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Credit versus clearing
Strictly
speaking a bill of exchange, pejoratively called “real bill” by
Milton Friedman following his mentor Lloyd Mints, is not a credit
instrument. It is a clearing instrument. It enables the market to
clear goods in most urgent demand without needlessly invading the pool
of circulating gold coins that would cause monetary contraction whenever
division of labor is further refined and production processes are made
more “roundabout” (to use the phrase of Böhm-Bawerk) by the most
progressive elements in the ranks of entrepreneurs and inventors.
Lending and borrowing are not involved. The real bill circulates on its
own wings and under its own steam by virtue of the urgent demand for the
underlying consumer good.
Self-liquidating
credit
In
spite of the conceptual difference between credit and clearing, it is
customary to extend the concept of credit to include, in addition to
credit arising out of the propensity to save that finances fixed
capital, self-liquidating credit arising out of the propensity to
consume that finances circulating capital in the final phases of
production of merchandise moving sufficiently fast to the final,
gold-paying consumer. Thus, then, the bill of exchange is the embodiment
of self-liquidating credit, so called as the credit is liquidated
directly with the gold coin surrendered by the consumer in 91 days or
less, 91 days being the length of the seasons of the year. With the
change of seasons the type of merchandise demanded most urgently by the
consumer also changes in the temperate zones where spontaneous bill
circulation has taken its origin during the Renaissance. For this reason
bills of exchange are limited to maturities 91 days or less. Under no
circumstances would a bill circulate after maturity. If the underlying
merchandise couldn’t be sold during the current season, then it
wouldn’t be sold until the same season comes around again the
following year.
Chicken
or egg?
Detractors
of the Real Bills Doctrine (RBD) studiously avoid reference to its
prestigious pedigree and its author, Adam Smith. No less are they
anxious to avoid reference to self-liquidating credit and to clearing.
They also ignore the fact that, as a matter of merchant custom,
producers and distributors would hardly ever pay the producers of higher
order goods cash. The terms “91 days net” are standard and part of
the deal. It is understood by everyone concerned that the bill will not
be paid in full until the underlying merchandise is sold to the final
consumer. Yet the supplier can use the bill to pay his own suppliers.
Endorsed on the back, the bill can be passed along a number of times,
the endorsement indicating that title to the proceeds has thereby been
transferred from payer to payee. This transaction is also called
“discounting” as the payee applies an appropriate discount,
calculated at the current discount rate, to the face value of the bill
proportional to the number of days remaining to maturity. Upon maturity
the last payee presents the bill for payment to the producer on whom the
bill is drawn.
Such
bill circulation was wide-spread in the city-states of Italy in the
Quattrocento and, more recently, in the 18th century in
Lancashire, before the Bank of England opened its branch in Manchester,
as observed by Ludwig von Mises in his 1912 treatise Theorie des
Geldes und der Umlaufsmittel, although he stopped short of
investigating the economic forces animating spontaneous bill
circulation.
Unlike
the question whether the chicken was first or the egg, the question
whether bills or banks came first has a definite answer. There can be no
doubt that the former did. Logically and historically, the bill predates
the bank. What is more, it is perfectly feasible to have an economy
without any commercial banks at all wherein circulating bills of
exchange emerge as the supplier delivers semi-finished consumer goods to
the producer. Instead of recognizing this fact, detractors link bills
and banks as if they were Siamese twins. In refraining from ever
mentioning the self-liquidating nature of the bill detractors of the RBD
insist that credit has been created “out of nothing” and the bill is
the engine driving paper-money inflation. Their methodology consists in
summarily denouncing any and all as a “monetary crank” who is
searching for and disseminating truth pertaining to bill circulation,
without the slightest effort to examine the evidence for spontaneity. In
doing so they betray their ignorance. Their blinkers do not let them
notice the extensive body of scholarly literature on clearing and
self-liquidating credit.
