The Gold Standard Journal 21

The Gold Standard The Gold Standard Institute
Issue #21 15 September 2012 1

The Gold Standard
The journal of The Gold Standard Institute

Editor Philip Barton
Regular contributors Louis Boulanger
Rudy Fritsch
Keith Weiner
Occasional contributors Thomas Allen
Publius
Opheus
Peter van Copponolle

The Gold Standard Institute

The purpose of the Institute is to promote an
unadulterated Gold Standard

www.goldstandardinstitute.net

President Philip Barton
President Europe Thomas Bachheimer
President USA Keith Weiner
Editor-in-Chief Rudy Fritsch
Webmaster Jason Keys

Membership Levels

Annual Member US$100 per year
Lifetime Member US$3,500
Gold Member US$15,000
Gold Knight US$350,000
Annual Corporate Member US$2,000
Contents
Editorial ........................................................................... 1
News ................................................................................. 2
The American Corner: Republican Platform May
Include Commission to Study Return to a Gold
Standard ......................................................................... 2
Differences Between Real Money and Fiat Money .. 3
Gold, Natural Law and India........................................ 4
Judging a Rumor: Is China Buying Germanys Gold?
........................................................................................... 6
Ceci n'est pas une pipe .................................................. 7
The Slippery Slope ......................................................... 9
Greece in Focus: A self-inflicted drama ................... 11

Editorial
The Golden Rule
If you pay attention to the many Gold oriented sites
on the Internet, you are aware that Gold is currently
being remonetized. Major clearing houses now
accept Gold as collateral in lieu of cash. The BIS,
the Bank of International Settlement, the central
bankers central bank, is working to have Gold
revalued as a 100% risk free asset aka Basil III
whereas up to now, Gold could only be used as a
reserve asset at 50% of market value.
Furthermore, central banks are busy buying Gold
while for the last several decades, at least since
Bretton Woods, they were busy selling Gold, to help
keep Gold prices from reflecting the ongoing
debasement of paper Fiat currencies debasement
of paper vs. real money, vs. Gold.
Of course, remonetizing Gold is a false statement;
like saying that wet sidewalks cause rain. The reality
is that the world economy and financial system is
going back on Gold after being off Gold since at
least 1971 when President Nixon closed the Gold
window. Throughout history, countries have gone
off Gold to allow profligate governments and
their banking bedfellows to inflate like mad then,
when the economy started to collapse, they went
back on Gold.
The key difference is that this time around, not one
country but the whole World has gone off Gold
and thus the consequences are much more severe.
Previously, the country that had gone off was
generally rescued by others that stayed on this
time there is no cavalry riding to the rescue.
Another big problem with this so called re-
monetization is that Gold is once again being
concentrated in the hands of bankers and
governments the very entities responsible for the
economic crisis; responsible for going off Gold in
the first place.
Gold belongs in the pockets of the World citizenry.
As the ultimate extinguisher of debt, as real money,
Gold represents power and concentrated power is
dangerous and destructive of freedom and of
prosperity. The Gold Standard Institute is working
hard to get this point across that the World needs
a Gold Coin standard, with circulating Gold coins
unadulterated by fiduciary or promise backed bank
notes.
Under the classical Gold standard (which was NOT
unadulterated but had a significant fiduciary
component) the Bank of England held about 150-
200 Tons of Gold in its vault while tens of
thousands of tons of Gold were in circulation.
Today, central banks hold thousands of tons of Gold
in their vaults, while there is 0 tons of Gold in
circulation. Guess where power is concentrated?
Never forget the Golden Rule; He who has the
Gold makes the rules.
Rudy J. Fritsch
News
Boerse Stuttgart: Thomas Bachheimer interviewed in
Europe (German language).

Benzinga: Americans support gold standard.

Reuters: Compro Oro I Buy Gold.

Gold Core: More on golds remonetisation.

Voice of Russia: Russian central bank increases its
gold deposits.

Mining Weekly: Central banks European investors
buying more gold.

