the gold in Europe is in Versailles. And it is to identify gold with the traditional form of wealth, which the earth. To draw gold into the frontiers of the realm is the same thing as to extend the frontiers up to the sources of gold. The earth being round, the conquest must in principle close up on itself, the armies progressing eastward establishing the empire of the world. Locking gold up within the limits of the realm is for Colbert the same operation relativized: it is the earth-gold or the golden earth which must come to complete its movement in the king’s coffers. In the first case, the realm is displaced over the earth, envelops it and becomes its coffer, in the second the gold which was displaced will become incarcerated in the realm.”
Lyotard's important philosophical insight is, of course, partially captured by the elegant simplicity of his definition of the postmodern as "incredulity toward meta-narratives." (Lyotard, Jean-François (1979). La Condition Postmoderne: Rapport sur le Savoir. Les Editions de Minuit. pp. 7.) Without infringing in any way the respect due to Lyotard's insights on the postmodern condition, however, it is submitted that his works suggest the collapse of a crucial distinction between the natural use of the precious metals, epitomized by gold, as the monetary instrument of human flourishing and prosperity ... as demonstrated in the laboratory of history ... and their perversion, as by Colbert, as an instrument of mercantilist pillage.
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Why the Gold Standard?