A
“fairy” tale
Let
us look at another instance of clearing and self-liquidating credit that
was vitally important in the Middle Ages: the institution of city-fairs.
Among the most notable ones were the fairs of Lyon in France, and those
of Seville in Spain. They were annual events lasting up to a month. They
attracted fair-goers from places as far as 500 miles away who brought
their merchandise to sell, as well as their shopping-list of merchandise
to buy. One thing they did not bring was gold to pay for the purchase of
goods on their shopping list. They would leave it home for fear of
highwaymen. They hoped to pay for their purchases with the proceeds of
their sale. However, this presented problems.
The fact is that there were far fewer gold coins available at the
fair than the total value of merchandise waiting to be sold. Fairs would
have been a total failure but for the institution of clearing. Buying
one merchandise while selling another could be consummated perfectly
well without the physical mediation of the gold coin. Gold was needed to
finalize the deal only to the extent of the difference between the
purchase price and the sale price.
In
the absence of clearing the merchant arriving from a far-away place
would have to sell before he could buy. Moreover, he would have a hard
time selling because of the dearth of gold coins in the hands of
prospective buyers. But even if he could sell out his wares, by the time
he has done so the cream of the offering at the fair would be gone, and
he might be left with the choice between seconds and rejects.
To
avoid this, organizers of the fair set up a clearing house. Merchants
from afar registered their merchandise upon arrival and received a quota
of scrip money in proportion to its value at the clearing house. Scrip
money could be used right away to make purchases, even before the
purchaser sold any part of his registered merchandise. The quota had to
be returned to the clearing house at the end of the fair. Scrip money in
excess of the quota was redeemed, and shortfall made up, in gold coin.
The marvelous institution of the clearing house and the invention of
scrip money could move a far greater amount of merchandise than scarce
gold coins ever could.
Those
who call the issuance of scrip money “credit created out of nothing”
are utterly blind to the true nature of the transaction. Fair-goers did
not need a loan. What they needed was an instrument of clearing. The
clearing house was not an engine of inflation. Its scrip money
represented self-liquidating credit that was extinguished just as soon
as the fair was over. As this example clearly demonstrates, a loan is
very different from an advance to the seller of wares with a ready
market at hand. The advance, scrip money, circulated spontaneously at
the fair, while other credit instruments such as loan contracts and
mortgages would never do.
Goods
in bottoms
Or
look at one other example of clearing that was important before World
War I. Suppose a cargo ship is ready to sail from Tokyo to Hamburg
carrying in its bottom consumer goods in urgent demand in Western
Europe. The sea-voyage takes up to 30 days. Does the importer need to
raise a loan to pay the supplier for the shipment prior to sailing?
Hardly. The goods are known to be in high demand and to have a ready
market upon arrival. The cargo is insured against losses at sea.
Accordingly, the supplier bills the importer for value received
f.o.b. Tokyo, payable in 30 days in London. The importer endorses
the bill, attaches the insurance documents, and sends it back to the
supplier. The boat is now ready to sail. The supplier has an instrument
he could use as ready cash to pay for goods needed in order to replenish
his depleted inventory. When the boat docks in Hamburg, the wholesale
merchant pays for the cargo with a sight bill on London, with which the
importer meets his maturing obligation. This is self-liquidating credit
“on the go”. No loan is involved. There is no need to invade the
pool of circulating gold coins and to tie up savings for 30 days in
moving goods in urgent consumer demand.
If
you insist that this is credit expansion as money has been created out
of nothing without recourse to saved funds to finance the movement of
cargo across the high seas, and if you say that the bill drawn on the
importer has been misused to fan the fires of inflation, then you have
failed to grasp how foreign
trade is financed.
Vanishing
risks
It
is true that production and distribution of consumer goods, no less than
that of producers goods, involve risks. However, there is a difference.