Forbes: Steve Forbes - The Gold Standard Is
Coming

The American Corner: Republican
Platform May Include Commission to
Study Return to a Gold Standard
The Republican Party is considering setting up a
commission to examine the pros and cons of going
back to the gold standard according to CNN Money.
At this point, I think it is premature to hope that the
Republicans will commit to repealing the Federal
Reserve Act, the legal tender laws, the capital gains
tax on gold and silver, the laws nullifying gold
clauses in contracts, or the laws that force taxpayers
to keep their books using the dollar as the numeraire.
I am sure they dont mean to eliminate the lender of
last resort, monetary policy, deposit insurance
moral hazard, lending programs for housing and
education, or give up the exorbitant privilege of
issuing the worlds reserve currency.
Lets not hold our breath. But this is not the point,
nor why I think this is not only exciting but it is a sea
change just like allowing banks to hold gold as a zero
risk-weighted asset.
For the first time since President Reagans ill-
conceived gold commission, the Republicans are
talking about gold and money in the same sentence.
This is because the idea of gold is out of the bottle
and into the economic and political dialog in a way
that it has not been since the monetary instability of
the 1970s.
This news article hardly takes a favorable position
towards gold. Others, for example this one from
Reuters, are worse.
I use the term sea change for this because it
illustrates that the Grand Ol Party today is not the
same party of Bush Sr., Bush Jr., Bob Dole, or John
McCain. This is a party who chose Paul Ryan for
Vice President. Though Ryan contains a number of
contradictions, he has spoken openly of Ayn Rand
and her ideas on sound money.
The ideas in the culture are shifting. While many
remain apathetic, or worse yet vote for entitlement
programs at every opportunity, it is no longer safe to
declare, deficits dont matter as Vice President
Cheney did. Most people do not yet understand the
antidote to chronic, exponentially rising deficits.
Even among the Tea Party, many support certain
entitlements especially the two elephants in the
room: Social Security and Medicare. And yet, it is to
secure the votes of these people that the Republican
Party felt forced to say we will look at gold again.
The job of The Gold Standard Institute is to drive
awareness that only gold will work. Our work is cut
out for us, but we have a more receptive culture than
existed for many decades!
Keith Weiner
President of the Gold Standard Institute USA
Differences Between Real Money and
Fiat Money
Attributes generally ascribed to monetary material
are that it is portable (relatively high value per unit of
weight), homogeneous or uniform, durable, divisible,
recognizable, highly marketable (highly liquid,
universally acceptable), and stable in value. These
attributes are true for real money, such as full
weighted gold and silver coins. For the most part,
they are true for todays paper fiat money, such as
the US dollar, euro, and British pound. However,
real money has characteristics that are lacking in fiat
paper money.
Real money has quantity, measurement, and
substance. Fiat paper money has only quantity.
An early illustration of these three attributes in real
money is recorded in Genesis 23:16. Abraham
bought a burial plot. He paid 400 (quantity) shekels
(measurement of weight) of silver (substance). In
pre-1933 money, if a person bought something with
a $20 gold coin, he paid with money that had
quantity (20), measurement (dollar, a unit of weight
equal to 23.22 grains), and substance (gold).
Fiat paper money lacks two of these three
characteristics. For example a $20 federal reserve
note has quantity: 20. The dollar appears to be its
measurement. However, it is not. It is an abstraction.
It measures nothing of substance. A unit of
measurement has to be something concrete and
definable like the meter, ounce, minute, or
horsepower so that things can be compared to it. It
has to be something that instruments can determine.
Also, it lacks substance as its monetary value exceeds
the value of the material of which it is made and it
does not promise to deliver anything concrete.
With pre-1933 gold money, a $20 gold coin weighed
twice as much as $10 gold coin. Even if the disk had
no inscription on it, a disk containing 464.4 grains of
gold had twice the purchasing power of a disk
containing 232.2 grains of gold. It was twice as large
and weighed twice as much.
Federal reserve notes, which are fiat paper money,
cannot be measured. If all the inscriptions are
removed from them, a $20 federal reserve note
would look like a $10 federal reserve note. They
would both have the same value: nothing.
Another important distinction between real money
and fiat paper money is that real money can
transport value through space and time, which
makes it an excellent store of value, medium of
exchange, and standard of value (unit of accounts).
Fiat paper money cannot, which makes it a poor
store of value, medium of exchange, and standard of
value. Real money retains its value when it moves
from one place to another and from one time to
another. Fiat paper money does not.
In the United States since 1933, when President
Roosevelt stole the peoples gold, the dollar had lost
94 percent of its purchasing power by 2010. Since its
complete divorce from gold in 1971, it had lost 81
percent of its purchasing power by 2010.
On the other hand, gold has retained its value
through the millennia. The ancient Babylonian and
Hebrew gold shekel contained about 252 grains of
gold or about as much gold as an American $10 gold
coin.
1
Those 252 grains of gold are still worth 252
grains today.

1
Madeleine Miller and J. Lane Miller, Harpers Bible Dictionary, pp.
454-455
If a time traveler carried a $10 gold coin back two
thousand years, he would have the buying power
equivalent to about 58 days of wages of a common
laborer. A common laborers wage at that time was
about 17 per day
2
(this estimate was made in the
late 1930s when the federal reserve dollar was worth
almost as much as a gold dollar). Moreover, because
a $20 gold coin contains twice the gold of $10 gold
coin, it would have twice the buying power. If he
carried a $100 and a $1 federal reserve note with
him, he would get only what he could trade his notes
for as a curiosity. He might find the $1 note worth
more than the $100 note if the person with whom he
was trading likes Washingtons picture more than
Franklins. Possibly, the person with whom he was
trading found that the occult symbols on the back of
a $1 note had great value whereas a picture of
Independence Hall on the back a $100 note had
none. Unlike real money, fiat paper money fails to
maintain its value through time.
Also, unlike real money, most fiat paper money has
little value beyond the borders of the issuing
country. Fiat paper money that does retain value
beyond its borders does so because it is considered a
reserve currency or the fiat money of a country is
losing value so quickly that it makes other fiat money
desirable. This limited ability of fiat paper money to
transport value, albeit decreasing value, through
space is short-lived.
Thus, real money can transport value through space
and time. Fiat paper money can only transport value
for short distances and for a highly limited time. Real
money is vastly superior to fiat paper money as a
medium of exchange because of its superiority at
transporting value through space. It is vastly superior
as a standard of value and store of value because of
its superiority at transporting value through time.
As shown above, real money has quantity,
measurement, and substance. Fiat paper money has
only quantity. Real money can transport value over
vast space and time. Fiat money cannot.
Thomas Allen

