A little over ten years ago, on November 1, 1993, the Maastricht Treaty came into force in continental Europe. This is the treaty which established the political entity which is known as the European Union. This event occurred four years after the collapse of East Germany and the tearing down of the Berlin Wall and about two and a half years after the final collapse of the USSR. Besides the political union, the other event was the introduction of a single European currency, the European Currency Unit or ECU. The ECU did not last. Its successor, the Euro, has lasted. On Friday, November 28, 2003 the Euro touched the $US 1.20 level, its highest level yet against the world's reserve currency, the US Dollar.
Please note in this regard that the English speaking world, first England, then Great Britain, and then the US, has stood with the world's foremost renown in monetary affairs. Note also that ever since Queen Elizabeth I and her Chancellor Gresham, the English-speaking world has supplied the reserve currency, first the Pound and then the US Dollar.
This is what The Privateer had to say about the rise and fall of money over that period of centuries. This was written in the Early November 1993 issue of the newsletter:
The English Speaking World's Monetary Axis
Since Queen Elizabeth I rescued England's currency from the falsifications and dilutions of Henry VIII, the English-speaking world has stood with a renown in monetary affairs. That renown reached its apogee in 1844 with Prime Minister Peel's Bank Act, an act that made the British Pound paper note redeemable upon demand in a specific amount of Gold. The years from 1844 to about 1900 were the very best period of money in the West. Deservedly, the British Pound was the world's money.
The Gold Standard And Its Destruction By Political Choice
At the root of the money destruction stands what is historically known as the Banking School. In the great intellectual contest that took place in the decade leading up to Peel's Bank Act of 1844, two great schools of thought contested for supremacy. They were the Banking School and what was then known as the Currency School. The banking school maintained that the bank notes which commercial banks created and lent were not the cause ofthe booms and busts of the British economy since, the argument went, the commercial banks only responded to business demands for funds. The currency school maintained that the bank notes then issued by banks as loans artificially increased the total quantity of money and, as a consequence, launched the economic boom, a boom which always came to a sudden end when banks got scared of their exposure and recalled loans outstanding.
History shows that the currency school won the battle, but sadly, it lost the war. The currency school lost the war because it had lost sight of and never included in its considerations the nature and quantity of money BANK DEPOSITS. After Peel's Bank Act of 1844 made the British Pound note effectively as solid as Gold itself, behind the stage, commercial bankers in London simply began issuing fresh additional loans. But this time, the loans were issued as bank deposits on account.
Today, this struggle about the nature of money looks positively innocent. In the decades following 1844, hidden behind the standing and prestige of the rock solid Pound, evil was afoot. Initially, it came in small stages, just a little falsification of finance and money when politics looked difficult. The first of these steps was to make Gold and Government debt paper equally valid as funds to be held behind bank notes outstanding. In effect, government debt (bonds) became the underpinning for the entire deposit system created by the commercial banks, deposits which banks, in their turn, created out of thin air as loans - loans credited to customers' accounts as deposits.
That was written in 1993, as the renown of the monetary practices of the English speaking world had eroded to the point where the Europeans saw it as being necessary to strive to set up a competing reserve currency. Ten years later, as we near the end of 2003, the "struggle about the nature of money" looks still more innocent. In fact, any mainstream discussion about the NATURE of money had its last gasp about a decade ago. Mr Greenspan himself, in a famous utterance, has stated that he himself does not know what money is.
It is in the best interest of Mr Greenspan and all the other unlamented descendents of the banking school to strive to ensure that the reappearance of a GENUINE discussion and debate about the NATURE of money does NOT come to pass. If it did, the nature of what passes for "money" today would not stand the scrutiny.
The debate about what money is was a casualty of the 1970s and the near demise of the US Dollar by the end of that decade. This was the first decade of Gold's final separation from the US Dollar, the first decade of the global floating fiat currency era. Now, more than two decades later, the question does not officially exist. If the body of knowledge built up in the physical sciences with such effort over the past five centuries had vanished to the extent that knowledge about economics in general and money in particular built up over the same period has, most of us living today would never have been born and the rest would be living in conditions which a medieval serf would shun.
The "price" of Gold is poised at $US 400. It will exceed $US 400 of course, it is simply a matter of time. At some point in this ascent, the world will re-discover a body of knowledge which has been suppressed, but not destroyed, and the debate about the NATURE of money will break out anew. At that point, Gold will once again have performed the service it has been performing for thousands of years. It will have refocussed attention on the things which matter.
Right now, the Euro is ascending as the Dollar descends. The Europeans have gone a small part of the way. They recognise Gold as an official reserve "asset", but they have NOT made the Euro redeemable in Gold. Any nation or group of nations which did that now would incur the towering wrath of the US government and would take the grave risk of having that wrath escalate into political ostracism and, in the final extremity, armed intervention.
Such is the depth to which international relations have sunk. Britain, to her everlasting credit, saw the writing on the wall as her Empire became too big to maintain and, in large part, withdrew peaceably. The problem is that it took two devastating and global wars to convince her. The US too has been fighting wars (hot and cold) for almost sixty years. ENOUGH, ALREADY! We respectfully suggest that it is time to learn from bitter experience. The Europeans have demonstrated that they have done so. Washington DC gives every indication that they will only learn the hard way.
One last return to a decade ago. The first post "cold war" election in the western world was held in Canada in late 1993. The Conservative Party was the long-governing party and went into the election with 157 seats. They emerged from it with TWO. Mr Bush deserves the same fate next year.