Risks of dealing in consumer goods in urgent demand vanish as the
“journey” of the “maturing” good is coming to an end, and the
final cash-paying consumer is already in sight, so that the consummation
of sale can no longer be doubted. From this point on the last leg of the
journey can be financed with self-liquidating credit. By contrast, for
producers goods, risks do not disappear even after the sale.
Of
course, not every consumer good has the quality that risks disappear
during the last leg of its journey. Luxury goods and specialty items,
for example, fall into this second category. So do consumer goods sold
on installment plans. The production and distribution of these have to be
financed out of savings through loans, as is done in case of producers
goods. Merchandise of the first category may occasionally have to be
downgraded to the second, if demand for it slackens. Conversely,
consumer goods of the second category could be upgraded to the first if
demand for them picks up sufficiently. The bill market is the final
arbiter to draw the shifting line of demarcation separating the two
categories. If a bill can find takers and is readily discounted, then
the underlying merchandise belongs to the first category. Otherwise it
belongs to the second.
“Telescoping”
payments
We
have seen that the RBD has nothing to do with credit expansion by the
banks. On the contrary, the remarkable fact is precisely that the RBD
works also in an economy bereft of banks. It deals with the singular
phenomenon that bills drawn on emerging goods sufficiently close to the
ultimate cash-paying consumer circulate on their own wings and under
their own steam, provided only that those goods are in urgent demand.
For
this reason, if you want to refute the RBD, then it is not good enough
to attack the banks for their part in credit expansion. You have to
refute the phenomenon, acknowledged by Mises himself, that the bill of
exchange is, in and of itself, fully capable of spontaneous monetary
circulation. Typically, it is used in payment for higher-order goods by
the producer of lower-order goods. In more details, bills drawn on the
producer of an (n !
1)-st order good, by virtue of his being that much closer to the
ultimate gold-paying consumer, become a means of exchange in the hand of
the producer of n-th order goods when he pays the producer of (n
+ 1)-st order goods for supplies. As the final product is sold to the
consumer, his gold coin will liquidate all claims that have arisen along
its journey through the various stages of production. Several payments
have been, as it were, telescoped into one. This is clearing at work.
This is the meaning of the assertion that the credit represented by the
bill of exchange is self-liquidating. This is credit the volume of which
flows and ebbs with the propensity to consume.
Can
circulating capital be financed out of savings?
Moreover,
as I shall now show, it is not possible to finance all of society’s
circulating capital out of savings. It would put
inordinate demand on savings that simply could not be met.
Consider a hypothetical product called “miltonic”. It is in urgent
demand as a medicine that helps preventing cancer. Its production cycle
takes 91 days, with as many as 90 firms participating, so that the
sojourn of the semi-finished product at every one of the 90 stops takes
one day. The ultimate consumer is willing to pay $100 for a bottle while
the producer of the 90th order good has paid $11 for raw
materials. We shall also assume that the value added to the maturing
product at every stop is $1. Now if you want to finance the movement of
one bottle of miltonic through the various stages of production, then
the pool of circulating gold coins will have to be invaded 90 times, and
you have to withdraw savings in the amount of
11
+ 12 + 13 + ... + 98 + 99 + 100 =
½(11 + 100)×90 =
45×111
or
$4995, almost 50 times retail value. In other words, there must be
savings in existence in the amount of almost $5000 to move just one
bottle of miltonic through the production process all the way to the
consumer. This sum does not include fixed capital that also has to be
financed out of savings! And what about other items of food, fuel, and
clothes, also urgently demanded by the consumer? Let me suggest it to
you that no conceivable economy can generate savings so prodigiously as
to move all the indispensable items to the consumer. I conclude that the
division of labor could have never been refined, and the
“roundaboutness” of the production process could have never been
lengthened, beyond the level reached by the cottage industries of the
medieval manors, wherein every family had to produce not only its own
food and fuel, but also its clothes and shelter.