2
John D. Davis, The Westminster Dictionary of the Bible, p. 630.
Gold, Natural Law and India
One of the laws of nature is the true expression of what lies
within for nothing in nature is concealed. This is known as
the law of cause and effect. Conscious application of this law
of nature is to speak the truth, but the major part of conscious
energy is being spent in not disclosing the truth. The result is
that everyone is trying to convince others of the truth of their
inflated needs by minimising the natural needs of others. All
this is being done by proposing new economic theories with total
disregard to the laws of nature. One must understand the
laws of nature first and then put them into practice on oneself
before offering to others.
~ Shri Shantananda Saraswati, answering a question from
the leader of the School of Economic Science in 1982

I was in India last month, at the invitation of the
Indian Association of Investment Professionals
(IAIP), to speak in four of the major cities there
(Mumbai, Hyderabad, Kolkata and Delhi) about the
monetary disorder in the world and the role of gold.
India was the 13
th
country where investment
professionals and in particular CFA charter holders
had invited me over the past three years to speak on
this subject. Later this month, it will be the turn of
The Netherlands and then Jordan.
It is said that people in India know what gold is. It is
certainly a well-known fact indeed that India has had
an insatiable appetite for the yellow metal for a very
long time and so, it is widely believed that the biggest
above ground hoard of gold bullion held in private
hands is in that country. Also, the expectation or
generally held assumption is that it is still the case
today that peoples demand for gold in India is very
high.
Now, that may well be the case, but to my surprise I
found that even in this incredible country the
investment professionals were almost just as clueless
about the true role of gold in the financial system as
their peers continue to be in other countries around
the globe. How could this be, I asked myself? The
answer came from a participant at one of my
lectures. He explained that in India, like everywhere
else, they no longer teach what sound or honest
money is or what the natural role of gold is in
economics.
The unfortunate result of this highly organised global
education system is that, while it is still in the Indian
peoples nature to acquire gold jewellery, the industry
professionals who act as fiduciaries of other peoples
investments and savings either as advisors or
managers of portfolios seem to be suffering from
the same ignorance when it comes to gold as other
professionals elsewhere in the world. Its as if the
whole world of fiduciaries is suffering from some
sort of collective amnesia!
The total disregard to the laws of nature, as
eloquently expressed by Shri Shantananda Saraswati
in the above quote, is the essence of the problem.
Academia has been hard at work for decades now in
deliberately choosing to ignore the truth of the
matter and, to use the words of Shri Shantananda
Saraswati, devote the major part of their energy in
convincing others of the truth of their inflated needs by
minimising the natural needs of others. India, it seems,
has not been able to escape from this sad state of
affairs in todays world of false economic theories.
The result is there for all to see.
Never mind that every single day I was in India,
there was always an article in the daily newspaper
about gold. Sometimes it was about its price, which
had reached an all-time high the day I arrived and
kept going up day after day (the rupee or INR has
lost much of its purchasing power over recent
times). But articles were also written about the
supply and demand of the yellow metal, the new
gold funds including ETFs that were now available,
the rising interest of the younger generation when it
comes to gold, a new jewellery brand about to be
launched in India by the World Gold Council, etc.
Most noticeably for me though, were articles that
referred to the rising level of gold smuggling.
Apparently, the government there is trying to curb
gold imports to improve the countrys trade deficit
and hopefully also the purchasing power of the
rupee. The result, of course, is a resurgence of
smuggling, as there is no way of stopping Indians to
buy gold. It is just one more example of a central
governments attempt at influencing human action
with total disregard to natural law: it does not work!
Even the Reserve Bank of India is playing its part. It
began a campaign recently attempting to discourage
people from purchasing and hoarding gold, insisting
that the country has to change its culture of buying
gold because gold must be imported into the country
and India has a current account deficit problem. It
argues that Indias cultural interest in gold is
attributable to a time when India was rich, but that
today India is a poor country and so its people
should stop buying gold
I simply could not find a better contemporary
manifestation of what Shri Shantananda Saraswati
refers to in the above quote as a total disregard to the
laws of nature. How sad that not only the world as a
whole but even India, where so much wisdom once
originated from, has come to succumb to this level
of ignorance and be victimized by such untruth
spoken with misplaced and misguided authority by
the very people in who the citizenry has put their
trust and faith to manage their economy.
Louis Boulanger
Louis holds a B.Sc. from Laval University in Canada; is a Fellow
of the Canadian Institute of Actuaries and the New Zealand
Society of Actuaries; and is a Chartered Financial Analyst.
Prior to coming to New Zealand in 1986, Louis worked for nine
years with a global consulting firm based in Montreal, Canada.
In New Zealand, Louis worked for another global consulting
firm for 18 years, including as Chief Executive of New Zealand
operations for five years. In 2006, he launched his private
practice.
Louis is also Founder & Director of LB Now Ltd, which
provides independent investment advice to private and
institutional clients, facilitates the purchase of bullion for private
and institutional clients as an authorized dealer for BMG
BullionBars and also helps firms comply with GIPS.
For more information of LB Now's services or to subscribed to
Louis' e-letter Prosper! see the contact details below.

