Next we turn our attention to the economic infirmities of the world dollar system, which:
Cause a persistent trade deficit, hollowing out our industrial base.
Enable a persistent and alarmingly high federal budget deficit.
Destabilize the value of the dollar, fomenting euphorias and panics.
The first of the world dollar standard's economic disorders:
1. The world dollar standard causes a persistent trade deficit, hollowing out our industrial base.
The U.S. trade deficit grew to $497.8 billion in 2010, from $374.9 billion in 2009. This means that Americans bought almost half a trillion dollars of goods and services from abroad more than what we sold. Many people sense that it is wrong to spend more than you earn, particularly at this scale. They are right.
The abandonment of the gold standard in 1971 is closely tied to the massive unemployment the industrialized world has suffered in recent years … Free Trade is unquestionably beneficial for humanity at large. It is good to be able to buy goods where they are cheapest; some countries enjoy conditions that favor them in production of certain things; each country should produce those things in which it has an advantage over other countries. Thus, the whole world can benefit from the good things each country has to offer. It is an appealing and sound doctrine, but... there is a crucial catch: the doctrine of Free Trade was conceived for a world where the sole means of payment was gold.
Under the world dollar standard the excess half a trillion dollars we spend a year gets recycled. And not to the entrepreneurs of America. That money gets sent right back to Washington, by way of Wall Street, by purchase of T-bills by international central banks. America loses jobs. America consumes more than it produces. Other countries produce more than they consume. The rest of the world gains jobs yet ends up in a form of forced labor, producing without consuming. The economy becomes a Sisyphean labor for all.
Today’s economic conditions reflect a fiat monetary system held together by many tricks and luck over the past 40 years. The world has been awash in paper money since removal of the last vestige of the gold standard by Richard Nixon when he buried the Bretton Woods agreement — the gold exchange standard — on August 15, 1971.
Since then we’ve been on a worldwide paper dollar standard. Quite possibly we are seeing the beginning of the end of that system. If so, tough times are ahead for the United States and the world economy.
The new Federal Reserve chairman, Janet Yellen, gave a policy speech today at Chicago, where, in a startling gesture, she mentioned three working individuals by name — Jermaine Brownlee, Vicki Lira, and Doreen Poole. They lost their jobs the Great Recession and have been struggling ever since. It was a refreshing, even affecting demarche by Mrs. Yellen, who has made a return to full employment a public priority. She underscored her sincerity by telephoning Mr. Brownlee and Ms. Lira and Ms. Poole before delivering her speech.
Publisher's Note: Originally released in June/July of 1991, this detailed report discusses Jacques Rueff's economic theories and applies them to modern economic events.
By John D. Mueller
Who Was Jacques Rueff?
... Trained in science and mathematics at the Ecole Polytechnique, Rueff devoted his first theoretical work to showing that the same scientific method applies to “moral” or “social” sciences like economics as to the physical sciences (Des Sciences Physiques aux Sciences Morales, 1922). In both cases, he pointed out, individual acts can be “indeterminate,” but the pattern of large numbers of individual acts can be predicted as a matter of probability. And so in economics no less than physics, as he later wrote, “A scientific theory is considered correct only if it makes forecasting possible.”
"Forerunners of man lived upon the planet several million years ago. But the unique, modern, social order of man – civilization – emerged only four to five thousand years ago. Historical and archaeological evidence suggests that the institution of money evolved coterminously with civilization. From the standpoint of the 100,000-year history of Homo sapiens, civilization and money are but young and fragile reeds. Today their very existence is threatened by financial disorder."
There is a lot of bad behavior in the global political and monetary world. Much of it comes in countries that should know better. Recep Tayyip Erdogan’s Justice and Development Party (AKP) easily won municipal electons in Turkey but the party’s candidates won far short of the nation’s votes.
Hostility toward gold has a long pedigree.
19th century depiction of Pliny the Elder courtesy of the Library of Congress
Gaius Plinius Secundus, commonly known as Pliny the Elder, in his The Natural History, Book 33, section 3, writes:
Would that gold could have been banished for ever from the earth, accursed by...