If
it did not happen that way, and production has become vastly more
efficient, was in large part due to the invention of the bill of
exchange, heralding the end of the Middle Ages. Clearing has been put to
work making it entirely unnecessary to invade the pool of circulating
gold coins and divert savings, to finance the movement of consumer goods
through an ever more refined and roundabout process, provided only that
those goods be demanded by the consumer urgently enough.
Detractors
of the RBD, above all Nobel prize laureate Milton Friedman, put his foot
into his mouth when he ridiculed the idea of bill circulation suggesting
that it was inflationary. It is hard to see how thoughtful people can
treat the notion, that circulating capital no less than fixed capital
must be financed out of savings, with respect.
Rate
of interest versus discount rate
Although
Mises was fully cognizant with the bill of exchange, he failed to come
to grips with the idea that there was no credit expansion involved in
its spontaneous circulation. Bills emerged together with the emergence
of marketable merchandise, and were extinguished when the latter was
removed from the market by the consumer. At no point did the bill
increase the amount of purchasing media relative to the available supply
of merchandise. The bill is an instrument of clearing or, if you will,
self-liquidating credit. It is one of the marvelous creations of the
human genius, fully commensurate in importance with the evolution of
indirect exchange, arising spontaneously and opening up new avenues to
human progress. Unfortunately, Mises was not interested in the concepts
of clearing and self-liquidating credit. He dismissed them as
paraphernalia belonging to credit expansion. In this way Mises missed
his chance to make his theory of money and credit withstand the ravages
of times.
His
error of omission led to several errors of commission, the most
conspicuous of which was his assumption that the discount rate at which
maturing commercial paper changed hands was simply a subset of the rate
of interest, in particular, the rate on short-term borrowing. This was a
most serious error indeed, as the rate of interest and the discount rate
were governed by entirely different, sometimes diametrically opposing,
economic forces. They could move independently of one another,
frequently in opposite directions, subject to the only constraint that
the rate of interest can never be lower than the discount rate. If it
were, the propensity to save would outstrip the propensity to consume.
But saving becomes pointless if human life cannot be sustained for lack
of spending on the wherewithal of life. If you save too much, then you
die of starvation. No one ever has done so, rumors notwithstanding. The
anecdotal miser is just that, anecdotal. This also explains why the rate
of interest cannot go to zero. However, the discount rate may, whenever
consumer confidence becomes most exuberant making shop-windows spill
over their contents to the curbside.
To
recapitulate: the rate of interest is governed by the propensity to save
and, by contrast, the discount rate is governed by the propensity to
consume. In either case the rate changes inversely with the propensity.
For example, the higher the propensity to save, the lower is the rate of
interest; the lower the propensity to consume, the higher is the
discount rate. That the two propensities are not rigidly linked is due
to the existence of a cushion, the propensity to hoard.
Irredeemable
currency: present good or future good?
But
Mises spurned the idea that there was a theory of an independent
discount rate. In consequence his theory of interest is flawed. This
fact cannot be swept under the rug, as it has led to further curious
errors and contradictions. For example, Mises concluded that fiduciary
money, i.e., money originating in the credit expansion of banks, was a present
good on exactly the same terms as was the gold coin, and not a future
good as was the bill of exchange. In his eyes even irredeemable
currency was a present good, in spite of the fact that it could be
created at the pleasure of the government ad libitum. Elsewhere
Mises rightly ridicules irredeemable currency by saying that only the
government is capable of the feat of taking two perfectly useful goods,
such as paper and ink, and make the former perfectly worthless by
sprinkling some of the latter on it. But if we declare irredeemable
currency a present good, then we credit the government with power to
create wealth out of nothing, a notion antithetical to Mises’ opus.