P.O. Box 25 676, St Heliers, Auckland 1740, New Zealand
Ph: +64 9 528 3586 Mob: +64 275 665 095
Email: louis@lbnow.co.nz www.lbnow.co.nz
Judging a Rumor: Is China Buying
Germanys Gold?
Given the general lack of publicly available summary
information on the trade in physical gold, it is no
surprise that speculation and rumor flow so freely.
Those rare outsiders who are able to assemble the
puzzle pieces into a coherent prediction also have a
strong incentive to speculate financially on their
insights. Therefore, such people can hardly be
expected to share their conclusions freely.
Nor would the average citizen, or even the typical
amateur gold enthusiast, necessarily be able to
properly understand and interpret such research
were he to obtain it. When trying to make sense of
what is happening with the bullion markets, we are
often reduced to choosing which rumors to believe.
The rule I apply is to look for something that
suggests an insight into the longer-term or end-game
situation.
Admittedly, just like nuclear war, the end-game could
arrive at any time. But I find rumors not containing
tradable information more believable, because no
one benefits immediately if people do believe them.
By that, I mean asking, If the information is false,
does the other side of the trade stand to gain by
luring less sophisticated investors into short-term
leveraged positions? As some readers will know, in
this scenario when the professionals then shake the
amateurs out at lower prices, the pros short
positions can be closed out at a profit.
Many gold owners, especially those holding the
mining stocks, are too impatient (desperate?) for any
good news about an imminent dollar-denominated
payoff from their positions. These people are highly
vulnerable. The never-ending parade of rumors over
the last 20 years about an imminent surge in metals
prices always finds a new crop of believers. The
arguments certainly make good sense on the surface,
and so these buyers part with, and are then
permanently parted from, their money.
By contrast, someone sharing non-tradable
information has less motivation to lie. For example,
take a young bond trader from London I met
recently. He did not profess to know much about
the gold markets, and the nature of his questions to
me on gold supported his self-declared ignorance. It
is true that before we talked, he already knew of my
pro-gold stance. But he could best be described as
neutral or skeptical, and certainly not as part of the
formal anti-gold establishment.
When our conversation turned to gold, he
mentioned he knew a gold trader in Hong Kong.
Mr. Hong Kong had told Mr. London about some
large gold transactions handled recently for the
Chinese government. Mr. Hong Kong described
how gold bars from the German government were
being bought by China and melted down into small
20 gram wafers. These were then being stamped
with the Beijing governments insignia and sold to
the Chinese population at a 20% mark-up to spot
price. Mr. Hong Kong had marveled at the handy
profit being made by Beijing.
Here I interrupted Mr. London, wanting to clarify
the story. Did Mr. Hong Kong mean the gold came
from Germanys official governments holdings or
merely from German private banks? Yes, Mr.
London confirmed, Mr. Hong Kong had said it was
from the German government itself.
Now, it is difficult for someone who is not trained in
intelligence gathering to properly and realistically
process such data. This limitation applies to both
me and Mr. London. Nevertheless, the nature of
this article demands I attempt it.
Mr. London and I had never met previously. The
circumstances of our meeting and the independent
credibility of one of the other people present
suggested Mr. London was being honest. He
personally had little or nothing to gain by flattering
me with something that I might find interesting or
corroborative of my worldview.
What might this piece of intelligence, if true, suggest
or confirm in respect of the big picture? China
continues to arm itself for the coming gold wars?
Some governments, regardless of their view of
individual rights, understand the critical importance
of having widespread ownership of gold by their
populations? Germany (and Europe) is in a much
tighter financial bind than the markets suspect? The
gold end-game event is closer than we might think?
Does it make sense for China to seek to purchase
gold from any and all governments willing to sell it?
Yes. This allows Beijing to accumulate material
amounts of metal quickly without disturbing golds
dollar price.
Germanys official reserves are in excess of 3,000
tons. Some proportion of that, likely a majority, is
stored on US soil. It is doubtful the US would want
or allow sizable amounts of gold to leave its shores
bound for any foreign government reserve, let alone
Chinas.
But whatever the amount of its gold of which
Germany has direct possession, these bars could be
sold to anyone. What might China be offering?
Cash? Market support, both for the Euro in general
and for efforts to rescue particular weak PIIGS?
Access to Chinese markets for German firms?
Guarantees of military support if Russia threatens
Germany? These and other possibilities come
quickly to mind.
It is logical to expect Europe is being, or will be,
parted from its gold if the fiat system is able to
endure a few years longer. The process is as
inexorable as water finding its lowest available
resting point.
What does it mean for those of us working to re-
establish a proper monetary role for gold? That
China (and India, with its existing massive,
widespread popular ownership of gold) may indeed
become a new global superpower just not for the
reasons some mainstream commentators think. And
this may not be the kind of triumph for gold we
were seeking.
Publius
Ceci n'est pas une pipe
Protagonists: a royal counsellor, an opportunist, a mint
assayer and one Prince (Franois d'Anjou).
Place: France and England
Date: 1568-1572
Isn't it amazing that wild birds keep going about
their daily routine even while Wall Street comes
crashing down and ordinary folk are trying to get
briefed on what is left of their pension dreams?
Nature has its order and man-made constructions
have theirs. Yet for as long as people have been
spontaneously forming structured communities,
3

people had to respond to challenges and adversities.
And not all of them are natural disasters like
hurricanes.
One such challenge in economic theory seems to be
the issue of inflation. The level of scientific
knowledge about inflation today is abominable.
4

