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ANNOUNCING COPERNICAN REVOLUTION

Discovery that the Bretton Woods gold exchange standard was in reality a gargantuan scheme to suppress the free market price of gold, clears the road for Copernican revolution in economic and general history. It allows to reconstruct the true events of history by way of reverse engineering. The primary exploratory tool of this revolution consists of a mere thinking in terms of Gold Standard Index.

Come to think of it, the idea of Gold Standard Index was unwittingly introduced by Senator Elmer Thomas of Oklahoma fifty five years ago.

On July 19, 1945, before the Senate roll-call vote on Bretton Woods "bill" was taken, Senator Thomas offered an amendment to create new coin, a "gold ounce", minted of 480 grains of fine gold with $35 face value. The amendment was defeated on a voice vote, which in senatorial parlando meant that Senator Thomas was shouted down.

The Senate then voted 61 to 16 (the House having voted 345 to 18 already on June 7) to approve the Bretton Woods "bill", and President Truman signed it into "law" on August 4, 1945. We thus have it on good authority that the senators who voted for this "bill" knew what they were doing; they did not do it out of ignorance.

If Senator Thomas' amendment would have been adopted, the "gold ounce" with the face value of $35 would have provided a kind of Gold Standard Index at the very inception of the Bretton Woods regime. When the pegging of the IMF currencies to gold-convertible dollar began in 1947 while domestic fiat dollar already sank to 75 cents in terms of $35 per ounce parity, with "gold ounce" (a Gold Eagle of 1945) around, everyone except brain-dead would have noticed right away that US Treasury was selling taxpayers gold to foreign central banks for $35.00 per ounce when its inflation value was already $46.67 and growing. And the Bretton Woods fraud would have been nipped in the bud.

By rejecting this amendment, the senators who subsequently voted for the Bretton Woods "bill" made it clear enough for the blind to see and for the deaf to hear that they knew what they were voting for.

That so many senators and members of Congress would vote against their conscience and contrary to national interest is one thing (after all, what else is new?), but that nobody in fifty five years was allowed to stand up and tell the truth, is another.

And this is what this revolution is about. It's about telling the truth. All the adverse spin and distraction notwithstanding, this revolution must keep its course, and the falsified history of the 20th century must be rewritten.

Each essay in this series will be confined to very essential points in order to keep the whole presentation as simple as possible.

Some essays may give an impression of aimless wandering in the wilderness, but every segment will be patiently adding new pieces to the mosaic until the overall picture become recognizable. Then, everyone will be amazed how different the history of the 20th century really was, and everyone will be asking how was it possible that no one could see it before.

The knowledge of true history is what separates the governing elite from the governed people. Only by learning their true history can people change their fate and their lot in life. George Orwell managed to put it more concisely than anyone else:

"Who controls the present, controls the past, and who controls the past, controls the future."

The shock that the Bretton Woods gold exchange standard was in reality a scheme to suppress the price of gold, will only be magnified by what is coming.

The scheme to suppress the price of gold was originally devised in the Bank of England at the end of what was then called the Great War of 1914-1918, probably by Montagu Norman, because he happened to be the only Bank of England Governor whose term in the office lasted longer than two years. Twenty two years longer!

Here are the numbers:

Isaac Newton's mint price of gold was 77s 10.5d per standard ounce (11/12 fine), or 934.5 pence. Translated into fine ounces, that price was 1019.45 pence or 84s 11.45d. And that was pound sterling's gold parity in July 1914, the last month the gold standard reigned supreme all over the world.

On February 5, 1920, the London Gold Fixing was 127s 4d, or 1528 pence per fine ounce.

When we divide gold standard parity of 1019.45 pence by February 5, 1920 fixing of 1528 pence we will get 0.667. This would indicate that pound sterling of February 5, 1920, was worth 66.7 percent of the sterling of July 1914. But was it really?

The British Cost of Living Index stood in February 1920 at 230 in terms of 100 in July 1914. This means that British Gold Standard Index in February 1920 stood at 2344.74d or 195s 4.74d. Which means that at February 5, 1920 fixing of 1528 pence (127s 4d) the real price of gold was suppressed by 34.8 percent.

Where this 127s 4d fixing came from?

From sterling traded at $3.24 and 5/8 in New York the day before. When we divide sterling-dollar rate of exchange $3.24625 by sterling-dollar parity of July 1914 $4.86656 we will get 0.667, and by dividing 1019.45d by 0.667 we will get 1528 pence, which translates into 127s 4d.

With British cost of living index at 100 in July 1914 and at 230 in February 1920, the February 1920 pound sterling was worth $2.1158956 in dollars of July 1914. But with US consumer price index at 100 in July 1914 and 195 in February 1920, the February 1920 pound sterling was worth $4.1259965 in dollars of February 1920.

When sterling-dollar purchasing power parity was $4.13 in February 1920, where did $3.24625 rate came from?

