Gold Wars revisited

Oct 3, 2012·Felix Moreno de la Cova Solis

The following is an essay version of a speech given by Spanish trader and economist Felix Moreno de la Cova, at a recent event in Madrid to mark the publication of....

 the Spanish version of Gold Wars by the late Ferdinand Lips. GoldMoney would like to thank the Asociación Española de Metales Preciosos and Barbara Lips of the Lips Institute for their work on this project.

The sadly departed Ferdinand Lips left us an astounding legacy with this jewel of a book. It sends a powerful message that our political and banking elite would do well to remember, and is even more relevant now in light of current events.

Lips was a private Swiss banker and a leading gold mining authority. He was also a keen historian and sound money advocate – as best illustrated in Gold Wars, first published a decade ago. His direct contact with men at the centre of the monetary system like John Connally and John Exter meant that he knew first hand what was going on as the war on gold’s use as money progressed. His brave defence of Switzerland’s sound (gold) money tradition against the huge pressure that was brought to bear on his country is testament to both his intellectual courage and patriotism.

Gold Wars is the story of the rise of fiat currency and the demise of gold-backed money over the 20th century: from the collapse of the Classical Gold Standard at the outbreak of the First World War in 1914, through the protectionism and trade wars of the 1930s, to the rise of the Bretton Woods system postwar, and the failure of the London Gold Pool and Nixon’s “gold shock” in 1971. He examines the determined monetary war – or gold war – the globe’s financial elite fought against Switzerland during the 1990s, and how his country was sold out by its politicians and high financiers – a process Lips calls “the betrayal of Switzerland”. Readers may find it fitting that Lips ends his narrative in 2001, at the point of maximum pessimism in the gold market, but which is now clearly visible as the year in which the metal’s latest and perhaps greatest bull market got underway.

Ferdinand Lips knew that those who ignore history are condemned to repeat it. And here we are today – again faced with governments printing money on an epic scale. Only this time more or less the entire world is in on the act. Think of it as John Law’s Mississippi Bubble, as seen in early 18th century France, on steroids.

Lips’s message is not just about gold, because the real virtue of gold was both how it became money – freely and voluntarily chosen by the market and the people – and also about the role it played in preserving liberty. Without a stable and independent unit of currency, there can be no property rights, and without these, savings and investment are impossible. Capital accumulation is thus impaired if not totally prohibited, so slowing human progress to a crawl (if not total reversal). There can be no free market without honest money, just as there can be no trade without honest weights and measures – something that Juan de Mariana made very clear almost 500 years ago. And without a free market, human liberty is a mere concept. To exercise our liberty in a material world we need private ownership of the means of production so that individuals can control their own lives.

Applying these lessons to modern day Europe and the intellectual battle over the future of the euro, and it’s possible to say that the few virtues the euro still has can be abolished at the stroke of a pen by legislators and bureaucrats. Whether the euro survives a few more years or not is irrelevant: it will always be blemished by the original sin of being fiat money, imposed by decree instead of chosen by the people. Just as it was imposed by decree it will be manipulated by decree and always to serve the few at the expense of the many.

Gold is independent money. It cannot be created out of thin air, and even when it is outlawed, our rulers can never totally control it.

However, when fiat money comes crashing down and people anxiously demand a solution, there will be many different paths. There are those that aspire to one world currency managed by a world central bank, while others will hope for a return to monetary nationalism. Free market money, or sound money, will not be chosen unless the people understand its virtues and remember its history. Educating people so that they make the right choice is the most important thing we can do today. That is why Gold Wars is so important. That is why we owe Ferdinand Lips such a debt of gratitude and should pray that his words reach the widest possible audience.

It is not just a philosophical matter: after the collapse of the Continental Dollar in America, the USA’s Founding Fathers learnt their lesson and enshrined gold and silver as money in the US Constitution, setting the stage for America’s development into the most prosperous and economically free country in the world by the early 20th century. Contrast this with 18th century France. After John Law's catastrophic experiment with fiat currency, France’s post-Revolution rulers again tried forcing fiat currency on the people – the ill fated assignats – leading to wars, terror, the loss of freedom and bloodshed throughout Europe.

The choice will be ours.

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