Had
Mises admitted that a discount rate existed independently of the rate of
interest, then he could have avoided such contradictions. Fiduciary
money and irredeemable currency belong to the species of a promissory
note and as such are not a present good but a future good. Even a gold
certificate is a future good: “there’s many a slip between cup’n
lip”. Only a gold coin qualifies as a present good among the
multifarious forms of purchasing media. This makes the gold coin sui
generis, one of a kind, in the context of the theory of interest. In
fact, a theory of interest without gold is “Hamlet without the
prince”. The interest rate on a loan repayable in irredeemable
currency can never be the benchmark on which to build a theory of
interest, no matter how many armored divisions the government foisting
off currency on the world may have at its disposal. Debt repayable in
irredeemable currency is nothing but an interest-bearing promise to pay
that is exchangeable at maturity for a non-interest-bearing one. Bonds
at maturity are exchanged but for an inferior instrument, insofar
as interest-paying debt is considered preferable to non-interest-paying
debt. The time-preference theory of interest is vacuous unless it
explicitly stipulates that interest and principal be payable in gold
coin. Without this provision prestidigitation is involved: future goods
are juggled to make the impression that debt is being retired through
the surrender of a present good.
But
debt can never be retired under the regime of irredeemable currency. At
maturity it is shifted from one debtor to another. People are
constructing a Debt Tower of Babel destined to topple in the fullness of
times.
The
Lady of Threadneedle Street
It
is commonplace to badmouth the Bank of England for her role in the
corruption of the gold standard of Sir Isaac Newton, the Master of the
Royal Mint from 1699 to his death in 1727. But whatever one can say of
the low circumstances of her birth in 1696, and of her most recent role
as the “Bag Lady of Threadneedle Street” in selling her gold reserve
to the drumbeat from the paper mill on the Potomac, we must give the
Bank of England credit for financing Pax Britannica for a period of one
hundred years between the close of the Napoleonic Wars and the outbreak
of World War I. Authors often wondered how the Bank of England could run
the international gold standard on a shoestring of a gold reserve.
The
mystery readily finds its solution if we contemplate that the Bank of
England acted as the clearing house for real bills financing world trade
between 1815 and 1914. This was history’s most successful episode
demonstrating the power and the potential of the RBD. By 1913 world
trade in consumer goods had reached a high mark that was not surpassed
until the 1990's. In whichever countries they were domiciled, the
exporter billed the importer and
the terms of the bill “91 days net payable in London” were standard.
The importer endorsed the bill, attached shipping and insurance
documents, and sent it back to the exporter. Thereafter the bill
circulated world-wide in lieu of gold till it matured. Hardly ever did a
default occur, and even then it was in consequence of violations of bill
trading rules. Gold was shipped only to the extent of the difference
between imports and exports. The modest size of the gold reserve of the
Bank of England was no fetter on a most prodigious increase in world
trade, a monument to the triumph of clearing. Goods in bottoms did not
have to sail anywhere near England to be eligible for financing through
bills drawn on London.
It
is incumbent on the detractors of the RBD to explain how the phenomenal
increase of world trade in consumer goods, on which the remarkable
prosperity of the world before World War I depended, was possible with
only a negligible amount of gold changing hands.
The
permanent crisis of the world’s monetary system
The
outbreak of World War in 1914 put an end to international bill
circulation and wiped out world trade in consumer goods almost entirely.
When the war ended, the garrison states that emerged did not allow real
bill trading to recover. Bill trading assumes that the gold is outside
of the banks, in the hands of the people. Strategic imperatives called
for the concentration of monetary gold in bank vaults. People had to be
weaned from the gold coin. Nor was the reintroduction of real bill
trading considered an option at the Bretton Woods conference in 1944
that was charged with the task to regenerate the world economy and trade
after the ordeal of World War II. The world is still doing without the
benefits of real bills. Trade has been placed under the direct control
of governments. Political, not economic considerations govern the flow
of consumer goods across international boundaries. Government
regimentation of the lives of the people has become virtually complete.
