The feisty lady is in good form.....
"His name was John Maynard Keynes. And soon afterwards, another great British economist, Lionel Robbins, declared that “no really impartial observer of world events can do other than regard the abandonment of the Gold Standard by Great Britain as a catastrophe of the first order of magnitude.” This was long before the final consequences of that step had become apparent — the political weakening of the “West which followed its economic breakdown and which contributed to the success of the Nazi revolution in Germany, and thus eventually to the outbreak of the Second World War and to the emergence of Communism as an imminent threat to world order.
As if neither Keynes, the founder of the anti-classical school of economics, nor Robbins, the leader of the neo-classical school, ever had spoken, some Keynesian and neo-classicist economists–fortunately with little support at home but with encouragement from a few foreign observers—are urging us to follow the British example of 1931 and to act once more in a way that would destroy a payments system based on the fixed gold value of the world’ s leading currency. In doing so, they not only show that they have not learned from monetary history; they also impute to our generation even less wisdom than was shown in the interwar period.
Wow! He is certainly battling on behalf of a secure, even-keeled, stable GOLD STANDARD, isn’t he? His contemporaries felt the loss of the British support of the gold standard was a disaster. Note also, the reference to ‘Keynesian and neo-classicist economists—FORTUNATELY WITH LITTLE SUPPORT AT HOME but encouragement from a few foreign observers—ARE URGING US TO FOLLOW THE BRITISH EXAMPLE OF 1931…’—- Martins Jr is of the old school. Yet, knowing all of this, he slides down the same ramp leading to the destruction of the currency. Even as he was sweating his way through this summer speech, the destruction of the dollar was gathering steam. Thanks to the Vietnam War.
See how he chides people demanding the US abandon gold entirely! He openly says, ‘They have NOT learned from monetary history!’ and is furious that these upstarts are mocking him and his generation for being foolish when they were struggling to right a ship that was sinking.
Martin Jr’s main problem here is, he doesn’t analyze the problem from the point of view of imperial overreach and rot. Britain was already being pushed downstairs by Germany, Japan and above all, the US itself. All were taking away British markets and were invading Britain’s home markets before WWI broke out. I would suggest, one of the major causes of WWI was Germany surpassing England in industrial development and trade.
The British Government in 1931, and the U. S. Administration in 1933, can rightly be accused of underestimating the adverse international effects of the devaluation of the pound and the dollar. But at least they had some plausible domestic grounds for their actions. They were confronted with a degree of unemployment that has hardly ever been experienced either before or after. They were confronted with disastrously falling prices, which made all fixed-interest obligations an intolerable burden on domestic and international commerce.
They were confronted with a decline in international liquidity, which seemed to make recovery impossible. Neither Keynes nor Robbins have denied that, from a purely domestic point of view, there was some sense in devaluation. In the United States of 1933, one worker out of four was unemployed; industrial production was little more than half of normal; farm prices had fallen to less than half of their 1929 level; exports and imports stood at one-third of their 1929 value; capital issues had practically ceased. In such a situation, any remedy, however questionable, seemed better than inaction.
They had the identical problem we have today: a steep decline in INTERNATIONAL LIQUIDITY. Of course, the US was the wellspring of liquidity and when countries borrowing money ceased to send payments back to the US, the entire structure of support of lending collapsed! You can’t borrow and not repay and then expect more loans to infinity. Nor can anyone spent to infinity while never repaying.
WWI was a horror. Due to the creation of the Federal Reserve, the warring states could borrow near-infinite money to fight. Instead of balancing real deficits with future desires, they simply poured money into the mess until all sides were nearly totally bankrupt. Then, to rebuild, all the same empires ran to the US to demand MORE loans so they could support each other’s economies. And the debts were just too much.
In the Britain of 1931, things were not quite as bleak as in the United States of 1933; but fundamentally, the economic problems were similar. Ever since 1925, the British economy had failed to grow, and by 1931, one out of five workers had become unemployed, exports–far more important for the British economy than for our own–had declined by nearly one-half, and most observers believed that over-valuation of the British pound was largely responsible for all these ills. Can anybody in good faith find any similarity between our position of today and our position of 1933, or even the British position of 1931 ?
Now, who is exactly like Britain, today? Why, Japan! Back in 1931 and even in 1965, we made most of the industrial goods we consumed. We even consumed our own oil! So it was OK for us to help England, who needed to export much more than us, to do this. But who was England to export to? The US suddenly had to fend off this export giant! This is what the trade barriers of the 1930’s were all about. Our own industrial base would have vanished by 1941 if we let the British weaken the pound while keeping the dollar strong! So we debased the dollar to the same degree [to the rage of the British, I dare say!].