Even on the definition there is no consensus. And it
is an old sore. One of the most striking texts ever
produced about inflation is from the hand of Jean
Cherruyt de Malestroit, counsellor for the Prince
d'Anjou.
5
Against a backdrop of religious strife
between Catholics and Hugenots, the Prince had
ordered an inquiry into the causes and solutions for
France's financial crisis. De Malestroit pointed out that
prices in France had in reality not gone up, if
calculated in silver by weight and fineness. It was the
unit of account, the imaginary livre tournois, that had
been changed by royal decree so that ratios to actual
coins (also debased) were altered, he said.
De Malestroit was shrewd enough not to blame the
French elites, debtors by all accounts, trying to pay
back creditors with devalued specie. In fact, he
cleverly pointed out that everyone in the kingdom
suffered. After all, there was a religious war going on
with brigands torching the countryside. To which a
contemporary lawyer named Jean Bodin, respectfully
submitted that it must be the abundance of new
precious metal that has entered France in the past
three hundred years, that was the principle cause of
the increased cost of living.
6
He pointed the finger to
monopolists and greedy traders just as well. Both

3
R.L. Carneiro, A Theory of the Origin of State, Science, vol 169,
1970, pp 733-738. There is a remarkeable resemblence between
this theory and Carl Mengers' view on State formation: see also
Y. Ikeda, 2008.
4
e.g. M.M.G. Faze & C.K. Folkertsma, Measuring Inflation: An
attempt to operationalise Carl Menger's Concept of the Inner Value of
Money, 1997, De Nederlandse Bank, issue nr. 8. The paper is
sabotaged from the beginning, as the authors start with a
monetary approach, which Menger specifically did not subscribe!
5
J.C. de Malestroit, Les Paradoxes di Seigneur de Malestroit,
Coinseiller du Roy, Paris, 1568
6
Bodin probably copied the idea from the first monetarist
known: Martin de Azpilcueta, a Spanish Canon Law professor
(1491-1586) and co-founder of the School of Salamanca.
answers got the Prince of the hook. That must have
pleased him. Nevertheless, the French Prince did
bring about a monetary reform, such as de Malestroit
suggested and abandonned the livre tournois in favour
of the cu, a new unit of account as well as banning
most foreign coins. Bodin later wrote an immensely
popular political theory defending the Sovereignty of
the State, which contained a sentence to the effect
that the Sovereign Prince is only accountable to God.
7

Naturally, it got him almost universal recognition
from princes and kings all over Europe at that time.
8

However, a third person, this time an English mint
assayer, by the name of Gerard de Malynes, asked
Bodin, the new Quantity Theorist, respectfully but in
a Socratic way nevertheless whether he believed that
taking away the excess money would make prices
come down? To the best of my knowledge, Gerard
de Malynes was the first person to question the
Quantity Theory of Money regarding inflation. He
referred correctly to the changed terms of trade after
debasement as the culprit.
9
As an aside, what all
parties seemingly forgot, was that fresh money does
not necessarily have to be spent. It may just as well
be saved. Or invested. There is not enough evidence
that too much money is chasing too few goods or that too
much money or credit is created over and above demand for
money.
The accomplishments of Jean Bodin are nothing
short of amazing: he got the French King of the
hook for debasing the currency and devised a
'scientific theory' of the State making the King only

7
Jean Bodin, Les Six Livres de la Rpublique, 1576 translated from
Latin to English by Richard Knolles (The Six Bookes of a
Commonweale) 1606.
8
Later, in the Treaties of Westphalia of 1648 ending the Eighty
years war between Spain and The Netherlands and the Thirty
years war that had ravished the Holy Roman Empire, this
principle was solemly ratified. However, to put things in the
correct perspective, the Treaties of Westphalia determined
sovereignty through treaties and can be correctly referred to as
the beginnings of international law and the end of Mediaeval
Sovereignty as described by Marsilius of Padua and Bartolus of
Saxoferrato. The Westphalian Treaties, in its turn were greatly
undermined themselves by United Nations Resolution
A/RES/63/308 and 1674 S/RES/1674 (2006) where the
Responsibility to Protect is discussed, making it possible for
other states to protect citizens from alledged atrocities across
their borders.
9
Gerard de Malynes, Canker of England's Commonwealth, (1601)
and England's View in the Unmasking of Two Paradoxes (1603)
accountable to God which made him so well
accepted in Europe that his achievement is akin
today to receiving a Nobel Prize of some sorts. His
ideas made it into the Treaties of Westphalen (1648)
where they stood for nearly 400 years until the
United Nations managed to water down his ideas
about Sovereignty of the State.
10
He even managed
to bedazzle serious scientists such as Mises, five
centuries later. Menger never fell for this postulate of
the Quantity Theory.
11
It is therefore even more
surreal to find self-proclaimed enlightened
economists like the American Austrians paying
homage to this unscientific relic.
The Quantity "Theory", despite being proven a post
hoc ergo propter hoc fallacy untold times
12
is hardly a
theory. It is merely a linear approximation tool
applicable in specific situations only, but not in a
highly non-linear outcome-based human-action-
world. Yet it is still doggedly invoked in situations
where it is inapplicable, but well received by debtors
and their paid stooges. It is comparable to the story
of the farmer who maintained he had the most
powerful rooster in the world, simply because every
time the rooster crowed, the sun came up
It is incomprehensible to find today's scholars still
defending the indefensible,
13
preserving the stubborn
idea that inflation has a monetary base. If it were
true, then one has to answer this: why is the most
prolific currency in the world, the US Dollar, not the
least valuable? Find out in the sequel.
Moral of the story: Power looks after itself. Hurray
for the Quantity "Theory". Inflation is not what it
looks like. Ceci n'est pas une pipe.
14