At the time of inflationary boom, bankers, who make the foreign exchange market, are always far ahead of the game in order not to loose money on forward transactions in foreign trade. In view of this, our question should be rephrased to read: Why the Bank of England gave the marching orders to J.P. Morgan in New York to stop the sterling's decline against dollar at $3.24625?

The wholesale indices gave the bankers clear idea, that as a result of the wartime inflation, prices doubled in America and tripled in Britain. And the retail price indices were not at that level yet because of wartime controls that were being dismantled only recently. So they decided to stop the retail prices and roll them back before they reached the point of full adjustment. With US dollar's purchasing power reduced to one-half and that of British pound to one-third, pound's net decline against dollar was only one-third, hence $3.24 was pinpointed as the line in sand to be defended. From this line, prices in England needed to be collapsed only by one-third to restore the prewar rate of exchange of $4.86656, and if they were contained at the earlier stage of adjustment they would need to be collapsed even less than one-third. Drastic increase of interest rates cut off the steam from the British boom, but it would take nine months for the retail prices to reach their high water mark at 276 in November 1920, 24 points below the expected 300 percent.

The process of deflating prices in England was complicated by parallel deflationary policy in the United States; still, the sterling closed the gap with dollar with only 36.6 percent reduction in cost of living index from 276 in November 1920 to 175 in April 1925, when the gold standard and prewar gold parity of the British pound were proclaimed restored. But were they really?

What was introduced with great fanfare by the British Chancellor of the Exchequer, Winston Churchill, as restoration of the prewar gold standard was not a gold standard at all; it was Mr Churchill's "gold standard", identical to Bretton Woods "gold standard" with only one difference: in America, the Bretton Woods "gold standard" was maintained by making it a criminal offense for US nationals to own or posses monetary gold; in England, Mr Churchill's "gold standard" was maintained by making gold available for purchase in bricks of 400 fine ounces only, which made gold-convertible pound sterling inaccessible for general public.

With American consumer price index at 172 in April 1925 and British cost of living index at 175, the pre war rate of exchange $4.86656 was OK.

But the gold parity was entirely different matter!

With British cost of living index at 175 in April 1925, British Gold Standard Index for that month was 1784 pence. And with the official prewar price at 1019.45 pence, the real price of gold was suppressed by 42.9 percent.

What made this suppression possible?

The simple fact that purchasing power of US dollar was lower by similar percentage, while gold coinage of prewar weight was still in circulation. In effect, United States had two kinds of dollars in April 1925: gold dollar worth 100 cents, and Federal Reserve paper dollar worth 58 cents.

The English gentlemen conformed sterling rate of exchange to the Federal Reserve dollar, worth 58 cents, and then they turned around and said that because sterling-dollar rate of exchange was the same as it was in July 1914, and the dollar gold coinage was also the same, so the sterling's gold parity was the same as it was in July 1914, namely 1019.45 pence per fine ounce.

Churchill's options were the same as if he got too much change from his grocer. He could say, "Excuse me, but you gave me too much change", or he could pretend he never noticed the difference. He chose the second option.

Can we blame him for making this choice. What would happen if Mr Churchill would write a letter to his US counterpart, who was already praised as the greatest Treasury Secretary since Alexander Hamilton, in which he would say, "Excuse me Mr Mellon, but you re selling taxpayers gold for 58 cents on a dollar"?

By not writing such a letter, Mr Churchill in effect ratified the situation where both, Britain and America had two-tier currencies: US dollar, worth 58 cents at home and 100 cents abroad; British pound, worth 11s 5d at home and 20s abroad. As a result, both countries had their exports impaired and imports enhanced.

The primary beneficiaries of this prototype Bretton Woods situation were Germany, where gold standard currency was rebuilt at the prewar parity after old currency was destroyed by hyperinflation of 1923, and France, whose franc's gold parity was properly reduced by five to conform to its actual purchasing power parity. Both Germany and France were the intended beneficiaries: the purpose of subsidizing Germany was to retool her industries in preparation for gargantuan collision with Soviet Russia that was being carefully planned in London after German-Russian treaty of Rapallo was signed on Easter Sunday 1922, and the purpose of subsidizing France was to bribe her to go along with Britain's Locarno policy.

This gold manipulation of the 1920s will be properly presented in one of the incoming essays. Here, it is signaled only as an intermediate point of reference, in order to facilitate the comprehension of the introductory essays, which could easily be misinterpreted unless the reader keeps in mind whither the story goes.

To summarize this point of reference in a manner everyone will remember, it will suffice to say that every single London Gold Fixing between 1919 and 1925 was on its face patently false, for every price so fixed was way below the British Gold Standard Index.

The follow up essay to "Euro and Gold Price Manipulation" will be entitled "A Tale of Wine and Water", and will explain the origins of the Federal Reserve System.

J.N. Tlaga
tlaga@shadow.net

Copyright 2000 J.N. Tlaga

December 29, 2000