The willingness to work for the sake of future prosperity is a universal human quality, but people must believe there is a link between effort and reward.
The euro is beset with fiscal calamities that threaten its downfall, and markets in the U.S. are roiled by uncertainty over the government’s financial regulatory legislation. But don’t worry. Treasury Secretary Timothy Geithner meets with European finance officials today to discuss the economic situation. According to a Treasury Department statement, they will focus on “measures being taken to restore global confidence and financial stability.” So everything is under control.
What government policy makers in the U.S. and Europe fail to realize is that far from being seen as capable of delivering economic salvation, they are increasingly perceived as primary contributors to global financial ruin. Whether it’s the fiscal recklessness of spendthrift politicians or the refusal of government officials to acknowledge failings—distorting mortgage markets through Fannie Mae and Freddie Mac, skewing assessments of credit risk through loose monetary policy—the influence of government over the real economy is proving disastrous.
No wonder people are flocking to gold as they flee government-supplied money. Neither the dollar nor the euro inspires much global confidence; despite the dollar’s relative safe-haven status, neither currency holds out the promise of financial stability.
How can the real economy, i.e., the private sector, where genuine wealth is actually produced, continue to function in the absence of reliable money? Europeans will be wary of the euro from now on, given that the European Central Bank has relaxed its standards for safeguarding monetary integrity by absorbing Greek debt. Meanwhile, the perilous fiscal condition of the U.S. has convinced many that our government will resort to future inflation to reduce its own untenable debt burden.
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."
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...
The New York Times’ Jonathan Gilbert reported: “Argentines endured price rises of nearly 30 percent last year, according to an unofficial index published by opposition politicians; the government, which has been accused of manipulating economic data in the past, claims inflation reached only 10.9 percent in 2013. In 2014, inflation...