Peter van Coppenolle

10
See footnote 15.
11
C. Menger, Gesammelte Werke, Vol. 4, Chapter X and XI
12
This is not the place to repeat all of them. A good read is
Benjamin Anderson, The Value of Money, 1917.
13
For an indefensible defense of the Quantity Theory, see John
H. Munro, The Monetary Origins of the "Price Revolutions" 2003
14
Painting by Ren Margritte, surrealist, 1898-1967.
The Slippery Slope
With about 1.6 Billion US dollars of customers
money disappearing in the MF global bankruptcy,
you may be wondering what is going on and
exactly where is the world heading. These are good
questions, but to answer then we need more than a
sound bite we need to examine a particular bit of
world history the history of the destruction of the
Classical Gold Standard.
The Classical Gold Standard as practiced during the
nineteenth century, while less than perfect, was a
thousand times better than the system of fraud and
theft that we are seemingly stuck with. The Classical
Gold Standard helped to propel the world economy
to unimagined heights, bringing unprecedented
prosperity to millions, and helped to make the
nineteenth century the most peaceful century
mankind has ever experienced. It has taken the best
part of a century to destroy this Gold Standard.
The most devastating blow but not the first was
delivered on the eve of WWI the Great War. As
war clouds gathered, the future combatants called
their loans, to fill their vaults with Gold but even
vaults bulging with Gold would not be enough to
fund a protracted war. Indeed, pundits of the day
were predicting that any possible war could not last
more than a few months at worst, as the combatants
would run out of money.
All governments knew this and their choices were
limited; raise funds through war taxes, borrow by
issuing war bonds, or what? At the time, Gold was
money, and bank notes were clearly recognized as
just that; notes, that is IOUs redeemable into Gold
money. They came up with a truly insidious plan.
New legal tender laws were passed, decreeing that
henceforth the IOUs themselves were money, legal
for all payments. Think about this for a minute.
Gold is a present good, just like an apple, or sugar,
or oil, or any other real, physical commodity with
the only difference being that Gold is a monetary
commodity, not a commodity that is directly
consumed. Imagine passing a law that decrees that
an IOU for an apple, an IOU for sugar, or an IOU
for oil is now the apple itself, or the sugar itself, or
the oil itself. Is this insane or what?
Insane or not, the laws were passed, first in France
then quickly thereafter in England and Germany. To
help mislead people of this grand larceny, Gold
remained in circulation along with the new Bank
Notes, the so called Legal Tender paper but not
for long.
To top this off, Real Bill circulation was shut down.
There is no space here to give justice to the vital
importance to the circulation of Real Bills to the
viability of a Gold Standard, but appreciate that
multilateral trade underpinned by Real Bills
circulation is so efficient and productive that total
volume of world trade before WWI was not
surpassed until the nineteen seventies, nearly sixty
five years later, three human generations; this in spite
of enormous growth in the world economy. Simply,
Real Bills are the commercial clearing system of the
Gold Standard, and no Gold Standard can possible
survive without a fully developed Bills market.
This double whammy was to prove to be fatal to the
Classical Gold Standard. After the Great War ended,
Britain tried to get back on Gold but without
resuscitating the Real Bills market. Furthermore, the
attempt at going back on Gold was made without
devaluing the Pound to account for the enormous
number of Pound notes printed to finance the war.
Returning to the pre-war ratio was considered highly
deflationary. This is more of a red herring than
anything else, designed to draw attention away from
the real cause; the failure to allow Real ill circulation
to resume.
The effort was doomed to failure, and indeed it did
fail. Great Britain went Off Gold. Soon the Us
followed and to rub salt into the wound, President
Roosevelt confiscated all the Gold held by US
citizens, then a few months later devalued the Dollar
from $22 per once to $35 per ounce.
This was the death knell of the Gold Coin Standard,
the Classical Gold standard of the nineteenth
century. The world retreated to the so called Gold
Bullion standard, where only large entities were
entitled to hold or trade Gold. No ordinary citizen
was allowed to do so. The power of Gold was
concentrated into the hands of an elite minority,
while the large majority had to be content with
irredeemable paper IOU nothing bank notes.
After WWII, the carnage continued. The Bretton
Woods system was brought into play, whereby only
the US Treasury was entitled to hold Gold,
supposedly to back the US Dollar and the US
Dollar was used as a reserve to back local
currencies, such as the British Pound and the French
Franck. Gold was still in the system, but farther and
farther away from the people. The concentration of
Gold, and of monetary power, continued unchecked.
The last nail in the coffin of the Classical Gold
Standard was delivered in nineteen seventy three, by
President Nixon. By closing the Gold window, or
more accurately by reneging on the international
Gold obligations of the US just as Roosevelt had
defaulted on the national Gold obligations of the US
government, the last official link to Gold was cut.
The whole world was now officially off Gold and
on Fiat.
Mind you, WWI was not the first attack on the Gold
Standard by any means. The demonetization of
Silver, the change from a bimetallic standard to a
Gold only standard was such an attack although at