The
expulsion of real bills and the failure of world trade to recover after
World War I, together with the advent of “cash and carry” mentality,
was one of the main causes of the failure of the international gold
standard and the Great Depression about a dozen years after the
cessation of hostilities. A strong case could be made that if bill
circulation had been allowed to return, then world trade would have
quickly recovered, too, and the international gold standard would not
have collapsed. Collapse it did because, without the clearing mechanism
provided by real bills, it could not cope with world trade, much reduced
though it was. People were talking about an “acute shortage of
monetary gold”. Money doctors rose with a phony diagnosis that the
malady was due to the increase in the price level that was not
accompanied by a commensurate increase in gold reserves. This diagnosis
holds no water. It is based on the Quantity Theory of Money, a flawed
theory that is applicable only in a world where all changes are in a
linear relationship with their causes. In reality, however, changes in
our world are a non-linear function of causes. There is no way of
telling how much trade a given amount of monetary gold can support at
any given price level. The volume of trade depends, not on the stock of
monetary gold, but on the clearing system which can be improved to meet
the challenge. Instead of improving it, governments conspired to
sabotage the clearing system by blocking international trade in real
bills that had worked so efficiently before the war. The proper
prescription should have been the restoration of the clearing mechanism
through real bills. Please remember that you have seen it here first: the
main cause of the Great Depression of the 1930's was government sabotage
of the Real Bills Doctrine of Adam Smith. The world’s monetary and
payments system is still limping from crisis to crisis, and will
continue doing so until the RBD is fully rehabilitated.
The
pipedream of the 100 percent gold standard
Some
detractors of the RBD advocate what they call the “100 percent gold
standard” in which they leave no room for real bill circulation. They
maintain that real bills must be superseded by loans financed out of
savings.
This
is a momentous issue that must be addressed adroitly and fairly by all
protagonists of sound money. We must put aside prestige, rancor, and
personal ambitions in order to bring about a consensus
concerning the shape of the gold standard that we all hope will
arise from the ashes of the regime of irredeemable currency. We must all
cooperate that the new gold standard will not only survive but flourish
as well.
The
first thing to be observed about the “100 percent gold standard” is
that nothing approximating it has ever been tested in practice. All
historical metallic monetary standards had a supporting clearing system,
more or less developed, which limited the actual payment in the monetary
metal to net trade, that is, the difference between the value of total
purchases and that of total sales. It follows from my analysis above
that a “100 percent gold standard” will not be able to survive for
reasons having to do with the burden it unnecessarily puts on savings.
There isn’t, nor will ever be, savings in sufficient quantity to
finance circulating capital in full, given our highly refined division
of labor and roundabout processes of production. Luckily, this is no
problem, as so much circulating
capital to move merchandise in sufficiently high demand by the final
consumer can be financed through self-liquidating credit. Advocates of
the “100 percent gold standard” must realize that they have grossly
underestimated the degree of sophistication of the structure of
production in the modern economy. They must also come to grips with the
fact that financing circulating capital with real bills is not
inflationary. Real bills enter and exit circulation pari passu
with the emergence and ultimate sale of consumer goods.
Only
if we approach our differences with sufficient humility can we prevail
against the evil forces opposing freedom armed, as they are, with the
formidable weapon of irredeemable currency. Given the stakes, I am
convinced that Ludwig von Mises would, if he were alive today, put pride
aside and admit that his 1912 judgment in dismissing the discount rate
as an independent variable, distinct from the rate of interest, was a
mistake.
*
* *
Further
reading
In
addition to Adam Smith’s The Wealth of Nations I recommend my Adam
Smith’s Real Bills Doctrine that was published on the internet as
Monetary Economics 101 in the Gold Standard University series in 2002,
see the website.