In 1931 and 1933, an increase in the price of gold was recommended in order to raise commodity prices. Today, a gold price increase is recommended as a means to provide the monetary support for world price stability. In 1931 and 1933, an increase in the price of gold was recommended in order to combat deflation; today it is recommended in effect as a means to combat inflation. In 1931 and 1933, an increase in the price of gold was recommended as a desperate cure for national ills regardless of its disintegrating effect on world commerce; today it is recommended as a means to improve integration of international trade and finance. Can there be worse confusion?
This is a most interesting paragraph! In the Great Depression, gold prices were unilaterally and suddenly jacked up in price, and of course, Martin Jr doesn’t mention the confiscation of gold before this happened….YIKES…the devaluation of the paper representing gold values was not received with joy by either gold holders who lost their gold before the sudden devaluation of the paper money, nor by trade rivals who had carefully held gold dollar certificates issued all the way up until 1929 by the US Federal Reserve! These were supposed to ‘give gold on demand’ but the holders assumed, the value of gold to paper would be stable, not cut by nearly half!
This certainly was ‘theft’. And in England and the US, both central banks did this suddenly and viciously, there was no room for letting anyone prepare for this. Since it was theft, it had to be presented as a fait accompli.
Mc C Martin Jr’s testimony to Congress in 1934:
This is important, as control of credit placed within the power of one
agency, which in Europoan countries would bo a central bank, is a comparatively
new thing in the United States of America, and has developed since the inauguration
of the Federal Reserve System. We have little precedent in this country to guide
us as to the time, what, and how to do, but we do have the records of foreign
central banks to help us to come to conclusions, though no foreign banks have had
as large and varied domestic territory to care for and consequently have given
most of their attention to considering credit control in relation to foreign ex-
change transactions. Our problem it seems to me is like theirs, but has some dis-
The Federal Reserve Board has one of the best organizations in the world
for research and statistics in regard to monetary affairs and thus there is at the
command of those charged with the responsibility for credit control data as adequ-
ate as can be compiled.
Since under the law the proceedings of the Board of Governors of the Feder-
al Reserve System and those of the Federal Open Market Committee are to be publish-
ed each year, the reasons for changes in reserve percentages, the fixing of dis-
count rates, the establishing of stock market margins and open market operations
can be carefully studied, with the result that from year to year there will be
added ability to develop the proper technique.
It is well said by Mr. R. G. Hawtrey in his “The Art of Central Banking”,
that “The art of central banking is something profoundly different from any of the
practices with which it is possible to become familiar in the ordinary pursuits
of banking or commerce• It is a field within which a certain degree of technical
knowledge is necessary oven to take advantage of expert advice.”
The hope was to finesse the queer non-central, central bank. The crisis of the Great Depression saw the powers of the Fed grow, not wither. A queer thing happened to us: We see from these speeches both in 1934 and 1965, that the Fed is supposed to regulate many markets. Such as STOCK MARKET MARGINS. This was to prevent the wild growth of leveraged betting. This is precisely what has totally collapsed. Instead of restricting lending, the Fed enabled wild lending. This caused the many bubbles that are now burst and which have ruined our entire economic system.
Instead of improving controls, the Fed threw away controls and did this in tandem with Congress and our Presidents throwing all caution to the winds as everyone tried to live off of credit, not savings.
True, most advocates of an increase in the price of gold today would prefer action by some international agency or conference to unilateral action of individual countries. But no international agency or conference could prevent gold hoarders from getting windfall profits; could prevent those who hold a devalued currency from suffering corresponding losses; could prevent central banks from feeling defrauded if they had trusted in the repeated declarations of the President of the United States and of the spokesmen of U. S. monetary authorities and kept their reserves in dollars rather than in gold. To this day, the French, Belgian, and Netherlands central banks have not forgotten that the 1931 devaluation of sterling wiped out their capital; and much of the antagonism of those countries against the use of the dollar as an international reserve asset should be traced to the experience of 1931 rather than to anti-American feelings or mere adherence to outdated monetary theories.
Please remember this paragraph, anyone who is ‘hoarding’ gold must be aware, the government views you all as enemies of the State and will move to fix this if they see they need the gold! Notice how he talks about preventing gold speculators from profiting from higher values of gold vis a vis, currencies!
Also, notice the comments about many European nations leery of using the US dollar as a trade value guide. Instead, they want gold to do this. We assume the transition from the British pound trade regime to the US $ regime was smooth. It wasn’t, not at all. When this 1965 speech was being made, the value of gold was not as volatile as it was going to be very shortly."
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