first glance this seems contradictory. After all, should
not removing competition to Gold not make Gold
supreme? The answer is not by any means.
Demonetizing Silver meant that about half the
money in circulation was suddenly removed. This
blow to the monetary system was far more
devastating than the attempt by Britain to return to
Gold at pre-war Pound parity yet the system
survived, although not without unnecessary stress.
The only reason it survived is that Real Bills
circulation was not destroyed when Silver was
demonetized. Real Bills continued to function
unimpaired, fulfilling their role as the clearing system
of the Gold Standard and after a brief deflationary
episode, the Gold standard continued to soldier on.
But this crime of 1873 the year that Silver was
demonetized was by no means the very first blow
to the Gold Standard, the very first blow delivered
against honest money. The first blow came early,
before the Gold Standard was even fully established.
The first blow was a legally sanctioned violation of
money ownership; a violation of property rights.
Judgments were made in British jurisprudence, and
legal precedents set, that money deposited in a bank
account was no longer the property of the depositor,
but somehow became the property of the bank. This
is another incredible farce of law; it is as if the
furniture you take to a warehouse for safe keeping is
deemed to suddenly become the property of the
warehouse!
Of course, once the bank acquires ownership of the
money, IT decides what to do with it like using
demand deposits to buy high yielding long term
bonds the notorious practice of borrowing short
to lend long. As if the warehouse owner decides to
lend out your furniture for his own profit, or trade it
for some other stuff.
This is where the very first cracks appeared, the
vulnerable spot where the shenanigans begin. The
customer is disempowered, and the power over his
money, and the power inherent in his Gold, is
transferred to the banking system. The so called
business cycle, in reality a credit cycle, is put into
motion by the fraudulent credit thus made possible.
If the depositor decides to withdraw his money, the
money is simply not there having been used to
buy a high yielding long term bond and the run on
the bank begins.
So where are we today? The cancer of property
rights invasion that first disturbed the inherent
stability of an unadulterated Gold standard, a Gold
standard where property rights and contract law are
sacrosanct, is metastizing.
First came the perversion of declaring that the Bank
owns and has rights to dispose of deposits as it sees
fit, not as the rightful owner wishes. Next, the
abomination of decreeing that an IOU for
something is the thing itself followed by outlawing
citizens from even holding Gold. and then, taking
Gold completely out of the system.
Today, the speed of slippage down the slippery slope
towards Hades is increasing rapidly. Mf global, the
large international futures clearing house recently
went bankrupt, and about 1.6 Billion dollars of
customer property accounts in the form of futures
contracts from segregated customer accounts
simply disappeared. The furniture you took to the
warehouse for safekeeping was not returned to you
when the warehouse went bankrupt but given to
creditors, along with the warehouse itself. The
creditor in this atrocity was, surprise, a too big to
fail bank, namely J.P Morgan.
Moreover, a US federal judge ruled that yes, the
value disappeared, but there was no criminal intent,
just chaos and so Mr. Cozine, the CEO of JP
Morgan, is innocent. Right. In a world of
computerized audit trails, where every penny
transaction is tracked with Argus eyes,
$1,600,000,000 simply disappears between the
cracks! If you believe that the honorable judge
made a fair and honest judgment, then I suggest you
go out and make a fair and honest offer to buy the
Brooklyn Bridge.
So what is next? Could it be that the rumors of the
upcoming demise of Morgan Stanley are more than
just rumors? Could Morgan Stanley be the next Mf
Global? Is it be possible that after the violation of
property rights to money, after the violation of
property rights to futures contracts the violation of
property rights to equities is next? Would anyone be
shocked if this rumor comes true?
Bah. Before any honest money system becomes
possible, the invasion of property rights must be
reversed. The very first property rights invasion that
started the slide towards Hades must be reversed.
Only then will it become possible to resolve the
Global Financial (Money) Crisis, instead of
constantly making it worse.
Rudy J. Fritsch
Editor in Chief
Greece in Focus: A self-inflicted
drama
Lets forget for a moment that we are all living under
a global Quasimodian monetary system of fiat
money, destined to self-destruct. Lets also assume
that this global system is the result of ingenious
economists research and therein countries compete
with each other in a sort of Olympic Games for the
best economic performance thus achieving elevated
living standards for its people. Some countries fare
better than others, but on what basis?
According to the World Banks ranking of Doing
Business on August 15, 2012, Greece sports a
ranking of 100, positioning itself right after Yemen
(99) and before Papua New Guinea (101)!!
100 is an enviable round number sought after by a
university student maybe but not from a country in
desperate need for investment capital.
Both of Greeces neighbors on the list are
geographically apart thousands of miles, yet the three
neighbors share a common feature: they are capital
repugnant.
If you, dear reader, were the decision maker of
allocating serious capital to a country, would you
consider the 100
th
candidate