Xicotepec,
Mexico, June 13, 2005
Note
The
Mises Institute’s broadside on Nelson Hultberg and myself, see Real
Bills, Phony Wealth by Robert Blumen () calling us “monetary
cranks” fails to meet the standards of polite academic debate. Our
sin: we had the temerity to suggest that a proper monetary system for
the United States should incorporate not only a gold standard but also a
clearing system based on Adam Smith’s Real Bills Doctrine (see: Breaking
the Demopublican Monopoly by Nelson Hultberg, published by Americans
for a Free Republic, P.O. Box 801212, Dallas, TX 75380, )
The
present paper was written as a rejoinder, explaining why a “100
percent gold standard” was a pipedream, and that it was not good
enough to put gold coins into circulation (which would promptly go into
hiding). One would also have to make provisions for a clearing system,
without which the gold standard could not function in a complex economy.
Unfortunately
Lew Rockwell and Jeffrey Tucker at the Mises Institute have refused to
post my rejoinder,
letting the attack on my theoretical work go unchallenged making it
appear that no reasonable
answer to the detractors of the Real Bills Doctrine is possible. To say
the least, this is a most peculiar procedure for an institute that
pretends to support the search for and dissemination of truth.
It
is difficult if not impossible to enter into a debate on the Real Bills
Doctrine with people who are not conversant with the modern literature
on clearing and self-liquidating credit. I just mention the names of a
few 20th-century authors who have written on the subject:
Charles Rist, Melchior Palyi, Benjamin M. Anderson, Heinrich
Rittershousen, Ulrich von Beckerath, Henry Meulen; the complete list is
too long for inclusion here.
In
the 1930's University of Chicago economist Lloyd Mints wrote a book on
real bills in which he reviewed the literature on the subject written
in English only. This is not unlike writing a medical
treatise on tuberculosis reviewing the contributions of English
researchers only. If you cast your net so narrow, then you
miss the German bacteriologist Robert Koch, the discoverer of what has
come to be known the Koch bacillus which today is recognized as the cause
of tuberculosis. It may be of interest to note that for a number of
years Koch was ridiculed for suggesting a single cause for
“consumption”, the earlier name for this devastating disease.
Latter-day
detractors of the RBD have obviously missed the contribution of
Ritterhousen who in 1934 published a paper Zahlungsverkehr,
Einkaufsschaffung und Arbeitsbeschaffung in the journal Annalen
der Gemeinwirtschaft. In it he makes a defense of the “Banking
School”and the Real Bills Doctrine against the inflationists,
deflationists, and adherents of the “Currency School”. He also
discusses how the first departure in 1909 from the RBD by Germany was
later imitated verbatim by other countries, which was the major
cause of unemployment world-wide in the 1930's. It is not fashionable
nowadays to read papers that have been written and passed by the Nazi
censorship during the Third Reich. Yet you may ignore them at your own
peril. Economist and monetary scientist Rittershousen survived the Nazi
witch-hunt by a fluke. He continued to teach after the war until his
retirement as Dean at the University of Köln in 1966.
For
all open-minded Americans my rejoinder will demonstrate why Murray
Rothbard and the Misesians are mistaken in their denigration of the Real
Bills Doctrine and the Banking School, and why their uncritical
embracing of the never-ever-tried idea of the so-called “100 percent
gold standard” would impart a congenital disease to the new metallic
monetary standard after the collapse of the regime of irredeemable
currency. In fact I would go so far as to suggest that no greater favor
to the enemies of freedom in America could be done than pursuing the
present policy of the Mises Institute. The enemies of freedom, the
managers of the unconstitutional irredeemable dollar, are rubbing
their hands in joy while getting ready to shout from the rooftop that
“we have told you so”. They understand what the Misesians do not:
the “100 percent gold standard” is doomed to failure. If
implemented, it would cause depression, bankruptcies, and unemployment.
The Great Depression of the 1930's would be repeated, which was due, not
to fractional reserve banking, but to government sabotage of the
market’s clearing system, the international real bill market.
The
“100 percent gold standard” is but a blueprint to discredit the gold
standard 100 percent.
© 2005 Antal E. Fekete
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