or one out of the first 30
say?
In todays international environment, with relatively
free capital flows and intense competition between
nations to attract serious investment projects there is
little hope for Greece to lure serious investments
based on such ranking. As a testimony to this
conclusion I quote the remarks of Arabian investors
recently invited to consider Greece as a destination
for part of their oil generated earnings:
Despite our friendly emotions towards your country, we
cannot proceed with any investments unless we are assured
of a steady tax environment. We are most skeptical of the
fact that your tax-related laws occupy more than eighty
thousand pages, with numerous contradictions, and it has
been modified more than fifteen times during the last two
years.
On another listing, that of Transparency
International which measures the corruption levels
of all countries, in the segment concerning EU and
Western Europe countries, Greece is at the bottom
of the pit right above Bulgaria.
Both of the above mentioned, nothing-to-write-
home-about rankings, are in total symbiotic
agreement between them like hand-and-glove
explaining the dismal financial situation of the
country.
Back to reality forget the aforementioned
assumptions. There is no doubt that the fiat money
Quasimodo is responsible for much of the
imbalances, misery and all sorts of plagues inflicted
upon our technologically superior societies. Yet, it
would be immoderate to impeach Quasimodo for all
and every mischief. Why is Singapore the Gold
Medal winner in the doing business list? They are
equally with the rest of the world under a fiat money
regime. They even print their own version of the
paper stuff. Yet, they have managed to establish the
best country money can buy.
For the recently formed Greek government, the
listing of the country at more favorable levels in the
above mentioned lists should become top priority,
even if that means being unpleasant to its own
political audience and upsetting a Soviet type
privileged officialdom of moochers and looters. But
this is easier said than done.
The noble German Samurai Philipp Rsler has been
accused of hostile comments against Greece only
because he is demanding the obvious: further
financial aid will be offered to Greece provided that
the agreed agenda of structural reforms will be
implemented. So, we go ask our EU partners for
money, we agree on the terms the money will be
provided and when we completely fail to implement
the terms of the deal we accuse the donors or
lenders for lack of solidarity! Have the cake and eat it
as well. During the last two years Philipp Rsler has
been asking politely, begging, screaming, appealing,
soliciting:
- Please, Please, PLIIIIZZZZ, Greek brothers, simplify
your extremely complex legislature framework regarding
investments in alternative energy sources. Make it investor
friendlier and less cumbersome. Many German firms are
eager to harvest the benefits that the sun is handsomely
gifting your country, for mutual benefit.
- No sir. If we do that how can we safeguard the interests of
a long line of experts, regulators, stamp pushers, all sorts
of bureaucrats etc, etc. To hell with the unemployed that
might work for those bloodthirsty German capitalists. Let
them rot in their misery or even better crawl on their knees
in front of us begging for a paltry civil job.
The noble German Samurai has recently admitted
that his patience is almost exhausted. He is
addressing deaf ears. He is about to draw his sharp
Katana and swiftly cut the line of credit which keeps
in artificially supported life the terminally ill patient. I
dont blame him. Do you?
An article frequently comes to my mind that was
written by a prominent financial journalist more than
30 years ago. He explicitly analyzed the reasons
behind a great American investment withdrawal
from Greece at the time. The American company
was the one running the Disneyland amusement
parks. When they first decided to expand to Europe,
their country target of choice was Greece. The
perfect all year round climate and beautiful landscape
were decisive criteria to first approach Greece in
Europe. The discussions/negotiations between
company executives and the local officialdom started
in earnest. After a long period of deliberations it was
obvious that the case was dragging on far too long.
Suddenly, the Americans left Greece and in short
order it was announced that the European
Disneyland would be materialized in France, at an
area near Paris. According to the article, there were
rumors of the Americans being outraged by a) the
number of state employees designated as
responsible for the project and b) irrational
demands of all sorts by all.
Au contraire, the French offered every imaginable
motive of scandalous proportions to attract the
project. And they did. The benefits for France were,
are and will be enormous.
Even worse than the loss of serious investments is
the fact that the few and far between Greeks of the
Atlas top league as per Ayn Rands classification,
have already started migrating to friendlier, much
closer to the top of the Doing Business list
dominions.
Greeks are divided in two camps, the Prometheuss
and the vultures. The latter have been ruling the
country for the past decades under the pretence of
establishing a fair society. In the course, they have
been living an orgy devouring the nation and the
former.
It only takes a golden Katana to exterminate the
vultures and eradicate the hideous fiat money
Quasimodo. Antal Feketes work has provided the
precious weapon. A political Samurai is urgently
wanted to unleash it.
Sorry Ayn. The Greek Atlas did not shrug. He
opted to migrate.
Orpheus

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Issue #21 15 September 2012 1

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